**Exhibit 10.17**

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**DAKOTA GROWERS PASTA COMPANY, INC.2003 STOCK OPTION PLAN**

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1.             Purpose.  The purpose of the Dakota Growers PastaCompany, Inc. 2003 Stock Option Plan is to provide a continuing, long-termincentive to selected eligible officers, directors and key employees, vendorsor consultants of Dakota Growers Pasta Company, Inc. (“Dakota Growers”) and ofany subsidiary company of Dakota Growers, as herein defined; to provide a meansof rewarding outstanding performance; and to enable Dakota Growers to maintaina competitive position to attract and retain key personnel necessary forcontinued growth and profitability. Options granted under the Plan may be incentive stock options (asdefined under Section 422 of the Code) or non-qualified stock options, as determinedby the Administrator at the time of grant of an option and subject to theapplicable provisions of Section 422 of the Code, as amended, and theregulations promulgated thereunder.

 

2.             Definitions.  Thefollowing words and phrases as used herein shall have the meanings set forthbelow:

 

a.             “Board” shall mean the Board of Directorsof Dakota Growers as it may be comprised from time to time.

 

b.             “Change in Control” shall mean any of thefollowing

 

(1)           any“person” (as such term is used in Sections 13(d) and 14(d) of the SecuritiesExchange Act of 1934) becomes a “beneficial owner” (as defined in Rule 13d-3under the Exchange Act), directly or indirectly, of securities of DakotaGrowers representing 50% or more of the combined voting power of Dakota Growers’then outstanding securities; or

 

(2)           abusiness combination, following which shareholders of Dakota Growers do notcontinue to own at least 50% of the voting power of the resulting entity or themembers of Dakota Growers’ Board of Directors prior to the transaction do notconstitute a majority of the resulting entity’s Board of Directors; or

 

(3)           a liquidation, dissolution or sale of all orsubstantially all of the assets of Dakota Growers, and immediately thereafter,there is no substantial continuity of ownership with respect to Dakota Growersand the entity to which such assets have been transferred.

 

c.             “Code” shall mean the Internal RevenueCode of 1986, as amended from time to time or any successor statute.

 

d.             “Committee” shall mean a committee of theBoard as may be designated by the Board, from time to time, for the purpose ofadministering this plan as contemplated by Article 4 hereof.  If at any time no Committee shall be inoffice, then the functions of the Committee specified in the Plan shall beexercised by the Board.

 

e.             “Common Stock” shall mean the commonstock, $.01 par value, of Dakota Growers.

 

f.              “Consultant” means any person, includingan advisor, engaged by Dakota Growers or any Parent Corporation or Subsidiaryof Dakota Growers to render services, who is not an employee of Dakota Growersor any Subsidiary of Corporation.

 

g.             “Non-Employee Directors” shall mean a“Non-Employee Director” within the meaning of Rule 16b-3(b)(3) under theSecurities Exchange Act, as amended, or any successor rule.

 

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h.             “Fair Market Value” of any security onany given date shall be determined by the Committee as follows:  (a) if the security is listed for trading onone or more national securities exchanges, or is traded on the Nasdaq NationalMarket System or the Nasdaq Small Cap Market, the last reported sales price onthe principal such exchange or Nasdaq System on the date in question, or ifsuch security shall not have been traded on such principal exchange on suchdate, the last reported sales price on such principal exchange or the NasdaqSystem on the first day prior thereto on which such security was so traded; or(b) if the security is not listed for trading on a national securities exchangeor the Nasdaq System, but is traded in the over-the-counter market, includingthe Nasdaq OTC Bulletin Board System, closing bid price for such security onthe date in question, or if there is no such bid price for such security onsuch date, the closing bid price on the first day prior thereto on which suchprice existed; or (c) if neither (a) nor (b) is applicable, by any means deemedfair and reasonable by the Committee, which determination shall be final andbinding on all parties.

 

i.              “Incentive Stock Option” shall mean anystock option granted pursuant to this Plan as an “incentive stock option”within the meaning of Section 422 of the Code.

