Document:

Stock Option Agreement - Walter Killough

 Exhibit 10.29 
  
 Option No.              
  
 dELiA*s, INC. 
 STOCK OPTION AGREEMENT 
  

											
	 NAME

	  	 TYPE OF
 OPTION

	  	GRANT DATE

	  	 EXPIRATION
 DATE

	  	 NUMBER OF
 SHARES

	  	 OPTION PRICE
 PER SHARE

	 Walter Killough
	  	Incentive Stock
Option	  	October 28, 2005	  	October 28, 2015	  	520,000	  	(1)

  

	(1)	The option price per share shall be equal to the quotient of (x) $175,000,000, divided by (y) the number of shares of dELiA*s, Inc. (“dELiA*s”) common stock, par
value $0.001 per share (“Common Stock”), that are issued in the spinoff of shares of Common Stock to be effected by Alloy, Inc. (the “Spinoff”) as described in that certain prospectus filed as part of dELiA*s’ registration
statement on Form S-1 filed with the Securities and Exchange Commission on September 7, 2005, File No. 333-128153, as adjusted to account for the dilutive impact of options and warrants that will be outstanding immediately following the
Spinoff pursuant to the treasury stock method. 

  
 The person named above (“Optionee”) has been granted a nonqualified stock option (“NSO”) or an incentive stock option (“ISO”), as specified above (the “Option”), to purchase shares of common stock of
dELiA*s on the terms and subject to the conditions described in this Stock Option Agreement (this “Agreement”). This option is granted pursuant to the dELiA*s, Inc. 2005 Stock Incentive Plan (the “Plan”). Terms with initial
capital letters used herein without definition shall have the meanings given them in the Plan. dELiA*s and Optionee agree as follows: 
  

	1.	Number of Shares Optional; Option Price. 

  
 dELiA*s grants to Optionee the right and option to purchase, in the aggregate, the number of shares of Common Stock, at the option price per share, in
each case as shown above. If this Option is designated as an NSO, the Option granted is not intended to be treated, and will not be treated, as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the “Code”). If this Option is designated as an ISO, the Option granted is intended to be treated, and will be treated, as an incentive stock option within the meaning of Section 422 of the Code. If this Option is designated
as an ISO, the Exercise Price is agreed to be at least equal to the Fair Market Value per share of Common Stock on the Date of Grant or, if the Optionee is a Ten Percent Holder, at least 110% of the Fair Market Value per share of Common Stock. The
granting of the Option shall impose no obligation on Optionee to exercise such Option. 
  

	2.	Limitation on Exercise of Option. 

  
 (a) Except as provided in the Plan or in this Agreement, and unless the Administrator establishes otherwise, Optionee is entitled to purchase, in whole or
in part, 130,000 shares of Common Stock on and after each of the following dates during the term hereof and before a date or event of termination as described in this Option: 
  

	 	(i)	the date that is twelve (12) months after the effective date of Spinoff; 

  

	 	(ii)	the date that is twenty four (24) months after the effective date of Spinoff; 

  

	 	(iii)	the date that is thirty six (36) months after the effective date of Spinoff; and 

  

	 	(iv)	the date that is forty eight (48) months after the effective date of Spinoff; 

  
 provided, however, that if Optionee’s employment with dELiA*s is terminated by dELiA*s without Cause on or before the
second anniversary of the effective date of the Spinoff, then immediately upon such termination, Optionee shall be entitled to purchase all 520,000 shares of Common Stock subject to this Option. 

 (b) If this Option is designated as an ISO above, then Optionee’s right to exercise this option
shall be deferred to the extent (and only to the extent) that this option otherwise would not be treated as an ISO by reason of the $100,000 annual limitation under Section 422(d) of the Code. 
  
 (c) This Option shall terminate and be of no further force and effect if the
effective date of the Spinoff shall not have occurred on or prior to March 1, 2006. 
  

	3.	Rights in the Event of Death. 

  
 If Optionee’s employment with, or provision of services to, dELiA*s is terminated due to death, this Option shall be exercisable by Optionee’s
Representatives until the earlier of: 
  

	 	(i)	the date on which the Option expires (the “Expiration Date”), and 

  

	 	(ii)	twelve (12) months from the date of Optionee’s death, 

  
 in any case to the extent to which Optionee would otherwise have been entitled to exercise this Option as provided in Section 2 as of the date of Optionee’s
death. To the extent Optionee is not entitled to exercise any portion of this Option as of the date of Optionee’s death, such unexercised portion of this Option shall immediately lapse, effective as of the date of Optionee’s death.

  

	4.	Rights in the Event of Disability. 

  
 If Optionee’s employment with, or provision of services to, dELiA*s is terminated due to Disability, this Option shall be exercisable by
Optionee’s Representative until the earlier of: 
  

	 	(i)	the Expiration Date; and 

  

	 	(ii)	three (3) months from the date of Optionee’s Disability, 

  
 in any case to the extent to which Optionee would otherwise have been entitled to exercise this Option as provided in Section 2 as of the date of Optionee’s
Disability; provided, however, that if the Optionee dies after the date of Optionee’s Disability but before the earlier of the Expiration Date and the date that is three (3) months after the date of Optionee’s
Disability, an unexercised Stock Option held by such Optionee shall, notwithstanding the expiration of such period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of twelve (12) months
from the date of such death or until the Expiration Date, whichever period is shorter. To the extent Optionee is not entitled to exercise any portion of this Option as of the date of Optionee’s Disability, such unexercised portion of this
Option shall immediately lapse, effective as of the date of Optionee’s Disability. 
  

