Document:

Exhibit 10.16

 

DAKOTA GROWERS PASTA COMPANY, INC.

2002 STOCK OPTION PLAN

 

1.             Purpose.  The purpose of the Dakota Growers Pasta
Company, Inc. 2002 Stock Option Plan is to align the interests of management
and the stockholders of Dakota Growers Pasta Company, Inc. (“Dakota Growers”)
for the benefit of Dakota Growers. Options granted under the Plan are
Non-Qualified Stock Options, as defined below.

 

2.             Definitions.  The following words and phrases as used
herein shall have the meanings set forth below:

 

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

 

b.             “Change in
Control” shall mean any of the following

 

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

 

(2)           a business combination, following which shareholders
of Dakota Growers do not continue to own at least 50% of the voting power of
the resulting entity or the members of Dakota Growers’ Board of Directors prior
to the transaction do not constitute a majority of the resulting entity’s Board
of Directors; or

 

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

 

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

 

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

 

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

 

f.              “Fair Market
Value” of any security on any given date shall be determined by the Committee
as follows:  (a) if the security is
listed for trading on one or more national securities exchanges, or is traded
on the Nasdaq National Market System or the Nasdaq Small Cap Market, the last
reported sales price on the principal such exchange or Nasdaq System on the
date in question, or if such security shall not have been traded on such principal
exchange on such date, the last reported sales price on such principal exchange
or the Nasdaq System 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 exchange or the Nasdaq System, but is traded in the over-the-counter
market, including the Nasdaq OTC Bulletin Board System, closing bid price for
such security on the date in question, or if there is no such bid price for
such security on such date, the closing bid price on the first day prior
thereto on which such price existed; or (c) if neither (a) nor (b) is
applicable, by any means deemed fair and reasonable by the Committee, which
determination shall be final and binding on all parties.

 

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g.             “Incentive
Stock Option” shall mean any stock option granted as an “incentive stock
option” within the meaning of Section 422 of the Code.

 

h.             “Non-Qualified
Stock Option” shall mean any stock option granted that is not an Incentive
Stock Option.

 

i.              “Option” shall
mean any Non-Qualified Stock Option granted pursuant to this Plan.

 

j.              “Optionee”
shall mean any person who is the holder of an Option granted pursuant to this
Plan.

 

k.             “Plan” shall
mean this 2002 Stock Option Plan of Dakota Growers.

 

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

 

3.             Shares Available Under Plan.  The number of shares which may be issued
pursuant to Options granted under this Plan shall not exceed 294,456 shares of
the Common Stock of Dakota Growers.

 

4.             Administration.

 

4.1.          The Plan will be administered by a Committee of at
least two directors, all of whom shall be Outside Directors and Non-Employee
Directors, or, if a Committee is not appointed, by the Board.  The Committee may be the Compensation
Committee or a subcommittee of the Compensation Committee of the Board.

 

4.2.          The Committee will have plenary authority, subject
to provisions of the Plan, to determine 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 other plans, and any other terms or conditions
of each Option. The number of shares, the term and the other terms and
conditions of a particular kind of Option need not be the same, even as to
Options granted at the same time.  The
Committee’s recommendations regarding Option grants and terms and conditions
thereof will be conclusive.

 

4.3.          The Committee will have the sole responsibility for
construing and interpreting the Plan, for establishing and amending any rules
and regulations as it deems necessary or desirable for the proper
administration of the Plan, and for resolving all questions arising under the
Plan.  Any decision or action taken by
the Committee arising out of or about the construction, administration,
interpretation and effect of the Plan and of its rules and regulations will, to
the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Optionees, all successors, and any other person, whether that person is
claiming under or through any Optionee or otherwise.

 

4.4.          The Committee will designate one of its members as
chairman.  It will hold its meetings at
the times and places as it may determine. 
A majority of its members will constitute a quorum, and all
determinations of the Committee will be made by a majority of its members.  Any determination reduced to writing and
signed by all members will be fully as effective as if it had been made by a
majority vote at a meeting duly called and held.  The Committee 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 it may deem advisable.

 

4.5.          No member of the Committee will be liable, in the
absence of bad faith, for any act or omission with respect to his services on
the Committee.  Service on the Committee
will constitute service as a member of the Board, so that the members of the
Committee will be entitled to indemnification and reimbursement as Board
members pursuant to its Bylaws.

