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                                                                    EXHIBIT 10.2
                                  800.COM, INC.

                             1998 STOCK OPTION PLAN



                               SECTION 1. PURPOSE

        The purpose of the 800.COM, INC. 1998 Stock Option Plan (the "Plan") is
to enhance the long-term shareholder value of 800.COM, INC., an Oregon
corporation (the "Company"), by offering opportunities to key employees,
directors, officers, consultants, agents, advisors and independent contractors
of the Company and its Subsidiaries (as defined in Section 2) to participate in
the Company's growth and success, and to encourage them to remain in the service
of the Company and its Subsidiaries and to acquire and maintain stock ownership
in the Company.

                             SECTION 2. DEFINITIONS

        For purposes of the Plan, the following terms shall be defined as set
forth below:

2.1     BOARD

        "Board" means the Board of Directors of the Company.

2.2     CAUSE

        "Cause" means dishonesty, fraud, misconduct, unauthorized use or
disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), in each case
as determined by the Plan Administrator, and its determination shall be
conclusive and binding.

2.3     CODE

        "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

2.4     COMMON STOCK

        "Common Stock" means the common stock, without par value, of the
Company.

2.5     CORPORATE TRANSACTION

        "Corporate Transaction" means any of the following events:

                (a) Consummation of any merger or consolidation of the Company,
        if following such merger or consolidation the holders of the Company's
        outstanding voting



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        securities immediately prior to such merger or consolidation own less
        than 51% of the outstanding voting securities of the surviving
        corporation;

                (b) Consummation of any sale, lease, exchange or other transfer
        in one transaction or a series of related transactions of all or
        substantially all of the Company's assets other than a transfer of the
        Company's assets to a majority-owned subsidiary corporation (as the term
        "subsidiary corporation" is defined in Section 8.3) of the Company; or

                (c) Approval by the holders of the Common Stock of any plan or
        proposal for the liquidation or dissolution of the Company.

        Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on the
date of adoption of the Plan) under the Exchange Act.

2.6     DISABILITY

        "Disability" means "disability" as that term is defined for purposes of
the Company's long-term disability plan or other similar successor plan
applicable to salaried employees.

2.7     EARLY RETIREMENT

        "Early Retirement" means early retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.

2.8     EXCHANGE ACT

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

2.9     FAIR MARKET VALUE

        The "Fair Market Value" shall be as established in good faith by the
Plan Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for a single trading day or (b)
if the Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange, the average of the high and low per share sales prices for the
Common Stock as such price is officially quoted in the composite tape of
transactions on such exchange for a single trading day. If there is no such
reported price for the Common Stock for the date in question, then such price on
the last preceding date for which such price exists shall be determinative of
the Fair Market Value.

2.10    GOOD REASON

        "Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice by the Optionee:



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                (a) a change in the Optionee's status, title, position or
responsibilities (including reporting responsibilities) that, in the Optionee's
reasonable judgment, represents a substantial reduction in the status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to the Optionee of any duties or responsibilities that, in the
Optionee's reasonable judgment, are materially inconsistent with such status,
title, position or responsibilities; or any removal of the Optionee from or
failure to reappoint or reelect the Optionee to any of such positions, except in
connection with the termination of the Optionee's employment for Cause, for
Disability or as a result of his or her death, or by the Optionee other than for
Good Reason;

                (b) a reduction in the Optionee's annual base salary;

                (c) the Successor Corporation's requiring the Optionee (without
the Optionee's consent) to be based at any place outside a 35-mile radius of his
or her place of employment prior to a Corporate Transaction, except for
reasonably required travel on the Successor Corporation's business that is not
materially greater than such travel requirements prior to the Corporate
Transaction;

                (d) the Successor Corporation's failure to (i) continue in
effect any material compensation or benefit plan (or the substantial equivalent
thereof) in which the Optionee was participating at the time of a Corporate
Transaction, including, but not limited to, the Plan, or (ii) provide the
Optionee with compensation and benefits substantially equivalent (in terms of
benefit levels and/or reward opportunities) to those provided for under each
material employee benefit plan, program and practice as in effect immediately
prior to the Corporate Transaction;

                (e) any material breach by the Successor Corporation of its
obligations to the Optionee under the Plan or any substantially equivalent plan
of the Successor Corporation; or

                (f) any purported termination of the Optionee's employment or
services for Cause by the Successor Corporation that does not comply with the
terms of the Plan or any substantially equivalent plan of the Successor
Corporation.