 

j.              “Non-Qualified Stock Option” shall meanany stock option granted pursuant to this Plan that is not an Incentive StockOption.

 

k.             “Option” shall mean any stock optiongranted pursuant to this Plan, whether an Incentive Stock Option or aNon-Qualified Stock Option.

 

l.              “Optionee” shall mean any person who isthe holder of an Option granted pursuant to this Plan.

 

m.            “Outside Director” shall mean a directorwho (a) is not a current employee of Dakota Growers or any member of anaffiliated group which includes Dakota Growers; (b) is not a former employee ofDakota Growers who receives compensation for prior services (other thanbenefits under a tax-qualified retirement plan) during the taxable year; (c)has not been an officer of Dakota Growers; (d) does not receive remunerationfrom Dakota Growers, either directly or indirectly, in any capacity other thanas a director, except as otherwise permitted under Code Section 162(m) andregulations thereunder.  For thispurpose, remuneration includes any payment in exchange for goods orservices.  This definition shall befurther governed by the provisions of Code Section 162(m) and regulationspromulgated thereunder.

 

n.             “Plan” shall mean this 2003 Stock OptionPlan of Dakota Growers.

 

o.             “Subsidiary” shall mean any corporation(other than Dakota Growers) which at the time qualifies as a subsidiary ofDakota Growers under Section 425(f) of the Code.

 

p.             “Tax Date” shall mean the date on whichthe amount of tax to be withheld is determined under the Code.

 

q.             “Vendor” shall mean any entity thatprovides goods or services, or any combination thereof, to Dakota Growers orany Subsidiary of Corporation.

 

3.             Shares AvailableUnder Plan.  The number of shareswhich may be issued pursuant to Options granted under this Plan shall notexceed 500,000 shares of the Common Stock of Dakota Growers; provided, however,that shares which become available as a result of canceled, unexercised, lapsedor terminated Options granted under this Plan shall be available for issuancepursuant to Options subsequently granted under this Plan under a stock forstock exercise of a stock option or the withholding of stock for the payment oftaxes, only the net number of shares issued to the optionee shall be used tocalculate the number of shares remaining for distribution under the Plan.  The shares issued upon exercise of Optionsgranted under this Plan may be authorized and unissued shares or sharespreviously acquired or to be acquired by Dakota Growers.

 

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4.             Administration.

 

4.1.          ThePlan will be administered by a Committee of at least two directors, all of whomshall be Outside Directors and Non-Employee Directors, or, if a Committee isnot appointed, by the Board.  TheCommittee may be the Compensation Committee or a subcommittee of theCompensation Committee of the Board.

 

4.2.          TheCommittee will have plenary authority, subject to provisions of the Plan, todetermine when and to whom Options will be granted, the term of each Option,the number of shares covered by it, the participation by the Optionee in otherplans, and any other terms or conditions of each Option.  The Committee shall determine with respectto each grant of an Option whether a participant shall receive an IncentiveStock Option or a Non-Qualified Stock Option. The number of shares, the term and the other terms and conditions of aparticular kind of Option need not be the same, even as to Options granted atthe same time.  The Committee’srecommendations regarding Option grants and terms and conditions thereof willbe conclusive.

 

4.3.          TheCommittee will have the sole responsibility for construing and interpreting thePlan, for establishing and amending any rules and regulations as it deemsnecessary or desirable for the proper administration of the Plan, and forresolving all questions arising under the Plan.  Any decision or action taken by the Committee arising out of orabout the construction, administration, interpretation and effect of the Planand of its rules and regulations will, to the extent permitted by law, bewithin its absolute discretion, except as otherwise specifically providedherein, and will be conclusive and binding on all Optionees, all successors,and any other person, whether that person is claiming under or through anyOptionee or otherwise.

 

4.4.          TheCommittee will designate one of its members as chairman.  It will hold its meetings at the times andplaces as it may determine.  A majorityof its members will constitute a quorum, and all determinations of theCommittee will be made by a majority of its members.  Any determination reduced to writing and signed by all memberswill be fully as effective as if it had been made by a majority vote at ameeting duly called and held.  TheCommittee may appoint a secretary, who need not be a member of the Committee,and may make such rules and regulations for the conduct of its business as itmay deem advisable.