 

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4.6.          The Committee will regularly inform the Board as to
its actions with respect to all Options granted under the Plan and the terms
and conditions and any such Options in a manner, at any times, and in any form
as the Board may reasonably request.

 

4.7.          Any other provision of the Plan to the contrary
notwithstanding, the Committee is authorized to take such action as it, in its
discretion, may deem necessary or advisable and fair and equitable to Optionees
in the event of:  a Change in Control of
Dakota Growers; a tender, exchange or similar offer for all or any part of the
Common Stock made by any entity, person or group (other than Dakota Growers or
any savings, pension or other benefit plan for the benefit of employees of
Dakota Growers); a merger of Dakota Growers into, a consolidation of Dakota
Growers with, or an acquisition of Dakota Growers by another corporation; or a
sale or transfer of all or substantially all of Dakota Growers’ assets.  Such action, in the Committee’s discretion,
may include (but shall not be deemed limited to):  establishing, amending or waiving the forms, terms, conditions or
duration of Options so as to provide for earlier, later, extended or additional
terms for exercise of the whole, or any installment, thereof; alternate forms
of payment; or other modifications.  The
Committee may take any such actions pursuant to this Section 4.7 by adopting
rules or regulations of general applicability to all Optionees, or to certain
categories of Optionees; by amending or waiving terms and conditions in stock
option agreements; or by taking action with respect to individual
Optionees.  The Committee may take any
such actions before or after the public announcement of any such Change in
Control, tender offer, exchange offer, merger, consolidation, acquisition or sale
or transfer of assets.

 

5.             Participants.

 

5.1.          Participation in this Plan shall be limited to
officers of Dakota Growers.

 

5.2.          Subject to other provisions of this Plan, Options
may be granted to the same participants on more than one occasion.

 

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

 

6.             Terms and Conditions.

 

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

 

6.2.          Each Option agreement shall specify the period for
which the Option thereunder is granted, which in no event shall exceed ten
years and one day from the date of grant and shall provide that the Option
shall expire at the end of such period; provided, however, the term of each
Option shall be subject to the power of the Committee, among other things, to
accelerate or otherwise adjust the terms for exercise of Options pursuant to
Section 4.7 hereof in the event of the occurrence of any of the events set
forth therein.

 

6.3.          The exercise price per share shall be determined by
the Committee at the time any Option is granted.

 

6.4.          An Option shall be exercisable at such time or
times, and with respect to such minimum number of shares, as may be determined
by Dakota Growers at the time of the grant. 
The Option agreement may require, if so determined by Dakota Growers,
that no part of the Option may be exercised until the Optionee shall have
remained in the employ of Dakota Growers for such period after the date of the
Option as Dakota Growers may specify.

 

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6.5.          Dakota Growers may prescribe the form of legend
which shall be affixed to the stock certificate representing shares to be
issued and the shares shall be subject to the provisions of any repurchase
agreement or other agreement restricting the sale or transfer thereof.  Such agreements or restrictions shall be
noted on the certificate representing the shares to be issued.

 

7.             Exercise of Option.

 

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

 

7.2.          Payment shall be made to Dakota Growers either (i)
in cash, including certified check, bank draft or money order, (ii) at the
discretion of Dakota Growers, by delivering Common Stock of Dakota Growers
already owned by the participant and held by such participant for at least 6
months; (iii) at the discretion of Dakota Growers, by deduction from the number
of shares to be delivered upon exercise of the Option a number of shares, the
aggregate Fair Market Value of which, as of the same date the Exercise Price is
determined, shall equal the exercise price, or a combination of (i), (ii) and
(iii).  With respect to (ii) the Fair
Market Value of stock so delivered shall be determined as of the date
immediately preceding the date of exercise.

 

7.3.          Upon notification of the amount due and prior to, or
concurrently with, the delivery to the Optionee of a certificate representing
any shares purchased pursuant to the exercise of an Option, the Optionee shall
promptly pay to Dakota Growers any amount necessary to satisfy applicable
federal, state or local withholding tax requirements.

