Document:

stockoptionagmt.htm

    

      DUCKWALL-ALCO
STORES, INC.

       

      NON-QUALIFIED
STOCK OPTION AGREEMENT

       

      

       

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

       

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

       

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

       

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

       

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

       

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

       

      4. Vesting.

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      12. Adjustments for Stock
Dividends, Splits, etc.

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

      

       

      
        	 
      	
                Duckwall-ALCO
      Stores, Inc.

                 

                By:/s/ Royce
      Winsten

                Name:
      Royce Winsten

                   
      Chairman of the Board

              
	 
      	
                 

                 

                /s/ Lawrence J. Zigerelli

                Address:
      Duckwall-Alco Stores, Inc.

                401
      Cottage

                Abilene,
      KS  67410

                 

                SS
      NO.:

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXHIBIT
A

       

      Form of
Notice

       

      DUCKWALL
ALCO STORES, INC.

       

      NOTIFICATION
OF STOCK OPTION EXERCISE

       

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

       

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

       

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

       

      Name: _____________________________________                                                                          

      Address: ___________________________________                                                                          

      City/State/Zip:_______________________________                                                                                     

       

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

       

      
        	 
      
	_________________________
      
	
                Lawrence
      J. Zigerelli

              
	 
      
	_________________________ 
      
	
                Social
      Security Number

              
	 
      
	_________________________ 
      
	
                Date

              

      

      

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

       

      
        	____________________________________ 
      
	
                By:
      _________________________________

                Date:________________________________stockoptionplan.htm

    

    Duckwall-ALCO
Stores, Inc.

    INCENTIVE STOCK OPTION
PLAN

    

    

    Duckwall-ALCO Stores, Inc., a
corporation organized and existing under the laws of the State of Kansas (the
"Company"), hereby formulates and adopts, subject to the approval of the holders
of a majority of the issued and outstanding shares of common stock of the
Company ("Duckwall-ALCO Common Stock") voting in person or by proxy at a duly
constituted meeting of the stockholders of the Company, an incentive stock
option plan for employees of the Company and its subsidiaries as
follows:

    

    1.           Purpose of
Plan.  The purpose of this Incentive Stock Option Plan (the
"Plan") is to encourage the employees of the Company and its subsidiaries to
participate in the ownership of the Company, and to provide additional incentive
for such employees to promote the success of its business through sharing in the
future growth of such business.

    

    2.           Effectiveness of
Plan.  The provisions of this Plan shall become effective on
the date the Plan is adopted by the Board of Directors of the Company (the
"Board of Directors"), subject to the requirement that the Plan be approved by
the holders of a majority of the shares of Duckwall-ALCO Common Stock voting in
person or by proxy at a duly constituted meeting of the stockholders of the
Company to be held within 12 months after the date on which the Plan is
adopted.

    

    3.           Administration.  This
Plan shall be administered by a stock option committee ("Compensation
Committee") which shall be selected by the Board of Directors and which shall
consist of two (2) or more members of the Board of Directors.  The
Compensation Committee shall have full power and authority to construe,
interpret and administer the Plan, and may from time to time adopt such rules
and regulations for carrying out this Plan as it may deem proper and in the best
interests of the Company.  Subject to the terms, provisions and
conditions of the Plan, the Compensation Committee shall have exclusive
authority (i) to select employees to whom options shall be granted (ii) to
determine the number of shares subject to each option, (iii) to determine the
time or times when options will be granted, (iv) to determine the option price
of the shares subject to each option, (v) to determine the time when each option
may be exercised, (vi) to fix such other provisions of each option agreement as
the Compensation Committee may deem necessary or desirable, consistent with the
terms of this Plan, and (vii) to determine all other questions relating to the
administration of this Plan.  The interpretation and construction of
this Plan by the Compensation Committee shall be final, conclusive and binding
upon all persons.

    

    4.           Eligibility.

    

    (a)           Employees--Options
to purchase shares of Duckwall-ALCO Common Stock shall be granted under this
Plan only to employees of the Company or of any of its subsidiary corporations,
as that term is defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code"). Employees to whom options may be granted under this
Plan will be those employees selected by the Compensation Committee from time to
time who, in the sole discretion of the Compensation Committee, have made
material contributions in the past, or who are expected to make material
contributions in the future, to the successful performance of the
Company.

