UNITED STATES SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly report pursuant to Section 13 of 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
Commission File Number 0-23604
DAKOTAH, INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
South Dakota 46-0339860
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
One North Park Lane
Webster, SD 57274
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Zip Code: (605) 345-4646
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes: X No:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, $.01 par value, 3,499,755 shares outstanding
as of May 1, 1996.
DAKOTAH, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited):
March 31, 1996 and December 31,1995
Statements of Earnings (Unaudited):
Three month periods ended
March 31, 1996, and March 31, 1995
Statements of Cash Flows (Unaudited):
Three month periods ended
March 31, 1996, and March 31, 1995
Notes to Financial Statements:
March 31, 1996
Item 2. Management's Discussion and Analysis
or Plan of Operation
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since items
are inapplicable or answer is negative
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit Number: Description:
10.1 1995 Stock Option Plan
10.2 1996 Stock Option Plan for Directors
10.3 Nonstatutory Option Agreement with Orion
Financial Corp. of South Dakota dated
effective January 1, 1996
27.1 Financial Data Schedule
(b.) Reports on Form 8-K None
DAKOTAH, INCORPORATED
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 10,326 $ 477,330
Accounts receivable less allowance
for doubtful accounts of $330,895
in 1996 and $324,000 in 1995 4,927,952 6,365,606
Inventories 8,908,975 7,364,035
Prepaid expenses 981,460 477,507
Deferred income taxes 467,000 467,000
----------- -----------
Total current assets 15,295,713 15,151,478
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 36,000 36,000
Buildings and improvements 1,414,715 1,405,536
Leasehold improvements 123,731 123,731
Machinery and equipment 2,412,076 2,047,676
Office equipment, furniture and fixtures and other 585,014 481,816
----------- -----------
4,571,536 4,094,759
Less accumulated depreciation & amortization 2,047,908 1,885,274
----------- -----------
2,523,628 2,209,485
OTHER ASSETS
Deferred income taxes 349,000 349,000
Other 425,869 425,869
----------- -----------
774,869 774,869
----------- -----------
$18,594,210 $18,135,832
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ 2,849,882 $ 3,666,796
Current maturities of long-term obligations, including
$440,409 in 1996 and $234,077 in 1995 to related parties 522,628 577,152
Accounts payable 3,542,325 2,253,281
Accrued liabilities
Compensation and related benefits 606,558 654,036
Other 419,098 413,025
----------- -----------
Total current liabilities 7,940,491 7,564,290
LONG TERM OBLIGATIONS, less current maturities, including
$364,808 in 1996 and $572,062 in 1995 to related parties 1,131,682 1,051,487
STOCKHOLDERS' EQUITY
Common stock, par value $.01; 10,000,000 shares authorized;
issued & outstanding shares 3,499,755 34,998 34,998
Additional contributed capital 6,804,156 6,804,156
Retained earnings 2,682,883 2,680,901
----------- -----------
9,522,037 9,520,055
----------- -----------
$18,594,210 $18,135,832
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
DAKOTAH, INCORPORATED
STATEMENTS OF EARNINGS
(Unaudited)
For the three months ended March 31,
1996 1995
----------- -----------
Net sales $ 7,404,824 $ 6,245,326
Cost of goods sold 5,440,591 4,603,793
----------- -----------
Gross profit 1,964,233 1,641,533
Operating expenses
Selling 1,094,198 926,670
General and administrative 774,926 631,751
----------- -----------
1,869,124 1,558,421
----------- -----------
Operating profit 95,109 83,112
Other income (expense)
Interest expense (78,878) (40,252)
Gain on sale of equipment -- 56,210
Other (13,134) 10,317
----------- -----------
(92,012) 26,275
Earnings before income taxes 3,097 109,387
Income tax expense 1,115 39,400
----------- -----------
NET EARNINGS $ 1,982 $ 69,987
=========== ===========
Net earnings per share $ -- $ 0.02
=========== ===========
Weighted average
common shares outstanding 3,499,755 3,499,755
=========== ===========
The accompanying notes are an integral part of these statements.
DAKOTAH, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,982 $ 69,987
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
Depreciation and amortization 162,634 86,279
Changes in assets and liabilities:
Accounts receivable 1,437,654 556,710
Inventories (1,544,940) (64,371)
Prepaid expenses (503,953) (150,306)
Accounts payable 1,289,044 (151,560)
Accrued liabilities (41,405) 14,365
Income taxes payable -- (199,409)
----------- -----------
Total adjustments 799,034 91,708
----------- -----------
Net cash provided by operating activities 801,016 161,695
Cash flows from investing activities:
Capital expenditures (476,777) (68,905)
----------- -----------
Net cash used in investing activities (476,777) (68,905)
Cash flows from financing activities:
Net payments under line-of-credit (816,914) (109,025)
Proceeds from issuance of long-term obligations 300,000 92,126
Principal payments on long-term obligations (274,329) (87,032)
----------- -----------
Net cash used in financing activities (791,243) (103,931)
----------- -----------
Net decrease in cash and cash equivalents (467,004) (11,141)
Cash and cash equivalents at beginning of period 477,330 575,684
----------- -----------
Cash and cash equivalents at end of period $ 10,326 $ 564,543
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 63,128 15,607
Income taxes -- 239,000
</TABLE>
The accompanying notes are an integral part of these statements.
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions of Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading.
In the opinion of management, the unaudited condensed financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position as of March 31, 1996, the
results of operations for the three month periods ended March 31, 1996 and 1995,
and the cash flows for the three month periods ended March 31, 1996 and 1995.
Operating results for interim periods are not necessarily indicative of results
which may be expected for the year as a whole.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS:
The following table sets forth the percentage relationship to net sales of
certain items in the Company's statements of earnings for the three month
periods ended March 31, 1996 and 1995.
Percentage of Net Sales
for the three month
period ended March 31,
1996 1995
------------------------
Net Sales 100.0% 100.0%
Gross Profit 26.5 26.3
Selling Expenses 14.8 14.9
General & Administrative 10.4 10.1
Operating Profit 1.3 1.3
Interest Expense 1.1 0.6
Gain on Sale of Equipment 0.0 0.9
Earnings Before Income Taxes 0.0 1.8
Net Earnings 0.0 1.1
NET SALES increased from $6,245,000 in the first quarter of 1995 to $7,405,000
in the first quarter of 1996. The increase in net sales in the first quarter of
1996, as compared to the first quarter of 1995, is due primarily to the effect
of the Company's new Polarfleece(R) line for products and expanded sales of the
Company's table linen and bedding and accessories products. The sales increase
was adversely affected by a reduction of sales of triple woven cotton throws and
footstools.