 

7.4.          If the terms of an Option so permit, an Optionee,
other than a member of the Committee, may elect by written notice to the
Secretary of Dakota Growers (or such other person as he may designate), to
satisfy the withholding tax requirements associated with the exercise of an
Option by authorizing Dakota Growers to retain from the number of shares of
Common Stock that would otherwise be deliverable to the Optionee that number of
shares having an aggregate Fair Market Value on the Tax Date equal to the tax
payable by the Optionee under Section 7.3. 
Any such election shall be in accordance with, and subject to, applicable
tax and securities laws, and regulations and rulings and in the event shares
are withheld, 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, the
Optionee shall agree in any such election to surrender that number of shares
having an aggregate Fair Market Value on the Tax Date equal to the tax payable
by the Optionee under Section 7.3.  In
addition, any election to have shares withheld pursuant to this Section 7.4
will be irrevocable by the Optionee and will in any event be subject to the
disapproval of the Committee.

 

8.             Adjustments of Option Stock.  In case the shares issuable upon exercise of
any Option granted under the Plan at any time outstanding shall be subdivided
into a greater or combined into a lesser number of shares (whether with or
without par value), the number of shares purchasable upon exercise of such
Option immediately prior thereto shall be adjusted so that the Optionee shall
be entitled to receive a number of shares which he or she would have owned or
have been entitled to receive after the happening of such event had such Option
been exercised immediately prior to the happening of such subdivision or
combination or any record date with respect thereto.  An adjustment made pursuant to this paragraph shall become
effective immediately after the effective date of such subdivision or
combination retroactive to the record date, if any, for such subdivision or
combination.  The Option price (as such
amount may have theretofore been adjusted pursuant to the provisions hereof)
shall be adjusted by multiplying the Option price immediately prior to the
adjustment of the number of shares purchasable under the Option by a fraction,
of which the numerator shall be the number of shares purchasable upon the
exercise of the Option immediately prior to such adjustment, and of which the
denominator shall be the number of

 

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shares
so purchasable immediately thereafter. 
Substituted shares of stock shall be deemed shares under Section 3 of
the Plan.

 

9.             Assignments.  Any Option granted under this Plan shall be
exercisable only by the Optionee to whom granted during his or her lifetime and
shall not be assignable or transferable otherwise than by will or by the laws
of descent and distribution. Notwithstanding the foregoing, the Board or the
Committee may, in its discretion, determine that an Option may be exercised by
a person other than the Optionee and that an Option may be transferable based
on the tax and federal securities law considerations then in effect for such
Options.

 

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

 

10.1.        If the employment of the Optionee is terminated by
any reason other than his or her death or disability, the Optionee may at any
time within 90 days after termination of his or her employment, exercise his or
her Option rights, but only to the extent they were exercisable by the Optionee
on the date of termination of his or her employment.  Provided, however, that if the employment is terminated by
deliberate, willful or gross misconduct as determined by the Committee or for
cause as defined under the employee’s employment agreement with Dakota Growers
as determined by the committee, all rights under any Option shall terminate and
expire upon such termination.

 

10.2.        If the Optionee dies while in the employ of Dakota
Growers or within 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 one year following such death by his or her personal representative or
by the person or persons to whom such rights under the Option shall pass by
will or by the laws of descent and distribution, but only to the extent they
were exercisable by the Optionee on the date of death.

 

10.3.        If the employment of the Optionee is terminated
because of disability, the Optionee, or his or her legal representative, may at
any time within not more than one year after termination of his or her
employment, exercise his or her Option rights but only to the extent they were
exercisable by the Optionee on the date of termination of his or her
employment.

 

10.4.        Notwithstanding anything contained in Sections 10.1,
10.2 and 10.3 to the contrary, no Option rights shall be exercisable by anyone
after the expiration of the term of the Option.

 

10.5.        The Committee may specify in the terms and
conditions of an Option whether any authorized leave of absence or absence for
military or government service or for any other reasons will constitute a
termination of employment for purposes of the Option and the Plan.

