Document:

Exhibit 10.45 - Employment agreement with John R. Geisel

                              EMPLOYMENT AGREEMENT

            THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of
the 1st day of January 2001 by and between Magna-Lab Inc., a New York
corporation (the "Company") and John R. Geisel, an individual residing at 10
Depot Road, Boxford, Massachusetts 01921 (the "Executive").

                                    RECITALS

            WHEREAS, the Company wishes to employ Executive on the terms and
conditions set forth in this Agreement, and Executive wishes to be employed by
the Company on such terms and conditions; and

            WHEREAS, pursuant to the terms of this Agreement, and subject to the
terms and conditions hereof, the Executive will derive substantial personal
benefit.

            NOW, THEREFORE, in consideration of the promises and the respective
undertakings of the Company and Executive set forth below, and other good and
valuable consideration, the receipt and sufficiency of which the parties hereby
acknowledge, the Company and Executive hereby agree as follows:

      1.    Agreement Term.

            The Company hereby employs Executive, and Executive hereby accepts
such employment and agrees to perform services for the Company, subject to the
provisions set forth in this Agreement which shall be in effect for four (4)
years (the "Agreement Term") starting on the date hereof (the "Employment
Date").

      2.    Position and Duties.

            (a) Employment. During the Agreement Term, Executive agrees to serve
as Chief Executive Officer of the Company and to perform such reasonable
employment duties that are customary for his title and position. Executive shall
report to the Company's Chairman of the Board.

            (b) Performance of Duties. Throughout the Agreement Term, Executive
shall faithfully and diligently perform Executive's duties in conformity with
the directions of the Company and serve the Company to the best of Executive's
ability. Executive shall devote Executive's entire working time, attention and
energies to the business and affairs of the Company, subject to vacations and
sick leave as provided herein and in accordance with Company policy.

            (c) Place of Performance. During the Agreement Term, Executive

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shall, subject to travel requirements on behalf of the Company, be based in the
Boston, Massachusetts metropolitan area within 25 miles of Boxford, MA. or such
other location(s) as the Company and Executive may mutually determine.

            (d) Board of Directors. Executive also agrees to serve as a member
of the Company's board of directors (the "Board of Directors"). The Company
agrees to use its best efforts to cause the Board of Directors to elect
Executive as a Director at the next Board of Directors' meeting following the
execution of this Agreement. Executive acknowledges that his position as a
Director shall be subject to the election procedures established by the
Company's Certificate of Incorporation and Bylaws and the laws of the State of
New York, as each may be amended from time to time, and that his service and
term as a Director shall be pursuant to the procedures established therein.
Removal or nonelection of Executive as Director shall not be considered
termination of employment provided that Executive is permitted to continue to
provide services in his executive capacity.

      3.    Compensation and Benefits.

            (a) Base Salary. For employment hereunder, the Company agrees to pay
Executive an annual base salary ("Base Salary") at an initial rate of $200,000
(Two Hundred Thousand Dollars). Executive shall be eligible for an annual
increase to the Base Salary on each anniversary of the Employment Date during
the Agreement Term, in such amount as shall be determined at the discretion of
the Board of Directors. The Base Salary shall be payable in installments in
arrears consistent with the Company's payroll practices then in effect.

            (b) Bonus. Executive shall be eligible for an annual bonus, based
upon attainment of certain reasonable business objectives to be agreed upon by
the Executive and the Company, in an amount up to fifty percent (50%) of Base
Salary for the first and second years of the Agreement Term and up to sixty
percent (60%) of Base Salary for the third and fourth years of the Agreement
Term.

            (c) Benefits and Perquisites. Executive shall be entitled to
participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, including medical and vacation plans
(not less than three weeks vacation), and receive the benefits and perquisites,
generally provided to employees of the same level and responsibility as
Executive. If on the Employment Date or at any other time during the Agreement
Term, the Company does not have in place medical and dental health insurance
coverage for Executive, then the Company shall reimburse Executive for the
reasonable costs of such coverage similar to the executive's current plan.
Nothing in this Agreement shall preclude the Company from terminating or
amending from time to time any employee benefit plan or program.

            (d) Travel and Business Expenses. Upon submission of itemized
expense statements in the manner specified by the Company, Executive shall be
entitled to reimbursement for reasonable travel and other reasonable business
expenses duly incurred by Executive in the performance of Executive's duties
under this Agreement in

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accordance with the policies and procedures established by the Company from time
to time for employees of the same level and responsibility as Executive.

            (e) Grant of Option. The Company agrees that, as of the date hereof,
it will grant to Executive, pursuant to the Company's 1992 Stock Option Plan, as
amended, (the "Plan"), a stock option (the "Option") to purchase three million
nine hundred thousand (3,900,000) shares of the Company's Class A Common Stock
(the "Option Shares"). The exercise price for the Option Shares shall be $0.25
per share, the fair market value of the Class A Common Stock on the date of
grant. Such options shall be treated as Incentive Stock Options to the extent
permitted. The Option shall expire five (5) years from the vesting date. The
Option Shares shall vest in four equal annual installments beginning on the
first anniversary of the grant date and on each subsequent anniversary thereof,
subject to termination as provided in the Plan; and further subject to pro rata
vesting in the event Executive's employment is terminated by the Company
pursuant to Section 5(d) hereof. The terms of the Option shall otherwise be
governed by the Plan as well as any applicable agreement to be entered into
pursuant to the Plan.

            (f) No Other Compensation or Benefits; Payment. The compensation and
benefits specified in Sections 3 and 5 of this Agreement shall be in lieu of any
and all other compensation and benefits. Payment of all compensation and
benefits to Executive hereunder shall be made in accordance with the relevant
Company policies in effect from time to time, including normal payroll
practices, and shall be subject to all applicable employment and withholding
taxes.