2.11    GRANT DATE

        "Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Option is to be granted.

2.12    INCENTIVE STOCK OPTION

        "Incentive Stock Option" means an Option to purchase Common Stock
granted under Section 7 with the intention that it qualify as an "incentive
stock option" as that term is defined in Section 422 of the Code.

2.13    NONQUALIFIED STOCK OPTION

        "Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.



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2.14    OPTION

        "Option" means the right to purchase Common Stock granted under Section
7.

2.15    OPTIONEE

        "Optionee" means (i) the person to whom an Option is granted; (ii) for
an Optionee who has died, the personal representative of the Optionee's estate,
the person(s) to whom the Optionee's rights under the Option have passed by will
or by the applicable laws of descent and distribution, or the beneficiary
designated in accordance with Section 9; or (iii) person(s) to whom an Option
has been transferred in accordance with Section 9.

2.16    PLAN ADMINISTRATOR

        "Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.

2.17    RETIREMENT

        "Retirement" means retirement as of the individual's normal retirement
date as that term is defined by the Plan Administrator from time to time for
purposes of the Plan.

2.18    SECURITIES ACT

        "Securities Act" means the Securities Act of 1933, as amended.

2.19    SUBSIDIARY

        "Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.

2.20    SUCCESSOR CORPORATION

        "Successor Corporation" has the meaning set forth under Section 10.2.

                            SECTION 3. ADMINISTRATION

3.1     PLAN ADMINISTRATOR

        The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by



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Rule 16b-3 under the Exchange Act. The Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible persons to
different committees consisting of two or more members of the Board, subject to
such limitations as the Board deems appropriate. Committee members shall serve
for such term as the Board may determine, subject to removal by the Board at any
time.

3.2     ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR

        Except for the terms and conditions explicitly set forth in the Plan,
the Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Options under the Plan, including the
selection of individuals to be granted Options, the type of Options, the number
of shares of Common Stock subject to an Option, all terms, conditions,
restrictions and limitations, if any, of an Option and the terms of any
instrument that evidences the Option. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, shall be conclusive and binding on all
parties involved or affected. The Plan Administrator may delegate administrative
duties to such of the Company's officers as it so determines.

                      SECTION 4. STOCK SUBJECT TO THE PLAN

4.1     AUTHORIZED NUMBER OF SHARES

        Subject to adjustment from time to time as provided in Section 10.1, a
maximum of 3,478,568 shares of Common Stock shall be available for issuance
under the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares.

4.2     REUSE OF SHARES

        Any shares of Common Stock that have been made subject to an Option that
cease to be subject to the Option (other than by reason of exercise of the
Option to the extent it is exercised for shares) shall again be available for
issuance in connection with future grants of Options under the Plan.

                             SECTION 5. ELIGIBILITY

        Options may be granted under the Plan to those officers, directors and
key employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Options may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.



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                                SECTION 6. AWARDS

6.1     FORM AND GRANT OF OPTIONS

        The Plan Administrator shall have the authority, in its sole discretion,
to determine the type or types of awards to be made under the Plan. Such awards
may consist of Incentive Stock Options and/or Nonqualified Stock Options.
Options may be granted singly or in combination.

6.2     ACQUIRED COMPANY OPTION AWARDS

        Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Options under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Option is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
awards shall be deemed to be Optionees.

                   SECTION 7. TERMS AND CONDITIONS OF OPTIONS

7.1     GRANT OF OPTIONS

        The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.

7.2     OPTION EXERCISE PRICE

        The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options.

7.3     TERM OF OPTIONS

        The term of each Option shall be as established by the Plan
Administrator or, if not so established, shall be 10 years from the Grant Date.

