Document:

Exhibit 10.3

 

Overstock.com,
Inc.

STOCK PURCHASE AGREEMENT

(Under
Annual Employee Stock Purchase Program)

This Restricted Stock Purchase Agreement is made this           day of                            , 20     between Overstock.com, Inc., a Utah corporation (the
“Company”), and                                                                                 
, (the “Purchaser”).

The Company and Purchaser hereby agree as follows:

1.             Purchase of Shares.  On this date and subject to the terms and
conditions of this Agreement, Purchaser hereby purchases from the Company, and
the Company hereby sells to Purchaser, an aggregate of              shares of the Company’s common
stock (the “Shares”) at an aggregate purchase price in cash of $             (the “Purchase Price”) or $             per Share (the “Purchase Price
Per Share”).  The Purchase Price must be
at least $250 and must not exceed 5% of Purchaser’s annual salary from the Company
as of the last day of the prior calendar year. 
This purchase is being made pursuant to the Company’s 2001 Stock
Purchase Plan, a copy of which is attached hereto as Exhibit “A”, and is
subject to all the terms of the Plan. 
The term “Shares” refers to the shares purchased under this Agreement
and includes all securities received (a) in replacement of the Shares,
(b) as a result of stock dividends or stock splits in respect of the
Shares, and (c) all securities received in replacement of the Shares in a
recapitalization, merger, reorganization or the like.

2.             Representations of Purchaser.  Purchaser represents and warrants to the
Company that:

(a)           Purchaser
is purchasing the Shares for Purchaser’s own account for investment purposes
only and not with a view to, or for sale in connection with, a distribution of
the Shares within the meaning of the Securities Act of 1933, as amended (the
“1933 Act”).

(b)           Purchaser
has no present intention of selling or otherwise disposing of all or any
portion of the Shares.

(c)           Purchaser
has had access to all information regarding the Company and its present and
prospective business, assets, liabilities and financial condition that
Purchaser reasonably considers important in making the decision to purchase the
Shares, and Purchaser has had ample opportunity to ask questions of the
Company’s representatives concerning such matters and this investment.

(d)           Purchaser
is fully aware of (i) the highly speculative nature of the investment in
the Shares, (ii) the financial hazards involved, and (iii) the lack
of liquidity of the Shares and the restrictions on transferability of the
Shares.

3.             Compliance with Federal Securities Laws.  Purchaser understands and acknowledges that,
in reliance upon the representations and warranties made by Purchaser herein,
the Shares have not been registered with the Securities and Exchange Commission
(“SEC”) under 

 

 

 

the 1933 Act, but have been issued under an exemption
or exemptions from the registration requirements of the 1933 Act which impose
certain restrictions on Purchaser’s ability to transfer the Shares.

(a)           Restrictions on Transfer.  Purchaser understands that Purchaser may not
transfer any Shares unless such Shares are registered under the 1933 Act or
unless, in the opinion of counsel to the Company, an exemption from such
registration is available.  Purchaser understands
that only the Company may file a registration statement with the SEC and that
the Company is under no obligation to do so with respect to the Shares.  Purchaser has also been advised that an
exemption from registration may not be available or may not permit Purchaser to
transfer all or any of the Shares in the amounts or at the times proposed by
Purchaser.

(b)           Rule 144.  In addition, Purchaser has been advised that SEC Rule 144
promulgated under the 1933 Act, which permits certain limited sales of
unregistered securities, is not presently available with respect to the Shares
and, in any event, requires that the Shares be held for a minimum of one year,
and in certain cases two years, after they have been purchased and paid for
(within the meaning of Rule 144), before they may be resold under
Rule 144.

4.             Company’s Right of First Refusal.  Before any Shares held by Purchaser or any
transferee (either being sometimes referred to herein as the “Holder”) may be
sold or otherwise transferred (including without limitation transfer by gift or
operation of law), the Company shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section (the “Right of
First Refusal”), subject to the exception for certain family transfers as set
forth below.

(a)           Notice of Proposed Transfer.  The Holder of the Shares shall deliver to
the Company a written notice (the “Notice”) stating (1) the Holder’s bona fide
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee (“Proposed Transferee”); (iii) the
number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the “Offered Price”); and the Holder shall
offer to sell the Shares at the Offered Price to the Company.

(b)           Exercise of Right of First Refusal.  At any time within 30 days after receipt of
the Notice, the Company may, by giving written notice to the Holder, elect to
purchase all of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.