            (g) Cessation of Employment. In the event Executive shall cease to
be employed by the Company for any reason, then Executive's compensation and
benefits shall cease on the date of such event, except as otherwise provided
herein or in any applicable employee benefit plan or program.

      4.    Exclusive Employment; No Competition.

            (a) No Conflict; No Other Employment. During the period of
Executive's employment with the Company, Executive shall not: (i) engage in any
activity which conflicts or interferes with or derogates from the performance of
Executive's duties hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except as approved in advance in writing by the Board of Directors of the
Company; or (ii) accept any other full-time or substantially full-time
employment, whether as an executive or consultant or in any other capacity, and
whether or not compensated therefor.

            (b) No Competition. Without limiting the generality of the
provisions of Sections 2(c) or 4(a), during the period of Executive's employment
with the Company, and for a period of two (2) years thereafter (the "Restricted
Period"), Executive shall not, directly or indirectly, own, manage, operate,
join, control, participate in, invest in or otherwise be connected or associated
with, in any manner, including as an officer, director, employee, partner,
stockholder, joint venturer, lender, consultant, advisor, agent, proprietor,
trustee or investor, any Competing Business (as hereinafter defined) located in

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the United States or in any other location where the Company operates or sells
its products or services; provided, however, that if Executive's employment
hereunder is terminated by the Company under Section 5(d), then the provisions
of this Section 4(b) shall remain in effect only so long as the Company
continues to pay to Executive amounts as severance pursuant to Section 5(d).

                  (i) As used in this Agreement, the term "Competing Business"
      shall mean any business or venture which engages in any business area or
      sells or provides products or services that compete or overlap with any
      business area in which the Company engages or contemplates engaging in, or
      the products or services as sold or provided, or as contemplated to be
      sold or provided, by the Company. The parties acknowledge that the
      Company's present business area relates to medical imaging utilizing
      magnetic resonance imaging technology.

                  (ii) For purposes of this Section 4(b), the term "invest"
      shall not preclude an investment in not more than one percent (1%) of the
      outstanding capital stock of a corporation whose capital stock is listed
      on a national securities exchange or included in the NASDAQ Stock Market,
      so long as Executive does not have the power to control or direct the
      management of, or is not otherwise associated with, such corporation.

            (c) No Solicitation of Employment. During the Restricted Period,
Executive shall not solicit or encourage any employee of the Company to leave
the employ, or cease his or her relationship with, the Company for any reason,
nor employ such an employee in a Competing Business or any other business.

            (d) Company Customers. Executive shall not, during the Restricted
Period, directly or indirectly, contact, solicit or do business with any
Customers (as hereinafter defined) of the Company for the purpose of selling or
providing any product or service then sold or provided by the Company to such
customers or proposed to be sold or provided to such customers during
Executive's employment by the Company or at the time of termination of
Executive's employment hereunder.

            For the purposes of the provisions of this Section 4(d), "Customer"
shall include any entity that purchased any product or service from the Company
within one (1) year of the termination of Executive's employment hereunder,
without regard to the reason for such termination. Customer also includes any
former customer or potential customer of the Company which the Company has
solicited within eight months of such termination, for the purpose of selling or
providing any product or service then sold or provided, or then contemplated to
be sold or provided, by the Company.

            (e) Modification of Covenants. The restrictions against competition
set forth in this Section 4 are considered by the parties to be reasonable for
the purposes of protecting the business of the Company. However, if any such
restriction is found by any court of competent jurisdiction to be unenforceable
because it extends for too long a

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period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.

      5.    Termination of Employment.

            (a) Termination. The Company may terminate Executive's employment
for Cause (as hereinafter defined) in which case the provisions of Section 5(b)
shall apply. The Company may also terminate Executive's employment in the event
of Executive's Disability (as hereinafter defined), in which case the provisions
of Section 5(c) shall apply. The Company may also terminate the Executive's
employment for any other reason by written notice to Executive, in which case
the provisions of Section 5(d) shall apply. If Executive's employment is
terminated by reason of Executive's death, retirement or voluntary resignation,
the provisions of Section 5(b) shall apply.

            (b) Termination for Cause; Termination by Reason of Executive's
Death or Retirement or Voluntary Resignation.

                  (1) In the event that Executive's employment hereunder is
      terminated during the Agreement Term (i) by the Company for Cause (as
      hereinafter defined), (ii) by reason of Executive's death or retirement,
      or (iii) by reason of Executive's voluntary resignation, then the Company
      shall pay to Executive, within thirty (30) days of the date of such
      termination, only the Base Salary through such date of termination.

                  (2) For purposes of this Agreement, "Cause" shall mean (i)
      conviction of any crime (whether or not involving the Company)
      constituting a felony in the jurisdiction involved; (ii) engaging in any
      substantiated act involving moral turpitude and which could reasonably
      adversely affect the Company or its business; (iii) engaging in any act
      which, in each case, subjects, or if generally known would subject, the
      Company to public ridicule or embarrassment and which could reasonably
      adversely affect the Company or its business; (iv) gross neglect or
      misconduct in the performance of Executive's duties hereunder; (v) willful
      or repeated failure or refusal to perform such duties as may be relegated
      to Executive commensurate with Executive's position; or (vi) breach of any
      provision of this Agreement by Executive. The Board of Directors shall
      have full and final authority as to whether Cause exists, and their
      determination shall be final and binding on the parties and not subject to
      review or appeal by any other person.