    

    (b)           Stock
ownership limitation-No option shall be granted under this Plan to any employee
of the Company or of a subsidiary corporation who, immediately before the option
is granted, owns (either directly or by application of the rules contained in
Section 424(d) of the Code) stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of any of its
subsidiary corporations unless at the time of such grant the option price is
fixed at not less than 110 percent of the fair market value of the stock subject
to the option, and the exercise of such option is prohibited by its terms after
the expiration of five (5) years from the date such option is
granted.

    

    5.           Shares Subject to the
Plan. Options granted under this Plan shall be granted solely with
respect to shares of Duckwall-ALCO Common Stock.  Subject to any
adjustments made pursuant to the provisions of Section 13, the aggregate number
of shares of Duckwall-ALCO Common Stock which may be issued upon exercise of the
options which will be granted under this Plan shall not exceed
500,000.  With respect to each optionee, no more than 100,000 shares
of Duckwall-Alco Common Stock shall become subject to options granted to such
optionee under this Plan in a calendar year.

    

    If any option granted under this Plan
shall expire or terminate for any reason without having been exercised in full,
the unpurchased shares subject to such option shall be added to the number of
shares otherwise available for options which may be granted in accordance with
the terms of this Plan.

    

    The shares to be delivered upon
exercise of the options granted under this Plan shall be made available, at the
discretion of the Board of Directors, from either the authorized but unissued
shares of Duckwall-ALCO Common Stock or any treasury shares of Duckwall-ALCO
Common Stock held by the Company.

    

    6.           Option Agreement.
Each option granted under this Plan shall be evidenced by an incentive stock
option agreement, which shall be signed by an officer of the Company and by the
employee to whom the option is granted (the "optionee").  The terms of
said incentive stock option agreement shall be in accordance with the provisions
of this Plan, but it may include such other provisions as may be approved by the
Compensation Committee.  The granting of an option under this Plan
shall be deemed to occur on the date on which the option grant is authorized by
the Compensation Committee.  Each incentive stock option agreement
shall constitute a binding contract between the Company and the optionee, and
every optionee, upon the execution of an incentive stock option agreement, shall
be bound by the terms and restrictions of this Plan and such incentive stock
option agreement.

    

    7.           Option Price. The
price at which shares of Duckwall-ALCO Common Stock may be purchased under an
option granted pursuant to this Plan shall be determined by the Compensation
Committee, but in no event shall the price be less than the greater of (a) the
par value thereof, or (b) 100 percent of the fair market value of such shares on
the date that the option is granted.  If such shares are then listed
on any national securities exchange, the fair market value shall be the mean
between the high and low sales prices, if any, on the largest such exchange on
the date of the grant of the option, or, if none, shall be determined by taking
a weighted average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the date of grant in accordance
with Treasury Regulations Section 25.2512-2.  If the shares are not
then listed on any such exchange, the fair market value of such shares shall be
the mean between the closing "Bid" and the closing "Ask" prices, if any, as
reported on the Nasdaq Stock Market (whether Nasdaq National Market or Nasdaq
SmallCap Market) for the date of the grant of the option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the date of
grant in accordance with Treasury Regulations Section 25.2512-2.  If
the shares are not then either listed on any such exchange or quoted on Nasdaq
Stock Market, the fair market value shall be the mean between the average of the
"Bid" and the average of the "Ask" prices, if any, as reported in the Nasdaq
Over-the-Counter Bulletin Board or other national daily quotation service for
the date of the grant of the average of the means between the highest and lowest
sales on the nearest date before and the nearest date after the date of grant in
accordance with Treasury Regulations Section 25.2512-2.  If the fair
market value cannot be determined under the preceding three sentences, it shall
be determined in good faith by the Compensation Committee.