 

4.5.          Nomember of the Committee will be liable, in the absence of bad faith, for anyact or omission with respect to his services on the Committee.  Service on the Committee will constituteservice as a member of the Board, so that the members of the Committee will beentitled to indemnification and reimbursement as Board members pursuant to itsBylaws.

 

4.6.          TheCommittee will regularly inform the Board as to its actions with respect to allOptions granted under the Plan and the terms and conditions and any suchOptions in a manner, at any times, and in any form as the Board may reasonablyrequest.

 

4.7.          Anyother provision of the Plan to the contrary notwithstanding, the Committee isauthorized to take such action as it, in its discretion, may deem necessary oradvisable and fair and equitable to Optionees in the event of:  a Change in Control of Dakota Growers; atender, exchange or similar offer for all or any part of the Common Stock madeby any entity, person or group (other than Dakota Growers, any Subsidiary ofDakota Growers or any savings, pension or other benefit plan for the benefit ofemployees of Dakota Growers or its Subsidiaries); a merger of Dakota Growersinto, a consolidation of Dakota Growers with, or an acquisition of DakotaGrowers by another corporation; or a sale or transfer of all or substantiallyall of Dakota Growers’ assets.  Suchaction, in the Committee’s discretion, may include (but shall not be deemed limitedto):  establishing, amending or waivingthe forms, terms, conditions or duration of Options so as to provide forearlier, later, extended or additional terms for exercise of the whole, or anyinstallment, thereof; alternate forms of payment; or other modifications.  The Committee may take any such actionspursuant to this Section 4.7 by adopting rules or regulations of generalapplicability to all Optionees, or to certain categories of Optionees; byamending or waiving terms

 

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and conditionsin stock option agreements; or by taking action with respect to individualOptionees.  The Committee may take anysuch actions before or after the public announcement of any such Change inControl, tender offer, exchange offer, merger, consolidation, acquisition orsale or transfer of assets.

 

5.             Participants.

 

5.1.          Participationin this Plan shall be limited to officers, employees or Consultants, either ofDakota Growers or of a Subsidiary, and to all Directors of the Company.

 

5.2.          Subjectto other provisions of this Plan, Options may be granted to the sameparticipants on more than one occasion.

 

5.3.          TheCommittee’s determination under the Plan including, without limitation,determination of the persons to receive Options, the form, amount and type of suchOptions, and the terms and provisions of Options, need not be uniform and maybe made selectively among otherwise eligible participants, whether or not theparticipants are similarly situated.

 

6.             Terms and Conditions.

 

6.1.          EachOption granted under the Plan shall be evidenced by a written agreement, whichshall be subject to the provisions of this Plan and to such other terms andconditions as Dakota Growers may deem appropriate.

 

6.2.          EachOption agreement shall specify the period for which the Option thereunder isgranted (which in no event shall exceed ten years from the date of the grantfor any Option granted pursuant to Section 6.3(a) hereof, five years from thedate of grant for any Option granted pursuant to 6.3(b) hereof and ten yearsand one day from the date of grant for any Option designated by the Committeeas a Non-Qualified Stock Option) and shall provide that the Option shall expireat the end of such period; provided, however, the term of each Option shall besubject to the power of the Committee, among other things, to accelerate orotherwise adjust the terms for exercise of Options pursuant to Section 4.7hereof in the event of the occurrence of any of the events set forth therein.

 

6.3.          Theexercise price per share shall be determined by the Committee at the time anyOption is granted; provided, however, that the exercise price per sharepurchasable under an Incentive Stock Option, shall be determined as follows:

 

(a)           Foremployees who do not own stock possessing more than ten percent (10%) of thetotal combined voting power of all classes of stock of Dakota Growers or of anySubsidiary, the Incentive Stock Option exercise price per share shall not beless than one hundred percent (100%) of Fair Market Value of the Common Stockof Dakota Growers on the date the Option is granted, as determined by theCommittee.