GROSS MARGIN PERCENTAGES increased slightly from 26.3% in the first quarter of
1995 to 26.5% for the same period of 1996. During the first quarter of 1996,
compared to the comparable period of 1995, gross margin was positively affected
by a decrease in the raw materials as a percentage of sales and negatively
affected by increased depreciation expense and other manufacturing overhead
expenses related to new manufacturing capacity.
SELLING EXPENSES, as a percentage of net sales, were consistent with the same
period a year earlier. The amount of selling expenses increased primarily as the
result of the Company's efforts to develop new channels of distribution and
customers, including but not limited to the Company's expansion of in-house
sales staff, participation in the Heimtextil trade show in Frankfurt, and
expanded showrooms in Chicago and Atlanta.
GENERAL AND ADMINISTRATIVE EXPENSES increased from $632,000 in the first quarter
of 1995 to $775,000 in the same period of 1996. The increase is primarily due to
the Company's expansion design and product development capabilities and middle
management and clerical support. General and administrative expenses were
adversely affected by the April 18, 1996 bankruptcy filing of Pacific Linen, who
owes the Company $113,000. The allowance for doubtful accounts includes a
reserve for the entire Pacific Linen account receivable.
GAIN ON SALE OF EQUIPMENT was $56,000 in the first quarter of 1995, compared to
no gain or loss during the first quarter of 1996. The 1995 gain resulted from
the sale of excess equipment.
INTEREST EXPENSE increased from $40,000 in the first quarter of 1995 to $79,000
in the first quarter of 1996. This increase was the result of higher first
quarter average borrowings to finance capital expenditures, and higher accounts
receivable and inventories.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $7.6 million as of December 31, 1995 compared to $7.4
million as of March 31, 1996.
At December 31, 1995, the Company had cash and cash equivalents of $477,000 and
$10,000 at March 31, 1996. The decrease in cash was applied to the Company's
revolving line-of-credit.
The Company has used and expects to continue using bank lines of credit to meet
its short-term working capital requirements. During 1995, the Company
renegotiated its credit facility. The new credit facility, which expires August
1997, consists of a revolving note and a term note. The total amount available
under the revolving note, which is due on demand, is limited to the lesser of $6
million or a defined borrowing base of eligible accounts receivable.
During March of 1996, the Company renegotiated its line of credit to allow for a
temporary advance against inventory to temporarily finance the capital
expenditures related to the opening of the new Redfield Polarfleece(R)
manufacturing facility and the procurement of additional Polarfleece(R) fabric
at advantageous prices from the Company's supplier of Polarfleece(R) fabrics.
The term note is due on demand and requires monthly principal payments of
$20,833. Both notes provide for monthly interest payments at 1.5% above the
bank's prime rate and are collateralized by accounts receivable, inventory,
equipment, and general intangibles. The outstanding balances on the revolving
note and term note were $1,954,000 and $896,000 at March 31, 1996.
For the quarter ended March 31, 1996, the Company's capital expenditures were
$477,000. The first quarter of 1996, capital expenditures include $364,000 to
expand manufacturing capacity, upgrade existing buildings, and additional
production equipment and $102,000 to upgrade the Company's computer system. The
Company expects to spend approximately an additional $350,000-$500,000 for the
remainder of 1996 to expand capacity, up-grade existing buildings and production
equipment. In addition, the Company expects to spend an additional $100,000 to
continue the upgrade and expansion of the Company's computer system.
Upon termination of the officers' stock appreciation program, the Company became
indebted to the Company's President and a former Executive Vice President in the
aggregate amount of $1,318,000. As of March 31, 1996, the total outstanding
indebtedness was $668,000. This indebtedness bears interest at 6% per and is
payable in varying installments through January 1998.
The Company believes that cash flows generated from operations and funds
available as a result of its borrowing capacity will be adequate to meet its
short-term working capital, projected capital expenditures and other financing
needs.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registered has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAKOTAH, INCORPORATED
May 7, 1995 By: /s/ Troy Jones, Jr.
----------------------
Troy Jones, Jr.
Chief Executive Officer
(Principal Financial and Accounting
Officer)
May 7, 1995 By: /s/ George Whyte
-------------------
George Whyte
President and Chairman
EXHIBIT 10.1
DAKOTAH, INCORPORATED
1995 STOCK OPTION PLAN
Article I. Establishment and Purpose
1.1 Establishment. Dakotah, Incorporated, a South Dakota corporation
("Company"), hereby establishes a stock option plan for employees and others
providing services to the Company, as described herein, which shall be known as
the "1995 STOCK OPTION PLAN" ("Plan"). The Plan permits the granting of
Nonstatutory Stock Options and Incentive Stock Options.
1.2 Purpose. The purposes of this Plan are to enhance shareholder
investment by attracting, retaining, and motivating key employees and
consultants of the Company and to encourage stock ownership by such employees
and consultants by providing them with a means to acquire a proprietary interest
in the Company's success.
Article II. Definitions
2.1 Definitions. Unless the context clearly requires otherwise, the
following terms shall have the respective meanings set forth below, and when
said meaning is intended, the term shall be capitalized.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee, as specified in Article
IV hereof, appointed by the Board to administer the Plan.
(d) "Company" means Dakotah, Incorporated, a South Dakota
corporation (including any and all subsidiaries).
(e) "Consultant" means any person or entity, including an officer
or director of the company who provides services (other than
as an Employee) to the Company.
(f) "Date of Exercise" means the date the Company receives notice
by an Optionee of the exercise of an Option pursuant to
Section 8.1 of this Plan. Such notice shall indicate the
number of shares of Stock as to which the Optionee intends to
exercise an Option.
(g) "Employee" means any person, including an officer or director
of the Company, who is employed by the Company.
(h) "Exchange Act" means the Securities and Exchange Act of 1934,
as amended.
(i) "Fair Market Value" means the closing price of the Stock as
reported by NASDAQ on the applicable day, or if there has been
no sale on that date, on the last preceding date on which a
sale occurred, or such other value of the Stock as shall be
specified by the Board.
(j) "Incentive Stock Option" means an Option granted under this
Plan which is designated as an Incentive Stock Option and is
intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code.
(k) "Insider" means a person who is, at the time of an Option
grant hereunder, an officer, director or holder of more than
ten percent of the outstanding shares of the Stock, as defined
in Section 16 of the Exchange Act.
(l) "Nonstatutory Option" means an Option granted under this Plan
which is not intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Except as
otherwise specified herein, Nonstatutory Options may be
granted at such times and subject to such restrictions as the
Board shall determine without conforming to the statutory
rules of Section 422 of the Code applicable to incentive stock
options.
(m) "Option" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified
period of time. For purposes of this Plan, an Option may be
either an Incentive Stock Option or a Nonstatutory Option.