	5.	Termination by Reason of Retirement. 

  
 If Optionee’s employment with, or provision of services to, dELiA*s is terminated by reason of Retirement, this Option shall be exercisable by
Optionee until the earlier of: 
  

	 	(i)	the Expiration Date; and 

  

	 	(ii)	three (3) months from the date of Optionee’s Retirement, 

  
 in any case to the extent to which Optionee would otherwise have been entitled to exercise this Option as provided in Section 2 as of the date of Optionee’s
Retirement; provided, however, that if the Optionee dies after the date of Optionee’s Retirement but before the earlier of the Expiration Date and the date that is three (3) months after the date of Optionee’s
Retirement, an unexercised Stock Option held by such Optionee shall, notwithstanding the expiration of such period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of twelve (12) months
from the date of such death or until the Expiration Date, whichever period is shorter. To the extent Optionee is not entitled to exercise any portion of this Option as of the date of Optionee’s Retirement, such unexercised portion of this
Option shall immediately lapse, effective as of the date of Optionee’s Retirement 

	6.	Other Termination. 

  
 If Optionee’s employment with, or provision of services to, dELiA*s is terminated for any reason other than death, Disability or Retirement, this
Option shall be exercisable by Optionee until the earlier of: 
  

	 	(i)	the Expiration Date; and 

  

	 	(ii)	thirty (30) days from the date of Optionee’s termination, 

  
 in any case to the extent to which Optionee would otherwise have been entitled to exercise this Option as provided in Section 2 as of the date of Optionee’s
Retirement; provided, however, that if such termination of employment or provision of services is involuntary on the part of Optionee and without Cause, this Option may be exercised in full until the earlier of the Expiration Date and
the date that is ninety (90) days from the date of such termination of employment or provision of services; and provided further that, if the Optionee dies after the date of such termination but before the earlier of the
Expiration Date and the date that is thirty (30) days after the date of termination (or ninety (90) days after the date of such termination in the case of involuntary termination without Cause), an unexercised Stock Option held by such
Optionee shall, notwithstanding the expiration of such period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of twelve (12) months from the date of such death or until the Expiration
Date, whichever period is shorter. To the extent Optionee is not entitled to exercise any portion of this Option as of the date of Optionee’s termination, such unexercised portion of this Option shall immediately lapse, effective as of the date
of Optionee’s termination. 
  

	7.	Method of Exercising Option. 

  
 Optionee may exercise the Option in accordance with the terms hereof and in the Plan by providing to dELiA*s (i) a completed and executed Exercise
Agreement, attached hereto as Exhibit A; (ii) payment in full of the exercise price for the Common Stock then being acquired in accordance with the Plan; and (iii) execution of a Restricted Stock Agreement in a form acceptable to
the Company. Optionee shall not acquire any rights or privileges as a stockholder of dELiA*s for any Common Stock issuable upon the exercise of this Option until such Common Stock has been duly issued by dELiA*s. dELiA*s shall have the right to
delay the issue or delivery of any Common Stock to be delivered hereunder until (i) the completion of such registration or qualification of such shares under federal or state law, ruling or regulation as dELiA*s deems to be necessary or
advisable; and (ii) receipt from Optionee of such documents and information as dELiA*s deems necessary or appropriate in connection with such registration or qualification or the issuance of Common Stock hereunder. In the event of
Optionee’s death, this Option may be exercised by the Optionee’s Representative. 
  

	8.	Notice Concerning ISO Treatment. 

  
 If this option is designated as an ISO, it ceases to qualify for favorable tax treatment as an ISO to the extent it is exercised (i) more than three
(3) months after the date the Optionee’s employment with, or provision of services to, dELiA*s is terminated for any reason other than death or Disability, (ii) more than six (6) months after the date the Optionee’s
employment with, or provision of services to, dELiA*’s is terminated by reason of Disability or (iii) after the Optionee has been on a leave of absence for more than 90 days, unless the Optionee’s reemployment rights are guaranteed by
statute or by contract. 
  

	9.	Restrictions on Transfer. 

  
 (a) General Restrictions. This Option, and the rights and privileges conferred by it, is personal to Optionee and may not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise), and, during Optionee’s lifetime, shall be exercisable only by Optionee. Optionee may transfer this Option, and the rights and privileges conferred by it, upon
Optionee’s death, either by will or under the laws of descent and distribution, or by beneficiary designation made in such form and subject to such limitation as may from time to time be acceptable to the Administrator and delivered to and
accepted by the Administrator. All such persons shall be subject to all of the terms and conditions of this Agreement to the same extent as would Optionee if still alive. This Option, and the rights and privileges conferred by it, may not be
subjected to execution, attachment or similar process. 

 (b) Securities Law Restrictions. Regardless of whether the offering and sale of Shares under the
Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including
the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the
securities laws of any state or any other law. 
  
 (c)
Investment Intent at Exercise. If the sale of shares of Common Stock under the Plan is not registered under the Securities Act but an exemption is available which requires an investment representation or other representation, the Optionee
shall represent and agree at the time of exercise that the Shares being acquired upon exercising this option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are
deemed necessary or appropriate by the Company and its counsel. 
  
 (d) Legends. All certificates evidencing shares of Common Stock purchased under this Agreement shall bear the following legend: 
  
 “THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS
OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES AND
CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.” 
  
 All certificates evidencing Shares purchased under this Agreement in an
unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law): 
  
 “THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.” 
  
 (e) Removal of Legends. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under this Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of
Shares but without such legend. 
  