 

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

 

12.           Securities Registration.  If any law or regulation of the Securities
and Exchange Commission or of any other body having jurisdiction shall require
Dakota Growers or the participant to take any action in connection with the
exercise of an Option, then notwithstanding any contrary provision of an Option
agreement or this Plan, the date for exercise of such Option and the delivery
of the shares purchased thereunder shall be deferred until the completion of
the necessary action.  In the event that
Dakota Growers shall deem it necessary, Dakota Growers may condition the grant
or exercise of an Option granted under this Plan upon the receipt of a
satisfactory certificate that the Optionee is acquiring the Option or the
shares obtained by exercise of the Option for investment purposes and not with
the view or intent to resell or otherwise distribute such Option or
shares.  In such event, the stock
certificate evidencing such shares shall bear a legend referring to applicable
laws restricting transfer of such shares. 
In the event that Dakota Growers shall deem it necessary to register
under the Securities Act of 1933, as amended, or any other applicable statute,
any Options or any shares with respect to which an

 

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Option
shall have been granted or exercised, then the participant shall cooperate with
Dakota Growers and take such action as is necessary to permit registration or
qualification of such Options or shares.

 

13.           Duration and Amendment.

 

13.1.        There is no express limitation upon the duration of
the Plan.

 

13.2.        The Board may terminate or may amend the Plan at any
time, provided, however, that the Board may not, without approval of the
shareholders of Dakota Growers by a majority of the voting power of shares
issued and outstanding, permit the granting of Incentive Stock Options, under
the Plan.

 

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

 

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

 

 

Adopted
by Board of Directors:                        November 21,
2002

 

6Exhibit 10.17

 

DAKOTA GROWERS PASTA COMPANY, INC.

2003 STOCK OPTION PLAN

 

1.             Purpose.  The purpose of the Dakota Growers Pasta
Company, Inc. 2003 Stock Option Plan is to provide a continuing, long-term
incentive to selected eligible officers, directors and key employees, vendors
or consultants of Dakota Growers Pasta Company, Inc. (“Dakota Growers”) and of
any subsidiary company of Dakota Growers, as herein defined; to provide a means
of rewarding outstanding performance; and to enable Dakota Growers to maintain
a competitive position to attract and retain key personnel necessary for
continued growth and profitability. 
Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-qualified stock options, as determined
by the Administrator at the time of grant of an option and subject to the
applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.

 

2.             Definitions.  The
following words and phrases as used herein shall have the meanings set forth
below:

 

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

 

b.             “Change in Control” shall mean any of the
following

 

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

 

(2)           a
business combination, following which shareholders of Dakota Growers do not
continue to own at least 50% of the voting power of the resulting entity or the
members of Dakota Growers’ Board of Directors prior to the transaction do not
constitute a majority of the resulting entity’s Board of Directors; or

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

i.              “Incentive Stock Option” shall mean any
stock 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 mean
any stock option granted pursuant to this Plan that is not an Incentive Stock
Option.

 

k.             “Option” shall mean any stock option
granted pursuant to this Plan, whether an Incentive Stock Option or a
Non-Qualified Stock Option.

 

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

 

m.            “Outside Director” shall mean a director
who (a) is not a current employee of Dakota Growers or any member of an
affiliated group which includes Dakota Growers; (b) is not a former employee of
Dakota Growers who receives compensation for prior services (other than
benefits under a tax-qualified retirement plan) during the taxable year; (c)
has not been an officer of Dakota Growers; (d) does not receive remuneration
from Dakota Growers, either directly or indirectly, in any capacity other than
as a director, except as otherwise permitted under Code Section 162(m) and
regulations thereunder.  For this
purpose, remuneration includes any payment in exchange for goods or
services.  This definition shall be
further governed by the provisions of Code Section 162(m) and regulations
promulgated thereunder.

 

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

 

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

 

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

 

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

 

3.             Shares Available
Under Plan.  The number of shares
which may be issued pursuant to Options granted under this Plan shall not
exceed 500,000 shares of the Common Stock of Dakota Growers; provided, however,
that shares which become available as a result of canceled, unexercised, lapsed
or terminated Options granted under this Plan shall be available for issuance
pursuant to Options subsequently granted under this Plan under a stock for
stock exercise of a stock option or the withholding of stock for the payment of
taxes, only the net number of shares issued to the optionee shall be used to
calculate the number of shares remaining for distribution under the Plan.  The shares issued upon exercise of Options
granted under this Plan may be authorized and unissued shares or shares
previously acquired or to be acquired by Dakota Growers.

 

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4.             Administration.