(n) "Optionee" means a person to whom an Option has been granted
under the Plan.
(o) "Parent Corporation" shall have the meaning set forth in
Section 424(e) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(p) "Subsidiary Corporation" shall have the meaning set forth in
Section 424(f) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(q) "Significant Shareholder" means an individual who, within the
meaning of Section 422(b)(6)of the Code, owns Stock possessing
more than ten percent of the total combined voting power of
all classes of stock of the Company or of any Parent
Corporation or Subsidiary Corporation of the Company. In
determining whether an individual is a Significant
Shareholder, an individual shall be treated as owning Stock
owned by certain relatives of the individual and certain Stock
owned by corporations in which the individual is a
shareholder, partnerships in which the individual is a
partner, and estates or trusts of which the individual is a
beneficiary, all as provided in Section 424(d) of the Code.
(r) "Stock" means the common stock of the Company.
2.2 Gender and Number. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
Article III. Eligibility and Participation
3.1 Eligibility. All Employees are eligible to participate in this Plan
and receive Incentive Stock Options and/or Nonstatutory Options hereunder. All
Consultants are eligible to participate in this Plan and receive Nonstatutory
Options hereunder.
3.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all Employees and Consultants
those to whom Options shall be granted and shall determine the nature of and
number of shares of Stock subject to each such Option.
Article IV. Administration
4.1 The Committee. The Plan shall be administered by a Committee
appointed by the Board consisting of not fewer than two Directors who shall be
appointed from time to time by, and shall serve at the discretion of, the Board.
Unless otherwise determined by the Board, no member of the Committee shall
receive any Option pursuant to the Plan or any similar plan of the Company or
any of its subsidiaries while serving on the Committee, or shall have received
any such Option at any time within one year prior to his or her service on the
Committee, or, if different, for the time period just necessary to fulfill the
then current Rule 16b-3 requirements under the Exchange Act, except for Options
granted pursuant to a formula plan meeting the conditions of Rule
16b-3(c)(2)(ii). If for any reason the Committee does not qualify to administer
the Plan disinterestedly as contemplated by Rule 16b-3 of the Exchange Act, or
as may be required under applicable tax law to permit a deduction with respect
to certain Options issued under the Plan, the Board of Directors may appoint a
new Committee so as to comply with the disinterested administration requirements
of Rule 16b-3 and such tax law.
4.2 Authority of the Committee. The Committee shall have full power
except as limited by law or by the Articles of Incorporation or Bylaws of the
Company, and subject to the provisions herein, to determine the size and types
of Options; to determine the terms and conditions of such Options in a manner
consistent with the Plan; to construe and interpret the Plan and any agreement
or instrument entered into under the Plan; to establish, amend, or waive rules
and regulations for the Plan's administration; and (subject to the provisions of
Article 12 herein) to amend the terms and conditions of any outstanding Option
to the extent such terms and conditions are within the discretion of the
Committee as provided in the Plan. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authorities as
identified hereunder.
The discretion of the Committee shall be limited to the extent
necessary to retain the status of the Committee members as "disinterested
persons" pursuant to Rule 16b-3 of the Exchange Act.
4.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all persons, including the Company, its shareholders, Employees, Consultants,
Optionees, and their respective successors.
Article V. Stock Subject to the Plan
5.1 Number. Subject to adjustment as provided in Section 5.3 herein,
the total number of shares of Stock hereby made available for grant and reserved
for issuance under the Plan shall be 800,000. The aggregate number of shares of
Stock available under this Plan shall be subject to adjustment as provided in
Section 5.3. The total number of shares of Stock may be authorized but unissued
shares of Stock, or shares acquired by purchase as directed by the Board from
time to time in its discretion, to be used for issuance upon exercise of Options
granted hereunder.
5.2 Lapsed Options. If an Option shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares of Stock
subject thereto shall (unless the Plan shall have terminated) become available
for other Options under the Plan.
5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number of shares of Stock set forth in Section 5.1 shall be
appropriately adjusted by the Committee, whose determination shall be
conclusive; provided, however, that fractional shares shall be rounded to the
nearest whole share. In any such case, the number and kind of shares that are
subject to any Option (including any Option outstanding after termination of
employment) and the Option price per share shall be proportionately and
appropriately adjusted without any change in the aggregate Option price to be
paid therefor upon exercise of the Option.
Article VI. Duration of the Plan
6.1 Duration of the Plan. Subject to shareholder approval, the Plan
shall be in effect for ten years from the date of its adoption by the Board. Any
Options outstanding at the end of said period shall remain in effect in
accordance with their terms. The Plan shall terminate before the end of said
period if all Stock subject to it has been purchased pursuant to the exercise of
Options granted under the Plan.
Article VII. Terms of Stock Options
7.1 Grant of Options. Subject to Section 5.1, Options may be granted to
Employees or Consultants at any time and from time to time as determined by the
Committee; provided, however, that Consultants may receive only Nonstatutory
Options, and may not receive Incentive Stock Options. The Committee shall have
complete discretion in determining the number of shares of Stock subject to an
Option and the number of Options granted to each Optionee. In making such
determinations, the Committee may take into account the nature of services
rendered by such Employees or Consultants, their present and potential
contributions to the Company, and such other factors as the Committee in its
discretion shall deem relevant. The Committee also shall determine whether an
Option is to be an Incentive Stock Option or a Nonstatutory Option.
The aggregate Fair Market Value (determined at the date of grant) of
shares of Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Optionee during any calendar year under all plans of
the Company under which Incentive Stock Options may be granted (and all such
plans of any Parent Corporations and any Subsidiary Corporations of the Company)
shall not exceed $100,000.
Nothing in this Article VII of the Plan shall be deemed to prevent the
grant of Options in excess of the maximums established by the preceding
paragraph where such excess amount is treated as a Nonstatutory Option. In no
event, however, shall the number of shares of Stock with respect to which
Nonstatutory Stock Options may be granted to any Employee exceed 250,000 in any
fiscal year.
The Committee is expressly given the authority to issue amended Options
with respect to shares of Stock subject to an Option previously granted
hereunder. An amended Option amends the terms of an Option previously granted
and thereby supersedes the previous Option.
7.2 No Tandem Options. Where an Option granted under this Plan is
intended to be an Incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's right
to exercise another Option, or vice versa, such that the Option intended to be
an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under Section 422 of the Code.