 (f) Administration. Any
determination by the Company and its counsel in connection with any of the matters set forth in this Section 9 shall be conclusive and binding on the Optionee and all other persons. 
  

	10.	Notices. 

  
 Any notice to be given to dELiA*s under the terms of this Agreement shall be addressed to the attention of dELiA*s’ Chief Executive Officer at
dELiA*s, Inc., 435 Hudson Street, New York, New York 10014, and any notice to be given to Optionee may be addressed to him at his address as it appears in the payroll records of dELiA*s, or at such other addresses as either party may designate in
writing to the other. 
  

	11.	Provisions of the Plan Control. 

  
 This Option is subject to, and qualified in its entirety by reference to, the terms and conditions of the Plan under which it is granted, a copy of which
has been delivered to Optionee and which may be examined by Optionee at the office of the Chief Financial Officer, and the provisions of the Plan shall be incorporated in and be a part of this Option. The Plan empowers the Administrator to make
interpretations, rules and regulations under it. 

 
Determinations by the Administrator with respect to the Plan shall be final, binding and conclusive upon Optionee. Capitalized terms not defined herein shall
have the meanings ascribed to them in the Plan. 
  

	12.	Taxes. 

  
 dELiA*s may require payment of or withhold any tax which it believes is required to be the obligation of Optionee as a result of the grant or exercise of
this Option, and dELiA*s may defer making delivery of Common Stock or hereunder until arrangements satisfactory to dELiA*s have been made for such tax obligations. 
  
 dELiA*s has caused this Agreement to be executed and Optionee has executed the same as evidence of Optionee’s
acceptance hereof and upon the terms and conditions herein set forth as of the Grant Date shown above. 
  

									
	dELiA*s, INC.	 	 	 	OPTIONEE
					
	 By:
	 	 /s/ Robert E. Bernard
	 	 	 	 	 	 /s/ Walter Killough

	 Name:
	 	 Robert E. Bernard
	 	 	 	 	 	 Walter Killough

	 Its:
	 	Chief Executive Officer	 	 	 	 	 	 

 EXHIBIT A 
  

dELiA*s, INC. 
  
 EXERCISE AGREEMENT 
 FOR EXERCISING
STOCK OPTIONS GRANTED 
  
 UNDER THE 
  
 2005 STOCK INCENTIVE PLAN 

 INSTRUCTIONS 
  
 FOR EXERCISING STOCK OPTIONS GRANTED 
 UNDER THE 
 dELIA*s, INC. 2005 STOCK INCENTIVE PLAN 
  
 General: 
  
 In order to exercise your Stock Option granted under the dELiA*s, Inc. 2005
Stock Incentive Plan (“Plan”) pursuant to your Stock Option Agreement, please complete and sign the attached Exercise Agreement (“Exercise Agreement”). On the Exercise Agreement, you should indicate the manner in which you will
pay (1) the exercise price of the Stock Option (“Option Price”) and (2) any required withholding taxes. 
  
 If you have any questions regarding this Exercise Agreement, please contact Edward Taffet. 
  
 Endorsement: 
  

	 	1.	Cash or Check: If you are paying the Option Price or arranging for payment of tax withholding by certified check or cashier’s check, checks should be made payable to dELiA*s,
Inc. 

  

	 	2.	Stock Certificate: If you are paying the Option Price or arranging for payment of tax withholding by delivering a stock certificate, the stock certificate should be properly
endorsed as follows. 

  

	 	a.	The record holder of the stock certificate being surrendered should sign and date the stock certificate on the reverse side. The signature should correspond exactly (including
misspellings) with the name shown on the front side of the stock certificate. 

  

	 	•	 	If the stock certificate being surrendered is held of record in joint tenancy, both joint tenants must sign. 

  

	 	•	 	If the endorsement is by a corporation or by a person acting in a fiduciary or other representative capacity, proper evidence of the authority of the person making the endorsement
should be included with the stock certificate being surrendered. 

  

	 	b.	If the stock certificate being surrendered represents a larger number of shares of Stock than are being surrendered as the Option Price (i.e., having a Fair Market Value on the date
the Stock Option is exercised in excess of the Option Price), indicate on the reverse side of the stock certificate the number of shares of Stock being transferred to the Company pursuant to the exercise of the Stock Option. A new certificate
representing any excess shares of Stock will be issued in the name appearing on the surrendered stock certificate and delivered to you by the transfer agent for the Company. 

  

	 	c.	The method of delivery of a stock certificate representing Stock is at the option and risk of the holder of such certificates. If a stock certificate is sent by mail, insured
registered mail is recommended. 

  
 Defined Terms: 
  
 Each term defined in the Plan
shall, when capitalized herein, have the same meaning for the purpose of this Exercise Agreement as given to it in the Plan. The Plan and the Stock Option Agreement shall control if there is any conflict between the Plan (or the Stock Option
Agreement) and this Exercise Agreement, and as to all matters not provided for in this Exercise Agreement. 

 dELiA*s, INC. 
 EXERCISE AGREEMENT 
  
 This Exercise Agreement is made by and between dELiA*s, Inc. (“Company”) and Walter Killough (“Participant”). The Participant entered into an Incentive Stock Option Agreement, dated October 28, 2005 (the “Stock
Option Agreement”), in accordance with the dELiA*s, Inc. 2005 Stock Incentive Plan (“Plan”). 
  