(c)           Purchase Price.  The purchase price for Shares purchased under this Section shall
be the Offered Price.  If the Offered
Price includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of the Company in good
faith.

(d)           Payment. 
Payment of the purchase price for the Shares shall be made, at the
option of the Company, either (i) in cash (by check), by cancellation of
all or a portion of any 

 

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outstanding
indebtedness of the Holder to the Company, or by any combination thereof within
60 days after receipt of the Notice, or (ii) in the manner and at the
time(s) set forth in the Notice.

(e)           Holder’s Right to Transfer.  If all of the Shares proposed in the Notice
to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer
is consummated within 120 days after the date of the Notice and provided
further that any such sale or other transfer is effected in compliance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee.  If
the Shares described in the Notice are not transferred to the Proposed
Transferee within such period, a new Notice shall be given to the Company, and
the Company shall again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.

(f)            Exception for Certain Family Transfers.  Anything to the contrary contained in this
Section notwithstanding, the transfer of any or all of the Shares during
Purchaser’s lifetime or on Purchaser’s death by will or intestacy to
Purchaser’s immediate family or a trust for the benefit of Purchaser or
Purchaser’s immediate family shall be exempt from the provisions of this Section.  As used herein, “immediate family” shall
mean spouse, lineal descendant or antecedent, father, mother, brother or
sister.  In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.

(g)           Termination of Right of First Refusal.  The Right of First Refusal shall terminate
as to any Shares upon the first sale of common stock of the Company to the
general public pursuant to a registration statement filed with and declared
effective by the SEC.

5.             Rights as a Shareholder.  Subject to the terms and conditions of this
Agreement, Purchaser shall have all of the rights of a shareholder of the
Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes of
the Shares or the Company and/or its assignee(s) exercises the Repurchase
Option or Right of First Refusal hereunder. 
Upon such exercise, Purchaser shall have no further rights as a holder
of the Shares so purchased except the right to receive payment for the Shares
so purchased in accordance with the provisions of this Agreement.  Upon such exercise, Purchaser shall
forthwith surrender to the Company the certificates evidencing the Shares so
purchased for transfer or cancellation.

6.             Escrow. 
As security for the faithful performance of this Agreement, Purchaser
agrees, immediately upon receipt of the certificates evidencing the Shares, to
deliver such certificates, together with a stock power in the form of
Exhibit ”B” attached hereto, executed by Purchaser and by Purchaser’s
spouse, if any (with the date and number of Shares left blank), to the
Secretary of the Company or its designee (“Escrow Holder”), who is hereby
appointed to hold such certificate(s) and stock power in escrow and to take all
such actions and to effectuate all such transfers and/or releases of such
Shares as are in accordance with the terms of this Agreement.  Purchaser and the Company agree that Escrow
Holder shall not be liable to any party to this 

 

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Agreement
(or to any other party) for any actions or omissions unless Escrow Holder is
grossly negligent relative thereto.  The
Escrow Holder may rely upon any letter, notice or other document executed by
any signature purported to be genuine and may rely on advice of counsel and
obey any order of any court with respect to the transactions contemplated
herein.  The Shares shall be released
from escrow upon termination of the Right of First Refusal; provided, however,
that such release shall not affect the rights of the Company with respect to
any pledge of Shares to the Company.

7.             Restrictive Legends and Stop-Transfer Orders.

(a)           Legends. 
Purchaser understands and agrees that the Company shall cause the
legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares, together
with any other legends that may be required by state or federal securities
laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE SECURITIES ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND A RIGHT OF FIRST REFUSAL OPTION HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.  SUCH PUBLIC SALE AND THE RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.

(b)           Stop Transfer Instructions.  Purchaser agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate “stop-transfer” instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

(c)           Refusal to Transfer.  The Company shall not be required
(i) to transfer on its books any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Agreement or
(ii) to treat as owner of such Shares or to accord the right to vote or
pay dividends to any purchaser or other transferee to whom such Shares shall
have been so transferred.

(d)           Market Stand-off Agreement.  Purchaser agrees in connection with any
registration of the Company’s securities that, upon the request of the Company
or the underwriters managing any public offering of the Company’s securities,
Purchaser will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for a
period of time (not to exceed 180 days) from the effective date of such
registration as the Company or the underwriters may specify for
employee-shareholders generally.