7.3 Option Agreement. As determined by the Committee on the date of
grant, each Option shall be evidenced by an Option agreement (the "Option
Agreement") that includes the nontransferability provisions of Section 10.2
hereof and specifies: whether the Option is an Incentive Stock Option or a
Nonstatutory Option; the Option price; the duration of the Option; the number of
shares of Stock to which the Option applies; any vesting or serial exercise
restrictions which the Committee may impose; and any other terms or conditions
which the Committee may impose.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.4 Option Price. No Incentive Stock Option granted pursuant to this
Plan shall have an Option price that is less than the Fair Market Value of Stock
on the date the Option is granted. Incentive Stock Options granted to
Significant Shareholders shall have an Option price of not less than 110 percent
of the Fair Market Value of Stock on the date of grant. The Option price for
Nonstatutory Options shall be equal to the Fair Market Value of Stock on the
date the Option is granted and shall not be subject to the restrictions
applicable to Incentive Stock Options.
7.5 Term of Options. Each Option shall expire at such time as the
Committee shall determine when it is granted, provided however that no Option
shall be exercisable later than the tenth anniversary date of its grant. By its
terms, an Incentive Stock Option granted to a Significant Shareholder shall not
be exercisable after five years from the date of grant.
7.6 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for all
Optionees.
7.7 Payment. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in cash, or
(ii) if acceptable to the Committee, in Stock having a Fair Market Value at the
time of the exercise equal to the exercise price (provided that, in the case of
an Insider, the Stock that is tendered as payment upon exercise of the Option
has been held by the Optionee for at least six months prior to its tender), or
in some other form, including a combination of the above; provided, however, in
the case of an Incentive Stock Option, that said other form of payment does not
prevent the Option from qualifying for treatment as an "incentive stock option"
within the meaning of the Code. In addition, the Company may establish a
cashless exercise program in accordance with Federal Reserve Board Regulation T.
Article VIII. Written Notice, Issuance of
Stock Certificates, Shareholder Privileges
8.1 Written Notice. An Optionee wishing to exercise an Option shall
give written notice to the Chief Financial Officer of the Company, in the form
and manner prescribed by the Committee. Except for approved "cashless
exercises," full payment for the shares exercised pursuant to the Option must
accompany the written notice.
8.2 Issuance of Stock Certificates. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock. Such certificate may bear a legend restricting
transfer thereof.
8.3 Privileges of a Shareholder. An Optionee or any other person
entitled to exercise an Option under this Plan shall not have shareholder
privileges with respect to any Stock covered by the Option until the date of
issuance of a stock certificate for such stock.
Article IX. Termination of Employment
9.1 Death. Unless otherwise determined by the Committee, if an
Optionee's employment in the case of an Employee, or provision of services as a
Consultant, in the case of a Consultant, terminates by reason of death, the
Option may thereafter be exercised at any time prior to the expiration date of
the Option or within 12 months after the date of such death, whichever period is
the shorter, by the person or persons entitled to do so under the Optionee's
will or, if the Optionee shall fail to make a testamentary disposition of an
Option or shall die intestate, the Optionee's legal representative or
representatives. Unless otherwise determined by the Committee, the Option shall
be exercisable only to the extent that such Option was exercisable as of the
date of death.
9.2 Termination Other Than For Cause Or Due to Death. Unless otherwise
determined by the Committee, in the event of an Optionee's termination of
employment, in the case of an Employee, or termination of the provision of
services as a Consultant, in the case of a Consultant, other than by reason of
death or for cause, the Optionee may exercise such portion of his Option as was
exercisable by him at the date of such termination (the "Termination Date") at
any time within three (3) months of the Termination Date; provided, however,
that where the Optionee is an Employee, and is terminated due to disability
within the meaning of Code Section 422(c)(6), such Optionee may exercise such
portion of any Option as was exercisable by such Optionee on his or her
Termination Date within one year of such Termination Date. In any event, the
Option cannot be exercised after the expiration of the term of the Option.
Unless otherwise determined by the Committee, Options not exercised within the
applicable period specified above shall terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Committee shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 Termination for Cause. In the event of an Optionee's termination of
employment, in the case of an Employee, or termination of the provision of
services as a Consultant in the case of a Consultant, which termination is by
the Company for cause, any Option or Options held by such Optionee under the
Plan, to the extent not exercised before such termination, shall terminate
immediately. "Cause" shall be determined by the Committee in its sole
discretion.
Article X. Rights of Optionees
10.1 Service. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment, or any
Consultant's services, at any time, nor confer upon any Employee any right to
continue in the employ of the Company, or upon any Consultant any right to
continue to provide services to the Company.
10.2 Nontransferability. Except as otherwise determined by the
Committee in the case of Nonstatutory Options, all Options granted under this
Plan shall be nontransferable by the Optionee, other than by will or the laws of
descent and distribution, and shall be exercisable during the Optionee's
lifetime only by the Optionee.
Article XI. Optionee-Employee's
Transfer or Leave of Absence
11.1 Optionee-Employee's Transfer or Leave of Absence. For Plan
purposes--
(a) A transfer of an Optionee who is an Employee from the Company
to a Subsidiary Corporation or Parent Corporation, or from one
such corporation to another, or
(b) a leave of absence for such an Optionee (i) which is duly
authorized in writing by the Company, and (ii) if the Optionee
holds an Incentive Stock Option, which qualifies under the
applicable regulations under the Code which apply in the case
of incentive stock options,
shall not be deemed a termination of employment. However, under no circumstances
may an Optionee exercise an Option during any leave of absence, unless
authorized by the Committee.
Article XII. Amendment,
Modification, and Termination of the Plan
12.1 Amendment, Modification, and Termination of the Plan. The Board
may at any time terminate, and from time to time may amend or modify the Plan,
provided, however, that
(a) no such action of the Board, without approval of the
shareholders, may --
(i) increase the total amount of Stock that may be
purchased through Options granted under the Plan,
except as provided in Section 5.1; or
(ii) change the class of Employees or Consultants eligible
to receive Options; and
(b) without the approval of the shareholders of the Company (as
may be required by the Code, by Section 16 of the Exchange
Act, by any national securities exchange or system on which
the Stock is then listed or reported, or by a regulatory body
having jurisdiction with respect hereto) no such termination,
amendment, or modification may:
(i) materially increase the total number of shares that
may be granted to Insiders under this Plan;
(ii) materially modify the requirements as to eligibility
for Insiders to participate in the Plan;
(iii) materially increase the benefits to Insiders under
the Plan.
12.2 Options Previously Granted. No amendment, modification, or
termination of the Plan shall in any manner adversely affect any outstanding
Option under the Plan without the consent of the Optionee holding the Option.
Article XIII. Merger, Consolidation or Acceleration Event
13.1 Merger, Consolidation.
(a) Subject to any required action by the shareholders, if the
Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to
and apply to the securities to which a holder of the number of
shares of Stock subject to the Option would have been entitled
in such merger or consolidation.