 The Participant desires to exercise the Stock Option on the following terms and conditions: 
  
 1. General. Each term defined in the Plan shall, when capitalized herein, have the same meaning for the purpose of
this Exercise Agreement as given to it in the Plan. The Plan and the Stock Option Agreement shall control if there is any conflict between the Plan (or the Stock Option Agreement) and this Exercise Agreement, and as to all matters not provided in
this Exercise Agreement. 
  
 2. Exercise. Subject to the
terms of this Exercise Agreement, the Participant hereby irrevocably elects to exercise, as of the date accepted hereunder by the Administrator, a Stock Option with respect to
             shares of Stock at the Option Price of $             per share of Stock (as described in the Stock
Option Agreement). The exercise pursuant hereto shall reduce the number of shares subject to the Stock Option Agreement by the number of shares exercised hereunder. 
  
 3. Consideration. The shares of Stock to be received pursuant to this Exercise Agreement are being transferred in
consideration for: [Please check the applicable Stock Option payment provision.] 
  

					
	a.  ̈	  	cash in the amount of $             (the “Option Price”). Enclosed herewith is a  ̈ certified check or  ̈ cashier’s check for this
amount.
		
	b.  ̈	  	delivery of valid and enforceable stock certificate(s) representing shares of Stock and endorsed for transfer to the Company, in accordance with the Instructions accompanying this
Exercise Agreement.
		
	c.  ̈	  	any combination of (a) or (b) having an aggregate Fair Market Value equal to the aggregate Option Price.
			
	 	  	Describe any combination:	  	_____________________________________________________________________
	 	  	__________________________________________________________________________________________
	 	  	__________________________________________________________________________________________

  
 4. Withholding.
Because the Company is obligated to withhold an amount presently or an estimated amount in the future on account of any tax (including employment taxes) imposed as a result of the exercise of this Stock Option, the Participant does hereby: [Please
check the applicable tax withholding provision] 
  

					
	a.  ̈	  	request that Company withhold and not transfer or issue to the Participant by virtue of this exercise, that number of shares of Stock having an aggregate Fair Market Value equal to
the Company’s federal, state or local tax withholding obligations with respect to the exercise of the Stock Option.
		
	b.  ̈	  	deliver a certified check or cashier’s check to the Company equal to the Company’s federal, state or local tax withholding obligations with respect to the exercise of the
Stock Option, as reported to the Participant by the Company.

  
 5. Resolution of
Dispute. Any dispute or disagreement which shall arise under, as a result of, or in any way relate to the interpretation or construction of this Exercise Agreement shall be determined by the Administrator, or in the event the Plan shall at the
time be administered by the Board of Directors of the Company 

 
(or any successor corporation), then by such Board of Directors. Any such determination made hereunder shall be final, binding and conclusive for all
purposes. 
  
 6. Execution of Agreements. The Participant
delivers herewith any agreement, including without limitation, any restricted stock or stockholders agreements, which the Administrator has required the Participant to execute and deliver as a condition hereto. 
  
 7. Plan. The Participant represents and warrants that he or she
has received a copy of the Plan, as amended through the date hereof. 
  
 8. Successors and Assigns. This Exercise Agreement shall inure to the benefit of and be binding upon each successor and assignee of the Participant and the Company. 
  
 9. Choice of Laws. This Exercise Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware without reference to its conflicts of laws provisions. 
  
 10. Entire Exercise Agreement. This Exercise Agreement, together with the Plan, the Stock Option Agreement and any agreement required pursuant to Section 6 hereof, constitute the entire obligation of the
parties hereto with respect to the subject matter hereof and shall supersede any prior expressions of intent or understanding with respect to this exercise of Participant’s Stock Option. 
  
 11. Prior Affirmation. The Participant represents, warrants and
affirms all matters to which he or she represented, warranted or affirmed in the Stock Option Agreement, and nothing in this Exercise Agreement shall derogate the Participant’s representations, warranties or affirmations in the Stock Option
Agreement. 
  

									
	PARTICIPANT	 	 	 	dELiA*s, INC.
					
	 	 	 	 	 	 	 By:
	 	 
					
	 Name: 
	 	 Walter Killough
	 	 	 	 Title: 
	 	 
					
	 Date: 
	 	_______________________________	 	 	 	 Date:2005 Stock Plan

 Exhibit 10.2 
  
 Digital Music Group, Inc. 
 2005 Stock Plan 
  
 Article 1 
 Purpose 
  
 The purpose of this plan is to recognize and reward participants for their efforts on the Company’s behalf, to motivate participants by appropriate
incentives to contribute to the Company’s attainment of its long-term performance objectives, and to align participants’ interests with those of the Company’s other stockholders through compensation based on the performance of the
Company’s common stock over a long-term period. 
  
 Article
2 
 Definitions 
  
 Award means an Option, SAR Award or Restricted Stock under the Plan. 
  
 Award Agreement means a written or electronic agreement between the Company and a Participant incorporating the terms
of an Award to the Participant. 
  
 Board means the
Company’s Board of Directors. 
  
 Change of Control is
defined in Article 6. 
  
 Common Stock means the
Company’s common stock, par value $.01 per share. 
  
 Committee is defined in Paragraph 3.1. Unless the Board designates a different committee, the Compensation Committee of the Board shall serve as the Committee. 
  
 Company means Digital Music Group, Inc., a Delaware corporation. 
  
 Consultant means any individual serving as a consultant, advisor or
vendor rendering services to the Company or a Subsidiary. 
  
 Director means a member of the Board of Directors of the Company. 
  
 Eligible Person means, in respect of all types of Awards except ISOs, any Employee, Director or Consultant and, in respect of ISOs, any Employee. 
  