            (c) Disability. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been absent from Executive's
duties hereunder on a full time basis for either (i) 120 days within any
nine-month period, or (ii) sixty (60) consecutive days, and within thirty (30)
days after written notice of termination is given shall not have returned to the
performance of Executive's duties hereunder on a full time basis, the Company
may terminate Executive's employment hereunder for "Disability". In that event,
the Company shall pay to Executive, within thirty (30) days of the date of

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such termination, only the Base Salary through such date of termination. During
any period that Executive fails to perform Executive's duties hereunder as a
result of incapacity due to physical or mental illness (a "Disability Period"),
Executive shall continue to receive the compensation and benefits provided by
Section 3 hereof until Executive's employment hereunder is terminated; provided,
however, that the amount of compensation and benefits received by Executive
during the Disability Period shall be reduced by the aggregate amounts, if any,
payable to Executive under any disability benefit plans and programs of the
Company or under the Social Security disability insurance program.

            (d) Termination By Company For Any Other Reason. In the event that
Executive's employment hereunder is terminated by the Company during the
Agreement Term for any reason ( including, without limitation, constructive
termination) other than as provided in Sections 5(b) or 5(c) hereof, then the
Company shall pay to Executive, within thirty (30) days of the date of such
termination, the Base Salary through such date of termination and, in lieu of
any further compensation and benefits for the balance of the Agreement Term,
severance pay equal to the Base Salary that Executive would have otherwise
received during the period of one (1) year from the effective date of such
termination, commencing with such date of termination at the times and in the
amounts such Base Salary would have been paid. Under such circumstances, except
as set forth below, for the balance of such period, Executive shall also be
eligible to receive reimbursement for the reasonable cost of medical and dental
health insurance; provided, however, that in the event that Executive shall
breach Sections 4 or 6 hereof, in addition to any other remedies the Company may
have in the event Executive breaches this Agreement, the Company's obligation
pursuant to this Section 5(d) to continue such payments of salary and such
benefits and perquisites shall cease and Executive's rights thereto shall
terminate and shall be forfeited. Notwithstanding anything to the contrary
provided herein, all vesting on the Option Shares shall cease as of and on the
date of Executive's termination of employment for any reason or for no reason.

            (e) No Further Liability; Release. Payment made and performance by
the Company in accordance with this Section 5 shall operate to fully discharge
and release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability with respect to Executive's employment and
termination of employment. Other than paying Executive's Base Salary through the
date of termination of Executive's employment and reimbursing Executive for the
reasonable costs of medical and dental health insurance pursuant to and in
accordance with this Section 5 (as applicable), the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives shall have no further obligation or
liability to Executive or any other person under this Agreement. The Company
shall have the right to condition the payment of any severance or other amounts
pursuant to Sections 5(c) or 5(d) hereof upon the delivery by Executive to the
Company of a release in form and substance satisfactory to the Company of any
and all claims Executive may have against the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives arising out of or related to

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Executive's employment by the Company and termination of such employment.

      6.    Confidential Information.

            (a) Existence of Confidential Information. The Company owns and has
developed and compiled, and will develop and compile, certain proprietary
technology, know-how and confidential information which have great value to its
business (referred to in this Agreement, collectively, as "Confidential
Information"). Confidential Information includes not only information disclosed
by the Company to Executive, but also information developed or learned by
Executive during the course or as a result of employment with the Company, which
information shall be the property of the Company. Confidential Information
includes all information that has or could have commercial value or other
utility in the business in which the Company is engaged or contemplates
engaging, and all information of which the unauthorized disclosure could be
detrimental to the interests of the Company, whether or not such information is
specifically labeled as Confidential Information by the Company. By way of
example and without limitation, Confidential Information includes any and all
information developed, obtained, licensed by or to or owned by the Company
concerning trade secrets, techniques, know-how (including research data,
designs, plans, procedures, merchandising, marketing, distribution and
warehousing know-how, processes, and research records), software, computer
programs, and any other intellectual property created, used or sold (through a
license or otherwise) by the Company, product know-how and processes,
innovations, discoveries, improvements, research, development, test results,
reports, specifications, data, formats, marketing data and plans, business
plans, strategies, forecasts, unpublished financial information, orders,
agreements and other forms of documents, price and cost information,
merchandising opportunities, expansion plans, budgets, projections, customer,
supplier, licensee, licensor and subcontractor identities, characteristics,
agreements and operating procedures, and salary, staffing and employment
information.

            (b) Protection of Confidential Information. Executive acknowledges
and agrees that in the performance of duties hereunder Executive develops and
acquires, and the Company discloses to and entrusts Executive with, Confidential
Information which is the exclusive property of the Company and which Executive
may possess or use only in the performance of duties for the Company. Executive
also acknowledges that Executive is aware that the unauthorized disclosure of
Confidential Information, among other things, may be prejudicial to the
Company's interests, an invasion of privacy and an improper disclosure of trade
secrets. Executive shall not, directly of indirectly, use, make available, sell,
disclose or otherwise communicate to any corporation, partnership, individual or
other third party, other than in the course of Executive's assigned duties and
for the benefit of the Company, any Confidential Information, either during the
Agreement Term or thereafter. In the event Executive desires to publish the
results of Executive's work for or experiences with the Company through
literature, interviews or speeches, Executive will submit requests for such
interviews or such literature or speeches to the Board of Directors of the
Company at least fourteen (14) days before any anticipated dissemination of such
information for a determination of whether such

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disclosure is in the best interests of the Company, including whether such
disclosure may impair trade secret status or constitute an invasion of privacy.
Executive agrees not to publish, disclose or otherwise disseminate such
information without the prior written approval of the Board of Directors of the
Company.

            (c) Delivery of Records, Etc. In the event Executive's employment
with the Company ceases for any reason, Executive will not remove from the
Company's premises without its prior written consent any records, notes,
notebooks, files, drawings, documents, equipment, materials and writings
received from, created for or belonging to the Company, including those which
relate to or contain Confidential Information, or any copies thereof. Upon
request or when employment with the Company terminates, Executive will
immediately deliver the same to the Company.