(b) A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving
corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of such dissolution,
liquidation, merger or consolidation. However, the Optionee
either (i) shall be offered a firm commitment whereby the
resulting or surviving corporation in a merger or
consolidation will tender to the Optionee an option (the
"Substitute Option") to purchase its shares on terms and
conditions both as to number of shares and otherwise, which
will substantially preserve to the Optionee the rights and
benefits of the Option outstanding hereunder granted by the
Company, or (ii) shall have the right immediately prior to
such merger, or consolidation to exercise any unexercised
Options whether or not then exercisable, subject to the
provisions of this Plan. The Board shall have absolute and
uncontrolled discretion to determine whether the Optionee has
been offered a firm commitment and whether the tendered
Substitute Option will substantially preserve to the Optionee
the rights and benefits of the Option outstanding hereunder.
In any event, any Substitute Option for an Incentive Stock
Option shall comply with the requirements of Code Section
424(a).
13.2 Impact of Acceleration Event. All options granted hereunder will
become fully exercisable and vested in the event of a "Acceleration Event" as
defined in Section 13.3 or a "Potential Acceleration Event" as defined in
Section 13.4.
13.3 Definition of "Acceleration Event." For purposes of Section 13.2,
an "Acceleration Event" means the happening of any of the following:
(a) When any "person" as defined in Section 3(a) (9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the
Exchange Act, but excluding the Company or any subsidiary or
parent or any employee benefit plan sponsored or maintained by
the Company or any subsidiary or parent (including any trustee
of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities
of the Company representing 30 percent or more of the combined
voting power of the Company's then outstanding securities;
(b) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning
of such period, constitute the Board ("Incumbent Directors")
cease for any reason other than death to constitute at least a
majority thereof; provided, however, that a Director who was
not a Director at the beginning of such 24-month period will
be deemed to have satisfied such 24-month requirement (and be
an Incumbent Director) if such Director was elected by, or on
the recommendation or, or with the approval of, at least 60%
of the Directors who then qualified as Incumbent Directors
either actually (because they were Directors at the beginning
of such 24-month period) or by prior operation of this Section
13.3(b); or
(c) The approval by the shareholders of any sale, lease, exchange,
or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the
Company or the adoption of any plan or proposal for the
liquidation or dissolution of the Company.
13.4 Definition of "Potential Acceleration Event." For purposes of
Section 13.2, a "Potential Acceleration Event" means the approval by the Board
of an agreement by the Company the consummation of which would result in an
Acceleration Event of the Company as defined in Section 13.3.
Article XIV. Securities Registration
14.1 Securities Registration. In the event that the Company shall deem
it necessary or desirable to register under the Securities Act of 1933, as
amended, or any other applicable statute, any Options or any Stock with respect
to which an Option may be or shall have been granted or exercised, or to qualify
any such Options or Stock under the Securities Act of 1933, as amended, or any
other statute, then the Optionee shall cooperate with the Company and take such
action as is necessary to permit registration or qualification of such Options
or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he or she is
acquiring such shares for his or her own account for investment and not with a
view to, or for sale in connection with, the distribution of any part thereof,
(b) that before any transfer in connection with the resale of such shares, he or
she will obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing.
Article XV. Tax Withholding
15.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require an Optionee to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including the Optionee's
FICA obligation) required by law to be withheld with respect to any grant,
exercise, or payment made under or as a result of the Plan.
15.2 Share Withholding. With respect to withholding required upon the
exercise of Options, or upon any other taxable event hereunder, Optionees may
elect, subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold shares having a
Fair Market Value, on the date the tax is to be determined, equal to the minimum
marginal tax which could be imposed on the transaction.
Share withholding upon the exercise of an Option will be done if the
Optionee makes a signed, written election and either of the following occurs:
(a) The Option exercise occurs during a "window period" and the
election to use such share withholding is made at any time
prior to exercise. For this purpose, "window period" means the
period beginning on the third business day following the date
of public release of the Company's quarterly financial
information and ending after the twelfth business day
following such date. An earlier election can be revoked up
until the exercise of the Option during the window period; or
(b) An election to withhold shares is made at least six months
before the Option is exercised. If this election is made, then
the Option can be exercised and shares may be withheld outside
of the window period.
Article XVI. Indemnification
16.1 Indemnification. To the extent permitted by law, each person who
is or shall have been a member of the Committee or of the Board shall be
indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit, or proceeding
to which he or she may be a party or in which he or she may be involved by
reason of any action taken or failure to act under the Plan and against and from
any and all amounts paid by him or her in settlement thereof, with the Company's
approval, or paid by him or her in satisfaction of judgment in any such action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
articles of incorporation or bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
Article XVII. Requirements of Law
17.1 Requirements of Law. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
17.2 Governing Law. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of South Dakota.
17.3 Compliance with the Code. Incentive Stock Options granted
hereunder are intended to qualify as "incentive stock options" under Code
Section 422. If any provision of this Plan is susceptible to more than one
interpretation, such interpretation shall be given thereto as is consistent with
Incentive Stock Options granted under this Plan being treated as incentive stock
options under the Code.
Article XVIII. Effective Date of Plan
18.1 Effective Date. Subject to ratification by an affirmative vote of
holders of a majority of shares present and entitled to vote at the 1996 Annual
Meeting, the Plan shall be effective as of December 19, 1995, the date of its
adoption by the Board.
Article XIX. No Obligation to Exercise Option
19.1 No Obligation to Exercise. The granting of an Option shall impose
no obligation upon the holder thereof to exercise such Option.
Article XX. Nonexclusivity of the Plan
20.1 Nonexclusivity of the Plan. The adoption of this Plan will not be
construed as limiting the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including the granting of stock options
otherwise than under this Plan. Such arrangements may be either generally
applicable or applicable only in specific cases.
DAKOTAH, INCORPORATED
By /s/ Troy Jones, Jr.
Its Chief Executive Officer
EXHIBIT 10.2
DAKOTAH, INCORPORATED
1996 STOCK OPTION PLAN FOR DIRECTORS
Article I. Establishment and Purpose
1.1 Establishment. Dakotah, Incorporated, a South Dakota Corporation
("Company"), hereby establishes a stock option plan for members of its Board of
Directors, as described herein, which shall be known as the "1996 STOCK OPTION
PLAN FOR DIRECTORS" ("Plan").
1.2 Purpose. The purposes of this Plan are to enhance shareholder
investment by attracting, retaining, and motivating Directors of the Company who
are not officers of the Company and to encourage stock ownership by such
Directors by providing them with a means to acquire a proprietary interest in
the Company's success.
