Document:

AGREEMENT dated this 22nd day of August 2003 by and among Vaquero Partners
LLC, a Texas limited liability company ("VP") and Vaquero Oil & Gas, Inc., a
Texas corporation ("VOG"), together with VOG's principal shareholders Rick Trapp
("Trapp") and Paul Williams ("Williams").

      WHEREAS, VOG and Dune Energy, Inc. ("Dune") are the only members of VP;

      WHEREAS, VP has entered into a master lease with the Welder family dated
August 22, 2003 (as may be amended from time to time, the "Master Lease", a copy
of which has been provided to the parties hereto), pursuant to which VP has
acquired the rights to develop certain lands owned by the Welders in Victoria
County, Texas (the "Welder Lands") as set forth in the Master Lease;

      WHEREAS, VP desires to exploit certain oil and gas prospects that may
exist on the Welder Lands either for its own account or for sales to third
parties; and

      WHEREAS, Trapp and Williams have experience operating, generating and
selling oil and gas prospects.

      NOW THEREFORE, the parties hereto agree as follows:

      Section 1. Retention of VOG by VP; Duties. (a) Pursuant to the terms of
this Agreement, VP hereby retains VOG to act as its operator of record with
respect to the Welder Lands leased by VP under the Master Lease and to generate,
market and sell prospects to third parties on the Welder Lands.

            (b) In connection with the foregoing, VOG at its sole expense shall
      perform all duties necessary to generate, market and sell prospects on the
      Welder Lands including, but not limited to the following:

                  (i) work-up, generate and sell prospects to third parties on
            terms approved by VP;

                  (ii) secure necessary drilling and completion equipment for
            preparation of AFEs and for the timely drilling of wells called for
            under prospect sales and as called for under the terms of the Master
            Lease;

                  (iii) provide on-site supervision of drilling operations on
            prospects sold and oversee field personnel to assure the highest
            standards are delivered to third party working interest owners on
            the most priced advantaged terms achievable;

                  (iv) designate a specific employee of VOG as an Environmental
            Compliance Officer on behalf of VP, VOG and Dune to monitor and
            ensure environmental compliance of well operations with local, state
            and federal guidelines and laws;

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                  (v) maintain all land records on acquired and assigned leases
            in accordance with the highest industry standards including those
            established by the AAPL;

                  (vi) procure all necessary insurance and/or bonds necessary
            for the conduct of oil and gas well drilling, completion and
            production operations including liability and blowout insurance;

                  (vii) negotiate operating agreements with third parties on an
            AAPL form with terms to be approved by VP;

                  (viii) prepare and file all requisite local, state and federal
            reports on well drilling and completion and production operations
            and procure any necessary permits;

                  (ix) monitor the timely disbursement of royalties to
            landowners and/or other interested parties in VP Operated properties
            and as called for under Section III of the Master Lease;

                  (x) market all oil and gas produced from leases acquired by VP
            on behalf of VP and all other third party working interest owners
            and ensure timely remittances to working interest owners from agents
            or principals purchasing such production; and

                  (xi) maintain vendor relationships by providing timely
            remittances of rendered invoices (as approved by VP) in a time frame
            consistent with industry standards.

In order to effectuate the intent of this Agreement, VOG, through its
principals, shall maintain a daily dialogue with VP's Manager, Mark Harrington.
Additionally, on the first day of each month during the Term of this Agreement,
VOG shall prepare and submit to VP for VP's approval, a Plan of Operation and
Budget for that month. VOG shall also provide VP with a weekly progress report
on VP's goals and objectives and prepare such other reports regarding VP's
operations and budget as VP may from time to time request.

      Section 2. Status as Independent Contractor. This Agreement does not
create an employer/employee relationship with VOG, its officers, directors,
employees or agents. All services to be rendered by VOG hereunder shall be
personally rendered by Trapp, Williams and such other employees of VOG as VP
shall consent to in writing. VOG, Trapp and Williams further acknowledge that
VOG shall render all services hereunder as an independent contractor and that
Trapp and Williams shall devote all of their time, energy and attention to
performing VOG's obligations hereunder. Under no circumstance shall VOG, its
officers, directors, employees or agents have the authority to enter into any
agreements, incur any obligations or otherwise bind VP or Dune, without the
express prior written consent from a duly authorized officer of VP or Dune.