 

4.1.          The
Plan will be administered by a Committee of at least two directors, all of whom
shall be Outside Directors and Non-Employee Directors, or, if a Committee is
not appointed, by the Board.  The
Committee may be the Compensation Committee or a subcommittee of the
Compensation Committee of the Board.

 

4.2.          The
Committee will have plenary authority, subject to provisions of the Plan, to
determine 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 other
plans, and any other terms or conditions of each Option.  The Committee shall determine with respect
to each grant of an Option whether a participant shall receive an Incentive
Stock Option or a Non-Qualified Stock Option. 
The number of shares, the term and the other terms and conditions of a
particular kind of Option need not be the same, even as to Options granted at
the same time.  The Committee’s
recommendations regarding Option grants and terms and conditions thereof will
be conclusive.

 

4.3.          The
Committee will have the sole responsibility for construing and interpreting the
Plan, for establishing and amending any rules and regulations as it deems
necessary or desirable for the proper administration of the Plan, and for
resolving all questions arising under the Plan.  Any decision or action taken by the Committee arising out of or
about the construction, administration, interpretation and effect of the Plan
and of its rules and regulations will, to the extent permitted by law, be
within its absolute discretion, except as otherwise specifically provided
herein, and will be conclusive and binding on all Optionees, all successors,
and any other person, whether that person is claiming under or through any
Optionee or otherwise.

 

4.4.          The
Committee will designate one of its members as chairman.  It will hold its meetings at the times and
places as it may determine.  A majority
of its members will constitute a quorum, and all determinations of the
Committee will be made by a majority of its members.  Any determination reduced to writing and signed by all members
will be fully as effective as if it had been made by a majority vote at a
meeting duly called and held.  The
Committee 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 it
may deem advisable.

 

4.5.          No
member of the Committee will be liable, in the absence of bad faith, for any
act or omission with respect to his services on the Committee.  Service on the Committee will constitute
service as a member of the Board, so that the members of the Committee will be
entitled to indemnification and reimbursement as Board members pursuant to its
Bylaws.

 

4.6.          The
Committee will regularly inform the Board as to its actions with respect to all
Options granted under the Plan and the terms and conditions and any such
Options in a manner, at any times, and in any form as the Board may reasonably
request.

 

4.7.          Any
other provision of the Plan to the contrary notwithstanding, the Committee is
authorized to take such action as it, in its discretion, may deem necessary or
advisable and fair and equitable to Optionees in the event of:  a Change in Control of Dakota Growers; a
tender, exchange or similar offer for all or any part of the Common Stock made
by any entity, person or group (other than Dakota Growers, any Subsidiary of
Dakota Growers or any savings, pension or other benefit plan for the benefit of
employees of Dakota Growers or its Subsidiaries); a merger of Dakota Growers
into, a consolidation of Dakota Growers with, or an acquisition of Dakota
Growers by another corporation; or a sale or transfer of all or substantially
all of Dakota Growers’ assets.  Such
action, in the Committee’s discretion, may include (but shall not be deemed limited
to):  establishing, amending or waiving
the forms, terms, conditions or duration of Options so as to provide for
earlier, later, extended or additional terms for exercise of the whole, or any
installment, thereof; alternate forms of payment; or other modifications.  The Committee may take any such actions
pursuant to this Section 4.7 by adopting rules or regulations of general
applicability to all Optionees, or to certain categories of Optionees; by
amending or waiving terms

 

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and conditions
in stock option agreements; or by taking action with respect to individual
Optionees.  The Committee may take any
such actions before or after the public announcement of any such Change in
Control, tender offer, exchange offer, merger, consolidation, acquisition or
sale or transfer of assets.

 

5.             Participants.

 

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

 

5.2.          Subject
to other provisions of this Plan, Options may be granted to the same
participants on more than one occasion.

 

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

 

6.             Terms and Conditions.

 

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

 

6.2.          Each
Option agreement shall specify the period for which the Option thereunder is
granted (which in no event shall exceed ten years from the date of the grant
for any Option granted pursuant to Section 6.3(a) hereof, five years from the
date of grant for any Option granted pursuant to 6.3(b) hereof and ten years
and one day from the date of grant for any Option designated by the Committee
as a Non-Qualified Stock Option) and shall provide that the Option shall expire
at the end of such period; provided, however, the term of each Option shall be
subject to the power of the Committee, among other things, to accelerate or
otherwise adjust the terms for exercise of Options pursuant to Section 4.7
hereof in the event of the occurrence of any of the events set forth therein.