Article II. Definitions
2.1 Definitions. Unless the context clearly requires otherwise, the
following terms shall have the respective meanings set forth below, and when
said meaning is intended, the term shall be capitalized.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee, as specified in Article
IV hereof, appointed by the Board to administer the Plan.
(d) "Company" means Dakotah, Incorporated, a South Dakota
corporation (including any and all subsidiaries).
(e) "Date of Exercise" means the date the Company receives notice,
by an Optionee, of the exercise of an Option pursuant to
Section 8.1 of this Plan. Such notice shall indicate the
number of shares of Stock as to which the Optionee intends to
exercise an Option.
(f) "Director" means any person, excluding any officer of the
Company, who has been elected to the Board of Directors of the
Company and is currently serving on the Board.
(g) "Exchange Act" means the Securities and Exchange Act of 1934,
as amended.
(h) "Fair Market Value" means the close price of the Stock as
reported by NASDAQ on the applicable day, or if there has been
no sale on that date, on the last preceding date on which a
sale occurred, or such other value of the Stock as shall be
specified by the Board.
(i) "Option" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified
period of time. For purposes of this Plan, an Option is a
nonstatutory option and is not intended to qualify as an
incentive stock option within the meaning of Section 422 of
the Code.
(j) "Optionee" means a person to whom an Option has been granted
under the Plan.
(k) "Option Price" means the exercise price per share of Stock
purchasable under an Option.
(l) "Option Shares" means the total number of shares of Stock to
which an Option applies.
(m) "Stock" means the Common Stock of the Company.
2.2 Gender and Number. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular shall also include
the plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
Article III. Eligibility and Participation
3.1 Eligibility. Options will be granted only to persons who at the
time of the grant are Directors but not officers of the Company. For purposes of
this Plan, a director who is also the Secretary of the Company is not considered
an "officer."
Article IV. Administration
4.1 The Committee. The Plan shall be administered by a Committee
consisting of such persons as are appointed by the Board from time to time, and
such persons shall serve at the discretion of the Board of Directors.
4.2 Authority of the Committee. The Committee will have full authority
to interpret the Plan, to promulgate such rules and regulations with respect to
the Plan as it deems desirable, and to make all other determinations necessary
or appropriate for the administration of the Plan. Such determinations will be
final and binding upon all persons having an interest in the Plan.
4.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all persons, including the Company, its shareholders, directors, Optionees, and
their respective successors.
Article V. Stock Subject to the Plan
5.1 Number. Subject to adjustment as provided in Section 5.3 herein,
the total number of shares of Stock hereby made available for grant and reserved
for issuance under the Plan shall be 100,000. The aggregate number of shares of
Stock available under this Plan shall be subject to adjustment as provided in
Section 5.3. The total number of shares of Stock may be authorized but unissued
shares of Stock, or shares acquired by purchase as directed by the Board from
time to time in its discretion, to be used for issuance upon exercise of Options
granted hereunder.
5.2 Lapsed Options. If an Option shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares of Stock
subject thereto shall (unless the Plan shall have terminated) become available
for other Options under the Plan.
5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number of shares of Stock set forth in Section 5.1 shall be
appropriately adjusted by the Committee, whose determination shall be
conclusive; provided, however, that fractional shares shall be rounded to the
nearest whole share. In any such case, the number and kind of shares that are
subject to any Option (including any Option outstanding after termination of
service as a Director) and the Option price per share shall be proportionately
and appropriately adjusted without any change in the aggregate Option price to
be paid therefor upon exercise of the Option.
Article VI. Duration of the Plan
6.1 Duration of the Plan. Subject to shareholder approval, the Plan
shall be in effect for ten years from the date of its adoption by the Board. Any
Options outstanding at the end of said period shall remain in effect in
accordance with their terms. The Plan shall terminate before the end of said
period if all Stock subject to it has been purchased pursuant to the exercise of
Options granted under the Plan.
Article VII. Terms of Stock Options
7.1 Grant of Options. Pursuant to this Plan, upon approval of the Plan
by the Company's shareholders each person serving as a Director will be granted
an Option to purchase Four Thousand (4,000) shares of Stock. Except as otherwise
may be provided herein, and without any further action, (i) an Option to
purchase Four Thousand (4,000) shares of Stock shall be granted to each
additional director upon his or her first election to the Board, as of the date
of their election to the Board (whether by Board vote or shareholder vote); and
(ii) an Option to purchase an additional Two Thousand shares of Stock will be
granted to each Director as of the date of each subsequent annual meeting of the
Company's shareholders; provided, however, that the Director has received no
other Option under the Plan during the immediately preceding six month period.
All options granted hereunder will be subject to all terms of this Plan and will
vest on the date of the grant of the Option.
7.2 Option Agreement. As determined by the Committee on the date of
grant, each Option shall be evidenced by an Option agreement which shall
incorporate the terms of this Plan by reference.
7.3 Option Price. The Option Price of an Option granted pursuant to
Section 7.1 is the Fair Market Value on the day the Option is granted to the
Optionee.
7.4 Exercise of Options. Options granted under the Plan shall be
exercisable in accordance with the terms of this Plan. Notwithstanding any other
provision of the Plan, however, in no event may any Option granted under this
Plan become exercisable prior to six months following the date of its grant, or
following the date upon which the Plan is ratified, whichever is later.
7.5 Term of Options. Each Option shall expire on the fifth anniversary
date of its grant.
7.6 Payment. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in cash, or
(ii) if acceptable to the Committee, in Stock having a Fair Market Value at the
time of the exercise equal to the exercise price (provided that the Stock that
is tendered as payment upon exercise of the Option has been held by the Optionee
for at least six months prior to its tender), or in some other form, including a
combination of the above. In addition, the Company may establish a cashless
exercise program in accordance with Federal Reserve Board Regulation T.
Article VIII. Written Notice, Issuance of
Stock Certificates, Shareholder Privileges
8.1 Written Notice. An Optionee wishing to exercise an Option shall
give written notice to the Chief Financial Officer of the Company, in the form
and manner prescribed by the Committee. Except for approved "cashless
exercises," full payment for the shares exercised pursuant to the Option must
accompany the written notice.
8.2 Issuance of Stock Certificates. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock. Such certificate may bear a legend restricting
transfer thereof.
8.3 Privileges of a Shareholder. An Optionee or any other person
entitled to exercise an Option under this Plan shall not have shareholder
privileges with respect to any Stock covered by the Option until the date of
issuance of a stock certificate for such stock.
Article IX. Termination of Service as Director
9.1 Death. If an Optionee's service on the Board terminates by reason
of death, the Option may thereafter be exercised at any time prior to the
expiration date of the Option or within 12 months after the date of such death,
whichever period is the shorter, by the person or persons entitled to do so
under the Optionee's will or, if the Optionee shall fail to make a testamentary
disposition of an Option or shall die intestate, the Optionee's legal
representative or representatives. The Option shall be exercisable only to the
extent that such Option was exercisable as of the date of death.