<PAGE>

      Section 3. Term. The initial term of this Agreement shall commence on the
date hereof and shall continue for a period of two (2) years thereafter, unless
sooner terminated in accordance with the terms contained herein. The Agreement
shall automatically renew for additional terms of one (1) year each, unless
either party shall have delivered written notice to the other of its intention
not to renew this Agreement, not later than ninety (90) days prior to the
expiration of the then current term.

      Section 4. Advances to Develop Oil and Gas Prospects. (a) In order to
enable VOG to perform its obligations hereunder, VP shall deliver to VOG (i)
$150,000 as a one-time advance on prospect development fees (the "Prospect
Development Advance"), payable in accordance with subsection (b) below, (ii)
91,667 shares Dune's common stock (having an agreed upon value of $.02 per
share) and (iii) commencing on the date that VOG leases its office pursuant to
Section 5 below, $25,000 on the first day of each of the first six (6) months
during the Term of this Agreement and $12,500 on the first day of each month
thereafter for the balance of the Term, for prospect development fees. It is
expressly understood that neither VOG, its officers, directors, employees or
agents shall be entitled to any other remuneration other than as specifically
set forth in this Section 4.

            (b) With respect to the Prospect Development Advance, VOG
acknowledges that it has heretofore received $30,000 of said fee. VP shall
deliver the remaining balance of the Prospect Development Advance ($120,000) to
VOG as follows: (i) no later than five (5) business days following the execution
and delivery of the Master Lease to VP, $45,000 in cash and (ii) no later than
September 15, 2003, $75,000 in cash.

            (c) VOG shall be responsible for all expenses incurred by it, its
officers, directors, employees and agents in connection with the performance by
VOG of its responsibilities and obligations hereunder including, but not limited
to, any costs associated with maintaining its office pursuant to Section 5
below. Notwithstanding the foregoing, VP shall bear the costs associated with
licensing the Seitel 3D data set and, for the first six (6) months of this
Agreement, of retaining one geologist and one geophysicist, on terms approved by
VP. Commencing on the seven (7) month anniversary of this Agreement, the expense
of retaining one geophysicist and one geologist shall be shared equally between
VP and VOG.

      Section 5. Maintainence of Office. No later than twenty-one (21) days
following the date hereof, VOG, at its sole expense, shall lease an office at
such location as shall be approved by VP. Any such office shall have adjacent
office space readily available for lease by Dune and in no event shall VOG's
office be situated further than one (1) mile from any office maintained by Dune.
VOG's office shall be of sufficient size to accommodate Trapp, Williams, such
number of clerical support persons as are necessary to carry out VOG's
obligations hereunder and at least one additional technical

<PAGE>

staff member who shall be a geologist or geophysicist. In addition, the office
shall have a conference room and adequate storage space to maintain books and
records. VOG shall be responsible, at its own expense, for furnishing the office
and for installing all necessary telecommunications equipment, computers and
associated software.

      Section 6. Property Rights. All rights in and to all data, information,
surveys, reports, leases, agreements, practices and processes related to oil and
gas prospects developed or which may be developed on lands leased pursuant to
the Master Lease and any other agreement(s) between VP and the Welder family,
whether developed by VOG, Trapp, Williams or any of VOG's officers, directors,
employees, agents or affiliates, shall be and at all times remain the sole and
exclusive property of VP.

      Section 7. Representations and Warranties of VOG. VOG and each of Trapp
and Williams represent and warrant as follows:

            (i) VOG is a corporation duly organized, validly existing and in
good standing under the laws of the state of Texas, and has the corporate power
to own its properties and carry on its business as now being conducted;

            (ii) Williams, Trapp and Kevin Smith ("Smith") own 45%, 45% and 10%
respectively, of the issued and outstanding shares of capital stock of VOG,
which together constitute all of the issued and outstanding shares of VOG's
capital stock. All of such shares are validly issued, fully paid and
non-assessable, with no personal liability attaching to the ownership thereof,
and are owned free and clear of any lien, encumbrance or claim whatsoever. There
are no rights, options, warrants, conversion rights or agreements for the
purchase or other acquisition from, or sale or issuance by, VOG, Trapp, Williams
and Smith of any shares of its capital stock. No third party has claimed a right
or interest in VOG and neither VOG, Trapp or Williams have any knowledge
regarding such a possible claim.