 

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8.             Compliance with Laws and Regulations.  The issuance and transfer of the Shares
hereunder shall be subject to and conditioned upon compliance by the Company
and Purchaser with all applicable state and federal laws and regulations and
with all applicable requirements of any stock exchange on which the Company’s
common stock may be listed (including NASDAQ) at the time of such issuance and
transfer.

9.             Successors and Assigns.  The Company may assign any of its rights
under this Agreement, including its rights to repurchase Shares under the Right
of First Refusal.  This Agreement will
inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer
herein set forth, this Agreement will be binding upon Purchaser and Purchaser’s
heirs, executors, administrators, successors and assigns.

10.           Interpretation.  This Agreement is subject to the terms of the Plan.  If there is a conflict between this
Agreement and the Plan, the Plan shall govern. 
Any dispute regarding the interpretation of this Agreement shall be
submitted by Purchaser or by the Company forthwith to the Company’s Board,
which shall review such dispute at its next regular meeting.  The resolution of such a dispute by the
Board or shall be final and binding on the Company and on Purchaser.

11.           Governing Law; Severability.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah, excluding that body
of laws pertaining to conflicts of law. 
Should any provision of this Agreement be determined by a court of law
to be illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.

12.           Notices. 
Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery or upon deposit in the
United States mail by certified or registered mail, return receipt requested,
with postage and fees prepaid, addressed to the other party at its address as
shown below beneath its signature, or to such other address as such party may
designate in writing from time to time to the other party.

13.           Further Instruments.  The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.

14.           Entire Agreement.  This Agreement, together with the Exhibits hereto, constitutes
the entire agreement of the parties and supersedes all prior understandings and
agreements with respect to the subject matter hereof.

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Purchaser has
executed this Agreement in duplicate as of the date set forth above.

 

	
  OVERSTOCK.COM,
  INC.,

  	
   

  	
  PURCHASER

  
	
  a Utah
  Corporation

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  

 

 

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EXHIBIT A

Overstock.com,
Inc.

2000 STOCK PURCHASE PLAN

As Adopted January 24, 2001

1.             Purpose.  This Stock Purchase Plan (“Plan”) is
established to allow selected employees, directors, and consultants of
Overstock.com, Inc. (the “Company”) to purchase shares of stock of the Company.

2.             Adoption.  This Plan shall become effective when it has
been adopted by the Board of Directors of the Company (the “Board”).  No shares shall be issued pursuant to this
Plan until it becomes effective.

3.             Type of Shares.  The shares of stock that may be purchased
under this Plan are shares of the common stock of the Company (the “Shares”).

4.             Number of Shares.  The maximum number of Shares that may be
issued under this Plan is Ten Million (10,000,000) Shares, subject to
adjustment as provided in this Plan.  If
any Shares issued under this Plan are reacquired by the Company for any reason,
the Shares so reacquired shall again be available for purchase under this Plan.

5.             Administration.  This Plan shall be administered by the Board
or by a committee of the Board appointed to administer this Plan.  As used in this Plan, references to the
Board shall mean either the Board or such committee.  The interpretation by the Board of any of the provisions of this
Plan or of any agreement or instrument executed pursuant to this Plan shall be
final and binding on the Company and all persons having an interest in any
Shares purchased under this Plan.

6.             Eligibility.  The persons eligible to purchase Shares
under this Plan shall be employees, directors, or consultants of the Company or
its affiliates (as defined below) who the Board decides to allow to participate
in the Plan in its discretion.  An
“affiliate” of the Company means either a parent or a subsidiary of the
Company.

7.             Terms and Conditions
of Purchases.  The Board
shall determine the number of Shares to be sold to each Purchaser and the date
or dates on which purchases under this Plan may be made, subject to the
following terms and conditions:

(a)           Form
of Restricted Stock Purchase Agreement.  All purchases made pursuant to this Plan shall be evidenced by a
written Restricted Stock Purchase Agreement (the “Purchase Agreement”) in such
form as the Board shall from time to time approve in its discretion.  The various Purchase Agreements need not be
identical.  The Purchase Agreement shall
comply with and be subject to the terms and conditions of this Plan.

 

 

 

(b)           Duration
of Offers and Non-Transferability of Rights.  Any right to acquire Shares under the Plan
shall automatically expire if not exercised by the Purchaser within
30 days after the offer of such right was communicated to the Purchaser by
the Company.  Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such offer
was communicated.

