-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FgWRJNdi/gtT6BRyC1P9XEAphhhCsGIYj8MU6Ua+gZ3zz0tV1vcrmkpzsyO0u2Rr TjlhuRTaCj5KeVeIyrt/7w== 0000897101-96-000229.txt : 19960514 0000897101-96-000229.hdr.sgml : 19960514 ACCESSION NUMBER: 0000897101-96-000229 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAKOTAH INC CENTRAL INDEX KEY: 0000859944 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED TEXTILE PRODUCTS [2390] IRS NUMBER: 460339860 STATE OF INCORPORATION: SD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23604 FILM NUMBER: 96561513 BUSINESS ADDRESS: STREET 1: ONE N PARK LN CITY: WEBSTER STATE: SD ZIP: 57274-0120 BUSINESS PHONE: 6053454646 MAIL ADDRESS: STREET 1: ONE NORTH PARK LANE CITY: WEBSTER STATE: SD ZIP: 57274-0120 10QSB 1 FORM 10-QSB FOR DAKOTAH, INC. 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)
March 31, December 31, ASSETS 1996 1995 ----------- ----------- 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 =========== ===========
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)
For the three months ended March 31, 1996 1995 ----------- ----------- 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
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 EX-10.1 2 1995 STOCK OPTION PLAN 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 EX-10.2 3 1996 STOCK OPTION PLAN FOR DIRECTORS 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 EX-10.3 4 NONSTATUTORY OPTION AGREEMENT 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: ______________________________ EX-27.1 5 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 10,326 0 4,927,952 0 8,908,975 15,295,713 4,571,536 2,047,908 18,594,210 7,940,491 1,131,682 0 0 34,998 9,487,039 18,594,210 7,404,824 7,404,824 5,440,591 5,440,591 1,094,198 0 78,878 3,097 1,115 1,982 0 0 0 1,982 0 0
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