 Employee means a full-time employee of the Company or a Subsidiary. 
  
 Exchange Act means the Securities Exchange Act of 1934, as amended.

  
 Expiration Date means the last day on which an Option
or SAR may be exercised. 

 Fair Market Value means, for a given day, the value of a share of Common Stock determined as
follows: 
  
 (i) if the Common Stock is listed on
any established stock exchange or a national market system, the last reported sales price of a share of Common Stock on such exchange or market system on the date of determination; and 
  
 (ii) if the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not
reported, the mean between the high bid and low asked prices for the Common Stock on the date of determination. 
  
 For purposes of any Award granted on the date of the initial public offering of shares of Common Stock of the Company, the Fair Market Value will be the initial price to
the public as set forth in the final prospectus included within the Registration Statement on Form S-1 filed with the Securities and Exchange Commission. 
  
 Grant Date means, in respect of an Award, the date that the Committee grants the Award or any later date that the Committee specifies as the
effective date of the Award. 
  
 IRC means the Internal
Revenue Code of 1986, as amended. 
  
 ISO means an
incentive stock option described in § 422 of the IRC. 
  
 NSO means a nonstatutory stock option (i.e., a stock option that is not an ISO). 
  
 Option means an option to purchase shares of Common Stock granted to an Eligible Person under Article 5. An Option shall be either an ISO or a NSO
as the Committee designates. 
  
 Participant means any
Eligible Person who holds an Award under the Plan. 
  
 Plan
means this plan, as it may be amended. The name of this Plan is the “Digital Music Group, Inc. 2005 Stock Plan.” 
  
 Restricted Stock means shares of Common Stock issued to an Eligible Person under Article 5. 
  
 SAR, or stock appreciation right, means a contractual right to receive
a payment representing the excess of the Fair Market Value of a share of Common Stock on the date that the right is exercised over the base price per share of the right. 
  
 SAR Award means an award of a Stand-Alone SAR or Tandem SAR to an Eligible Person under Article 5. 
  
 Stand-Alone SAR means an SAR that is not related to an Option.

  
 Subsidiary means a “subsidiary corporation”
as defined in § 424(f) of the IRC. 
  

 - 2 - 

 Tandem SAR means an SAR that is related to an Option. 
  
 Termination Date means the date of termination of employment of an
Employee by the Company or a Subsidiary. A transfer of employment from the Company to a Subsidiary, or from a Subsidiary to the Company or to another Subsidiary, shall not be considered a termination of employment, nor will transfer from full-time
employment to a consulting agreement, provided that the terms of the consulting agreement are set forth in writing and such agreement is for one year or less (including all option periods). 
  
 Article 3 
 Administration 
  

	 	3.1	Committee 

  
 The Board of Directors shall designate a committee of the Board (the “Committee”) to administer the Plan. The Committee shall consist of two or
more directors, all of whom shall be (i) “non-employee directors” as defined in Rule 16b-3 under the Exchange Act, (ii) “independent directors” under the applicable listing standards of the primary exchange or market on
which the Company’s Common Stock is listed for trading, and (iii) “outside directors” under § 162(m) of the IRC. Unless otherwise determined by the Board, the members of the Compensation Committee of the Board shall
constitute the Committee for purposes of this Plan. 
  

	 	3.2	Authority 

  
 Subject to the terms of the Plan, the Committee shall have the authority to select the Eligible Persons to whom Awards are to be granted and to determine
the time, type, number of shares, restrictions, limitations and other terms and conditions of each Award. 
  
 The Committee may interpret the Plan, adopt, revise and rescind policies and procedures to administer the Plan, and make all factual and other
determinations required for the Plan’s administration. 
  
 Awards under the Plan need not be uniform in respect of different Eligible Persons, whether or not similarly situated. The Committee may consider such factors as it deems relevant in selecting Eligible Persons for Awards and in determining
their Awards. 
  
 The Committee’s determinations,
interpretations and other actions shall be final and binding. No member of the Committee shall be liable for any action of the Committee undertaken in good faith. 
  

	 	3.3	Procedures 

  
 The Board shall elect a chairman for the Committee, and the Committee shall meet as necessary at the call of the chairman or any two members of the
Committee or the Chairman of the Board of the Company. A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee at a meeting at which a quorum is present shall be taken by majority vote. 
  

 - 3 - 

 A member of the Committee may participate in any meeting of the Committee by a conference telephone call
or other means that enable all persons participating in the meeting to hear one another, and participation in this manner shall constitute his or her presence in person at the meeting. The Committee also may act by the unanimous written consent of
its members. 
  
 Article 4 
 Plan Operation 
  

	 	4.1	Effective Date 

  
 This Plan shall become effective if and when it is approved by both the Board and the Company’s stockholders (the “Effective Date”). Awards
may not be granted under the Plan prior to stockholder approval. 
  

	 	4.2	Term 

  
 This Plan shall have a term of 10 years, expiring on the tenth anniversary of the Effective Date (but remaining in effect, however, for Awards outstanding as of that date). No Award may be granted under the Plan after
its expiration. 
  

	 	4.3	Maximum Number of Shares 

  
 The maximum total number of shares of Common Stock for which Awards may be granted under this Plan is 1,200,000 shares, plus an annual increase to be
added on the first day of the Company’s fiscal year beginning in 2007, equal to the lesser of (a) 200,000 shares, (b) 5% of the outstanding shares of Common Stock on such date or (c) an amount determined by the Board. 