(c)           Purchase
Price.  The purchase price of
Shares sold pursuant to this Plan shall not be less than the fair market value
of the Shares at the time of purchase, as determined by the Board in good
faith.  As a condition to the purchase
of Shares, the Purchaser shall make such arrangements as the Board may require
for the satisfaction of any federal, state, local, or foreign withholding tax
obligations that may arise in connection with such purchase.

(d)           Restrictions
on Transfer of Shares.  Any
Shares sold under the Plan shall be subject to such special forfeiture conditions,
rights of repurchase, rights of first refusal, or other transfer restrictions
as the Board may determine in its discretion. 
Such restrictions shall be set forth in the applicable Stock Purchase
Agreement and shall apply in addition to any restrictions that may apply to
holders of Shares generally.

8.             Payment For Shares.  Payment for the Shares purchased under this
Plan may be made (a) in cash; (b) by a full recourse,
interest-bearing promissory note executed by the Purchaser (the “Note”) where
permitted by law and approved by the Board; (c) by past services rendered
to the Company or future services to be rendered to the Company; (d) by
such other legal consideration as the Board may approve at the time of
purchase; or (e) by any combination of the foregoing.  The Note shall be in such form and contain
such terms as may be approved from time to time by the Board in its discretion,
subject to the pledge of shares as required by the following section.

9.             Pledge of Shares.  Any Purchaser who is permitted to execute a
Note as partial or full consideration for the purchase of Shares under this
Plan shall be required to pledge and deposit with the Company all or part of
the Shares so purchased as collateral to secure the payment of Purchaser’s
obligation to the Company under the Note; provided, however, that the Board may
in its sole discretion require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the
Company shall have full recourse against the Purchaser under the Note
notwithstanding any pledge of the Purchaser’s Shares or other collateral.  In connection with any pledge of the Shares,
Purchaser shall be required to execute and deliver a written pledge agreement
in such form as the Board shall from time to time approve in its discretion.

10.           Privileges
of Stock Ownership.  A
Purchaser shall have full voting rights and other privileges as a holder of the
Shares from and after the date of purchase, subject to the provisions of the
Purchase Agreement and any pledge agreement.

11.           Escrow
of Shares.  As security for
faithful performance under any Purchase Agreement, the Company may require the
Shares to be held in escrow by the Company’s Secretary or other appropriate
person.

12.           Adjustment
of Shares.  In the event that
the number of outstanding shares of the common stock of the Company is changed
by a stock dividend, stock split, reverse stock split, or 

 

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similar change in the capital structure of the Company
without consideration, the number of Shares subject to purchase and available
for issuance under this Plan shall be proportionately adjusted, subject to any
legally required action by the Board or the shareholders of the Company.

13.           No
Obligation to Employ. 
Nothing in this Plan or in any Purchase Agreement executed pursuant to
this Plan shall confer on any Purchaser any right to continue in the employ of
the Company or any affiliate of the Company or limit in any way the right of
the Company or any affiliate to terminate the employment or service of any
Purchaser at any time, with or without cause.

14.           Compliance
With Laws.  The issuance of
Shares pursuant to this Plan shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without
limitation compliance with the Securities Act of 1933, as amended, compliance
with all applicable state securities laws, and compliance with the requirements
of any stock exchange on which the Shares may be listed.  The Company shall be under no obligation to
register the Shares with the Securities and Exchange Commission or to effect
compliance with the registration or qualification requirements of any state
securities laws or stock exchange.

15.           Change
in Control

(a)           The Board shall have the sole
discretion to elect that any “Unvested Shares” (as defined in the Purchase
Agreement) shall automatically accelerate upon the following events:

(i)            in the event of a merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Company’s outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such transaction; or

(ii)           the sale, transfer or other
disposition of all or substantially all of the Company’s assets in complete
liquidation or dissolution of the Company; or

(iii)          the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule l3d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation’s outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation’s shareholders, which the Board does not
recommend such shareholders to accept.

(b)           The purchase of Shares under the Plan
shall in no way affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

16.           Term
of Plan.  Shares may be
purchased under this Plan from time to time within a period of ten years from
the date this Plan is adopted by the Board, subject to earlier termination by
the Board as provided in the following section.

 

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17.           Amendment
or Termination of Plan.  The
Board may at any time terminate or amend this Plan in any respect (including,
but not limited to, any form of agreement or instrument to be executed pursuant
to this Plan).  In any case, no amendment
of this Plan shall adversely affect the rights of any Purchaser under this Plan
under a Purchase Agreement previously executed by such Purchaser without the
written consent of that Purchaser.