            (iii) There is not pending, or, to the best of VOG's knowledge,
threatened, any claim, litigation, proceeding, order of any court or
governmental agency against VOG, Trapp or Williams which could have a material
adverse effect on VOG or result in a lien on the shares of VOG capital stock
owned by Trapp and Williams; and

            (iv) This Agreement and the transactions contemplated herein have
been duly authorized by all necessary corporate action on the part of VOG and
has been duly executed and delivered by a duly authorized officer of VOG.

      Section 8. Representations and Warranties of VP. VP represents and
warrants as follows:

            (i) VP is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Texas, and has the
company power to own its properties and carry on its business as now being
conducted; and

<PAGE>

            (ii) This Agreement and the transactions contemplated herein have
been duly authorized by all necessary company action and has been duly executed
and delivered by the duly authorized officer of VP.

      Section 9. Covenants of VOG. VOG, Trapp and Williams hereby covenant and
agree that:

      (i) whenever VOG is required to secure drilling and completion equipment
hereunder, it shall solicit such services and equipment on an arms length
competitive bid process;

      (ii) as soon as practicable following the date hereof, VOG will enter into
an "Area of Mutual Interest" Agreement with VP and Dune with respect to all
lands held by the Welder family, its affiliates heirs and assigns, including a
"halo" of land owned by third parties lying within a fifteen (15) mile radius of
such Welder holdings;

      (ii) neither, VOG, Trapp, Williams nor any of their respective employees,
officers, affiliates or assigns shall acquire (or have the right to acquire),
any direct or indirect beneficial interest in any of the goods, services or
equipment used by VP and other third party working interest owners in drilling,
completion and production operations;

      (iii) VOG will not sell, negotiate, pledge or assign or grant any security
interests in its ownership Interest in VP nor shall it permit to exist any
mortgage, pledge, security interest, encumbrance or lien upon its Interest in
VP; and

      (iv) at no time shall Trapp or Williams own less than 30% individually,
and 60% collectively, of the aggregate issued and outstanding shares of VOG,
unless they have obtained the prior written consent of VP.

      Section 10. Termination. This Agreement may be terminated as follows:

      (i) upon the mutual agreement of the parties signed in writing;

      (ii) by VP in the event of a material breach of this Agreement by VOG,
Trapp or Williams, which breach remains uncured for a period of thirty (30) days
following delivery of written notice to VOG of such material breach;

      (iii) by VOG in the event that VP has failed to pay to VOG any amounts due
under Section 4 hereof and such failure remains uncured for a period of thirty
(30) days following delivery of written notice to VP of such non-payment.

                  (b) Upon the termination of this Agreement, VOG shall no
longer be entitled to receive any compensation hereunder.
<PAGE>

      Section 11. Indemnification. Each of the parties hereto agree to indemnify
and hold harmless the other parties hereto from and against any loss, cost,
liability, or expense (including reasonable attorneys' fees) incurred by such
party by reason of the breach of any of the representations, warranties,
covenants and agreements of each party contained in this Agreement.

      Section 12. Benefit. This Agreement and the rights, powers and duties set
forth herein shall, except as provided herein, bind and inure to the benefit of
the successors and assigns of the parties hereto. VOG many not assign any of its
rights or obligations hereunder without the prior written consent of VP, and any
attempted assignment without such consent shall be void and without effect.

      Section 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of Texas. VP and VOG each
agree that the federal or state courts located in the State of Texas shall have
exclusive jurisdiction in connection with any dispute arising out of this
Agreement.

      Section 14. Notices. Any notice or other written communications required
to be given hereunder shall be given or made by any party hereto to the other in
writing and shall be delivered by personal service or first class mail, postage
prepaid, or overnight courier addressed to the party's address set forth as
follows:

      if to VP:                    Mr. Mark Harrington
                                   16 River Hollow Lane
                                   Houston, TX 77027

      with a copy to:              Matthew Cohen, Esq.
                                   Eaton & Van Winkle
                                   3 Park Avenue - 16th Floor
                                   New York, NY 10016

      if to VOG, Trapp
      or Williams:                 Mr. Rick Trapp
                                   #2 Tiki Circle
                                   Galveston, Texas 77554

                                           AND

                                   Mr. Paul Williams
                                   1416 Kipp Avenue
                                   Kemah, Texas 77565

      or at such other address as the parties may give notice of to the other
party. Notices or written communications shall be deemed to have been
sufficiently given or made: (i) if by personal service, when performed, (ii) if
mailed, three (3) days after being deposited in the mail, postage prepaid, or
(iii) if by overnight courier, one (1) day after delivery to the overnight
courier company.

