Document:

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                                                                    EXHIBIT 10.4

                              EMPLOYMENT AGREEMENT
                              --------------------

          This Agreement ("Agreement") is made and entered into as of the 1st
day of October 2000 by and between Joel L. Silverman, residing at 4612
Brentridge Parkway, Greenwood, Indiana 46143 ("Employee"), and Galyan's Trading
Company, Inc., an Indiana corporation ("Company").  Employee and Company agree
that, as of the date hereof, the Employment Agreement dated as of December 1,
1997 by and among Company, the Limited Service Corporation (whose rights and
obligations thereunder have terminated pursuant to Section 14(c) thereof) and
Employee shall terminate and be of no further force and effect.

    1.  TERM OF EMPLOYMENT: Subject to the terms of this Agreement, Company
        ------------------
hereby agrees to employ Employee, and Employee hereby agrees to accept such
employment, for the period beginning on the date hereof and ending at the close
of business on the third anniversary of the date hereof or on such earlier date
upon which this Agreement is terminated in accordance with the provisions set
forth herein (the "Initial Term"). The term of this Agreement will automatically
extend past the Initial Term for succeeding periods of one year each unless
either party terminates this Agreement as of the end of the Initial Term, or as
of the end of any subsequent one-year period (in either case, the "Termination
Date"), by delivering notice to the other party specifying the applicable
Termination Date not later than 90 days prior to the date so specified. The
"Term" of this Agreement shall include any automatic extensions pursuant to the
preceding sentence.

    2.  POSITION AND DUTIES:
        -------------------

        (a) General Duties; Performance: At all times during the Term, Employee
shall (i) serve as President and Chief Operating Officer of Company and, in such
capacity, shall perform such duties and have such responsibilities not
materially inconsistent with the foregoing as may from time to time be assigned
or delegated to him by the Chief Executive Officer of the Company or the Board
of Directors of Company (the "Board"). During this period, Employee shall
diligently and conscientiously devote his full and exclusive business time,
energy and ability to his duties and the business of Company. At all times
during the Term (i) Employee shall serve as a member of the Board; (ii) Employee
shall perform his duties faithfully and efficiently, subject to the direction of
the Board; and (iii) Employee shall observe and comply with all directions,
policies and regulations given or promulgated by the Board. The provisions of
this Agreement, however, shall not be construed to preclude service by the
Employee as a non-employee director of entities not in competition with the
business of the Company.

        (b) Non-Contravention: Employee represents and warrants that (i) he has
the full right and authority to enter into this Agreement and to render the
services as required under this Agreement, (ii) by signing this Agreement he is
not breaching any contract or legal obligation he owes to any third party and
(iii) he is not party to any other agreement with Company or any other party
providing for the performance by him of services or, in the case of Company and
its subsidiaries, for any compensation to be paid to him.

    3.  COMPENSATION, BENEFITS AND EXPENSES: During the Term, Company shall
        -----------------------------------
compensate Employee for his services as follows:

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        (a) Salary and Expenses: Company shall pay Employee a base salary at an
annual rate of $450,000 for the period from the date hereof through and
including February 4, 2001, $500,000 for fiscal year 2001 and $550,000 for
fiscal year 2002, with an increase to at least $600,000 per year for fiscal year
2003 to the extent such year is covered by this Agreement, in each case less
standard income and payroll tax withholding and other authorized deductions.
Such salary shall be earned and shall be payable in regular installments in
accordance with Company's normal payroll practices. Employee shall also be
entitled to reimbursement for reasonable business expenses in accordance with
Company policy.

        (b) Health Insurance: Employee and his dependents shall be eligible to
participate in Company's group health plan as in effect from time to time for
employees of Company.

        (c) Bonus: Employee shall be eligible to receive an annual bonus in
accordance with the Company's existing bonus program, with such bonus to be
determined based on Company achieving its targeted operating income for the
applicable fiscal year (the "Target Income") as set forth in Company's annual
budget for such fiscal year prepared by management and approved by the Board.
The "Target Bonus" shall be equal to 60% of base salary in each fiscal year
beginning in fiscal year 2000 with the ability to earn up to 200% of the Target
Bonus if the Target Income is exceeded by an amount to be determined by the
Board.

        (d) Vacation: Employee shall be entitled to annual paid vacation in
accordance with Company's policies as in effect from time to time for similarly
situated executive employees of Company, but not less than four weeks of paid
vacation per year.

        (e) Retirement Plan: Employee shall be eligible to participate in
Company's retirement plans applicable to Employee, in accordance with the terms
of such plans. Employee understands that the Board monitors such plans or
arrangements and may, from time to time, add benefits to or delete benefits from
the plans or arrangements, or modify or terminate existing plans or
arrangements, provided that no such modification or termination shall decrease
the retirement benefits accrued by the Employee prior to the modification or
termination without the written consent of the Employee.

    4.  TERMINATION: Employee's employment with Company during the Term may be
        -----------
terminated by Company under the circumstances described in this Paragraph 4, and
subject to the provisions of Paragraph 5:

        (a) Cause: Company may immediately terminate Employee's employment for
Cause by giving written notice to Employee identifying in reasonable detail the
act or acts said to constitute "Cause." For purposes of this Agreement, "Cause"
shall mean that Company, acting reasonably and in good faith based upon the
information then known to Company, determines that Employee has engaged in or
committed: willful misconduct; gross negligence; theft, fraud or other illegal
conduct; any willful act that is likely to materially injure the reputation,
business or a business relationship of Company; refusal or unwillingness to
perform his duties or responsibilities under this Agreement in a satisfactory
manner or failure to comply with written policies and directives of Company, in
either case for thirty (30) days following specific written notice thereof;
Employee's death or Disability (as defined below); or material

                                      -2-
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breach of any term of this Agreement following specific notice thereof from
Company. For purposes of this Paragraph 4(a), "Disability" shall mean a physical
or mental impairment which substantially limits a major life activity of
Employee and which renders Employee unable to perform the essential functions of
his position, even with reasonable accommodation which does not impose an undue
hardship on Company. Company, acting reasonably and in good faith, shall have
the right to make the determination of disability under this Agreement.