[end]

 

 

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EXHIBIT B

STOCK POWER AND ASSIGNMENT

SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED and pursuant to that certain Stock
Purchase Agreement, dated as of                                         , the undersigned hereby
sells, assigns and transfers unto                                                      ,                                                    
shares of the common stock of Overstock.com, Inc., a Utah corporation,
standing in the undersigned’s name on the books of said corporation represented
by Certificate No.            delivered
herewith, and does hereby irrevocably constitute the Secretary of said
corporation as attorney-in-fact, with full power of substitution, to transfer
said stock on the books of said corporation.

Dated:                          , 20    

 

	
   

  
	
  (Signature)

  
	
   

  
	
  (Please
  Print Name)

  
	
   

  
	
  (Spouse’s
  Signature, if any)

  
	
   

  
	
  (Please
  Print Name)Exhibit 10.4

GEAR.COM, INC.

RESTATED 1998
STOCK OPTION PLAN

 

SECTION 1.                     PURPOSE

The purpose of the
Gear.com, Inc. 1998 Stock Option Plan (the “Plan”) is to enhance the long–term
shareholder value of Gear.com, Inc., a Washington corporation (the “Company”),
by offering opportunities to employees, directors, officers, consultants,
agents, advisors and independent contractors of the Company and its
Subsidiaries (as defined in Section 2) to participate in the Company’s
growth and success, and to encourage them to remain in the service of the
Company and its Subsidiaries and to acquire and maintain stock ownership in the
Company.

SECTION 2.                     DEFINITIONS

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

2.1          Board

“Board” means the Board
of Directors of the Company.

2.2          Cause

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

2.3          Code

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

2.4          Common Stock

“Common Stock” means the
common stock, par value $.01 per share, of the Company.

2.5          Corporate Transaction

“Corporate Transaction”
means any of the following events:

(a)           Consummation
of any merger or consolidation of the Company in which the Company is not the
continuing or surviving corporation, or pursuant to which shares of the
Common Stock are converted into cash, securities or other property, if
following such merger or consolidation the holders of the Company’s outstanding
voting securities

 

 

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 immediately prior to such merger or
consolidation own less than 66-2/3% of the outstanding voting securities of the
surviving corporation;

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

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

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

2.6          Disability

“Disability” means
“disability” as that term is defined for purposes of Section 22(e)(3) of
the Code.

2.7          Early Retirement

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

2.8          Exchange Act

“Exchange Act” means the
Securities Exchange Act of 1934, as amended.

2.9          Fair Market Value

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

2.10        Good Reason

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

 

 

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

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

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

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

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

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

2.11        Grant Date

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

2.12        Incentive Stock Option

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

 

-3-

 

2.13        Nonqualified Stock Option

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

2.14        Option

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

2.15        Optionee

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

2.16        Plan Administrator

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

2.17        Retirement

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

2.18        Securities Act

“Securities Act” means
the Securities Act of 1933, as amended.

2.19        Subsidiary

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

2.20        Successor Corporation

“Successor Corporation”
has the meaning set forth under Section 10.2.

SECTION 3.                     ADMINISTRATION

3.1          Plan Administrator

The Plan shall be
administered by the Board or a committee or committees (which term includes
subcommittees) appointed by, and consisting of two or more members of, the
Board.  If

 

 

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 and so long as the Common Stock is registered
under Section 12(b) or 12(g) of the Exchange Act, the Board shall consider
in selecting the Plan Administrator and the membership of any committee acting
as Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding
(a) ”outside directors” as contemplated by Section 162(m) of the Code
and (b) ”nonemployee directors” as contemplated by Rule 16b–3
under the Exchange Act.  The Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible persons to different committees consisting of
two or
more members of the Board, subject to such limitations as the Board deems
appropriate.  Committee members shall
serve for such term as the Board may determine, subject to removal by the Board
at any time.

3.2          Administration and Interpretation by
the Plan Administrator

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

SECTION 4.                     STOCK SUBJECT TO THE PLAN

4.1          Authorized Number of Shares

Subject to adjustment
from time to time as provided in Section 10.1, a maximum of
3,243,000 shares of Common Stock shall be available for issuance under the
Plan.  Shares issued under the Plan
shall be drawn from authorized and unissued shares or shares now held or
subsequently acquired by the Company.