      7.    Invention and Patents.

            (a) Executive will promptly and fully disclose to the Company any
and all inventions, discoveries, trade secrets and improvements, whether or not
patentable or whether or not they are made, conceived or reduced to practice
during working hours or using the Company's data or facilities, which Executive
shall develop, make, conceive or reduce to practice during Executive's
employment by the Company, either solely or jointly with others (collectively,
"Developments"). All such Developments shall be the sole property of the
Company, and Executive hereby assigns to the Company, without further
compensation, all his right, title and interest in and to such Developments and
any and all related patents, patent applications, copyrights, copyright
applications, trademarks and trade names in the United States and elsewhere.

            (b) Executive shall keep and maintain adequate and current written
records of all Developments (in the form of notes, sketches, drawings and as may
be specified by the Company), which records shall be available to and remain the
sole property of the Company at all times.

            (c) Executive shall assist the Company in obtaining and enforcing
patent, copyright and other forms of legal protection for the Developments in
any country. Upon request, Executive shall sign all applications, assignments,
instruments and papers and perform all acts necessary or desired by the Company
and to enable the Company its successors, assigns and nominees, to secure and
enjoy the full exclusive benefits and advantages thereof.

            (d) Executive understands that Executive's obligations under this
section will continue after the termination of his employment with the Company
and that during his employment Executive shall perform such obligations without
further compensation, except for reimbursement of expenses incurred at the
request of the Company. Executive further understands that if he is not employed
by the Company as an employee at the time he is requested to perform any
obligations under this section, Executive shall receive for such performance a
reasonable per diem fee, as well as reimbursement of any expenses incurred at
the request of the Company.

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      8.    Assignment and Transfer.

            (a) Company. This Agreement shall inure to the benefit of and be
enforceable by, and may be assigned by the Company to, any purchaser of all or
substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise). The Company will require any such
purchaser, successor or assignee to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such purchase, succession or assignment had taken
place.

            (b) Executive. Executive's rights and obligations under this
Agreement shall not be transferable by Executive by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.

      9.    Miscellaneous.

            (a) Other Obligations. Executive represents and warrants that he is
not a party to any other employment agreement and that neither Executive's
employment with the Company nor Executive's performance of Executive's
obligations hereunder will conflict with or violate or otherwise are
inconsistent with any other agreements to which Executive is or has been a party
or with any other obligations, legal or otherwise, which Executive may have.

            (b) Nondisclosure; Other Employers. Executive will not disclose to
the Company, or use, or induce the Company to use, any proprietary information,
trade secrets or confidential business information of others. Executive
represents and warrants that Executive has returned all property, proprietary
information, trade secrets and confidential business information belonging to
all prior employers.

            (c) Cooperation. Following termination of employment with the
Company, Executive shall cooperate with the Company, as requested by the
Company, to affect a transition of Executive's responsibilities and to ensure
that the Company is aware of all matters being handled by Executive.

            (d) Protection of Reputation. During the Agreement Term and
thereafter, Executive agrees that he will take no action which is intended, or
could reasonably be expected, to harm the Company or its reputation or which
could reasonably be expected to lead to unwanted or unfavorable publicity to the
Company.

            (e) Governing Law. This Agreement, including the validity,
interpretation, construction and performance of this Agreement, shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in such state without regard
to such states conflicts of law

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principles. All actions and proceedings relating directly or indirectly to this
Agreement shall be litigated in any state court or federal court located in New
York, New York. The parties hereto expressly consent to the jurisdiction of any
such court and to venue therein and consent to the service of process in any
such action or proceeding by certified or registered mailing of the summons and
complaint therein directed to Executive at the address as provided in Section
8(m) hereof and to the Company's designated agent for service of process (which
initially shall be which agent may be changed by the Company upon thirty (30)
days' prior written notice to Executive).

            (f) Entire Agreement. This Agreement contains the entire agreement
and understanding between the parties hereto in respect of the subject matter
hereof and supersedes, cancels and annuls any prior or contemporaneous written
or oral agreements, understandings, commitments and practices between them
respecting the subject matter hereof, including all prior employment agreements,
if any, between the Company and Executive, which agreement(s) hereby are
terminated and shall be of no further force or effect.

            (g) Amendment. This Agreement may be amended only by a writing which
makes express reference to this Agreement as the subject of such amendment and
which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.

            (h) Severability. If any term, provision, covenant or condition of
this Agreement or part thereof, or the application thereof to any person, place
or circumstance, shall be held to be invalid, unenforceable or void, the
remainder of this Agreement and such term, provision, covenant or condition
shall remain in full force and effect, and any such invalid, unenforceable or
void term, provision, covenant or condition shall be deemed, without further
action on the part of the parties hereto, modified, amended and limited to the
extent necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful. In this regard, Executive acknowledges that the
provisions of Sections 4 and 6 are reasonable and necessary for the protection
of the Company.

            (i) Construction. The headings and captions of this Agreement are
provided for convenience only and are intended to have no effect in construing
or interpreting this Agreement. The language in all parts of this Agreement
shall be in all cases construed according to its fair meaning and not strictly
for or against the Company or Executive. The use herein of the word "including,"
when following any general provision, sentence, clause, statement, term or
matter, shall be deemed to mean "including, without limitation". As used herein,
"Company" shall mean the Company and its subsidiaries and any purchaser of,
successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 hereof or otherwise. As used herein, the
words "day" or "days" shall mean a calendar day or days.

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            (j) Nonwaiver. Neither any course of dealing nor any failure or
neglect of either party hereto in any instance to exercise any right, power or
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.