        (b) Other than Cause: Company may immediately terminate Employee's
employment for any reason other than Cause by giving ten (10) days written
notice to Employee.

        (c) Good Reason. Employee may terminate employment hereunder for "Good
Reason" by delivering to the Company (1) a Preliminary Notice of Good Reason (as
defined below), and (2) not earlier than thirty (30) days and not later than
three (3) months from the delivery of such Preliminary Notice of Good Reason, a
Notice of Termination. For purposes of this Agreement, "Good Reason" means, the
assignment (without the express written consent of Employee) to Employee of a
significantly lower position in the organization in terms of his responsibility,
authority and status, any significant reduction in Employee's authority or
status, or requiring Employee to perform services not commensurate with
Employee's ability, experience and qualifications; requiring Employee (without
his consent) to relocate his primary work location more than 50 miles away from
the current principal office of the Company in Plainfield, Indiana any reduction
in the Employee's base salary or bonus opportunity; or any material breach by
the Company of the terms of this Agreement; provided that "Good Reason" shall
not include (A) acts not taken in bad faith which are cured by the Company in
all respects not later than thirty (30) days from the receipt by the Company of
a written notice from the Employee identifying in reasonable detail the act or
acts constituting "Good Reason" (a "Preliminary Notice of Good Reason") or (b)
acts taken by the Company as a result of grounds for termination of employment
for Cause pursuant to Section 4(a) hereof. A Preliminary Notice of Good Reason
shall not, by itself, constitute a Notice of Termination.

    5.  OBLIGATIONS UPON TERMINATION:
        ----------------------------

        (a) Cause: If Company terminates Employee for Cause at any time during
the Term, Employee (or his estate in the event of his death) will receive his
base salary and other compensation and benefits earned under this Agreement but
not yet paid or delivered to Employee as of the date of termination, including
retirement benefits accrued through the date of such termination and payable
under the terms of such plans, but excluding (except in the case of death or
disability) any bonus. In the event of disability or death, Employee (or his
estate) shall also receive a payment (at the time Company traditionally makes
such payment) equal to a pro-rata share of the annual bonus he would have earned
(as determined in a manner consistent with Paragraph 3(c) hereof) based on
Company's actual results for the fiscal year. For purposes of the preceding
sentence, Employee's pro-rata share shall be a fraction of the number of days in
the fiscal year, the numerator of which shall be the number of days in the
fiscal year prior to Employee's death or disability and the denominator of which
shall be 365. Other than the amounts specified in this Paragraph 5(a), Employee
will not be entitled to any severance pay or any other compensation or benefits
of any nature whatsoever, except as may be payable under the terms of other
plans or agreements in the event of disability or death.

                                      -3-
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        (b) Other Than Cause: If Company terminates Employee for any reason
other than Cause at any time during the Term or if Employee terminates
employment for any Good Reason, Employee shall receive, subject to the
limitations set forth below, (i) his base salary and other compensation and
benefits earned under this Agreement but not yet paid or delivered to Employee
as of the date of his termination, including retirement benefits accrued through
the date of such termination and payable under the terms of such plans, (ii) the
Target Bonus, if any, for the applicable fiscal year in which the Employee is
terminated and (iii) severance pay constituting the continuation of his then-
current base salary, less standard income and payroll tax withholding and other
authorized deductions, plus continued health coverage and a payment equal to the
benefits that absent termination of employment would have accrued under the
Company's tax-qualified and non-qualified retirement plans (which benefits shall
be deemed fully vested), until the later of the date that is (x) the first
anniversary of the date of his termination and (y) the third anniversary of the
date hereof.

        (c) Exclusive Remedy: Employee acknowledges that, other than the
payments described in this Paragraph 5, he shall have no other claims against,
and be entitled to no other payments from, Company or its direct or indirect
parents, subsidiaries, affiliates or related companies upon any termination or
breach by Company of this Agreement.

    6.  LOYALTY, NON-COMPETITION AND CONFIDENTIALITY:  In consideration of the
        --------------------------------------------
employment provided by Company, Employee agrees with Company as follows:

        (a) Non-Competition: Employee acknowledges that his position will give
him access to confidential and highly sensitive non-public information of
substantial importance to Company, including but not limited to financial
information, identities of distributors, contractors and vendors utilized in
Company's business, non-public forms, contracts and other documents used in
Company's business, trade secrets used, developed or acquired by Company,
information concerning the manner and details of Company's operation,
organization and management, Company's business plans and strategies, price
information, customer lists and research and development data, and that the
services he will provide to Company are unique. During the "Non-Competition
Period" as defined in Paragraph 6(f) hereof, Employee agrees that in addition to
any other limitation, he will not directly or indirectly engage in, as an
employee, consultant or otherwise, any business in the United States primarily
engaged in the retail sporting goods or retail sports apparel business, nor will
he accept employment, consult for, or participate, directly or indirectly, in
the ownership or management of any enterprise in the United States engaged in
such a business. Notwithstanding the foregoing, Employee may invest as the
holder of not more than four percent (4%) of the outstanding shares of any
corporation whose stock is listed on any national or regional securities
exchange or reported by the National Association of Securities Dealers Automated
Quotation System or any successor thereto.