9.2 Termination Other Than For Cause Or Due to Death. In the event of
an Optionee's termination of service on the Board, in the case of a Director,
other than by reason of death or for cause, the Optionee may exercise such
portion of his Option as was exercisable by him at the date of such termination
(the "Termination Date") at any time within three (3) months of the Termination
Date; provided, however, that where the Optionee is a Director, and is
terminated due to disability within the meaning of Code Section 422(c)(6), such
Optionee may exercise such portion of any Option as was exercisable by such
Optionee on his or her Termination Date within one year of such Termination
Date. In any event, the Option cannot be exercised after the expiration of the
term of the Option. Options not exercised within the applicable period specified
above shall terminate.
9.3 Termination for Cause. In the event of an Optionee's termination of
service on the Board, in the case of a Director, which termination is by the
Company for cause, any Option or Options held by such Optionee under the Plan,
to the extent not exercised before such termination, shall terminate
immediately.
Article X. Rights of Optionees
10.1 Service. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Optionee's services as a director,
at any time, nor confer upon any Optionee any right to continue as a director of
the Company.
10.2 Nontransferability. Except as otherwise determined by the
Committee in the case of Nonstatutory Options, all Options granted under this
Plan shall be nontransferable by the Optionee, other than by will or the laws of
descent and distribution, and shall be exercisable during the Optionee's
lifetime only by the Optionee.
Article XI. Amendment,
Modification, and Termination of the Plan
The Board may suspend or terminate the Plan or any portion thereof at
any time, and the Board may amend the Plan from time to time as may be deemed to
be in the best interests of the Company; provided, however, that no such
amendment, alteration, or discontinuation will be made (a) that would impair the
rights of a Director with respect to an Option previously awarded, without such
person's consent, or (b) without the approval of the shareholders, if such
approval is necessary to comply with any legal, tax, or regulatory requirement,
including any approval requirement that is a prerequisite for exemptive relief
from Section 16(b) of the Exchange Act. No amendment will be made that will
change the terms of the Options to be granted hereunder with regard to amount,
exercise price, vesting or date of grant more than once every six months other
than to comport to changes in the Code, Employee Retirement Income Security Act,
or the rules thereunder.
Article XII. Merger or Consolidation
12.1 Merger or Consolidation.
(a) Subject to any required action by the shareholders, if the
Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to
and apply to the securities to which a holder of the number of
shares of Stock subject to the Option would have been entitled
in such merger or consolidation.
(b) A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving
corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of such dissolution,
liquidation, merger or consolidation. However, the Optionee
either (i) shall be offered a firm commitment whereby the
resulting or surviving corporation in a merger or
consolidation will tender to the Optionee an option (the
"Substitute Option") to purchase its shares on terms and
conditions both as to number of shares and otherwise, which
will substantially preserve to the Optionee the rights and
benefits of the Option outstanding hereunder granted by the
Company, or (ii) shall have the right immediately prior to
such merger, or consolidation to exercise any unexercised
Options, subject to the provisions of this Plan. The Board
shall have absolute and uncontrolled discretion to determine
whether the Optionee has been offered a firm commitment and
whether the tendered Substitute Option will substantially
preserve to the Optionee the rights and benefits of the Option
outstanding hereunder.
Article XIII. Securities Registration
13.1 Securities Registration. In the event that the Company shall deem
it necessary or desirable to register under the Securities Act of 1933, as
amended, or any other applicable statute, any Options or any Stock with respect
to which an Option may be or shall have been granted or exercised, or to qualify
any such Options or Stock under the Securities Act of 1933, as amended, or any
other statute, then the Optionee shall cooperate with the Company and take such
action as is necessary to permit registration or qualification of such Options
or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he or she is
acquiring such shares for his or her own account for investment and not with a
view to, or for sale in connection with, the distribution of any part thereof,
(b) that before any transfer in connection with the resale of such shares, he or
she will obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing.
Article XIV. Tax Withholding
14.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require an Optionee to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including the Optionee's
FICA obligation, if any, required by law to be withheld with respect to any
grant, exercise, or payment made under or as a result of the Plan.
14.2 Share Withholding. With respect to withholding required upon the
exercise of Options, or upon any other taxable event hereunder, Optionees may
elect, subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold shares having a
Fair Market Value, on the date the tax is to be determined, equal to the minimum
marginal tax which could be imposed on the transaction.
Share withholding upon the exercise of an Option will be done if the
Optionee makes a signed, written election and either of the following occurs:
(a) The Option exercise occurs during a "window period" and
the election to use such share withholding is made at any time prior to
exercise. For this purpose, "window period" means the period beginning
on the third (3rd) business day following the date of public release of
the Company's quarterly financial information and ending after the
twelfth (12th) business day following such date. An earlier election
can be revoked up until the exercise of the Option during the window
period; or
(b) An election to withhold shares is made at least six months
before the Option is exercised. If this election is made, then the
Option can be exercised and shares may be withheld outside of the
window period.
Article XV. Indemnification
15.1 Indemnification. To the extent permitted by law, each person who
is or shall have been a member of the Committee or of the Board shall be
indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit, or proceeding
to which he or she may be a party or in which he or she may be involved by
reason of any action taken or failure to act under the Plan and against and from
any and all amounts paid by him or her in settlement thereof, with the Company's
approval, or paid by him or her in satisfaction of judgment in any such action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
articles of incorporation or bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
Article XVI. Requirements of Law
16.1 Requirements of Law. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
16.2 Governing Law. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of South Dakota.
Article XVII. Effective Date of Plan
17.1 Effective Date. Subject to ratification by an affirmative vote of
holders of a majority of shares present and entitled to vote at the 1996 Annual
Meeting, the Plan shall be effective as of May 9, 1996, the date of its adoption
by the Board.
Article XVIII. No Obligation to Exercise Option
18.1 No Obligation to Exercise. The granting of an Option shall impose
no obligation upon the holder thereof to exercise such Option.
Article XIX. Nonexclusivity of the Plan
19.1 Nonexclusivity of the Plan. The adoption of this Plan will not be
construed as limiting the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including the granting of stock options
otherwise than under this Plan. Such arrangements may be either generally
applicable or applicable only in specific cases.
DAKOTAH, INCORPORATED
By /s/ Troy Jones, Jr.
Its Chief Executive Officer
DAKOTAH, INCORPORATED
NONSTATUTORY OPTION AGREEMENT
UNDER THE 1995 STOCK OPTION PLAN
Between:
DAKOTAH INCORPORATED (the "Company") and ORION FINANCIAL CORP., a South Dakota
corporation (the "Optionee"), dated January 1, 1996.