            (k) Remedies for Breach. The parties hereto agree that Executive is
obligated under this Agreement to render personal services during the Agreement
Term of a special, unique, unusual, extraordinary and intellectual character,
thereby giving this Agreement peculiar value, and, in the event of a breach or
threatened breach of any covenant of Executive herein, the injury or imminent
injury to the value and the goodwill of the Company's business could not be
reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive expressly acknowledges that the Company shall be entitled
to specific performance, injunctive relief or any other equitable remedy against
Executive, without the posting of a bond, in the event of any breach or
threatened breach of any provision of this Agreement by Executive (including
Sections 4 and 6 hereof). Without limiting the generality of the foregoing, if
Executive breaches Sections 4 or 6 hereof, such breach will entitle the Company
to enjoin Executive from disclosing any Confidential Information to any
Competing Business, to enjoin such Competing Business from receiving Executive
or using any such Confidential Information and/or to enjoin Executive from
rendering personal services to or in connection with such Competing Business.
The rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure performance of the obligations and
duties of the other under this Agreement, and the enforcement of one or more of
such rights and remedies by a party shall in no way preclude such party from
pursuing, at the same time or subsequently, any and all other rights and
remedies available to it.

            (l) Notices. Any notice, request, consent or approval required or
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, with postage prepaid, to Executive's residence (as
reflected in the Company's records or as otherwise designated by Executive on
thirty (30) days' prior written notice to the Company) or to the Company's
principal executive office to the attention of the Chairman of the Board, with a
copy to:

                     Greenberg Traurig, LLP
                     200 Park Avenue
                     New York, New York 10166
                     Attn: Keith Moskowitz, Esq.

All such notices, requests, consents and approvals shall be effective upon being
deposited in the United States mail. However, the time period in which a
response thereto must be given shall commence to run from the date of receipt on
the return receipt of the notice, request, consent or approval by the addressee
thereof. Rejection or other refusal to accept,

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or the inability to deliver because of changed address of which no notice was
given as provided herein, shall be deemed to be receipt of the notice, request,
consent or approval sent.

            (m) Assistance in Proceedings, Etc. Executive shall, without
additional compensation, during and after expiration of the Agreement Term, upon
reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi-legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party.

            (n) Survival. Cessation or termination of Executive's employment
with the Company shall not result in termination of this Agreement. The
respective obligations of Executive and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or termination of
Executive's employment hereunder. This Agreement shall not terminate upon, and
shall remain in full force and effect following, expiration of the Agreement
Term and all rights and obligations of the parties hereto as and to the extent
provided herein shall survive such expiration.

                            [SIGNATURE PAGE FOLLOWS]

                                   Exhibit 1
                                       16

<PAGE>

      IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be
duly executed on its behalf by an officer thereunto duly authorized and
Executive has duly executed this Agreement, all as of the date and year first
written above.

                                  MAGNA-LAB INC.

                                  By:
                                     -----------------------------------
                                  Name:
                                  Title:

                                  --------------------------------------
                                  EXECUTIVE<PAGE>

                                  Exhibit 4.1

                   FRESHWATER SOFTWARE, INC. 1997 STOCK PLAN
<PAGE>

                           FRESHWATER SOFTWARE, INC.

                                1997 STOCK PLAN

                              (As of April 2000)

    1.  Purposes of the Plan. The purposes of this Stock Plan are to attract
        --------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant of an Option and subject to the applicable provisions of Section 422 of
the Code and the regulations promulgated thereunder. Stock Purchase Rights may
also be granted under the Plan.

    2.  Definitions. As used herein, the following definitions shall apply:
        -----------

        (a) "Administrator" means the Board or any of its Committees appointed
             -------------
pursuant to Section 4 of the Plan.

        (b) "Applicable Laws" means the legal requirements relating to the
             ----------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options or Stock Purchase Rights are, or
will be, granted under the Plan.

        (c) "Board" means the Board of Directors of the Company.
             -----

        (d) "Code" means the Internal Revenue Code of 1986, as amended.
             ----

        (e) "Committee"  means a Committee appointed by the Board of Directors
             ---------
in accordance with Section 4 of the Plan.

        (f) "Common Stock" means the Common Stock of the Company.
             ------------

        (g) "Company" means Freshwater Software, Inc., a California corporation.
             -------

        (h) "Consultant" means any person who is engaged by the Company or any
             ----------
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not. If the Company registers any class of any
equity security pursuant to the Exchange Act, the term Consultant shall
thereafter not include Directors who are not compensated for their services or
are paid only a Director's fee by the Company.

        (i) "Continuous Status as an Employee or Consultant" means that the
             ----------------------------------------------
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. A leave of
absence approved by the Company shall include sick leave, military leave, or any
other personal leave approved by an authorized representative of the Company.
For
<PAGE>

purposes of Incentive Stock Options, no such leave may exceed 90 days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract,
including Company policies. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, on the 91st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.

        (j) "Director" means a member of the Board of Directors of the Company.
             --------

        (k) "Employee" means any person, including Officers and Directors,
             --------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.

        (l) "Exchange Act" means the Securities Exchange Act of 1934, as
             ------------
amended.

        (m) "Fair Market Value" means, as of any date, the value of Common Stock
             -----------------
determined as follows:

             (i)  If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

             (ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or

            (iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.

        (n) "Incentive Stock Option" means an Option intended to qualify as an
             ----------------------
incentive stock option within the meaning of Section 422 of the Code.

        (o) "Nonstatutory Stock Option" means an Option not intended to qualify
             -------------------------
as an Incentive Stock Option.

        (p) "Officer" means a person who is an officer of the Company within
             -------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

        (q) "Option" means a stock option granted pursuant to the Plan.
             ------

        (r) "Optioned Stock" means the Common Stock subject to an Option or a
             --------------
Stock Purchase Right.

        (s) "Optionee" means an Employee or Consultant who receives an Option
             --------
or Stock Purchase Right.

                                      -2-
<PAGE>

        (t) "Parent" means a "parent corporation," whether now or hereafter
             ------
existing, as defined in Section 424(e) of the Code.

        (u) "Plan" means this 1997 Stock Plan.
             ----

        (v) "Restricted Stock" means shares of Common Stock acquired pursuant
             ----------------
to a grant of a Stock Purchase Right under Section 11 below.