        (b) Other Employees, Customers: Employee agrees that during the Non-
Competition Period, neither he nor any entity with which he is at the time
affiliated (and which is not affiliated with Company) shall, directly or
indirectly, hire or offer to hire or entice away or in any other manner persuade
or attempt to persuade any officer, employee, agent or customer of Company or
any of its affiliates, or any person who supplies goods or services or licenses

                                      -4-
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intangible or tangible property to Company or any of its affiliates to
discontinue his, her or its relationship with such entity.

        (c) Confidentiality: Except in the normal and proper course of his
duties hereunder, Employee will not use for his own account or disclose to
anyone else, during or after the Term of this Agreement, any confidential or
proprietary information or material relating in the reasonable opinion of
Company to Company's operations or businesses, including Company's subsidiaries,
which he may obtain from Company, its subsidiaries or their officers, directors
or employees, or otherwise during or by virtue of Employee's employment by
Company. Confidential or proprietary information or material includes, without
limitation, the following types of information or material, both existing and
contemplated, regarding Company, its direct or indirect parents, subsidiaries,
affiliates or related companies: proprietary data processing systems and
software; corporate information, including contractual arrangements, plans,
strategies, tactics, policies, resolutions, patent, copyright, trademark, and
tradename applications, and any litigation or negotiations; marketing
information, including sales or product plans, strategies, methods, customers,
prospects, or market research data; financial information, including cost and
performance data, debt arrangements, equity structure, investors, and holdings;
operational and scientific information, including trade secrets, technical
information, and personnel information, including personnel lists, resumes,
personnel data, organizational structure, and performance evaluations; provided,
however, that confidential or proprietary information shall not include any
information that is generally available to the public without breach of this
Agreement.

        (d) Intangible Property: All right, title and interest of every kind and
nature whatsoever, whether now known or unknown, in and to any intangible
property, including all trade names, unregistered trademarks and service marks,
brand names, patents, copyrights, registered trademarks and service marks and
all trade secrets and confidential know-how (collectively, the "Intangible
Property"), invented, created, written, developed, furnished, produced or
disclosed by Employee in the course of rendering his services to Company
hereunder shall, as between the parties hereto, be and remain the sole and
exclusive property of Company for any and all purposes and uses whatsoever, and
Employee shall have no right, title or interest of any kind or nature in such
Intangible Property, or in or to any results or proceeds therefrom. Employee
will, at the request of Company, execute such assignments, certificates and
other instruments as Company may from time to time deem necessary or desirable
to evidence, establish, maintain, perfect, protect, enforce or defend its right,
title and interest in and to, any of the foregoing.

        (e) Return of Documents: Employee agrees that all documents of any
nature pertaining to activities of Company, its direct or indirect parents,
subsidiaries, affiliates and related companies, used, prepared, or made
available to Employee in the course of rendering his services to Company
hereunder, including the information or materials covered by Paragraphs 6(c) and
6(d) hereof, are and shall be the property of Company or, as the case may be,
its direct or indirect parents, subsidiaries, affiliates or related companies,
and that all copies of such documents shall be surrendered to Company whenever
requested by the Company.

        (f) Non-Competition Period: "Non-Competition Period" means the period
beginning on the date hereof and ending on the date that is the later of (i) the
second anniversary

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of the date of termination of Employee's employment with Company and (ii) three
years from the date hereof .

        (g) Enforcement: Employee acknowledges that irreparable damage would
result to Company or its direct or indirect parents, subsidiaries, affiliates or
related companies if the provisions of this Paragraph 6 are not specifically
enforced, and agrees that Company shall be entitled to any appropriate legal,
equitable, or other remedy, including injunctive relief, in respect of any
failure to comply with the provisions of this Paragraph 6.

    7.  ENTIRE AGREEMENT:  This Agreement contains the entire understanding
        ----------------
between Company and Employee concerning Employee's employment with Company, and
supersedes all prior negotiations, term sheets, and agreements between them.

    8.  MODIFICATION:  No provision of this Agreement may be amended, modified,
        ------------
or waived except by written agreement signed by both Company and Employee.

   9.  GOVERNING LAW:  The provisions of this Agreement shall be construed in
       -------------
accordance with, and governed by, the laws of the State of Indiana without
regard to principles of conflict of laws.

   10. SAVINGS CLAUSE:  If any provision of this Agreement or the application
       --------------
thereof is held invalid, the invalidity shall not affect other provisions or
applications of the Agreement which can be given effect without the invalid
provisions or applications and to this end the provisions of this Agreement are
declared to be severable.

   11. SUCCESSORS; NO ASSIGNMENT OF AGREEMENT:  Except as otherwise provided
       --------------------------------------
herein, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective legal representatives, heirs, successors
and assigns.  Employee acknowledges that his services are unique and personal.
Accordingly, Employee may not assign his rights or delegate his duties or
obligations under this Agreement to any person or entity.

   12.  ADDITIONAL REPRESENTATIONS:  Employee represents and warrants to Company
        --------------------------
that he is knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that he has read this Agreement and that he
understands its terms.  Employee acknowledges that, prior to assenting to the
terms of this Agreement, he had been given a reasonable time to review it, to
consult with counsel of his choice, and to negotiate at arm's-length with
Company as to its contents.  Company and Employee agree that the language used
in this Agreement is the language chosen by the parties to express their mutual
intent, and that Employee has entered into this Agreement freely and voluntarily
and without pressure or coercion from anyone.  Employee represents and warrants
to Company that he is not bound by any agreement or subject to any restriction
which would interfere with or prevent his entering into or carrying out this
Agreement.