 
 The shares for which Awards may be granted shall be shares of Common Stock
currently authorized but unissued or shares that the Company currently holds or subsequently acquires as treasury shares, including shares purchased in the open market or in private transactions. 
  

	 	4.4	Shares Available for Awards 

  
 The determination of the number of shares of Common Stock available for Awards under the Plan shall take into account the following: 
  
 (a) If an Option or SAR lapses or expires unexercised, the
number of shares in respect of which the Option or SAR lapsed or expired shall be added back to the available number of shares of Common Stock for which Awards may be granted. 
  
 (b) If shares of Restricted Stock are repurchased by the Company pursuant to the terms of the Award, such
repurchased shares shall be added back to the available number of shares of Common Stock for which Awards may be granted. 
  
 (c) If a SAR is settled in cash, the number of shares in respect of which the SAR was settled in cash shall not be added back to the
available number of shares of Common Stock for which Awards may be granted. 
  

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 (d) If the exercise price of an Option is paid by delivery of shares of Common Stock
pursuant to Paragraph 5.8, the number of shares of Common Stock issued upon exercise of Option, without netting of the shares of Common Stock delivered in payment of the exercise price, shall be taken into account for purposes of determining the
available number of shares of Common Stock for which Awards may be granted. 
  

	 	4.5	Individual Limit on Awards 

  
 The maximum number of shares of Common Stock for which Awards may be granted to any Eligible Person in a calendar year shall not exceed 200,000 shares,
taking into account all grants and awards under other stock option and equity compensation plans of the Company. 
  

	 	4.6	Capitalization Adjustments 

  
 All share numbers included herein shall be adjusted for any stock split, stock dividend, recapitalization or the like. 
  
 In the event of a change in the number of outstanding shares of Common Stock
of the Company by reason of a stock dividend, stock split, recapitalization, reorganization and the like, the number of shares of Common Stock for which Awards may be granted under the Plan as stated above in Articles 4.3, 4.4 and 4.5, the aggregate
number of shares of Common Stock in respect of each outstanding Award, and the exercise price of each outstanding Option and SAR shall automatically be adjusted pro-rata and accordingly under the circumstances, with the Committee to use its
discretion and judgment where necessary to interpret the Company action and determine the appropriate adjustments to be made in this regard, with the Committee’s decisions to be final and binding. 
  
 Article 5 
 Stock Options, SARs and Restricted Stock 
  

	 	5.1	Grant 

  
 The Committee may grant an Option or SAR or shares of Restricted Stock to any Eligible Person. Subject to the terms of this Plan, the Committee shall
determine the restrictions, limitations and other terms and conditions of each Option, SAR Award and Restricted Stock Award. 
  
 The Committee shall designate each Option as either an ISO or NSO, and shall designate each SAR Award as either a Stand-Alone SAR or a Tandem SAR. A
Tandem SAR may not be granted later than when its related Option is granted. 
  

	 	5.2	Exercise Price 

  
 The Committee shall determine the exercise price of each Option and the base price of each SAR. The exercise or base price per share may not be less than
the Fair Market Value on the Grant Date of the Option or SAR. 
  

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	 	5.3	Vesting and Term 

  
 The Committee shall determine the time or times at which each Option, Stand-Alone SAR and Restricted Grant Award becomes vested. Vesting may be based on
continuous service or on the satisfaction of specified performance goals or other conditions. A Tandem SAR shall vest if and to the extent that its related Option vests, and shall expire or be cancelled when its related Option expires or is
cancelled. No Option or SAR may have an Expiration Date more than 10 years from its Grant Date. 
  
 Vesting of Awards granted hereunder will be suspended during any paid or unpaid leave of absence by an Employee. For purposes of ISOs, no such leave may
exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three months following the
91st day of such leave, any ISO held by the Employee will cease to be treated as an ISO and will be treated for tax
purposes as a NSO. Upon reemployment following a leave of absence, vesting will recommence as of the date of reemployment, and the term of all Awards will be extended by the number of days under the leave of absence, unless such extension would
cause the Award to be outstanding for longer than 10 years. After 270 consecutive days under a leave of absence, an Employee will be treated as terminated for purposes of applying the provisions of Article 5.4(c) below with respect to any vested
Options and SARs, with the 271st day considered to be the Termination Date. 
  
 Notwithstanding anything to the contrary in the underlying Award Agreement,
each outstanding Option and SAR and shares of Restricted Stock held by a Participant shall become fully vested as of his or her Termination Date if the Participant’s relationship with the Company terminates by reason of his or her death.

  
 The Company or its designee shall hold, as escrow agent, all
shares of Restricted Stock until all restrictions on such shares have lapsed. Notwithstanding the foregoing, the person to whom such shares have been awarded may exercise full voting rights with respect to such shares and will be entitled to receive
all dividends and other distributions paid with respect to such Restricted Stock unless otherwise provided in the Award Agreement. 
  

	 	5.4	Termination of Employment 

  
 In the case of an Option or SAR or shares of Restricted Stock held by an Employee whose employment terminates: 
  
 (a) if and to the extent that an Option or SAR is unvested
as of the Employee’s Termination Date, the Option or SAR shall lapse on the Termination Date; 
  
 (b) if and to the extent any shares of Restricted Stock are unvested as of the Employee’s Termination Date, the Company shall have
the right to repurchase such shares on such terms as shall be specified in the underlying Award Agreement; and 
  

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 (c) if and to the extent that an Option or SAR is vested as of the Employee’s
Termination Date, the Option or SAR shall expire (i) on the earlier of (A) 90 days after the Employee’s Termination Date or (B) the expiration date of the Option or SAR, or (ii) if the Employee’s employment terminated
by reason of his or her death, on the earlier of (A) the first anniversary of the Employee’s death or (B) the expiration date of the Option or SAR. 
  