    

    8.           Period and Exercise of
Option:

    

    (a)           Period--Subject
to the provisions of Sections 10 and 11 hereof with respect to the death or
termination of employment of an optionee, the period during which each option
granted under this Plan may be exercised shall be fixed by the Compensation
Committee at the time such option is granted, provided that such period shall
expire no later than five (5) years from the date on which the option is
granted.  In the event the Company shall not be the surviving
corporation in any merger, consolidation, or reorganization, or in the event of
acquisition by another corporation of all or substantially all of the assets of
the Company, every option outstanding hereunder may be assumed (with appropriate
changes) by the surviving, continuing, successor or purchasing corporation, as
the case may be, subject to any applicable provisions of the Code or replaced
with new options of comparable value (in accordance with Section 424(a) of the
Code).  In the event (i) that such surviving, continuing, successor or
purchasing corporation, as the case may be, does not assume or replace the
outstanding options hereunder, or (ii) of liquidation or dissolution of the
Company, the Compensation Committee may provide that each optionee shall have
the right, within a period commencing not more than 30 days immediately prior to
and ending on the day immediately prior to such merger, consolidation,
reorganization or acquisition by another corporation of all or substantially all
of the assets of the Company or the liquidation or dissolution of the Company,
to exercise the optionee's outstanding options to the extent of all or any part
of the aggregate number of shares subject to such option(s).  In the
event of a "Change of Control" (as defined below) the Compensation Committee may
accelerate the time at which options granted under this Plan may be exercised by
the optionee.

    

    For purposes of this paragraph (a)
"Change of Control" means a change in control of the Company of a nature that
would be required to be reported in response to item 6(e) of Schedule 14A of
Regulation 14A (in effect on the date hereof) promulgated under the Securities
Exchange Act of 1934, as in effect on the date hereof (the Exchange Act);
provided, however, that, without limitation, such a change of control shall be
deemed to have occurred upon the occurrence of any of the following
events:

    

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

    

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

    

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

    

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

     

    (b)           Exercise--Any
option granted under this Plan may be exercised by the optionee (or by the
purchaser acting under Section 11 below) only by (i) delivering to the Company
written notice of the number of shares with respect to which the optionee is
exercising his or her option right, (ii) paying in full the option price of the
purchased shares, and (iii) if the shares to be purchased have not been
registered under the applicable securities laws and if necessary, in the opinion
of counsel for the Company to secure an exemption from such registration,
furnishing to the Company such representation or agreement in writing signed by
the optionee (or purchaser) as shall be necessary in the opinion of such counsel
to secure such exemption.  Subject to the limitations of this Plan and
the terms and conditions of the respective incentive stock option agreement,
each option granted under this Plan shall be exercisable in whole or in part at
such time or times as the Compensation Committee may specify in such incentive
stock option agreement.

    

    (c)           Payment
for shares--Payment for shares of Duckwall-ALCO Common Stock purchased pursuant
to an option granted under this Plan may be made either in cash or in other
shares of Duckwall-ALCO Common Stock.  In addition, the Compensation
Committee may permit a Participant to pay for shares of Duckwall-ALCO Common
Stock purchased pursuant to an option granted under the Plan by irrevocably
authorizing a third party to sell shares of such stock acquired upon exercise of
the option and remit to the Company a sufficient portion of the sale proceeds to
pay the exercise price and any tax withholding resulting from such
exercise.

    

    (d)           Delivery
of certificates--As soon as practicable after receipt by the Company of the
notice and representation described in subsection (b), and of payment in full of
the option price for all of the shares being purchased pursuant to an option
granted under this Plan, a certificate or certificates representing such shares
of stock shall be registered in the name of the optionee and shall be delivered
to the optionee.  However, no certificate for fractional shares of
stock shall be issued by the Company notwithstanding any request
therefor.  Neither any optionee, nor the legal representative, legatee
or distributee of any optionee, shall be deemed to be a holder of any shares of
stock subject to an option granted under this Plan unless and until the
certificate or certificates for such shares have been issued.  All
stock certificates issued upon the exercise of any options granted pursuant to
this Plan may bear such legend as the Compensation Committee shall deem
appropriate regarding restrictions upon the transfer or sale of the shares
evidenced thereby.

    

    (e)           Limitations
on exercise--Except as provided in Sections 10 and 11 hereof, no option granted
under this Plan shall be exercised unless the optionee is at the time of such
exercise employed by the Company or one of its subsidiary corporations and shall
have been so employed by the Company or one of its subsidiary corporations at
all times since the date on which such option was granted.