   13.  RIGHTS AND WAIVERS:  All rights and remedies of the parties hereto are
        ------------------
separate and cumulative, and no one of them, whether exercised or not, shall be
deemed to be to the exclusion of any other rights or remedies or shall be deemed
to limit or prejudice any other legal or equitable rights or remedies which
either of the parties hereto may have. No party to this Agreement shall be
deemed to waive any rights or remedies under this Agreement unless such

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waiver is in writing and signed by such party. No delay or omission on the part
of either party in exercising any right or remedy shall operate as a waiver of
such right or remedy or any other rights or remedies. A waiver on any one
occasion shall not be construed as a bar to or a waiver of any right or remedy
on any future occasion.

   14.  SURVIVABILITY:  The expiration or termination of this Agreement shall
        -------------
not operate to affect such of the provisions hereof as are expressed to remain
in full force and effect notwithstanding such termination.

   15.  CAPTIONS:  The captions of this Agreement are for descriptive purposes
        --------
only and are not part of the provisions hereof and shall have no force or
effect.

   16.  NOTICES:  All notices and other communications hereunder shall be in
        -------
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows (or to such other party or address as Company or Employee may designate
in notice duly delivered to the other pursuant to this paragraph):

          If to Employee, to him at his address set forth in the preamble
hereto.

          If to Company, to it at:

          Galyan's Trading Company, Inc.
          2437 E. Main Street
          Plainfield, Indiana  46168
          Attn: Chuck Nelson

          With copies to:

          O'Melveny & Myers LLP
          153 East 53rd Street
          New York, New York  10022
          Attn:  Jeffrey J. Rosen

          and

          Freeman Spogli & Co.
          599 Lexington Avenue
          18th Floor
          New York, New York 10022
          Attn: John M. Roth

                  (Remainder of Page Intentionally Left Blank)

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          IN WITNESS WHEREOF, Company and Employee, intending to be legally
bound, have executed this Agreement on the day and year first above written.

EMPLOYEE:                                  COMPANY:
                                           GALYAN'S TRADING COMPANY, INC.

/s/ Joel L. Silverman                       By:/s/ Robert Mang
--------------------------------               ---------------------------------
Joel L. Silverman                              Robert Mang
                                               Chief Executive Officer

                                      S-1<PAGE>

                                                                  Exhibit 10.5

                        GALYAN'S TRADING COMPANY, INC.

                            1999 STOCK OPTION PLAN

     Section 1. Description of Plan. This is the 1999 Stock Option Plan dated
                -------------------
October 15, 1999 (the "Plan") of Galyan's Trading Company, Inc., an Indiana
                       ----
corporation (the "Company"). This Plan will provide a means whereby designated
                  -------
employees, directors, officers or consultants of the Company may purchase shares
of the common stock, no par value of the Company (the "Shares" or the "Common
                                                       ------          ------
Stock"). It is intended that the options under this Plan will either qualify
-----
for treatment as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and be designated "Incentive Stock
                               ----
Options" or not qualify for such treatment and be designated "Nonqualified Stock
Options." Incentive Stock Options may only be granted to employees. This Plan is
intended to qualify as and constitute a compensatory benefit plan under Rule 701
promulgated under the Securities Act of 1933, as amended (such act, and the
rules and regulations promulgated thereunder, the "Act").

     Section 2. Purpose of Plan. The purpose of the Plan and of granting options
                ---------------
(the "Options") to specified persons is to further the growth, development and
      -------
financial success of the Company by providing additional incentives to its
employees, directors, officers or consultants. By assisting such persons in
acquiring Shares, the Company can ensure that such persons will themselves
benefit directly from the Company's growth, development and financial success.

     Section 3. Eligibility. The persons who shall be eligible to receive grants
                -----------
of Options under the Plan shall be the designated employees, directors, officers
or consultants of the Company as determined from time to time by the Board of
                                                                     -----
Directors (the "Board") of the Company. A person who holds an Option is herein
referred to as a "Participant," and more than one Option may be granted to any
Participant.

     Section 4. Administration and Authorization.
                --------------------------------

                (a) Committee. Except as otherwise provided herein, the Plan
                    ---------
shall be administered by the Board or, at the Board's option, by a compensation
committee thereof from time to time constituted, to whom administration of this
Plan has been duly delegated (the Board and/or such committee, are referred to
hereinafter as the "Committee"). Any action of the Committee with respect to
                    ---------
administration of the Plan shall be taken by a majority vote or written consent
of its members. Upon the first registration of an equity security of the Company
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
                                                            ------------
the event possible and advisable, the Committee may be constituted so as to
permit this Plan to comply with Rule 16b-3 promulgated under Section 16 of the
Exchange Act and Section 162(m) of the Code.

                (b) Interpretation; Powers of Committee. Subject to the express
                    -----------------------------------
provisions of this Plan and any express limitations on the delegated authority,
the Committee is authorized and empowered to administer the Plan and (i) to
determine the dates upon which Options shall be granted, the exercise price of
the Options, the number of Shares subject to the Options and to specify the
other terms and conditions thereof in a manner consistent with this
<PAGE>

Plan, which terms and conditions need not be identical as to the various Options
granted; (ii) to interpret the Plan; (iii) to grant Options; (iv) to determine
eligibility and the particular Participants; (v) to determine the fair market
value of the Shares; (vi) to accelerate the time during which an Option may be
exercised in accordance with the provisions of Section 14 hereof, and to
otherwise accelerate the time during which an Option may be exercised, in each
case notwithstanding the provisions in the Option Agreement (as defined in
Section 11 hereof) stating the time during which it may be exercised; (vii) to
reissue the Plan and related benefits hereunder as a direct plan of a subsidiary
or subsidiaries, converting the Options and Shares issued under this Plan to
options and shares of such subsidiary or subsidiaries, as the case may be;
(viii) to prescribe, amend and rescind rules relating to the Plan; (ix) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted by the Committee; (x) to
determine the rights and obligations of Participants under the Plan; and (xi) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.