        (w) "Section 16(b)" means Section 16(b) of the Securities Exchange Act
             -------------
of 1934, as amended.

        (x) "Share" means a share of the Common Stock, as adjusted in
             -----
accordance with Section 12 below.

        (y) "Stock Purchase Right" means a right to purchase Common Stock
             --------------------
pursuant to Section 11 below.

        (z) "Subsidiary" means a "subsidiary corporation," whether now or
             ----------
hereafter existing, as defined in Section 424(f) of the Code.

    3.  Stock Subject to the Plan.  Subject to the provisions of Section 12 of
        -------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 5,090,908 Shares. The Shares may be authorized but
                           ---------
unissued, or reacquired Common Stock.

         If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an option
exchange program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.

    4.  Administration of the Plan.
        --------------------------

        (a) Initial Plan Procedure. Prior to the date, if any, upon which the
            ----------------------
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a Committee appointed by the Board.

        (b) Plan Procedure After the Date, if any, upon Which the Company
            -------------------------------------------------------------
becomes Subject to the Exchange Act.
-----------------------------------

            (i)   Multiple Administrative Bodies. If permitted by Rule 16b-3,
                  ------------------------------
the Plan may be administered by different bodies with respect to Directors,
Officers and Employees who are neither Directors nor Officers.

            (ii)  Administration With Respect to Directors and Officers.  With
                  -----------------------------------------------------
respect to grants of Options and Stock Purchase Rights to Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with the rules under

                                      -3-
<PAGE>

Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule
16b-3") relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.

            (iii) Administration With Respect to Other Employees and
                  --------------------------------------------------
Consultants. With respect to grants of Options and Stock Purchase Rights to
-----------
Employees or Consultants who are neither Directors nor Officers of the Company,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which committee shall be constituted in such a manner as to satisfy
Applicable Laws. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.

        (c) Powers of the Administrator. Subject to the provisions of the Plan
            ---------------------------
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority in its discretion:

            (i)    to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;

            (ii)   to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;

            (iii)  to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;

            (iv)   to determine the number of Shares to be covered by each such
award granted hereunder;

            (v)    to approve forms of agreement for use under the Plan;

            (vi)   to determine the terms and conditions of any award granted
hereunder;

            (vii)  to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;

            (viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and

                                      -4-
<PAGE>

            (ix)   to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.

        (d) Effect of Administrator's Decision. All decisions, determinations
            ----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options or Stock Purchase Rights.

    5.  Eligibility.
        -----------

        (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if otherwise eligible, be granted additional Options or
Stock Purchase Rights.

        (b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

        (c) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.

    6.  Term of Plan. The Plan shall become effective upon the earlier to occur
        ------------
of its adoption by the Board of Directors or its approval by the shareholders of
the Company, as described in Section 18 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 14 of the
Plan.

    7.  Term of Option. The term of each Option shall be the term stated in the
        --------------
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.

    8.  Option Exercise Price and Consideration.
        ---------------------------------------

        (a)    The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:

               (i)  In the case of an Incentive Stock Option

                    (A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or

                                      -5-
<PAGE>

any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.

                    (B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.

               (ii) In the case of a Nonstatutory Stock Option

                    (A) granted to a person who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.

                    (B) granted to any other person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.

        (b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.

    9.  Exercise of Option.
        ------------------

        (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
            -----------------------------------------------
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan, but in no case at a rate of less than 20% per year over five (5) years
from the date the Option is granted.

            An Option may not be exercised for a fraction of a Share.

            An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) hereof. Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote, receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 hereof.

                                      -6-
<PAGE>

            Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

        (b) Termination of Employment or Consulting Relationship. In the event
            ----------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant
(but not in the event of an Optionee's change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.

        (c) Disability of Optionee. In the event of termination of an
            ----------------------
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
If such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day three months and one day following such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of termination,
or if the Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

        (d) Death of Optionee. In the event of the death of an Optionee, the
             -----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant) by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option on the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after the Optionee's death, the
Optionee's estate or a person who acquires the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

        (e) Rule 16b-3. Options granted to persons subject to Section 16(b) of
            ----------
the Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.

        (f) Buyout Provisions. The Administrator may at any time offer to buy
            -----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

    10. Non-Transferability of Options and Stock Purchase Rights. Options and
        --------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will

                                      -7-
<PAGE>

or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.

    11.  Stock Purchase Rights.
         ---------------------

         (a) Rights to Purchase. Stock Purchase Rights may be issued either
             ------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Administrator makes the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock purchase
agreement in the form determined by the Administrator. Shares purchased pursuant
to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."

         (b) Repurchase Option. Unless the Administrator determines otherwise,
             -----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.

         (c) Other Provisions. The Restricted Stock purchase agreement shall
             ----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.

         (d) Rights as a Shareholder. Once the Stock Purchase Right is
             -----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.

    12.  Adjustments Upon Changes in Capitalization or Merger.
         ----------------------------------------------------

                                      -8-
<PAGE>

         (a) Changes in Capitalization. Subject to any required action by the
             -------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.

         (b) Dissolution or Liquidation. In the event of the proposed
             --------------------------
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option or Stock Purchase Right shall
terminate immediately prior to the consummation of such proposed action.

         (c) Merger. In the event of a merger of the Company with or into
             ------
another corporation, each outstanding Option or Stock Purchase Right may be
assumed or an equivalent option or right may be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If, in such
event, an Option or Stock Purchase Right is not assumed or substituted, the
Option or Stock Purchase Right shall terminate as of the date of the closing of
the merger. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger, the Option or Stock
Purchase Right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if the holders are offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger.

    13.  Time of Granting Options and Stock Purchase Rights. The date of grant
         --------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.