 Neither the Company nor the Committee shall be under any duty to provide notification to the Participant of the specific
terms of this Article 5.4 upon the termination of an Employee or at any other time. 
  

	 	5.5	Transferability 

  
 Except as provided in the underlying Award Agreement or as permitted by the Committee, no Option, SAR or shares of Restricted Stock may be transferred,
assigned or pledged, whether by operation of law or otherwise, except as provided by will or the applicable laws of intestacy. No Option, SAR or shares of Restricted Stock shall be subject to execution, attachment or similar process. An Option or
SAR may be exercised only by the Participant, except in the case of his or her death, when the Option or SAR may be exercised by the person or persons to whom it passes by will or the applicable laws of intestacy. 
  

	 	5.6	Additional ISO Rules 

  
 To the extent that the aggregate fair market value (determined in respect of each ISO on the basis of the Fair Market Value of a share of Common Stock on
the ISO’s Grant Date) of the underlying shares of all ISOs that become exercisable by an Employee for the first time in any calendar year exceeds $100,000, the Options shall be treated as NSOs. This limitation shall be applied by taking ISOs
into account in the order in which they were granted. 
  
 The
Award Agreement underlying an Option that the Committee designates as an ISO shall contain any additional terms, beyond those of this Plan, that the Committee considers necessary or desirable to include to assure that the Option complies with the
requirements of § 422 of the IRC. 
  

	 	5.7	Manner of Exercise 

  
 A vested Option or SAR may be exercised in full or in part (but only in respect of a whole number of shares) by (i) written notice to the Committee
(or to its designee) stating the number of shares in respect of which the Option or SAR is being exercised and, in the case of an Option, (ii) full payment of the exercise price of those shares. 
  

	 	5.8	Payment of Exercise Price 

  
 Payment of the exercise price of an Option shall be made by check or, if permitted by the Committee in the underlying Award Agreement, by:
(i) delivery of shares of Common Stock having a Fair Market Value on the date of exercise equal to the exercise price; (ii) directing the Company to withhold, from the shares otherwise issuable upon exercise of the Option, shares 

  

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having a Fair Market Value on the date of exercise equal to the exercise price; (iii) by an open-market broker-assisted sale pursuant to which the
Company is promptly delivered the portion of the sales proceeds necessary to pay the exercise price; or (iv) any combination of these methods of payment. 
  

	 	5.9	Tandem SARs 

  
 A Tandem SAR shall entitle the Participant to elect to exercise either the SAR or the related Option as to all or any portion of the shares subject to the
SAR and Option. The exercise of a Tandem SAR shall cause the immediate and automatic cancellation of its related Option with respect to the same number of shares, and the exercise, expiration or cancellation of the related Option (other than by
reason of the exercise of the Tandem SAR) shall cause the automatic and immediate cancellation of the Tandem SAR with respect to the same number of shares. 
  

	 	5.10	Settlement of SARs 

  
 Settlement of a SAR may be made, in the Committee’s discretion at the time the Award is granted, in shares of Common Stock or in cash, or in a
combination of the two, subject to applicable tax withholding requirements. The settlement of a SAR shall be made on the basis of the Fair Market Value of a share of Common Stock on the date that the SAR is exercised. 
  

	 	5.11	No Repricing 

  
 The Committee may not amend, substitute or cancel an Option or SAR in a manner that has the effect of reducing the exercise price of the Option or the
base price of the SAR unless the repricing is approved by the Company’s stockholders. 
  

	 	5.12	Formula Option Grants to Non-Employee Directors 

  
 All grants of Options to non-Employee Directors pursuant to this Section 5.12 will be automatic and nondiscretionary, except as otherwise provided
herein, and will be made in accordance with the following provisions: 
  
 (a) Type of Option. All Options granted pursuant to this Section will be NSOs and, except as otherwise provided herein, will be subject to the other terms and conditions of the Plan. 
  
 (b) No Discretion. No person will have any discretion
to select which non-Employee Directors will be granted Options under this Section or to determine the number of Shares to be covered by such Options (except as provided in Section 4.6). 
  
 (c) IPO and Initial Option. Each person named as a
Director nominee or as a non-Employee Director in the prospectus for the initial public offering of shares of Common Stock of the Company who becomes or continues to serve as a non-Employee Director upon or shortly after the consummation of the
offering will be automatically granted an Option to purchase 24,000 shares of Common Stock (the “IPO Option”), effective at the first meeting of 

  

 - 8 - 

 
the Board following the initial public offering. Thereafter, each person who first becomes a non-Employee Director will be automatically granted an Option to
purchase 12,000 shares of Common Stock (the “Initial Option”) on or about the date on which such person first becomes a non-Employee Director, whether through election by the stockholders of the Company or appointment by the Board to fill
a vacancy; provided, however, that an Employee Director who ceases to be an Employee, but who remains a Director, will not receive an Initial Option. 
  
 (d) Annual Option. Each non-Employee Director will be automatically granted an Option to purchase 6,000 shares of Common Stock (an
“Annual Option”) on each date of the annual meeting of the stockholders of the Company beginning in 2006, if as of such date, he or she will have served on the Board for at least the preceding six (6) months. 
  