                (c) Binding Determinations. Any action taken by, or inaction of,
                    ----------------------
the Company, the Board or the Committee relating or pursuant to this Plan
(including, without limitation, any determination of Fair Market Value and
Repurchase Price (as such terms may be defined in the applicable Option
Agreement)) will be within the sole discretion of that entity or body and will
be conclusive and binding upon all persons. Subject only to compliance with the
express provisions hereof, the Board and Committee may act in their sole
discretion in matters within their authority related to this Plan.

                (d) Reliance on Experts. In making any determination or in
                    -------------------
taking or not taking any action under this Plan, the Committee or the Board, as
the case may be, may obtain and may rely upon the advice of experts, including
employees of and professional advisors to the Company.

                (e) Delegation. The Committee may delegate ministerial, non-
                    ----------
discretionary functions to individuals who are officers or employees of the
Company.

                (f) No Liability. No director, officer or agent of the Company
                    ------------
will be liable for any action, omission or decision under this Plan taken, made
or omitted in good faith.

    Section 5.  Shares Subject to Plan.
                ----------------------

                (a) Shares Available. The only capital stock that may be
                    ----------------
delivered under the Plan will be the Shares.

                (b) Share Limits. The aggregate number of Shares for which
                    ------------
Options may be granted pursuant to the Plan shall be two million (2,000,000).
Such number shall be automatically adjusted for any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction of the Company. The number of Shares which
may be purchased by a Participant upon exercise of each Option shall be
determined by the Committee and set forth in each Option Agreement (as such term
is defined in Section 11 hereof). Upon the expiration or termination, in whole
or in part, for any reason of an outstanding Option or any portion thereof which
shall not have vested or shall not have been

                                       2
<PAGE>

exercised in full or in the event that any Shares acquired pursuant to the Plan
are reacquired by the Company, (a) any Shares which have not been purchased or
(b) the Shares reacquired, as the case may be, shall again become available for
the granting of additional Options under the Plan.

    Section 6.  Restrictions on Grants; Vesting of Options. Notwithstanding any
                ------------------------------------------
other provisions set forth herein or in any Option Agreement, no Options may be
granted under the Plan subsequent to ten (10) years from the date hereof. Each
Option shall grant the Participant the right to purchase a specified number of
Shares at a price determined by the Committee, as such price or the basis upon
which price is determined is set forth in each respective Option Agreement (the
"Exercise Price"); provided, however, that if the Participant is a 10%
---------------
stockholder of the Company (as defined in Section 422(b)(6) of the Code) at the
time such Participant is granted an Incentive Stock Option, the Exercise Price
shall be not less than 110% of the fair market value of such Shares on the date
of grant of the Option. Such fair market value shall be determined by the
Committee on the basis of such evidence as it deems appropriate in its sole
discretion. The Options shall vest based on longevity of service and/or other
schedules established by the Committee, as set forth in each Option Agreement.

    Section 7.  Exercise of Options and Option Period.
                -------------------------------------

                (a) Exercise. Once vested, the Options may be exercised by the
                    --------
Participant by (i) giving written notice to the Company specifying the number of
Shares to be purchased and accompanied by payment of the full Exercise Price
therefor in cash, by check or in such other form of lawful consideration as the
Committee may approve from time to time, including without limitation and in the
sole discretion of the Committee, the assignment in transfer by the Participant
to the Company of outstanding shares of Common Stock theretofore held by the
Participant in a manner intended to comply with the provisions of Rule I 6b-3
under the Exchange Act, if applicable, (ii) delivering an agreement to be bound
by the terms and provisions of the Stockholders Agreement dated of even date
herewith (the "Stockholders Agreement") and (iii) satisfying any other
               ----------------------
requirements set forth herein or in the applicable Option Agreements.

                (b) Option Period. Any Option and all rights thereunder shall
                    -------------
expire not more than seven (7) years after the date of grant; provided that, the
Options will be subject to earlier termination as set forth in Sections 13 and
14 hereof.

    Section 8.  Transfer and other Limitations or Options and Shares.
                ----------------------------------------------------

                (a) Limits On Exercise and Transfer. Except as expressly
                    -------------------------------
provided in (or pursuant to) Section 8(b), by applicable law or by the Option
Agreement, as the same may be amended:

                    (i)   all Options are non-transferable and will not be
subject in any manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge;

                    (ii)  Options must be exercised only by the Participant; and

                                       3
<PAGE>

                    (iii) amounts payable or shares issuable pursuant to an
Option must be delivered only to (or for the account of) the Participant.

    In addition, the shares shall be subject to the restrictions imposed in the
applicable Option Agreement.

                (b) Exceptions to Limits On Exercise and Transfer. The exercise
and transfer restrictions in Section 8(a) will not apply to:

                    (i) transfers to the Company;

                    (ii) the designation of a beneficiary to receive benefits if
the Participant dies or, if the Participant has died, transfers to or exercises
by the Participant's beneficiary, or, in the absence of a validly designated
beneficiary, transfers by will or the laws of descent and distribution; or

                    (iii) if the Participant has suffered a disability,
transfers or exercises on behalf of the Participant by the Participant's duly
authorized legal representative in accordance with the applicable Option
Agreement.

     Section 9. Limitations on Grants and Terms of Incentive Stock Options.
                ----------------------------------------------------------

                (a) $100,000 Limit. The aggregate fair market value (determined
                    --------------
as of the time an Option is granted) of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by any Participant in
any calendar year under this Plan and any other incentive stock option plans
(which qualify under Section 422 of the Code) of the Company shall not exceed
$100,000.