<PAGE>

      Section 15. Entire Agreement. This Agreement constitutes the entire
Agreement between the parties hereto and supersedes any and all prior and
written agreements between the parties hereto with respect to the subject matter
hereof. This Agreement may not be modified or amended unless signed by the
parties hereto.

      Section 16. Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement.

      IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first set forth above.

VAQUERO PARTNERS LLC                           VAQUERO OIL & GAS, INC.

By: /s/ Mark Harrington                        By: /s/ Rick Trapp
    -----------------------------                  -----------------------------
    Name: Mark Harrington                          Name: Rick Trapp
    Title: President                               Title: President

                                               /s/ Paul Williams
                                               ---------------------------------
                                               Paul Williams, individually

                                               /s/ Rick Trapp
                                               ---------------------------------
                                               Rick Trapp, individually

And with respect to Section
4(b)(i) only:

DUNE ENERGY, INC.

By: /s/ Mark Harrington
    -----------------------------
    Name: Mark Harrington
    Title: PresidentEXHIBIT 4.1
                                                                        SOP03010

THIS OPTION HAS BEEN ISSUED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND THE
QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS (THE "LAWS"). IT
IS UNLAWFUL TO EXERCISE, SELL, PLEDGE OR OTHERWISE DISPOSE OF THIS OPTION, OR
ANY INTEREST THEREIN, OR RECEIVE ANY CONSIDERATION THEREFOR, IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER THE
LAWS, UNLESS EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION REQUIREMENTS
ARE AVAILABLE.

THIS OPTION MAY BE EXERCISED ONLY IN ACCORDANCE WITH THE TERMS OF THIS STOCK
OPTION AGREEMENT.

                                THE RICEX COMPANY

               BOARD MEMBER - NONSTATUTORY STOCK OPTION AGREEMENT

         The RiceX Company, a Delaware corporation (the "Company"), hereby
grants to STEVEN W. SAUNDERS, Trustee or Successor Trustee(s) of the TRUST OF
STEVEN W. SAUNDERS dated February 26, 2002 (the "Optionee"), an option (the
"Option") to purchase a total of 50,000 shares of common stock, par value $.001,
of the Company (the "Common Stock") at an exercise price (the "Exercise Price")
equal to $0.30 per share, which is equal to the fair market value of the
Company's Common Stock on the date of the grant, in all respects subject to the
terms, definitions and provisions of this Nonstatutory Stock Option Agreement
(the "Agreement").

              1. Nature of the Option. The Option is intended to be a
nonstatutory option and not an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

              2. Payment of Exercise Price.

                  (a) Method of Payment. Payment of the Exercise Price for
shares purchased upon exercise of the Option shall be made (i) by delivery to
the Company of cash or a check to the order of the Company in an amount equal to
the purchase price of such shares; (ii) subject to the consent of the Company,
by delivery to the Company of shares of Common Stock of the Company then owned
by the Optionee having a fair market value equal in amount to the purchase price
of such shares in accordance with Section 2(b); or, (iii) by any other means
approved by the Board of Directors and which is consistent with applicable laws
and regulations (including, without limitation, the provisions of Rule 16b-3
under the Securities Exchange Act of 1934 and Regulation T promulgated by the
Federal Reserve Board); or (iv) by any combination of such methods of payment.
<PAGE>
                  (b) Method of Payment - Public Market. In the event there
exists a public market for the Company's Common Stock on the date of exercise,
payment of the exercise price may be made by surrender of shares of the
Company's Common Stock. In this case payment shall be made as follows:

                       (i) Optionee shall deliver to the Secretary of the
Company a written notice which shall set forth the portion of the purchase price
the Optionee wishes to pay with Common Stock, and the number of shares of such
Common Stock the Optionee intends to surrender pursuant to the exercise of this
Option, which shall be determined by dividing the aforementioned portion of the
purchase price by the average of the last reported bid and asked prices per
share of Common Stock of the Company, as reported in The Wall Street Journal
(or, if not so reported, as otherwise reported by the National Association of
Securities Dealers Automated Quotation (NASDAQ) System or, in the event the
Common Stock is listed on a national securities exchange, or on the NASDAQ
Small-Cap Market of any successor national market system, the closing price of
Common Stock of the Company on such exchange as reported in The Wall Street
Journal) for the day on which the notice of exercise is sent or delivered;

                       (ii) Fractional shares shall be disregarded and the
Optionee shall pay in cash an amount equal to such fraction multiplied by the
price determined under subparagraph (i);

                       (iii) The written notice shall be accompanied by a duly
endorsed blank stock power with respect to the number of Shares set forth in the
notice, and the certificate(s) representing said Shares shall be delivered to
the Company at its principal offices within three (3) working days from the date
of the notice of exercise;

                       (iv) The Optionee hereby authorizes and directs the
Secretary of the Company to transfer so many of the Shares represented by such
certificate(s) as are necessary to pay the purchase price in accordance with the
provisions herein;

                       (v) If any such transfer of Shares requires the consent
of the California Commissioner of Corporations or of some other agency under the
securities laws of any other state, or an opinion of counsel for the Company or
Optionee that such transfer may be effected under applicable federal and state
securities laws, the time periods specified herein shall be extended for such
periods as the necessary request for consent to transfer is pending before said
commissioner or other agency, or until counsel renders such an opinion, as the
case may be. All parties agree to cooperate in making such request for transfer,
or in obtaining such opinion of counsel, and no transfer shall be effected
without such consent or opinion if required by law; and

                       (vi) Notwithstanding any other provisions herein, the
Optionee shall only be permitted to pay the purchase price with shares of the
Company's Common Stock owned by him as of the exercise date in the manner and
within the time periods allowed under Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 as such regulation is presently constituted, as
it is amended from time to time, and as it is interpreted now or hereafter

<PAGE>
by the Securities and Exchange Commission and any such shares have been held by
the Optionee for not less than six (6) months.

              3. Exercise of Option. The Option shall vest and become
exercisable during its term, subject to the provisions of Section 5 below, as
follows:

                  (a) Vesting and Right to Exercise.

                       (i) The Option hereby granted shall vest and become
exercisable on a prorated basis over a twelve-month period beginning September
23, 2003. The option will be fully vested on September 23, 2004.

         Subject to the provisions of subparagraph (ii) and (iii) below, the
Optionee can exercise any portion of the Option, which has vested until the
expiration of the Option term.

         If a "change of control" of the Company should occur, as defined below,
then the Option shall immediately vest and become exercisable in full. For
purposes of the foregoing provision, a "change in control" means the occurrence
of any of the following:

                           (A) any "person," as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as emended (the
"Exchange Act") (other than the Company or its existing shareholders) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company (or a successor to
the Company) representing 50% or more of the combined voting power of the then
outstanding securities of the Company or such successor;

                           (B) the dissolution of the Company or liquidation of
more than 50% or more in value of the assets of the Company, (ii) or any merger
or reorganization of the Company whether or not another entity is the survivor,
(iii) a transaction (other than the initial public offering of the Company's
shares) pursuant to which holders, as a group, of all of the shares of the
Company outstanding before the transaction, hold, as a group, less than 50% of
the combined voting power of the Company or any successor company outstanding
after the transaction, or (iv) any other event or series of events which the
Optionee determines, in his discretion, would materially alter the structure of
the Company or its ownership.

                       (ii) In the event of the Optionee's death, disability,
other termination of employment or ceases to be a member of the Board prior to
exercise, the exercisability of the Option shall be governed by Section 5 below.

                       (iii) The Option may be exercised in whole or in part but
may not be exercised as to fractional shares.

                  (b) Method of Exercise. In order to exercise any portion of
the Option, the Optionee shall execute and deliver to the Chief Financial
Officer of the Company the Notice of Exercise of Stock Option in the form
attached hereto as Exhibit "A," together with the Consent of Spouse. The Notice
of Exercise must be accompanied by payment in full of the

<PAGE>
aggregate purchase price for the Shares to be purchased in the type of
consideration set forth in Section 2. The Notice of Exercise may be delivered to
the Company at any time. The certificate(s) for the Shares as to which the
Option has been exercised shall be registered in the name of Optionee or his
designee.