 

(b)           Foremployees who own stock possessing more than ten percent (10%) of the totalcombined voting power of all classes of stock of Dakota Growers or of anySubsidiary, the Incentive Stock Option exercise price per share shall not beless than one hundred ten percent (110%) of the Fair Market Value of the CommonStock of Dakota Growers on the date the Option is granted, as determined by theCommittee.

 

6.4.          Theaggregate Fair Market Value (determined as of the time the Option is granted)of the Common Stock with respect to which an Incentive Stock Option under thisPlan or any other plan of Dakota Growers or its Subsidiaries is exercisable forthe first time by an Optionee during any calendar year shall not exceed$100,000.

 

6.5.          AnOption shall be exercisable at such time or times, and with respect to suchminimum number of shares, as may be determined by Dakota Growers at the time ofthe grant.  The Option

 

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agreement mayrequire, if so determined by Dakota Growers, that no part of the Option may beexercised until the Optionee shall have remained in the employ of DakotaGrowers or of a Subsidiary for such period after the date of the Option asDakota Growers may specify. Notwithstanding the foregoing and subject to the discretionaryacceleration rights of the Committee, an Option granted to a director, officeror 10% shareholders of Dakota Growers shall not be exercisable for a period ofsix (6) months unless the Option has been approved by a majority ofdisinterested members of the Board, the Committee or the shareholders of DakotaGrowers.

 

6.6.          DakotaGrowers may prescribe the form of legend which shall be affixed to the stockcertificate representing shares to be issued and the shares shall be subject tothe provisions of any repurchase agreement or other agreement restricting thesale or transfer thereof.  Suchagreements or restrictions shall be noted on the certificate representing theshares to be issued.

 

7.             Exercise of Option.

 

7.1.          Eachexercise of an Option granted hereunder, whether in whole or in part, shall beby written notice thereof, delivered to the Secretary of Dakota Growers (orsuch other person as he may designate). The notice shall state the number of shares with respect to which theOptions are being exercised and shall be accompanied by payment in full for thenumber of shares so designated.  Sharesshall be registered in the name of the Optionee unless the Optionee otherwisedirects in his or her notice of election.

 

7.2.          Paymentshall be made to Dakota Growers either (i) in cash, including certified check,bank draft or money order, (ii) at the discretion of Dakota Growers, bydelivering Common Stock of Dakota Growers already owned by the participant andheld by such participant for at least 6 months; (iii) if the Option is not anIncentive Stock Option, at the discretion of Dakota Growers, by deduction fromthe number of shares to be delivered upon exercise of the Option a number ofshares, the aggregate Fair Market Value of which, as of the same date theExercise Price is determined, shall equal the exercise price, or a combinationof (i), (ii) and (iii).  With respect to(ii) the Fair Market Value of stock so delivered shall be determined as of thedate immediately preceding the date of exercise.

 

7.3.          Uponnotification of the amount due and prior to, or concurrently with, the deliveryto the Optionee of a certificate representing any shares purchased pursuant tothe exercise of an Option, the Optionee shall promptly pay to Dakota Growersany amount necessary to satisfy applicable federal, state or local withholdingtax requirements.

 

7.4.          Ifthe terms of an Option so permit, an Optionee, other than a member of theCommittee, may elect by written notice to the Secretary of Dakota Growers (orsuch other person as he may designate), to satisfy the withholding taxrequirements associated with the exercise of an Option by authorizing DakotaGrowers to retain from the number of shares of Common Stock that wouldotherwise be deliverable to the Optionee that number of shares having anaggregate Fair Market Value on the Tax Date equal to the tax payable by theOptionee under Section 7.3.  Any suchelection shall be in accordance with, and subject to, applicable tax andsecurities laws, and regulations and rulings and in the event shares arewithheld, the amount withheld may not exceed the minimum required federal,state and FICA withholding amounts. Where shares are transferred to an Optionee prior to the Tax Date, theOptionee shall agree in any such election to surrender that number of shareshaving an aggregate Fair Market Value on the Tax Date equal to the tax payableby the Optionee under Section 7.3.  Inaddition, any election to have shares withheld pursuant to this Section 7.4will be irrevocable by the Optionee and will in any event be subject to thedisapproval of the Committee.