                (b) Other Code Limits. Incentive Stock Options may only be
                    -----------------
granted to employees of the Company that satisfy the other eligibility
requirements of the Code. There will be imposed in any Option Agreement relating
to Incentive Stock Options such other terms and conditions as from time to time
are required in order that the Option be an "incentive stock option" as that
term is defined in Section 422 of the Code.

    Section 10. Adjustments Upon Recapitalization or Reorganization. Subject to
                ---------------------------------------------------
Section 13(b) hereof, if the outstanding shares of the Common Stock of the
Company are changed into, or exchanged for, a different number or kind of shares
or securities of the Company through any capital reorganization or
reclassification, or if the number of outstanding shares is changed through a
stock split or stock dividend, an appropriate adjustment shall be made by the
Committee in the number, kind or exercise price of shares as to which Options
may be granted under the Plan. A corresponding adjustment shall likewise be made
in the number, kind or exercise price of shares with respect to which
unexercised Options have theretofore been granted. Any such adjustment in an
outstanding Option, however, shall be made without change in the total price
applicable to the unexercised portion of the Option but with a corresponding
adjustment in the price for each Share covered by the Option. In making such
adjustments, or in determining that no such adjustments are necessary, the
Committee may rely upon the advice of counsel and accountants to the Company,
and the good faith determination of the Committee

                                       4
<PAGE>

shall be final, conclusive and binding. No fractional shares of stock shall be
issued or issuable under the Plan on account of any such adjustment.

    Section 11. Option Agreement. Each Option granted under the Plan shall be
                ----------------
evidenced by a written option agreement (an "Option Agreement") executed by the
Company and the Participant which (a) shall contain each of the provisions and
agreements herein specifically required to be contained therein; (b) shall
contain provisions which give the Company a right of first refusal to purchase
any Shares issued pursuant to the exercise of Options granted under the Plan
which a Participant proposes to sell; (c) shall contain certain repurchase
rights of the Company; and (d) may contain such other terms and conditions as
the Committee deems desirable and which are not inconsistent with the Plan.

    Section 12. Privileges of Stock Ownership. Persons entitled to exercise any
                -----------------------------
Options granted under this Plan shall have all of the rights or privileges of a
shareholder of the Company in respect of any shares of Common Stock issuable
upon exercise of such Option from and after the date of exercise of an Option.
No Shares shall be issued and delivered upon exercise of any Option unless and
until, in the opinion of counsel for the Company, there shall have been full
compliance with any applicable registration requirements of the Securities Act,
any applicable listing requirements of any national securities exchange or
automated quotation system on which the Common Stock is then listed or quoted,
and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery. The Company agrees to take all
actions reasonably necessary to comply with all such requirements.

    The Company agrees that Shares issued upon the exercise of Options shall,
at the time of delivery, be validly issued and outstanding, fully paid and
nonassessable. The Company covenants and agrees that it will pay, when due and
payable, any and all federal and state stamp, original issue, or similar taxes
which may be payable in respect of the issue of the Option or of Shares upon the
exercise thereof.

    Section 13. Termination of Options.
                ----------------------

                (a) Each Option granted under the Plan shall set forth a
termination date thereof, which shall be not later than seven (7) years from the
date such Option is granted subject to earlier termination as set forth in
Section 13(b), or Section 14 hereof, or as otherwise set forth in each
particular Option Agreement; provided, however, with respect to Incentive Stock
Options, such termination shall be not later than five (5) years from the date
such Option is granted if the Participant is a 10% stockholder of the Company
(as defined in Section 422(b)(6) of the Code) at the time such Option is
granted. An Incentive Stock Option shall contain any termination events required
by Section 422 of the Code. The termination of employment, or service as a
director, officer or consultant, of a Participant for any reason shall not
accelerate or otherwise increase the number of Shares which may be purchased
upon exercise of an Option; following such termination, the Option may only be
exercised in accordance with the applicable Option Agreement and with respect to
that number of Shares which could have been purchased under the Option had the
Option been exercised by the Participant on the date of such termination.

                                       5
<PAGE>

                (b) Subject to Section 14 hereof(i) upon the dissolution,
liquidation or sale of all or substantially all of the business, properties and
assets of the Company, (ii) upon any reorganization, merger, consolidation, sale
or exchange of securities in which the Company does not survive, or (iii) upon
any sale, reorganization, merger, consolidation or exchange of securities in
which the Company does survive and any of the Company's stockholders have the
opportunity to receive cash, securities of another corporation, partnership or
limited liability company and/or other property in exchange for their capital
stock of the Company, or (iv) upon any acquisition by any person or group (as
defined in Section 13d of the Exchange Act) of beneficial ownership of more
than fifty percent (50%) of the Company's then outstanding shares of Common
Stock (each of the events described in clauses (i), (ii), (iii) or (iv) is
referred to herein as an "Extraordinary Event,"), the Plan and each outstanding
                          -------------------
Option shall terminate. In such event each Participant shall have the right, by
giving notice ten (10) days before the effective date of such Extraordinary
Event (the "Effective Date"), to exercise on or before the Effective Date, in
            --------------
whole or in part, any unexpired Option issued to the Participant, to the extent
that said Option is vested as of the Effective Date and exercisable as of the
Effective Date, and otherwise is vested and exercisable pursuant to the
provisions of said Option and of Section 6 of the Plan.