                  (c) Restrictions on Exercise. This Option may not be exercised
if the issuance of the shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities law or any other law or regulation. As a condition
to the exercise of the Option, the Company may require the Optionee to make any
representation or warranty to the Company at the time of exercise of the Option
as in the opinion of legal counsel for the Company may be required by any
applicable law or regulation, including the execution and delivery of an
appropriate representation statement. The stock certificate(s) for the Shares
issued upon exercise of the Option may bear appropriate legends restricting
transfer.

                  (d) Delivery of Certificates. The Company shall deliver the
certificate(s) for the Shares issued upon exercise of the Option to the Optionee
as soon as is practicable; provided, however, that if any law or regulation
requires the Company to take action with respect to such shares before the
issuance thereof, including, without limitation, actions taken pursuant to
Section 6 below, then the date of delivery of such Shares shall be extended for
a period necessary to take such action.

              4. Non-Transferability of Option. This Option may be exercised
during the lifetime of the Optionee only by the Optionee and may not be
transferred in any manner other than by will or by the laws of descent and
distribution. The terms of this Option shall be binding upon the executors,
administrators, heirs and successors of the Optionee.

              5. Term of the Option. Except as otherwise provided in this
Agreement, to the extent not previously exercised, the right to exercise the
Option shall terminate on the tenth (10th) anniversary of the date of grant.
Notwithstanding the foregoing, if an Optionee ceases to be a Board Member of the
Company for any reason, except death and disability, he or she may, but only
within ninety (90) days after the date he or she ceases to be a Board Member of
the Company, exercise his or her Option to the extent that he or she was
entitled to exercise it at the date of such termination, and in the case of the
Optionee's death or disability, the Optionee (or the Administrator or Executor
or other Representative of the Optionee's estate) may, but only within one (1)
year after the date he or she ceases to be a Board Member of the Company due to
death or disability, exercise his or her Option to the extent that he or she was
entitled to exercise it at the date of such termination; provided, however that
in no event may the Option be exercised after the ten (10) year term has
expired. To the extent that the Optionee was not entitled to exercise an Option
at the date of such termination, or if he or she does not exercise such Option
(which he or she was entitled to exercise) within the time specified herein, the
Option shall terminate.

              6. Adjustments Upon /Changes in Capitalization; Other Adjustments.
Subject to any required action by the shareholders of the Company, the number of
Shares and the Exercise Price shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, combination,

<PAGE>
reclassification, the payment of a stock dividend on the Common Stock or any
other increase or decrease in the number of shares of Common Stock of the
Company effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect and no adjustment by reason thereof
shall be made with respect to, the number of shares subject to, or the Exercise
Price of, this Option.

              The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the number of shares, as well as
the Exercise Price, in the event that the Company effects one or more
reorganizations, recapitalizations, rights offerings, or other increases or
reductions of shares of its outstanding common stock, and in the event of the
Company being consolidated with or merged into any other corporation; provided,
however, that in no event shall the Optionee be adversely affected by such
adjustment.

              The Board may, if it so determines in the exercise of its sole
discretion, also make provision for changing, modifying, amending or adjusting
any of the terms of this Option solely in order for the Company to perfect a
significant financing; provided, however, that in no event shall the Optionee be
adversely affected by such adjustment.

              7. Rights of Shareholder. Optionee shall have no rights as a
shareholder with respect to the shares until the date of the issuance or the
transfer to the Optionee of the certificate(s) for such shares and only after
the Exercise Price for such shares has been paid in full.

              8. Amendment. Except as set forth in Section 6, this Agreement may
not be amended without the written consent of the Optionee.

              9. Income Tax Withholding. The Optionee authorizes the Company to
withhold, in accordance with applicable law from any compensation payable to him
or her, any taxes required to be withheld by federal, state or local laws as a
result of the exercise of this Option. Furthermore, in the event of any
determination that the Company has failed to withhold a sum sufficient to pay
all withholding taxes due in connection with the exercise of this Option, the
Optionee agrees to pay the Company the amount of such deficiency in cash within
five (5) days after receiving a written demand from the Company to do so,
whether or not Optionee is an employee or director of the Company at that time.