 

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

 

(a)           For
employees who do not own stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of Dakota Growers or of any
Subsidiary, the Incentive Stock Option exercise price per share shall not be
less than one hundred percent (100%) of Fair Market Value of the Common Stock
of Dakota Growers on the date the Option is granted, as determined by the
Committee.

 

(b)           For
employees who own stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of Dakota Growers or of any
Subsidiary, the Incentive Stock Option exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the Common
Stock of Dakota Growers on the date the Option is granted, as determined by the
Committee.

 

6.4.          The
aggregate 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 this
Plan or any other plan of Dakota Growers or its Subsidiaries is exercisable for
the first time by an Optionee during any calendar year shall not exceed
$100,000.

 

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

 

4

 

agreement may
require, if so determined by Dakota Growers, that no part of the Option may be
exercised until the Optionee shall have remained in the employ of Dakota
Growers or of a Subsidiary for such period after the date of the Option as
Dakota Growers may specify. 
Notwithstanding the foregoing and subject to the discretionary
acceleration rights of the Committee, an Option granted to a director, officer
or 10% shareholders of Dakota Growers shall not be exercisable for a period of
six (6) months unless the Option has been approved by a majority of
disinterested members of the Board, the Committee or the shareholders of Dakota
Growers.

 

6.6.          Dakota
Growers may prescribe the form of legend which shall be affixed to the stock
certificate representing shares to be issued and the shares shall be subject to
the provisions of any repurchase agreement or other agreement restricting the
sale or transfer thereof.  Such
agreements or restrictions shall be noted on the certificate representing the
shares to be issued.

 

7.             Exercise of Option.

 

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

 

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

 

7.3.          Upon
notification of the amount due and prior to, or concurrently with, the delivery
to the Optionee of a certificate representing any shares purchased pursuant to
the exercise of an Option, the Optionee shall promptly pay to Dakota Growers
any amount necessary to satisfy applicable federal, state or local withholding
tax requirements.

 

7.4.          If
the terms of an Option so permit, an Optionee, other than a member of the
Committee, may elect by written notice to the Secretary of Dakota Growers (or
such other person as he may designate), to satisfy the withholding tax
requirements associated with the exercise of an Option by authorizing Dakota
Growers to retain from the number of shares of Common Stock that would
otherwise be deliverable to the Optionee that number of shares having an
aggregate Fair Market Value on the Tax Date equal to the tax payable by the
Optionee under Section 7.3.  Any such
election shall be in accordance with, and subject to, applicable tax and
securities laws, and regulations and rulings and in the event shares are
withheld, 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, the
Optionee shall agree in any such election to surrender that number of shares
having an aggregate Fair Market Value on the Tax Date equal to the tax payable
by the Optionee under Section 7.3.  In
addition, any election to have shares withheld pursuant to this Section 7.4
will be irrevocable by the Optionee and will in any event be subject to the
disapproval of the Committee.

 

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

 

5

 

would have owned
or have been entitled to receive after the happening of such event had such Option
been exercised immediately prior to the happening of such subdivision or
combination or any record date with respect thereto.  An adjustment made pursuant to this paragraph shall become
effective immediately after the effective date of such subdivision or
combination retroactive to the record date, if any, for such subdivision or
combination.  The Option price (as such
amount may have theretofore been adjusted pursuant to the provisions hereof)
shall be adjusted by multiplying the Option price immediately prior to the
adjustment of the number of shares purchasable under the Option by a fraction,
of which the numerator shall be the number of shares purchasable upon the
exercise of the Option immediately prior to such adjustment, and of which the
denominator shall be the number of shares so purchasable immediately
thereafter.  Substituted shares of stock
shall be deemed shares under Section 3 of the Plan.

 

9.             Assignments.  Any Option
granted under this Plan shall be exercisable only by the Optionee to whom granted
during his or her lifetime and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.    Notwithstanding the foregoing, the Board
or the Committee may, in its discretion, determine that an Option may be
exercised by a person other than the Optionee and that an Option may be
transferable based on the tax and federal securities law considerations then in
effect for such Options.