    14.  Amendment and Termination of the Plan.
         -------------------------------------

         (a) Amendment and Termination. The Board may at any time amend, alter,
             -------------------------
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would
<PAGE>

impair the rights of any Optionee under any grant theretofore made, without his
or her consent. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any
other applicable law or regulation, including the requirements of the NASD or an
established stock exchange), the Company shall obtain shareholder approval of
any Plan amendment in such a manner and to such a degree as required.

         (b) Effect of Amendment or Termination. Any such amendment or
             ----------------------------------
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.

    15.  Conditions Upon Issuance of Shares. Shares shall not be issued
         ----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.

         As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment 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 of the aforementioned relevant
provisions of law.

    16.  Reservation of Shares. The Company, during the term of this Plan,
         ---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

         The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

    17.  Agreements. Options and Stock Purchase Rights shall be evidenced by
         ----------
written agreements in such form as the Administrator shall approve from time to
time.

    18.  Shareholder Approval. Continuance of the Plan shall be subject to
         --------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws and the rules of any
stock exchange upon which the Common Stock is listed.

    19.  Information to Optionees and Purchasers. The Company shall provide to
         ---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
 ................................................................................

                                      -2-
<PAGE>

                           FRESHWATER SOFTWARE, INC.

                                1997 STOCK PLAN

                            STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.

I.   NOTICE OF STOCK OPTION GRANT
     ----------------------------
((Name))

You have been granted an option to purchase Common Stock of the Company, subject
to the terms and conditions of the Plan and this Option Agreement, as follows:
Date of Grant                            ((Grant Date))
Vesting Commencement Date                ((VestingDate))
Exercise Price per Share                 $((Exercise Price Per Share))
Total Number of Shares Granted           ((Total Shares))
Total Exercise Price                     $((Total Exercise Price))
Type of Option:                          Incentive Stock Option
Term/Expiration Date:                    ((Expiration_Date))

     Vesting Schedule:
     ----------------
You may exercise this Option, in whole or in part, according to the following
vesting schedule:
Twelve Forty-Eighths (12/48) of the Shares subject to the Option shall vest one
year after the Vesting Commencement Date, and One Forty-Eighth (1/48) of the
Shares subject to the Option shall vest each calendar month thereafter.

     Termination Period:
     ------------------
You may exercise this Option for sixty (60) days after your employment or
consulting relationship with the Company terminates, or for such longer period
upon your death or disability as provided in the Plan. If your status changes
from Employee to Consultant or Consultant to Employee, this Option Agreement
shall remain in effect. In no case may you exercise this Option after the
Term/Expiration Date as provided above.

II.  AGREEMENT
     ---------

     1.  Grant of Option. Freshwater Software, Inc., a California corporation
         ---------------
(the "Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase the total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the 1997 Stock Plan (the "Plan")
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option Agreement.
          If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").

                                      -3-
<PAGE>

     2.  Exercise of Option.
         ------------------

            (a)  Right to Exercise. This Option shall be exercisable during its
                 -----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement. In the
event of Optionee's death, disability or other termination of the employment or
consulting relationship, this Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement .

            (b)  Method of Exercise. This Option shall be exercisable by written
                 ------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.

            No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.

     3.  Optionee's Representations. In the event the Shares purchasable
         --------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.

     4.  Lock-Up Period. Optionee hereby agrees that if so requested by the
         --------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to the
first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.

     5.  Method of Payment. Payment of the Exercise Price shall be by any of the
         -----------------
following, or a combination thereof, at the election of the Optionee:

            (a)  cash;

            (b)  check;

                                      -4-
<PAGE>

            (c)  surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or

            (d)  delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the Exercise Price.

     6.  Restrictions on Exercise. This Option may not be exercised until such
         ------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board.

     7.  Termination of Relationship. In the event an Optionee's Continuous
         ---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.

     8.  Disability of Optionee. Notwithstanding the provisions of Section 6
         ----------------------
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination; provided, however, that
if such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option on the day three months
and one day following such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

     9.  Death of Optionee. In the event of termination of Optionee's Continuous
         -----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 11 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.

     10. Non-Transferability of Option. This Option may not be transferred in
         -----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.

     11. Term of Option. This Option may be exercised only within the term set
         --------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.

                                      -5-
<PAGE>

     12.    Tax Consequences.  Set forth below is a brief summary as of the date
            ----------------
of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.

            (a)  Exercise of ISO. If this Option qualifies as an ISO, there will
                 ---------------
be no regular federal income tax liability or California income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to the alternative minimum tax in the year of
exercise.

            (b)  Exercise of ISO Following Disability. If the Optionee's
                 ------------------------------------
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Optionee must exercise an ISO within three months of such termination for the
ISO to be qualified as an ISO.

            (c)  Exercise of Nonstatutory Stock Option. There may be a regular
                 -------------------------------------
federal income tax liability income tax liability upon the exercise of a
Nonstatutory Stock Option. The Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If Optionee is an Employee or a former Employee, the Company
will be required to withhold from Optionee's compensation or collect from
Optionee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.

            (d)  Disposition of Shares.  In the case of an NSO, if Shares are
                 ---------------------
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes. In the
case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and are disposed of at least two years after the
Date of Grant, any gain realized on disposition of the Shares will also be
treated as long-term capital gain for federal and income tax purposes. If Shares
purchased under an ISO are disposed of within such one-year period or within two
years after the Date of Grant, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (1) the Fair
Market Value of the Shares on the date of exercise, or (2) the sale price of the
Shares. Any additional gain will be taxed as capital gain, short-term or long-
term depending on the period that the ISO Shares were held.

            (e)  Notice of Disqualifying Disposition of ISO Shares. If the
                 -------------------------------------------------
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.

                                      -6-
<PAGE>

     13.    Entire Agreement; Governing Law.  The Plan is incorporated herein by
            -------------------------------
reference.  The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.  This agreement is governed by California law except for that body of
law pertaining to conflict of laws.