              10. Investment Representations; Legends.

                  (a) Representations. The Optionee represents, warrants and
covenants that:

                       (i) Any shares purchased upon exercise of this Option
shall be acquired for the Optionee's account for investment only, and not with a
view to, or for sale in connection with, any distribution of the shares in
violation of the Securities Act of 1933 (the "Securities Act"), or any rule or
regulation under the Securities Act.
<PAGE>
                       (ii) The Optionee has had such opportunity as he or she
has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Optionee to evaluate the merits and
risks of his or her investment in the Company.

                       (iii) The Optionee is able to bear the economic risk of
the holding of such shares acquired pursuant to the exercise of this Option for
an indefinite period.

                       (iv) The Optionee understands that the Shares acquired
pursuant to the exercise of this Option are not registered under the Securities
Act and are "restricted securities" within the meaning of Rule 144 under the
Securities Act and may not be transferred, sold or otherwise disposed of in the
absence of an effective registration statement with respect to the Shares filed
and made effective under the Securities Act of 1933, or an opinion of counsel
satisfactory to the Company to the effect that registration under such Act is
not required.

By making payment upon exercise of this Option, the Optionee shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 10.

                  (b) Legends of Stock Certificate. All stock certificates
representing share of Common Stock issued to the Optionee upon exercise of this
Option shall have affixed thereto legend(s) substantially in the following
forms, in addition to any other legends required by applicable state law:

         "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED,
         SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
         REGISTRATION STATEMENT WITH RESPECT TO THE SHARES EVIDENCED BY THIS
         CERTIFICATE, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF 1933,
         OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
         REGISTRATION UNDER SUCH ACT IS NOT REQUIRED."

DATE OF GRANT:  September 23, 2003

The RiceX Company

                            By:  /s/ DANIEL L. MCPEAK, SR.
                                 ---------------------------------------
                                 Daniel L. McPeak, Sr., Chief Executive Officer

                            By:  /s/ TODD C. CROW
                                 ---------------------------------------
                                 Todd C. Crow, Chief Financial Officer
<PAGE>
         The Optionee acknowledges receipt of a copy of the Plan, and represents
that he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof. The
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board of Directors of The RiceX Company upon any
questions arising under such Agreement.

Dated:   September 23, 2003

                                  /s/ STEVEN W. SAUNDERS
                                  ----------------------------------------------
                                  STEVEN W. SAUNDERS, Trustee or Successor
                                  Trustee(s) of the TRUST OF STEVEN W. SAUNDERS
                                  dated February 26, 2002 ("Optionee")

CONSENT OF SPOUSE

         I, ________________________, spouse of the Optionee who executed the
foregoing Agreement attached hereto, hereby agree that my spouse's interest in
the shares of Common Stock of The RiceX Company subject to said Agreement shall
be irrevocably bound by the Agreement's terms. I agree to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
of The RiceX Company upon any questions arising under such Agreement. I further
agree that my community property interest in such Shares, if any, shall
similarly be bound by said Agreement and that such consent is binding upon my
executors, administrators, heirs and assigns. I agree to execute and deliver
such documents as may be necessary to carry out the intent of said Agreement and
this consent.

Dated:   ________________________

                                  _____________________________________________
                                  Signature

                                  _____________________________________________
                                  Print Name

<PAGE>

                                    EXHIBIT A

TO:        The RiceX Company
           1241 Hawks Flight Court, Suite 103
           El Dorado Hills, CA  95762

SUBJECT:   NOTICE OF EXERCISE OF STOCK OPTIONS

With respect to the stock option granted to the undersigned by The RiceX
Company, (the "Company") on (grant date) _______________________, to purchase an
aggregate of ________________________ shares of the Company's Common Stock, this
is official notice that the undersigned hereby elects to exercise such option to
purchase shares as follows:

         Number of Shares  ________________________

         Date of Purchase: ________________________

         Mode of Payment:  ________________________  (certified check or cash)

The shares should be issued as follows:

         Name:             _____________________________________________

         Address:          _____________________________________________

                           _____________________________________________

         Signed by (print name):  _____________________________________________

         Signature:               _____________________________________________

         Dated:                   _____________________________________________

Please send this notice of exercise to:

         The RiceX Company
         1241 Hawks Flight Court, Suite 103
         El Dorado Hills, CA  95762

         Phone:  916-933-3000

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