    

    9.           Limitation on Options
Granted to Individual Employees. The aggregate fair market value
(determined at the time the options are granted) of stock with respect to which
incentive stock options are exercisable for the first time by any individual
during any calendar year under this Plan (and under any other plan or plans of
such individual's employer corporation and any parent or subsidiary corporation
or corporations) shall not exceed $100,000.  The limitation provided
by the preceding sentence shall be applied by taking options into account in the
order in which they are granted.  In the event that the foregoing
results in a portion of an option exceeding the $100,000 limitation, such
portion of the option in excess of the limitation shall be treated as a
nonqualified stock option.

    

    10.           Termination of
Employment. If an optionee shall cease to be employed by the Company or
any of its subsidiary corporations for any reason other than death, any option
or unexercised portion thereof granted to him under this Plan which is otherwise
exercisable shall terminate unless it is exercised within thirty (30) days of
the date on which such optionee ceases to be so employed, and in any event no
later than the expiration date of such option as specified in the respective
incentive stock option agreement.  Nothing in this Plan or in any
incentive stock option agreement shall be construed as an obligation on the part
of the Company or any of its subsidiary corporations to continue the employment
of any employee.

    

    11.           Death of
Optionee.  In the event of the death of an optionee while he is
an employee of the Company or any of its subsidiary corporations (or within
thirty (30) days of the date on which such optionee ceases to be so employed)
any option or unexercised portion thereof granted to him under this Plan which
is otherwise exercisable may be exercised by the person or persons to whom such
optionee's rights under the option pass by operation of the optionee's will or
the laws of descent and distribution, at any time within a period of twelve (12)
months following the death of the optionee (but in no event later than the
expiration date of the option as specified in the respective incentive stock
option agreement).

    

    12.           Nontransferability of
Options. Each option granted under this Plan shall not be transferable or
assignable by the optionee other than by will or the laws of descent and
distribution, and during the lifetime of the optionee may be exercised only by
said optionee.

    

    13.           Adjustment upon Changes in
Capitalization. In the event of any change in the capital structure of
the Company, including but not limited to a change resulting from a stock
dividend, stock split, reorganization, merger, consolidation, liquidation, any
combination or exchange of shares, or any other event for which the Compensation
Committee believes an adjustment is appropriate, the number of shares of
Duckwall-ALCO Common Stock subject to this Plan and the number of such shares
subject to each option granted hereunder shall be correspondingly adjusted by
the Compensation Committee.  The option price for which shares of
Duckwall-ALCO Common Stock may be purchased pursuant to an option granted under
this Plan shall also be adjusted so that there will be no change in the
aggregate purchase price payable upon the exercise of any option.

    

    14.           Amendment and Termination of
Plan. No option shall be granted pursuant to this Plan after May 22,
2013, on which date this Plan will expire except as to options then outstanding
under the Plan, which options shall remain in effect until they have been
exercised or have expired.  The Board of Directors may at any time
before such date amend, modify or terminate the Plan; provided, however, that
the Board of Directors may not, without further approval of the holders of a
majority of the issued and outstanding shares of Duckwall-ALCO Common Stock
voting in person or by proxy at a duly constituted meeting of the stockholders
of the Company, (i) increase the maximum number of shares of Duckwall-ALCO
Common Stock as to which options may be granted pursuant to this Plan, (ii)
change the class of employees eligible to be granted options pursuant to the
Plan, (iii) extend the period under this Plan during which options may be
granted or exercised, or (iv) change the provisions of Section 7 hereof with
respect to the determination of the option price, other than to change the
manner of determining the fair market value of shares of Duckwall-ALCO Common
Stock to conform with any then applicable provisions of the Internal Revenue
Code or the regulations issued thereunder.  No amendment, modification
or termination of this Plan may adversely affect the rights of any optionee
under any then outstanding option granted hereunder without the consent of such
optionee.

    

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

    

    16.           Governing Law. This
Plan and the rights of all persons claiming hereunder shall be construed and
determined in accordance with the laws of the State of Kansas.

    

    

    (5-22-03/ph)

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