4.2          Reuse of Shares

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

SECTION 5.                     ELIGIBILITY

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

 

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SECTION 6.                     AWARDS

6.1          Form and Grant of Options

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

6.2          Acquired Company Option Awards

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

SECTION 7.                     TERMS AND CONDITIONS OF
OPTIONS

7.1          Grant of Options

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

7.2          Option Exercise Price

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

7.3          Term of Options

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

 

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7.4          Exercise of Options

The Plan Administrator
shall establish and set forth in each instrument that evidences an Option the
time at which or the installments in which the Option shall vest and become
exercisable, which provisions may be waived or modified by the Plan
Administrator at any time.  If not so
established in the instrument evidencing the Option, the Option will vest and
become exercisable according to the following schedule, which may be waived or
modified by the Plan Administrator at any time:

 

	
  Period of Optionee’s Continuous Employment or 

  Service With the Company or Its Subsidiaries 

  From the Grant Date

  	
  

  Percent of Total Option 

  That Is Vested and Exercisable

  
	
  After 1 year

  	
  25%

  
	
  After 2 years

  	
  50%

  
	
  After 3 years

  	
  75%

  
	
  After 4 years

  	
  100%

  
	
   

  	
   

  

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

7.5          Payment of Exercise Price

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

 

 

-7-

 

accordance with the
regulations of the Federal Reserve Board. 
In addition, the exercise price for shares purchased under an Option may
be paid, either singly or in combination with one or more of the alternative forms
of payment authorized by this Section 7.5, by such other consideration as
the Plan Administrator may permit.

7.6          Post-Termination Exercises

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

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

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

 

 

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SECTION 8.                     INCENTIVE STOCK OPTION
LIMITATIONS

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

8.1          Dollar Limitation

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

8.2          10% Shareholders

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

8.3          Eligible Employees

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

8.4          Term

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

8.5          Exercisability

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

 

-9-

 

after the Company and the
two independent physicians have furnished their opinion of total disability to
the Plan Administrator.

8.6          Taxation of Incentive Stock Options

In order to obtain
certain tax benefits afforded to Incentive Stock Options under Section 422
of the Code, the Optionee must hold the shares issued upon the exercise of an
Incentive Stock Option for two years after the Grant Date of the Incentive
Stock Option and one year from the date of exercise.  An Optionee may be subject to the alternative minimum tax at the
time of exercise of an Incentive Stock Option. 
The Plan Administrator may require an Optionee to give the Company
prompt notice of any disposition of shares acquired by the exercise of an
Incentive Stock Option prior to the expiration of such holding periods.

SECTION 9.                     ASSIGNABILITY

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

SECTION 10.                   ADJUSTMENTS

10.1        Adjustment of Shares

In the event that, at any
time or from time to time, a stock dividend, stock split, spin–off,
combination or exchange of shares, recapitalization, merger, consolidation,
distribution to shareholders other than a normal cash dividend, or other change
in the Company’s corporate or capital structure results in (a) the
outstanding shares, or any securities exchanged therefor or received in their
place, being exchanged for a different number or class of securities of the
Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the holders
of shares of Common Stock of the Company, then the Plan Administrator shall
make proportional adjustments in (i) the maximum number and kind of
securities subject to the Plan as set forth in Section 4.1 and
(ii) the number and kind of securities that are subject to any outstanding
Option and the per share price of such securities, without any change in the
aggregate price to be paid therefor. 
The determination by the Plan Administrator as to the terms of any of
the foregoing adjustments shall be conclusive and binding.  Notwithstanding the foregoing, a Corporate
Transaction shall not be governed by this Section 10.1 but shall be
governed by Section 10.2.

 

 

-10-

 

10.2        Corporate Transaction

(a)           Except as otherwise provided in the
instrument that evidences the Option, in the event of any Corporate
Transaction, each Option that is at the time outstanding shall automatically
accelerate so that each such Option shall, immediately prior to the specified
effective date for the Corporate Transaction, become 100% vested and
exercisable.

(b)           Such Option shall not so accelerate,
however, if and to the extent that such Option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof (the “Successor Corporation”) or to be replaced with a
comparable award for the purchase of shares of the capital stock of the
Successor Corporation.  The
determination of Option comparability shall be made by the Plan Administrator,
and its determination shall be conclusive and binding.  Any such Options granted to an “executive
officer” (as that term is defined for purposes of Section 16 of the
Exchange Act) of the Company that are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall be accelerated
in the event that the Optionee’s employment or services should subsequently
terminate within two years following such Corporate Transaction, unless such
employment or services are terminated by the Successor Corporation for Cause or
by the Optionee voluntarily without Good Reason.