 

8.             Adjustments of Option Stock. In case the shares issuable upon exercise of any Option granted underthe Plan at any time outstanding shall be subdivided into a greater or combinedinto a lesser number of shares (whether with or without par value), the numberof shares purchasable upon exercise of such Option immediately prior theretoshall be adjusted so that the Optionee shall be entitled to receive a number ofshares which he or she

 

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would have ownedor have been entitled to receive after the happening of such event had such Optionbeen exercised immediately prior to the happening of such subdivision orcombination or any record date with respect thereto.  An adjustment made pursuant to this paragraph shall becomeeffective immediately after the effective date of such subdivision orcombination retroactive to the record date, if any, for such subdivision orcombination.  The Option price (as suchamount may have theretofore been adjusted pursuant to the provisions hereof)shall be adjusted by multiplying the Option price immediately prior to theadjustment of the number of shares purchasable under the Option by a fraction,of which the numerator shall be the number of shares purchasable upon theexercise of the Option immediately prior to such adjustment, and of which thedenominator shall be the number of shares so purchasable immediatelythereafter.  Substituted shares of stockshall be deemed shares under Section 3 of the Plan.

 

9.             Assignments.  Any Optiongranted under this Plan shall be exercisable only by the Optionee to whom grantedduring his or her lifetime and shall not be assignable or transferableotherwise than by will or by the laws of descent and distribution.    Notwithstanding the foregoing, the Boardor the Committee may, in its discretion, determine that an Option may beexercised by a person other than the Optionee and that an Option may betransferable based on the tax and federal securities law considerations then ineffect for such Options.

 

10.           Severance; Death; Disability. An Option shall terminate, and no rights thereunder may be exercised, ifthe person to whom it is granted ceases to be employed by Dakota Growers or bya Subsidiary except that:

 

10.1.        Ifthe employment of the Optionee is terminated by any reason other than his orher death or disability, the Optionee may at any time within not more thanthree months after termination of his or her employment, exercise his or herIncentive Stock Option rights but only to the extent they were exercisable bythe Optionee on the date of termination of his or her employment.  If the employment of the Optionee isterminated by any reason other than his or her death or disability, theOptionee may at any time within 90 days after termination of his or heremployment, exercise his or her Non-Qualified Stock Option rights, but only tothe extent they were exercisable by the Optionee on the date of termination ofhis or her employment.  Provided,however, that if the employment is terminated by deliberate, willful or grossmisconduct as determined by the Committee or for cause as defined under theemployee’s employment agreement with Dakota Growers as determined by thecommittee, all rights under any Option shall terminate and expire upon suchtermination.

 

10.2.        Ifthe Optionee dies while in the employ of Dakota Growers or a Subsidiary, orwithin not more than three months after termination of his or her employment,the Optionee’s rights under the Option may be exercised at any time within oneyear following such death by his or her personal representative or by the personor persons to whom such rights under the Option shall pass by will or by thelaws of descent and distribution, but only to the extent they were exercisableby the Optionee on the date of death.

 

10.3.        Ifthe employment of the Optionee is terminated because of disability, theOptionee, or his or her legal representative, may at any time within not morethan one year after termination of his or her employment, exercise his or herOption rights but only to the extent they were exercisable by the Optionee onthe date of termination of his or her employment.

 

10.4.        Notwithstandinganything contained in Sections 10.1, 10.2 and 10.3 to the contrary, no Optionrights shall be exercisable by anyone after the expiration of the term of theOption.  Further, notwithstandinganything contained in Sections 10.1, 10.2 and 10.3 to the contrary, in theevent of termination of employment, if an Incentive Stock Option is exercisedafter the expiration of the exercise periods that apply for purposes of Section422 of the Code, the Option will thereafter be treated as a Non-Qualified StockOption.