 (e) Terms. The terms of each Option granted pursuant
to this Section 5.12 will be as follows: 
  
 i. The term of the Option will be ten (10) years. 
  
 ii. The exercise price per Share for the IPO Option will be the initial price to the public as set forth in the final prospectus included within the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission. The exercise price for the Initial Option and the Annual Option will be 100% of the Fair Market Value per share of Common Stock on the date of grant of the Option. 
  
 iii. The IPO Option will vest and become exercisable as to one-twenty-fourth (1/24th) of the Shares each month following the date of grant, provided that the Participant continues to serve as a Director
through each such vesting date. 
  
 iv. The
Initial Option and the Annual Option will vest and become exercisable as to one-twelfth (1/12th) of the shares
of Common Stock each month following the date of grant, provided that the Participant continues to serve as a Director through each such vesting date. 
  
 v. If and to the extent that any Option is vested as of the date that the Director ceases to serve on the Board, the Option shall expire
(i) on the earlier of (A) 90 days after the date that the Director ceases to be a member of the Board or (B) the expiration date of the Option, or (ii) if the Director’s service is terminated by reason of his or her death,
on the earlier of (A) the first anniversary of the Director’s death or (B) the expiration date of the Option. 
  
 Article 6 
 Change of Control

  
 Upon a Change of Control, as defined below, all
outstanding Awards shall become fully vested and exercisable and all restrictions on shares underlying any Restricted Stock Awards shall lapse (subject to the consummation of such Change of Control). The Company shall notify each Participant in
writing or electronically not less than fifteen days prior to a Change of Control, which notice shall advise the Participants as to the vesting of and lapse of restrictions on 

  

 - 9 - 

 
their Awards in connection with such contemplated Change of Control. Such notice shall also include either (a) a statement that all Awards will be
assumed or substituted with equivalent options or rights in the Change of Control transaction, or (b) if no such assumption or substitution will take place, the specific steps that Participants will need to take if they intend to exercise
Options and/or SARs immediately prior to and contingent upon the consummation of the Change of Control. If any Options or SARs are not assumed in a Change of Control or exercised pursuant to the required notice being provided to Participants, such
Options and SARs shall terminate immediately upon the consummation of the Change of Control. 
  
 A “Change of Control” means an event or the last of a series of related events by which: 
  
 (a) any Person directly or indirectly acquires or otherwise becomes entitled to vote stock having 51% or more of the voting power in
elections for Directors; or 
  
 (b) the Company
merges or consolidates with another corporation, and holders of outstanding shares of the Company’s Common Stock immediately prior to the merger or consolidation do not own stock in the survivor of the merger or consolidation having more than
50% of the voting power in elections for directors; or 
  
 (c) the Company sells all or a substantial portion of the consolidated assets of the Company and its Subsidiaries, and the Company does not own stock in the purchaser having more than 50% of the voting power in elections for directors.

  
 As used in this Article 6, a “Person” means any
“person” as that term is used in sections 13(d) and 14(d) of the Exchange Act, together with all of that person’s “affiliates” and “associates” as those terms are defined in Rule 12b-2 under the Exchange Act.

  
 Article 7 
 Miscellaneous Provisions 
  

	 	7.1	Award Agreement 

  
 Each Award under the Plan shall be evidenced by an Award Agreement, which shall be subject to and incorporate the terms of the Plan. Such Award Agreement
must be signed and returned to the Company Secretary (or other such designated person) by the recipient within 30 days of receipt for such recipient to become a Participant. 
  

	 	7.2	Tax Withholding 

  
 The Company shall withhold or collect from the Participant an amount sufficient to satisfy its withholding tax obligations, if any, in connection with any
Award under the Plan, and the Company may defer making any payment or delivery of shares pursuant to an Award unless and until the Participant pays such withholding tax or indemnifies the Company to the Committee’s satisfaction. The amount of
the withholding requirement shall be calculated to include any amount which the Committee believes should be withheld to satisfy federal, state, local and any other taxing jurisdictions at the time the election is made. 
  

 - 10 - 

	 	7.3	Amendment and Termination 

  
 The Board may amend, suspend or terminate the Plan at any time. The Company’s stockholders shall be required to approve any amendment that would
materially increase the number of shares of Common Stock for which Awards may be granted or that would increase the number of shares of Common Stock for which ISOs may be granted (other than an amendment authorized under Paragraph 4.6). If the Plan
is terminated, the Plan shall remain in effect for Awards outstanding as of its termination. No amendment, suspension or termination of the Plan shall adversely affect the rights of the holder of any outstanding Award without his or her consent.

  

	 	7.4	Foreign Jurisdictions 

  
 The Committee may adopt, amend and terminate a supplement to the Plan to permit Employees in another country to receive Awards under the supplement (on
terms not inconsistent with the terms of Awards under the Plan) in compliance with that country’s securities, tax and other laws. 
  

	 	7.5	No Right To Employment 

  
 Nothing in this Plan or in any Award Agreement shall confer on any person the right to continue in the employ of the Company or any Subsidiary or limit
the right of the Company or Subsidiary to terminate his or her employment. 
  

	 	7.6	Notices 

  
 Notices required or permitted under this Plan shall be considered to have been duly given if sent by certified or registered mail addressed to the
Committee at the Company’s principal office or to any other person at his or her address as it appears on the Company’s payroll or other records. 
  

	 	7.7	Severability 

  
 If any provision of this Plan is held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions, and the
Plan shall be construed and administered as if the illegal or invalid provision had not been included. 
  

	 	7.8	Governing Law 

  
 This Plan and all Award Agreements shall be governed in accordance with the laws of the State of California. 
  

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