 

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

 

10.1.        If
the employment of the Optionee is terminated by any reason other than his or
her death or disability, the Optionee may at any time within not more than
three months after termination of his or her employment, exercise his or her
Incentive Stock Option rights but only to the extent they were exercisable by
the Optionee on the date of termination of his or her employment.  If the employment of the Optionee is
terminated by any reason other than his or her death or disability, the
Optionee may at any time within 90 days after termination of his or her
employment, exercise his or her Non-Qualified Stock Option rights, but only to
the extent they were exercisable by the Optionee on the date of termination of
his or her employment.  Provided,
however, that if the employment is terminated by deliberate, willful or gross
misconduct as determined by the Committee or for cause as defined under the
employee’s employment agreement with Dakota Growers as determined by the
committee, all rights under any Option shall terminate and expire upon such
termination.

 

10.2.        If
the Optionee dies while in the employ of Dakota Growers or a Subsidiary, or
within 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 one
year following such death by his or her personal representative or by the person
or persons to whom such rights under the Option shall pass by will or by the
laws of descent and distribution, but only to the extent they were exercisable
by the Optionee on the date of death.

 

10.3.        If
the employment of the Optionee is terminated because of disability, the
Optionee, or his or her legal representative, may at any time within not more
than one year after termination of his or her employment, exercise his or her
Option rights but only to the extent they were exercisable by the Optionee on
the date of termination of his or her employment.

 

10.4.        Notwithstanding
anything contained in Sections 10.1, 10.2 and 10.3 to the contrary, no Option
rights shall be exercisable by anyone after the expiration of the term of the
Option.  Further, notwithstanding
anything contained in Sections 10.1, 10.2 and 10.3 to the contrary, in the
event of termination of employment, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, the Option will thereafter be treated as a Non-Qualified Stock
Option.

 

10.5.        Transfers
of employment between Dakota Growers and a Subsidiary, or between Subsidiaries,
will not constitute termination of employment for purposes of any Option
granted under this Plan.  The Committee
may specify in the terms and conditions of an Option whether any authorized
leave

 

6

 

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

 

10.6.        If
the Optionee is a Vendor or Consultant of Dakota Growers or a Subsidiary and
such relationship shall terminate for any reason whatsoever, the Vendor or
Consultant may exercise his, her, or its Option rights, but only to the extent
that they were exercisable by the Vendor or Consultant as of the date of
termination of the relationship.

 

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

 

12.           Securities Registration.  If any law
or regulation of the Securities and Exchange Commission or of any other body
having jurisdiction shall require Dakota Growers or the participant to take any
action in connection with the exercise of an Option, then notwithstanding any
contrary provision of an Option agreement or this Plan, the date for exercise
of such Option and the delivery of the shares purchased thereunder shall be
deferred until the completion of the necessary action.  In the event that Dakota Growers shall deem
it necessary, Dakota Growers may condition the grant or exercise of an Option
granted under this Plan upon the receipt of a satisfactory certificate that the
Optionee is acquiring the Option or the shares obtained by exercise of the
Option for investment purposes and not with the view or intent to resell or
otherwise distribute such Option or shares. 
In such event, the stock certificate evidencing such shares shall bear a
legend referring to applicable laws restricting transfer of such shares.  In the event that Dakota Growers shall deem
it necessary to register under the Securities Act of 1933, as amended, or any other
applicable statute, any Options or any shares with respect to which an Option
shall have been granted or exercised, then the participant shall cooperate with
Dakota Growers and take such action as is necessary to permit registration or
qualification of such Options or shares.

 

13.           Duration and Amendment.

 

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

 

13.2.        The
Board may terminate or may amend the Plan at any time, provided, however, that
the Board may not, without approval of the shareholders of Dakota Growers by a
majority of the voting power of shares issued and outstanding, (i) increase the
maximum 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 Fair
Market Value at time of grant, or (iii) permit any change which results in any repricing
of any award or option heretofore granted hereunder.

 

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

 

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

 

7

 

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

 

 

	
  Adopted by Board
  of Directors:

  	
   

  	
  November 21,
  2002

  
	
  Approved by
  Shareholders:

  	
   

  	
  January 11, 2003

  

 

 

8

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