 

10.5.        Transfersof employment between Dakota Growers and a Subsidiary, or between Subsidiaries,will not constitute termination of employment for purposes of any Optiongranted under this Plan.  The Committeemay specify in the terms and conditions of an Option whether any authorizedleave

 

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of absence orabsence for military or government service or for any other reasons willconstitute a termination of employment for purposes of the Option and the Plan.

 

10.6.        Ifthe Optionee is a Vendor or Consultant of Dakota Growers or a Subsidiary andsuch relationship shall terminate for any reason whatsoever, the Vendor orConsultant may exercise his, her, or its Option rights, but only to the extentthat they were exercisable by the Vendor or Consultant as of the date oftermination of the relationship.

 

11.           Rights of Participants.  Neither theparticipant nor the personal representatives, heirs, or legatees of suchparticipant shall be or have any of the rights or privileges of a shareholderof Dakota Growers in respect of any of the shares issuable upon the exercise ofan Option granted under this Plan unless and until certificates representingsuch shares shall have been issued and delivered to the participant or to suchpersonal representatives, heirs or legatees.

 

12.           Securities Registration.  If any lawor regulation of the Securities and Exchange Commission or of any other bodyhaving jurisdiction shall require Dakota Growers or the participant to take anyaction in connection with the exercise of an Option, then notwithstanding anycontrary provision of an Option agreement or this Plan, the date for exerciseof such Option and the delivery of the shares purchased thereunder shall bedeferred until the completion of the necessary action.  In the event that Dakota Growers shall deemit necessary, Dakota Growers may condition the grant or exercise of an Optiongranted under this Plan upon the receipt of a satisfactory certificate that theOptionee is acquiring the Option or the shares obtained by exercise of theOption for investment purposes and not with the view or intent to resell orotherwise distribute such Option or shares. In such event, the stock certificate evidencing such shares shall bear alegend referring to applicable laws restricting transfer of such shares.  In the event that Dakota Growers shall deemit necessary to register under the Securities Act of 1933, as amended, or any otherapplicable statute, any Options or any shares with respect to which an Optionshall have been granted or exercised, then the participant shall cooperate withDakota Growers and take such action as is necessary to permit registration orqualification of such Options or shares.

 

13.           Duration and Amendment.

 

13.1.        Thereis no express limitation upon the duration of the Plan, except for therequirement of the Code that all Incentive Stock Options must be granted withinten years from the date the Plan is approved by the shareholders.

 

13.2.        TheBoard may terminate or may amend the Plan at any time, provided, however, thatthe Board may not, without approval of the shareholders of Dakota Growers by amajority of the voting power of shares issued and outstanding, (i) increase themaximum number of shares as to which options may be granted under the Plan,(ii) permit the granting of Incentive Stock Options at less than 100% of FairMarket Value at time of grant, or (iii) permit any change which results in any repricingof any award or option heretofore granted hereunder.

 

14.           Approval of Shareholders. This Plan expressly is subject to approval of holders of a majority ofthe outstanding shares of Common Stock of Dakota Growers, and if it is not soapproved on or before one year after the date of adoption of this Plan by theBoard, the Plan shall not come into effect, and any Options granted pursuant tothis Plan shall be deemed canceled.

 

15.           Conditions of Employment. The granting of an Option to a participant under this Plan who is anemployee shall impose no obligation on Dakota Growers to continue theemployment of any participant and shall not lessen or affect the right ofDakota Growers to terminate the employment of the participant.

 

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16.           Other Options.  Nothing inthe Plan will be construed to limit the authority of Dakota Growers to exerciseits corporate rights and powers, including, by way of illustration and not byway of limitation, the right to grant options for proper corporate purposesotherwise than under the Plan to any employee or any other person, firm,corporation, association, or other entity, or to grant Options to, or assumeOptions of, any person for the acquisition by purchase, lease, merger,consolidation, or otherwise, of all or any part of the business and assets ofany person, firm, corporation, association, or other entity.

 

 
| Adopted by Board  of Directors: |   | November 21,  2002 |
|---------------------------------|--------|--------------------|
| Approved by  Shareholders:      |   | January 11, 2003   |

 

 

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