The Company hereby grants to the Optionee an option (the "Option")
under the Dakotah, Incorporated 1995 Stock Option Plan (the "Plan") to purchase
Two Hundred Forty Two Thousand Seven Hundred Forty Five (242,745) Shares (the
"Shares") of the Company's common stock under the terms and conditions set forth
below. The terms and conditions applicable to the Option are as follows:
1. Nonstatutory Option. The Option shall be a nonstatutory option and
is not intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code.
2. Purchase Price - The purchase price of the stock shall be $3.875 per
share ("Option Price") which is the Fair Market Value of the Stock on the date
of this Agreement.
3. Period of Exercise - The Option shall expire on the fifth
anniversary date of its grant (the "Expiration Date") unless otherwise
terminated as provided herein.
The Option will vest as follows:
(a) Prior to the first anniversary of the effective date of
this Agreement, the option may not be exercised.
(b) On and after the first anniversary of the effective date
of this Agreement, the option may be exercised for not in excess of
thirty-three and one-third percent (33-1/3%) of the shares originally
subject to the option;
(c) On or after the second anniversary of the effective date
of this Agreement, the Option may be exercised for not in excess of
sixty-six and two-thirds percent (66-2/3%) of the shares originally
subject to the option;
(d) On and after the third anniversary of the effective date
of this Agreement, the Option may be exercised at any time and from
time to time within its terms in whole or in part, but it shall not be
exercisable after the fifth anniversary of the date hereof.
4. Transferability - This Option is not transferable except by will or
the laws of descent and distribution and may be exercised during the lifetime of
the Optionee only by the Optionee.
5. Termination of Service as a Consultant - In the event that
Optionee's engagement as a consultant to the Company is terminated, the Option
will continue to vest and remains exercisable in accordance with the vesting
schedule until the Expiration Date by the Optionee; provided, that if the
Optionee's engagement as a consultant is terminated for cause, this Option shall
terminate immediately; further, provided, that if Troy Jones, Jr. voluntarily
terminates his position as Chief Executive Officer, the Option will terminate on
the date three months after the date of such termination. For the purposes
hereof, "cause" is defined as Troy Jones, Jr. (i) committing a materially
fraudulent or dishonest act in performance of his duties as Chief Executive
Officer of the Company or (ii) being convicted of a felony related to the
operation of the Company or having a significant adverse effect upon the
Company.
6. No Guarantee of Service as an Officer - This Agreement shall in no
way restrict the right of the Company or the Company's Board of Directors to
terminate Optionee's engagement at any time.
7. Registration. The Company agrees to register the Shares issuable
upon exercise of the Option on a Form S-8 or if such form is not available, on
such form which is available. Orion will cooperate with the Company and take
such action as is necessary to permit registration or qualification of the
Shares.
8. Method of Exercise; Use of Company Stock - The Option may be
exercised, subject to the terms and conditions of this Agreement, by written
notice to the Company. The notice shall be in the form attached to this
Agreement and will be accompanied by payment (in such form as the Company may
specify) of the full purchase price of the shares to be issued. The Company will
issue and deliver certificates representing the number of shares purchased under
the Option, registered in the name of the Optionee as soon as practicable after
receipt of the notice.
When exercising this Option, Optionee may make payment either in money
or by tendering shares of the Company Stock owned by the Optionee, or by a
combination of the two; provided, however, that (a) shares of the Company Stock
may be utilized only if, at the time of exercise, the Stock of the Company is
publicly traded, either on a stock exchange or nationally or locally over the
counter, and (b) the right to pay in the form of the Company Stock can be
utilized only twice in any calendar year. Where shares of Stock of the Company
are employed to pay all or part of the exercise price, the shares of said Stock
shall be valued at their Fair Market Value at the time of payment.
9. Withholding; Taxable Income - In any case where withholding is
required or advisable under federal, state or local law in connection with any
exercise by an Optionee hereunder, the Company is authorized to withhold
appropriate amounts from amounts payable to Optionee, or may require Optionee to
remit to the Company an amount equal to such appropriate amounts.
10. Merger, Consolidation or Acceleration Event - The terms of this
Agreement are subject to modification upon the occurrence of certain events as
described in Article XIII of the Plan.
11. Incorporation of Plan - This Agreement is made pursuant to the
provisions of the Plan, which Plan is incorporated by reference herein. Terms
used herein shall have the meaning employed in the Plan, unless the context
clearly requires otherwise. In the event of a conflict between the provisions of
the Plan and the provisions of this Agreement, the provisions of the Plan shall
govern.
DAKOTAH, INCORPORATED
By /s/ George C. Whyte
Its President
DAKOTAH, INCORPORATED
NOTICE OF EXERCISE OF STOCK OPTION ISSUED
UNDER THE 1995 STOCK OPTION PLAN
To: Stock Option Committee
DAKOTAH, INCORPORATED
_____________________
_____________________
I hereby exercise my Option dated _______ to purchase _____ shares of
$__ par value common stock of the Company at the option exercise price of
$______ per share. Enclosed is a certified or cashier's check in the total
amount of $______ , or payment in such other form as the Company has specified.
I represent to you that I am acquiring said shares for investment
purposes and not with a view to any distribution thereof. I understand that my
stock certificate may bear an appropriate legend restricting the transfer of my
shares and that a stop transfer order may be placed with the Company's transfer
agent with respect to such shares.
I request that my shares be issued to me as follows:
_______________________________________________
(Print your name in the form in which you wish to have the shares registered)
_______________________________________________
(Social Security Number)
_______________________________________________
(Street and Number)
_______________________________________________
(City) (State) (Zip Code)
Dated: _________________, 19__.
Signature: ______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,326
<SECURITIES> 0
<RECEIVABLES> 4,927,952
<ALLOWANCES> 0
<INVENTORY> 8,908,975
<CURRENT-ASSETS> 15,295,713
<PP&E> 4,571,536
<DEPRECIATION> 2,047,908
<TOTAL-ASSETS> 18,594,210
<CURRENT-LIABILITIES> 7,940,491
<BONDS> 1,131,682
0
0
<COMMON> 34,998
<OTHER-SE> 9,487,039
<TOTAL-LIABILITY-AND-EQUITY> 18,594,210
<SALES> 7,404,824
<TOTAL-REVENUES> 7,404,824
<CGS> 5,440,591
<TOTAL-COSTS> 5,440,591
<OTHER-EXPENSES> 1,094,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,878
<INCOME-PRETAX> 3,097
<INCOME-TAX> 1,115
<INCOME-CONTINUING> 1,982
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,982
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