7.4     EXERCISE OF OPTIONS

        The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become



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exercisable, which provisions may be waived or modified by the Plan
Administrator at any time. If not so established in the instrument evidencing
the Option, the Option will vest and become exercisable according to the
following schedule, which may be waived or modified, including but not limited
to providing for the acceleration of vesting upon the occurrence of certain
events as specified in the instrument evidencing the option, by the Plan
Administrator at any time:

<TABLE>
<CAPTION>
 Period of Optionee's Continuous Employment or Service
         With the Company or Its Subsidiaries                       Percent of Total Option
            From the Grant or Vesting Date                       That Is Vested and Exercisable
            ------------------------------                       ------------------------------
<S>                                                              <C>
                    After One Year                                            25%
              Each Full Month Thereafter                                     2.08%
                On or After Four Years                                        100%
</TABLE>

        To the extent that the right to purchase shares has accrued thereunder,
an Option may be exercised from time to time by written notice to the Company,
in accordance with procedures established by the Plan Administrator, setting
forth the number of shares with respect to which the Option is being exercised
and accompanied by payment in full as described in Section 7.5. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time (or the lesser number of remaining
shares covered by the Option).

7.5     PAYMENT OF EXERCISE PRICE

        The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Optionee for at least six months (or any shorter period necessary to avoid a
charge to the Company's earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board. In addition, to the extent permitted by the Plan Administrator in
its sole discretion, the price for shares purchased under an Option may be paid,
either singly or in combination with one or more of the alternative forms of
payment authorized by this Section 7.5, by (y) a promissory note delivered
pursuant to Section 12 or (z) such other consideration as the Plan Administrator
may permit.



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7.6     POST-TERMINATION EXERCISES

        The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if an Optionee ceases to be employed
by, or to provide services to, the Company or its Subsidiaries, which provisions
may be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.

        In case of termination of the Optionee's employment or services other
than by reason of death or Cause, the Option shall be exercisable, to the extent
of the number of shares purchasable by the Optionee at the date of such
termination, only (a) within one year if the termination of the Optionee's
employment or services is coincident with Retirement, Early Retirement at the
Company's request or Disability or (b) within 90 days after the date the
Optionee ceases to be an employee, director, officer, consultant, agent, advisor
or independent contractor of the Company or a Subsidiary if termination of the
Optionee's employment or services is for any reason other than Retirement, Early
Retirement at the Company's request or Disability, but in no event later than
the remaining term of the Option. Any Option exercisable at the time of the
Optionee's death may be exercised, to the extent of the number of shares
purchasable by the Optionee at the date of the Optionee's death, by the personal
representative of the Optionee's estate, the person(s) to whom the Optionee's
rights under the Option have passed by will or the applicable laws of descent
and distribution or the beneficiary designated pursuant to Section 9 at any time
or from time to time within one year after the date of death, but in no event
later than the remaining term of the Option. Any portion of an Option that is
not exercisable on the date of termination of the Optionee's employment or
services shall terminate on such date, unless the Plan Administrator determines
otherwise. In case of termination of the Optionee's employment or services for
Cause, the Option shall automatically terminate upon first notification to the
Optionee of such termination, unless the Plan Administrator determines
otherwise. If a Optionee's employment or services with the Company are suspended
pending an investigation of whether the Optionee shall be terminated for Cause,
all the Optionee's rights under any Option likewise shall be suspended during
the period of investigation.

        A transfer of employment or services between or among the Company and
its Subsidiaries shall not be considered a termination of employment or
services. The effect of a Company-approved leave of absence on the terms and
conditions of an Option shall be determined by the Plan Administrator, in its
sole discretion.

                  SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS

        To the extent required by Section 422 of the Code, Incentive Stock
Options shall be subject to the following additional terms and conditions:

8.1     DOLLAR LIMITATION

        To the extent the aggregate Fair Market Value (determined as of the
Grant Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time



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during any calendar year (under the Plan and all other stock option plans of the
Company) exceeds $100,000, such portion in excess of $100,000 shall be treated
as a Nonqualified Stock Option. In the event the Optionee holds two or more such
Options that become exercisable for the first time in the same calendar year,
such limitation shall be applied on the basis of the order in which such Options
are granted.