    Section 14. Acceleration of Options.
                -----------------------

                (a) Acceleration. Notwithstanding the provisions of Section 6 or
                    ------------
Section 13 hereof, or any provision to the contrary contained in a particular
Option Agreement, the Committee, in its sole discretion, may accelerate the
vesting of all or any portion of any Option then outstanding. The decision by
the Committee to accelerate an Option or to decline to accelerate an Option
shall be final. In the event of the acceleration of the exercisability of
Options as the result of a decision by the Committee pursuant to this Section
14, each outstanding Option so accelerated shall be exercisable for a period
from and after the date of such acceleration and upon such other terms and
conditions as the Committee may determine in its sole discretion, provided that
such terms and conditions (other than terms and conditions relating solely to
the acceleration of exercisability and the related termination of an Option) may
not materially adversely affect the rights of any Participant without the
consent of the Participant so materially adversely affected. Any outstanding
Option which has not been exercised by the holder at the end of such period
shall terminate automatically at that time.

                (b) Possible Rescission of Acceleration. If the vesting of an
                    -----------------------------------
Option has been accelerated in anticipation of an event and the Committee or the
Board later determines that the event will not occur, the Committee may rescind
the effect of the acceleration as to any then outstanding and unexercised or
otherwise unvested Options.

                (c) Pooling Exception. Any discretion with respect to the events
                    -----------------
addressed in Section 13 or 14 shall be limited to the extent required by
applicable accounting requirements in the case of a transaction intended to be
accounted for as a pooling of interests transaction.

    Section 15. Substitute Options. If the Company at any time should succeed
                ------------------
to the business of another entity through a merger, consolidation, corporate
reorganization or exchange, or through the acquisition of stock or assets of
such entity or it5 subsidiaries or otherwise, Options may be granted under the
Plan to option holders of such entity or its

                                       6
<PAGE>

subsidiaries, in substitution for options to purchase Shares in such entity held
by them at the time of succession. The Committee, in its sole and absolute
discretion, shall determine the extent to which such substitute Options shall be
granted (if at all), the person or persons to receive such substitute Options
(who need not be all option holders of such entity), the number of Options to be
received by each such person, the exercise price of such Option and the other
terms and conditions of such substitute Options.

    Section 16. Withholding Of Taxes. The Company may deduct and withhold from
                --------------------
the wages, salary, bonus and other income paid by the Company to the Participant
the requisite tax upon the amount of taxable income, if any, recognized by the
Participant in connection with the exercise in whole or in part of any Option,
or the sale of the Shares issued to the Participant upon the exercise of an
Option, as may be required from time to time under any federal or state tax laws
and regulations. This withholding of tax shall be made from the Company's
concurrent or next payment of wages, salary, bonus or other income to the
Participant or by payment to the Company by the Participant of the required
withholding tax, as the Committee may determine; provided, however, that, in the
sole discretion of the Committee, the Participant may pay such tax by reducing
the number of Shares issued upon exercise of an Option (for which purpose such
Shares shall be valued at fair market value as determined by the Committee on
the basis of such evidence as it deems appropriate in its sole discretion).
Notwithstanding the foregoing, the Company shall not be obligated to issue
certificates representing the shares of Common Stock to be acquired through the
exercise of such Option if such Participant fails to provide the Company with
adequate assurance that such Participant will pay such amounts to the Company as
herein above required. Participants shall notify the Company in writing of any
amounts included as income in the Participants' federal income tax returns in
connection with an Option.

    Section 17. Compliance with Laws.
                --------------------

                (a) General. This Plan, the granting and vesting of Options
                    -------
under this Plan, the offer, issuance and delivery of the Shares, the payment of
money under this Plan or under Options are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities laws and federal margin requirements)
and to such approvals by any listing, regulatory or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. In addition, any securities delivered under this Plan may
be subject to any special restrictions that the Committee may require to
preserve a pooling of interests under generally accepted accounting principles.
Any Shares issued by the Company upon exercise of an Option granted hereunder
shall be subject to (w) a right of first refusal of the Company with respect to
all Shares proposed to be transferred by Participant, (x) certain repurchase
rights of the Company, (y) certain drag-along rights and (z) certain other
restrictions, in each case as set forth in each particular Option Agreement or
the Stockholders Agreement.

                (b) The person acquiring any securities under this Plan will, if
requested by the Company, provide such assurances and representations to the
Company as the Committee may deem necessary or desirable to assure compliance
with all applicable legal and accounting requirements.

                                       7
<PAGE>

    The Company shall deliver annually to Participants such financial
statements of the Company as are required to satisfy applicable securities laws.

                (c) Compliance with Securities Laws. No Participant shall sell,
                    -------------------------------
pledge or otherwise transfer Shares acquired pursuant to an Option or any
interest in such shares except in accordance with the express terms of this Plan
and the applicable Option Agreement. Any attempted transfer in violation of this
Section 17 shall be void and of no effect. Without in any way limiting the
provisions set forth above, no Participant shall make any disposition of all or
any portion of Shares acquired or to be acquired pursuant to an Option, except
in compliance with all applicable federal and state securities laws and unless
and until:

                   (i)   there is then in effect a registration statement under
        the Securities Act covering such proposed disposition and such
        disposition is made in accordance with such registration statement; or

                    (ii)  such disposition is made in accordance with Rule 144
        under the Securities Act; or

                    (iii) the Participant notifies the Company of the proposed
        disposition and furnishes the Company with a statement of the
        circumstances surrounding the proposed disposition, and, if requested by
        the Company, furnishes to the Company an opinion of counsel acceptable
        to the Company's counsel, that such disposition will not require
        registration under the Securities Act and will be in compliance with all
        applicable state securities laws.