(c)           All such Options shall terminate and
cease to remain outstanding immediately following the consummation of the
Corporate Transaction, except to the extent assumed by the Successor
Corporation.

(d)           The acceleration will not occur if,
in the opinion of the Company’s outside accountants, it would render
unavailable “pooling of interest” accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment.

10.3        Further Adjustment of Options

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

 

 

-11-

 

10.4        Limitations

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

 

-12-

 

SECTION 11.                       WITHHOLDING

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

SECTION 12.                   REPURCHASE AND FIRST REFUSAL
RIGHTS

12.1        Repurchase Rights

The Plan Administrator
shall have the discretion to authorize the issuance of unvested shares of
Common Stock pursuant to the exercise of an Option.  Should the Optionee cease to be employed by or provide services
to the Company, then all shares of Common Stock issued upon exercise of an
Option which are unvested at the time of cessation of employment or services
shall be subject to repurchase at the exercise price paid for such shares.  The terms and conditions upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise) shall be established by the Plan Administrator and set forth in the
agreement evidencing such right.

All of the Company’s
outstanding repurchase rights under this Section 12.1 are assignable by
the Company at any time.  Such rights
shall automatically terminate, and all shares subject to such terminated rights
shall immediately vest in full, upon the occurrence of a Corporate Transaction,
except to the extent:  (i) any such
repurchase right is expressly assigned to the Successor Corporation in
connection with the Corporate Transaction or (ii) such termination is
precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.

The Plan Administrator
shall have the discretionary authority, exercisable either before or after the
Optionee’s cessation of employment or services, to cancel the Company’s
outstanding repurchase rights with respect to one or more shares purchased or
purchasable by the Optionee under an Option and thereby accelerate the vesting
of such shares in whole or in part at any time.

12.2        First Refusal Rights

Until the date on which
the initial registration of the Common Stock under Section 12(b) or 12(g)
of the Exchange Act first becomes effective, the Company shall have the right
of first refusal with respect to any proposed sale or other disposition by the
holder of any shares of Common Stock issued pursuant to an Option granted under
the Plan.  Such right of first refusal 

 

-13-

 

shall be exercisable in
accordance with the terms and conditions established by the Plan Administrator
and set forth in the agreement evidencing such right.

SECTION 13.                   MARKET STANDOFF

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

In the event of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the Company’s outstanding Common Stock
effected as a class without the Company’s receipt of consideration, then any
new, substituted or additional securities distributed with respect to the purchased
shares shall be immediately subject to the provisions of this Section 13,
to the same extent the purchased shares are at such time covered by such
provisions.

In order to enforce the
limitations of this Section 13, the Company may impose stop-transfer
instructions with respect to the purchased shares until the end of the
applicable standoff period.

SECTION 14.                   AMENDMENT AND TERMINATION OF
PLAN

14.1        Amendment of Plan

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

14.2        Termination of Plan

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

 

-14-

 

14.3        Consent of Optionee

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

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

SECTION 15.                   GENERAL

15.1        Option Agreements

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

15.2        Continued Employment or Services; Rights
in Options

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

15.3        Registration

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

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

As a condition to the
exercise of an Option, the Company may require the Optionee to represent and
warrant at the time of any such exercise or receipt that such shares are being
purchased or received only for the Optionee’s own account and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any relevant
provision of the aforementioned laws. 
At the option of the Company, a stop–transfer order against any
such shares may be placed on the official stock books and 

 

-15-

 

records of the Company,
and a legend indicating that such shares may not be pledged, sold or otherwise
transferred, unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates to ensure
exemption from registration.  The Plan
Administrator may also require such other action or agreement by the Optionee as
may from time to time be necessary to comply with the federal and state
securities laws.

15.4        No Rights as a Shareholder

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

15.5        Compliance With Laws and Regulations

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

15.6        No Trust or Fund

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

15.7        Severability

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

15.8        Appendix Provisions

To the extent required by
applicable law, persons who are residents of the State of California shall be
subject to the additional terms and conditions set forth in Appendix A to
the Plan.

 

 

-16-

 

SECTION 16.                   EFFECTIVE DATE

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

Adopted by the Board on May 19, 1998 and approved by the Company’s shareholders on
May 19, 1998.