8.2     10% SHAREHOLDERS

        If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.

8.3     ELIGIBLE EMPLOYEES

        Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.

8.4     TERM

        The term of an Incentive Stock Option shall not exceed 10 years.

8.5     EXERCISABILITY

        To qualify for Incentive Stock Option tax treatment, an Option
designated as an Incentive Stock Option must be exercised within three months
after termination of employment for reasons other than death, except that, in
the case of termination of employment due to total disability, such Option must
be exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Optionee's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean a mental or physical
impairment of the Optionee that is expected to result in death or that has
lasted or is expected to last for a continuous period of 12 months or more and
that causes the Optionee to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company and to be
engaged in any substantial gainful activity. Total disability shall be deemed to
have occurred on the first day after the Company and the two independent
physicians have furnished their opinion of total disability to the Plan
Administrator.

8.6     TAXATION OF INCENTIVE STOCK OPTIONS

        In order to obtain certain tax benefits afforded to Incentive Stock
Options under Section 422 of the Code, the Optionee must hold the shares issued
upon the exercise of an Incentive Stock Option for two years after the Grant
Date of the Incentive Stock Option and one year from the date of exercise. An
Optionee may be subject to the alternative minimum tax at the



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time of exercise of an Incentive Stock Option. The Plan Administrator may
require an Optionee to give the Company prompt notice of any disposition of
shares acquired by the exercise of an Incentive Stock Option prior to the
expiration of such holding periods.

8.7     PROMISSORY NOTES

        The amount of any promissory note delivered pursuant to Section 12 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.

                            SECTION 9. ASSIGNABILITY

        No Option granted under the Plan may be assigned, pledged or transferred
by the Optionee other than by will or by the applicable laws of descent and
distribution, and, during the Optionee's lifetime, such Option may be exercised
only by the Optionee or a permitted assignee or transferee of the Optionee (as
provided below). Notwithstanding the foregoing, and to the extent permitted by
Section 422 of the Code, the Plan Administrator, in its sole discretion, may
permit such assignment, transfer and exercisability and may permit an Optionee
to designate a beneficiary who may exercise the Option after the Optionee's
death; provided, however, that any Option so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the Option.

                             SECTION 10. ADJUSTMENTS

10.1    ADJUSTMENT OF SHARES

        In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1, and (ii) the
number and kind of securities that are subject to any outstanding Option and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.

10.2    CORPORATE TRANSACTION

        Except as otherwise provided in the instrument that evidences the
Option, in the event of any Corporate Transaction, each Optionee shall have the
right, immediately prior to any such Corporate Transaction, to exercise such
Optionee's options to the extent the vesting requirements set forth in the
instrument evidencing the Option shall have been satisfied. To the extent not



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exercised prior to the consummation of the Corporate Transaction, all such
Options shall terminate and cease to remain outstanding immediately following
the consummation of the Corporate Transaction, except to the extent assumed by
the successor corporation or parent thereof (the "Successor Corporation").

10.3    FURTHER ADJUSTMENT OF OPTIONS

        Subject to Section 10.2, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the Plan Administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to Optionees, with respect to
Options. Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of, or
restrictions on, Options so as to provide for earlier, later, extended or
additional time for exercise and other modifications, and the Plan Administrator
may take such actions with respect to all Optionees, to certain categories of
Optionees or only to individual Optionees. The Plan Administrator may take such
action before or after granting Options to which the action relates and before
or after any public announcement with respect to such sale, merger,
consolidation, reorganization, liquidation or change in control that is the
reason for such action.