        Notwithstanding anything else herein to the contrary, the Company has
        no obligation to register the Shares or file any registration statement
        under either federal or state securities laws, nor does the Company make
        any representation concerning the likelihood of a public offering of the
        Shares or any other securities of the Company.

                (d) Share Legends. All certificates evidencing Shares issued or
                    -------------
delivered under this Plan shall bear the following legends and/or any other
appropriate or required legends under applicable laws:

                "OWNERSHIP OF THIS CERTIFICATE, THE SHARES EVIDENCED BY THIS
                CERTIFICATE AND ANY INTEREST THEREIN ARE SUBJECT TO
                SUBSTANTIAL RESTRICTIONS ON TRANSFER UNDER APPLICABLE LAW AND
                UNDER AGREEMENTS WITH THE COMPANY, INCLUDING RESTRICTIONS ON
                SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION."

                "THE SHARES ARE SUBJECT TO THE COMPANY'S RIGHT OF FIRST
                REFUSAL, COMPANY'S RIGHT TO REPURCHASE AND CERTAIN OBLIGATIONS
                TO SELL UNDER THE COMPANY'S 1999 STOCK OPTION PLAN AND
                AGREEMENTS WITH THE COMPANY THEREUNDER, COPIES OF WHICH ARE
                AVAILABLE FOR REVIEW AT THE OFFICE OF THE SECRETARY OF THE
                COMPANY."

                                       8
<PAGE>

                "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR
                QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"),
                NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
                LAWS OF ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE
                PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
                EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE
                WITH RULE 144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL TO THE
                COMPANY, REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER FOR
                SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH APPLICABLE
                STATE SECURITIES LAWS."

    Section 18. Effectiveness and Termination of the Plan. The Plan shall be
                -----------------------------------------
effective as of the date on which this Plan is approved by the Board. The Plan
shall terminate at the earliest of the time when all Shares which may be issued
hereunder have been so issued. However, the Board may, in its sole discretion,
terminate the Plan at any prior time. Subject to Section 13 hereof, no such
termination shall in any way affect any Option then outstanding.

    Section 19. Time of Granting Options. The date of grant of an Option shall,
                ------------------------
for all purposes, be the date on which the Board makes the determination
granting such an Option. Notice of the determination shall be given to each
Participant to whom an Option is so granted within a reasonable time after the
date of such grant.

    Section 20. Amendment of Plan. Subject to Section 14, the Committee may
                -----------------
make such amendments to the Plan as it shall deem advisable. Subject to Section
14, no amendment shall materially adversely affect any Option then outstanding,
without the consent of the Participant so materially adversely affected.

    Section 21. Leaves of Absence. For purposes of the Plan, a Participant who
                -----------------
is granted in writing a leave of absence shall be deemed to have remained in the
employ of the Company during such leave of absence.

    Section 22. No Obligation to Exercise Option. The granting of an Option
                --------------------------------
shall impose no obligation on the Participant to exercise such Option.

    Section 23. Indemnification. In addition to such other rights of
                ---------------
indemnification as they may have as members of the Board of Directors, the
members of the Committee shall be indemnified by the Company to the fullest
extent permittec by law against the reasonable expenses, including attorney's
fees, actually and necessarly incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal thereof, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted thereunder, and
against all amounts paid by them in satisfaction of a judgment in any such
action, suit or proceeding except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member is not
entitled to indemnification under applicable law; provided, however, that within
sixty (60) days after institution of any such action, suit or proceeding such
Committee member shall in writing offer the Company the opportunity, at the
Company's expense to handle

                                       9
<PAGE>

and defend the same, and such Committee member shall cooperate with and assist
the Company in the defense of any such action, suit or proceeding. The Company
shall not be obligated to indemnify any Committee member with regard to any
settlement of any action, suit or proceeding to which the Company did not
consent to in writing prior to such settlement.

    Section 24. Not an Employment or Consulting Agreement. Nothing contained in
                -----------------------------------------
the Plan or in any Option Agreement shall confer, intend to confer or imply any
right of employment or right to continued employment by, or rights to a
continued relationship with, the Company in favor of any Participant or limit
the ability of the Company to terminate, with or without cause, in its sole and
absolute discretion, the employment of any Participant, subject to the terms of
any written employment to which a Participant is a party. In addition, nothing
contained in the Plan or in any Option Agreement shall preclude any lawful
action by the Company or the Board.

    Section 25. Miscellaneous.
                -------------

                (a) Choice of Law. This Plan, the Options, all documents
                    -------------
evidencing Options and all other related documents will be governed by, and
construed in accordance with, the laws of the State of New York.

                (b) Severability. If a court of competent jurisdiction holds any
                    ------------
provision invalid and unenforceable, the remaining provisions of this Plan will
continue in effect provided that the essential economic terms of this Plan and
any Option granted under it can still be enforced.

                (c) Captions. Captions and headings are given to the sections
                    --------
and subsections of this Plan solely as a convenience to facilitate reference.
Such headings will not be deemed in any way material or relevant to the
construction or interpretation of this Plan cr any provision thereof.

                (d) Non-Exclusivity of Plan. Nothing in this Plan will limit or
                    ------------------------
be deemed to limit the authority of the Board or the Committee to grant awards
or authorize any other compensation, with or without reference to the Shares,
under any other plan or independent authority.

                (e) No Restriction on Corporate Powers. The existence of the
                    ----------------------------------
Plan and the Awards granted hereunder shall not affect or restrict in anyway the
right or power of the Board or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change in
the Company's capital structure or its business, any merger or consolidation of
the Company, any issue of bonds, debentures, preferred or rior preference stocks
ahead of or affecting the Company's capital stock or the rights thereof, the
dissolution or liquidation of the Company or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding.

                                       10

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