 

-17-

PLAN ADOPTION AND
AMENDMENTS/ADJUSTMENTS

	
  Date of 

  Adoption/

  Amendment/

  Adjustment

  	
  Section

  	
  Effect of
  Amendment

  	
  Date of
  Shareholder 

  Approval

  
	
  Effective 05/25/98

  	
                  Sec. 1

  	
  Change name to
  Gear.com, Inc.

  	
  Not required

  
	
  Effective 04/11/00

  	
                  Section 4.1

  	
  Increase number of
  available shares from 2,340,000 to 3,243,000

  	
  06/29/00

  
	
  Effective 09/13/00

  	
                  Sec 15.8 &                 Appendix
  A

  	
  Add CA appendix
  provisions

  	
  Pending

  

 

-1-

GEAR.COM, INC.

APPENDIX A

TO

1998 STOCK OPTION PLAN

FOR CALIFORNIA RESIDENTS

This Appendix to the
Gear.com, Inc. 1998 Stock Option Plan (the “Plan”) shall have application only
to Plan participants who are residents of the State of California.  Capitalized terms contained herein shall
have the same meanings given to them in the Plan, unless otherwise provided in
this appendix.  Notwithstanding any provision contained
in the Plan to the contrary, the following terms and conditions shall apply to
any Options granted under the Plan to residents of the State of California, to
the extent stated above and required by applicable law:

1.             Nonqualified Stock Options shall have an exercise price
that is not less than 85% of the Fair Market Value of the stock at the time the
Option is granted, as determined by the Board, except that the exercise price
shall be 110% of the Fair Market Value in the case of any person who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent or subsidiary corporations.

2.             Options shall have a term of not more than ten years
from the date the Option is granted.

3.             Options shall be nontransferable
other than by will or the laws of descent and distribution, exept that, to the
extent permitted by Section 422 of the Code, the Plan Adminstrator, in its sole
discretion, may permit Options to be transferred to an inter vivos or
testamentary trust in which the Options are passed to beneficiaries upon the
death of the trustor (settlor) or by gift to “immediate family,” as that term
is defined in 17 C.F.R. 240.16a-1(e).

4.             Options shall become exercisable at the rate of at least
20% per year over 5 years from the date the Option is granted, subject to
reasonable conditions such as continued employment.  However, in the case of an Option granted to officers, directors
or consultants of the Company or any of its affiliates, the Option may become
fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company or any
of its affiliates.

5.             Unless employment is terminated for Cause, as defined by
the Plan, the right to exercise an Option in the event of termination of
employment, to the extent that the Optionee is otherwise entitled to exercise
on the date employment terminates, shall be:

                a.  at least 6
months from the date of termination of employment if termination was caused by
death or Disability; and

 

 

                b.  at least
30 days from the date of termination if termination of employment was caused by
other than death or Disability;

                                c. 
but in no event later than the remaining term of the Option.

6.             No Option may be granted to a resident of California
more than ten years after the earlier of the date of adoption of the Plan and
the date the Plan is approved by the shareholders.

7.             Any Option exercised before shareholder approval is
obtained shall be rescinded if shareholder approval is not obtained within 12
months before or after the Plan is adopted. 
Such shares obtained on exercise shall not be counted in determining
whether such approval is obtained.

8.             The Company shall provide annual financial statements of
the Company to each California resident holding an outstanding Option under the
Plan.  Such financial statements need
not be audited and need not be issued to key employees whose duties at the
Company assure them access to equivalent information.

9.             Any right of repurchase on behalf of the Company in the
event of an Optionee’s termination of employment shall be at a purchase price
which is (a) not less than the fair market value of the securities upon
termination of employment, and the right to repurchase shall be exercised for
cash or cancellation of purchase money indebtedness for the shares within 90
days of termination of employment (or in the case of securities issued upon
exercise of Options after the date of termination, within 90 days after the
date of the exercise), and the right shall terminate when the Company’s
securities become publicly traded; or (b) at the original purchase price,
provided that the right to repurchase at the original purchase price lapses at
the rate of at least 20% of the shares per year over 5 years from the date the
Option is granted (without respect to the date the Option was exercised or
became exercisable) and the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the shares within 90 days of
termination of employment (or in the case of securities issued upon exercise of
Options after the date of termination, within 90 days after the date of the
exercise).  In addition to the
restrictions set forth in clauses (a) and (b), the securities held by an
officer, director or consultant of the Company or an affiliate of the Company
may be subject to additional or greater restrictions.

 

-2-

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