10.4    LIMITATIONS

        The grant of Options will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

                             SECTION 11. WITHHOLDING

        The Company may require the Optionee to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant or exercise of any Option. Subject to the Plan and applicable law, the
Plan Administrator may, in its sole discretion, permit the Optionee to satisfy
withholding obligations, in whole or in part, by paying cash, by electing to
have the Company withhold shares of Common Stock or by transferring shares of
Common Stock to the Company, in such amounts as are equivalent to the Fair
Market Value of the withholding obligation. The Company shall have the right to
withhold from any shares of Common Stock issuable pursuant to an Option or from
any cash amounts otherwise due or to become due from the Company to the Optionee
an amount equal to such taxes. The Company may also deduct from any Option any
other amounts due from the Optionee to the Company or a Subsidiary.

           SECTION 12. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES

        To assist an Optionee (including an Optionee who is an officer or a
director of the Company) in acquiring shares of Common Stock pursuant to an
Option granted under the Plan, the Plan Administrator, in its sole discretion,
may authorize, either at the Grant Date or at any time before the acquisition of
Common Stock pursuant to the Option, (a) the extension of a loan



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to the Optionee by the Company, (b) the payment by the Optionee of the purchase
price, if any, of the Common Stock in installments, or (c) the guarantee by the
Company of a loan obtained by the Optionee from a third party. The terms of any
loans, installment payments or loan guarantees, including the interest rate and
terms of repayment, will be subject to the Plan Administrator's discretion.
Loans, installment payments and loan guarantees may be granted with or without
security. The maximum credit available is the purchase price, if any, of the
Common Stock acquired, plus the maximum federal and state income and employment
tax liability that may be incurred in connection with the acquisition.

                 SECTION 13. REPURCHASE AND FIRST REFUSAL RIGHTS

13.1    REPURCHASE RIGHTS

        Should the Optionee cease to be employed by or provide services to the
Company, then all shares of Common Stock issued pursuant to the Plan, whether
issued before or after cessation of employment or services, shall, unless
otherwise determined by the Plan Administrator, be subject to repurchase at the
Fair Market Value of such shares on the date of such repurchase. The terms and
conditions upon which such repurchase right shall be exercisable (including the
period and procedure for exercise) shall be established by the Plan
Administrator and set forth in the agreement evidencing such right.

        All of the Company's outstanding repurchase rights under this Section
13.1 are assignable by the Company at any time. Such rights shall automatically
terminate, and all shares subject to such terminated rights shall immediately
vest in full, upon the occurrence of a Corporate Transaction, except to the
extent: (i) any such repurchase right is expressly assigned to the Successor
Corporation in connection with the Corporate Transaction or (ii) such
termination is precluded by other limitations imposed by the Plan Administrator
at the time the repurchase right is issued.

        The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of employment or
services, to cancel the Company's outstanding repurchase rights with respect to
one or more shares purchased or purchasable by the Optionee under an Option.

13.2    FIRST REFUSAL RIGHTS

        Until the date on which the initial registration of the Common Stock
under Section 12(b) or 12(g) of the Exchange Act first becomes effective, the
Company shall have the right of first refusal with respect to any proposed sale
or other disposition by the holder of any shares of Common Stock issued pursuant
to an Option granted under the Plan. Such right of first refusal shall be
exercisable in accordance with the terms and conditions established by the Plan
Administrator and set forth in the agreement evidencing such right.

                           SECTION 14. MARKET STANDOFF

        In connection with any underwritten public offering by the Company of
its equity securities pursuant to an effective registration statement filed
under the Securities Act, including



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the Company's initial public offering, a person shall not sell, or make any
short sale of, loan, hypothecate, pledge, grant any option for the purchase of,
or otherwise dispose or transfer for value or otherwise agree to engage in any
of the foregoing transactions with respect to, any shares issued pursuant to an
Option granted under the Plan without the prior written consent of the Company
or its underwriters. Such limitations shall be in effect for such period of time
as may be requested by the Company or such underwriters and agreed to by the
Company's officers and directors with respect to their shares; provided,
however, that in no event shall such period exceed 180 days. The limitations of
this paragraph shall in all events terminate two years after the effective date
of the Company's initial public offering. Holders of shares issued pursuant to
an Option granted under the Plan shall be subject to the market standoff
provisions of this paragraph only if the officers and directors of the Company
are also subject to similar arrangements.