                                    Freshwater Software, Inc.
                                    a California corporation

                                    By: ________________________________________
                                        Donna M. Auguste, President

OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER).  OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.

Optionee acknowledges receipt of a copy of the Plan and represents that he is
familiar with the terms and provisions thereof, and hereby accepts this Option
subject to all of the terms and provisions thereof.  Optionee has reviewed the
Plan and this Option in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option and fully understands all
provisions of the Option.  Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Option.  Optionee further agrees to
notify the Company upon any change in the residence address indicated below.

Dated: __________________________________    ___________________________________
                                             ((Name)), Optionee

                                             ___________________________________
                                             ___________________________________
                                             Residence Address

                                      -7-
<PAGE>

                                   EXHIBIT A
                                   ---------

                                1997 STOCK PLAN

                                EXERCISE NOTICE

Freshwater Software, Inc.
5603 Arapahoe Avenue, Suite 7
Boulder, CO 80303
Attention:  Secretary

     1.   Exercise of Option.  Effective as of today, ((Name)), the undersigned
          ------------------
("Optionee") hereby elects to exercise Optionee's option to purchase
((Total_Shares)) shares of the Common Stock (the "Shares") of Freshwater
Software, Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the
"Plan") and the Incentive Stock Option Agreement dated _____________ (the
"Option Agreement").

     2.   Representations of Optionee.  Optionee acknowledges that Optionee has
          ---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

     3.   Rights as Shareholder.  Until the stock certificate evidencing such
          ---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.

          Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder.  Upon such exercise, Optionee 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, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.

     4.   Company's Right of First Refusal.  Before any Shares held by Optionee
          --------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) 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").

          (a)  Notice of Proposed Transfer.  The Holder of the Shares shall
               ---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) 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 the Shares
at the Offered Price to the Company or its assignee(s).
<PAGE>

          (b)  Exercise of Right of First Refusal.  At any time within thirty
               ----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
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 ("Purchase Price") for the
               --------------
Shares purchased by the Company or its assignee(s) 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 Directors of the Company in good faith.

          (d)  Payment.  Payment of the Purchase Price shall be made, at the
               -------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times 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 sixty (60) days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance 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 and/or its assignees 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 the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the benefit of
the Optionee's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein 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 Company's Right of
               -------------------------------------
First Refusal shall terminate immediately as to all Shares upon the occurrence
of the first to occur of the following events:

               (i)    the acquisition of the Company by another entity by means
of the merger or consolidation of the Company with or into another corporation
in which the shareholders of the Company own less than 50% of the voting
securities of the surviving entity,

               (ii)   the sale of all or substantially all of the assets of the
Company, or

               (iii)  the date upon which a public market exists for the
Company's capital stock (or any other stock issued to purchasers in exchange for
the Shares purchased under this Agreement). For the purpose of this Agreement, a
"Public Market" shall be deemed to exist if (x) such stock is listed on a
national securities exchange (as that term is used in the Securities Exchange
Act of 1934) or (y) such stock is traded on the over-the-counter market and
prices are published daily on business days in a recognized financial journal.

                                      -2-
<PAGE>

     5.   Tax Consultation.  Optionee understands that Optionee may suffer
          ----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.

     6.   Restrictive Legends and Stop-Transfer Orders.
          --------------------------------------------

          (a)  Legends.  Optionee 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 the Company or by state or
federal securities laws:

          THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
          OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
          REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
          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 TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
          ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE 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 TRANSFER
          RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
          THESE SHARES.

          (b)  Stop-Transfer Notices.  Optionee 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.

     7.   Successors and Assigns.  The Company may assign any of its rights
          ----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.

     8.   Interpretation.  Any dispute regarding the interpretation of this
          --------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.

                                      -3-
<PAGE>

     9.   Governing Law; Severability.  This Agreement shall be governed by and
          ---------------------------
construed in accordance with the laws of the State of California excluding that
body of law 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.

     10.  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 mail, 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.

     11.  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.

     12.  Delivery of Payment.  Optionee herewith delivers to the Company the
          -------------------
full Exercise Price for the Shares.

     13.  Entire Agreement.  The Plan and Notice of Grant/Option Agreement are
          ----------------
incorporated herein by reference.  This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.

Submitted by:                       Accepted by:

OPTIONEE:                           Freshwater Software, Inc.

                                    By: ________________________________________
                                        Donna M. Auguste

                                    Title: _____________________________________

_________________________________
     (Signature)

                                    Address:
                                    -------

                                    5603 Arapahoe Avenue, Suite 7
                                    Boulder, CO 80303

                                      -4-
<PAGE>

                                   EXHIBIT B
                                   ---------

                      INVESTMENT REPRESENTATION STATEMENT

OPTIONEE    :  ((Name))
COMPANY     :  Freshwater Software, Inc.
SECURITY    :  Common Stock
AMOUNT      :  $
DATE        :

In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:

(a)  Optionee is aware of the Company's business affairs and financial condition
and has acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. Optionee is acquiring
these Securities for investment for Optionee's own account only and not with a
view to, or for resale in connection with, any "distribution" thereof within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").

(b)  Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities. Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, a legend prohibiting their transfer without the
consent of the Commissioner of Corporations of the State of California and any
other legend required under applicable state securities laws.

(c)  Optionee is familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to the Optionee, the exercise will be exempt
from registration under the Securities Act. In the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any
market stand-off agreement may require) the Securities exempt under Rule 701 may
be resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including: (1) the resale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934); and,
in the case of an affiliate, (2) the availability of certain public information
about the Company, (3) the amount of Securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.

                                      -5-
<PAGE>

In the event that the Company does not qualify under Rule 701 at the time of
grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.

(d)  Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.

                                    Signature of Optionee

                                    ____________________________________________

                                    Date: ______________________________________

                                      -6-

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