        In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 14, to the same extent the purchased shares are
at such time covered by such provisions.

        In order to enforce the limitations of this Section 14, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.

                  SECTION 15. AMENDMENT AND TERMINATION OF PLAN

15.1    AMENDMENT OF PLAN

        The Plan may be amended only by the Board in such respects as it shall
deem advisable; however, to the extent required for compliance with Section 422
of the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted under the Plan, (b) modify the class of persons
eligible to receive Options, or (c) otherwise require shareholder approval under
any applicable law or regulation.

15.2    TERMINATION OF PLAN

        The Board may suspend or terminate the Plan at any time. The Plan will
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than 10 years after the earlier of the Plan's
adoption by the Board and approval by the shareholders.

15.3    CONSENT OF OPTIONEE

        The amendment or termination of the Plan shall not, without the consent
of the Optionee, impair or diminish any rights or obligations under any Option
theretofore granted under the Plan.



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<PAGE>   14

        Any change or adjustment to an outstanding Incentive Stock Option shall
not, without the consent of the Optionee, be made in a manner so as to
constitute a "modification" that would cause such Incentive Stock Option to fail
to continue to qualify as an Incentive Stock Option.

                               SECTION 16. GENERAL

16.1    OPTION AGREEMENTS

        Options granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.

16.2    CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN OPTIONS

        None of the Plan, participation in the Plan or any action of the Plan
Administrator taken under the Plan shall be construed as giving any person any
right to be retained in the employ of the Company or limit the Company's right
to terminate the employment or services of any person.

16.3    REGISTRATION

        The Company shall be under no obligation to any Optionee to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.

        Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.

        As a condition to the exercise of an Option, the Company may require the
Optionee to represent and warrant at the time of any such exercise or receipt
that such shares are being purchased or received only for the Optionee's own
account and without any present intention to sell or distribute such shares if,
in the opinion of counsel for the Company, such a representation is required by
any relevant provision of the aforementioned laws. At the option of the Company,
a stop-transfer order against any such shares may be placed on the official
stock books and records of the Company, and a legend indicating that such shares
may not be pledged, sold or otherwise transferred, unless an opinion of counsel
is provided (concurred in by counsel for the Company) stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on stock
certificates to ensure exemption from registration. The Plan Administrator may
also require such other action or agreement by the Optionee as may from time to
time be necessary to comply with the federal and state securities laws.



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<PAGE>   15

16.4    NO RIGHTS AS A SHAREHOLDER

        No Option shall entitle the Optionee to any dividend, voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Option, free of all applicable
restrictions.

16.5    COMPLIANCE WITH LAWS AND REGULATIONS

        Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Optionees who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Optionees. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of Section
422 of the Code.

16.6    NO TRUST OR FUND

        The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Optionee, and no Optionee
shall have any rights that are greater than those of a general unsecured
creditor of the Company.

16.7    SEVERABILITY

        If any provision of the Plan or any Option is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Option under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Option, such provision shall be stricken as to such jurisdiction,
person or Option, and the remainder of the Plan and any such Option shall remain
in full force and effect.

                           SECTION 17. EFFECTIVE DATE

        The Plan's effective date is the date on which it is adopted by the
Board, so long as it is approved by the Company's shareholders at any time
within 12 months of such adoption.

        Adopted by the Board effective as of May 11, 1998 and approved by the
Company's shareholders effective as of May 11, 1998.

        Amended to increase the number of shares available under the Plan to
1,478,568 shares, approved by the Board on September 24, 1998, and by the
Shareholders on September 30, 1998.



                                                                         PAGE 15
<PAGE>   16

        Amended to increase the number of shares available under the Plan to
2,478,568 shares, approved by the Board on March 19, 1999, and by the
Shareholders on March 19, 1999.

        Amended to increase the number of shares available under the Plan to
3,478,568 shares, approved by the Board on January 24, 2000, and by the
Shareholders on February 7, 2000.



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