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EXHIBIT 10.26    
  

CUTTER & BUCK  

701 North 34th Street, Suite 400

Seattle, WA 98103

1-800-929-9299 

September 25,
2002 

[                        ]

Cutter & Buck, Inc.

Seattle, WA 98103 

Dear
[            ], 

        Because
the Company is experiencing a turbulent situation, the Board of Directors recently authorized a special Retention Incentive Program for a few employees who are key to the
Company's future success. 

        You
are certainly among those key people, and I am pleased to tell you that you have been granted the following: 

Retention Incentive  

        If you are employed by the Company on March 20, 2004, the Company will grant you a bonus of
$                        . This payment will be paid as soon after
March 20, 2004 as practicable; or if the Company consummates a merger, consolidation, sale of all or substantially all of the Company's assets or liquidation, before then, 50% will be due upon
consummation of the transaction, and 50% six months thereafter. 

        The
purpose of this retention incentive payment is to entice you to stay with Cutter & Buck in spite of the turbulence, and to help it get to a new level of professionalism and
profitability. 

Severance Payment  

        Alternatively, if the Company terminates your employment between now and March 20, 2004 for any reason other than for cause, you will be paid a severance
benefit in an amount of $            , contingent upon your execution at that time of a Severance Agreement in substantially the form of  Exhibit A. As you can see, that Agreement generally provides that you will release the Company from any and all claims arising from your
employment or its termination through the date of the Agreement, and will agree not to solicit other employees, not to disparage the Company, to keep Company information confidential, and that the
severance payment is in lieu of any other severance arrangement obligation. The severance benefit will be paid in a single lump sum after the effective date of your release. You will not receive this
benefit if you resign or if you are terminated for "cause" as defined in the attached Exhibit B.

        The
purpose of this severance arrangement is to enable you to concentrate on your work with us, rather than worrying about your job security. 

Stock Option  

        You were granted an option to
purchase                        shares of Company Common Stock as of September 20, 2002 at $3.31 per share, the closing price
per
share of Company Common Stock on that date as reported by Nasdaq. These options will fully vest on the earlier of (i) March 20, 2004, or (ii) upon the consummation of a merger,
consolidation, sale of all or substantially all of the Company's assets, or liquidation by the Company. 

        The
purpose of this grant is to enable you to share in the results of the difficult work the Company is doing to recover and to position itself for the future. Or, if the Company
consummates a 

 

merger, consolidation, sale of substantially all assets or liquidation, to give you an incentive to align your interests directly with those of our shareholders. 

        You
will receive the paperwork on the stock options shortly. Other terms of the Retention Incentive Program are set forth in the attached Exhibit C.  

        I hope this award enables you to do your best work during this period, without worrying about the future. We need you and want you to be
at your best; that's why you were chosen for this Program.  

        Because only a few people are eligible to participate in this Program, it is very important that you do not discuss it. If you have
questions or want discussion, please talk with your member of the leadership team, or with Joni or Fran.  

Change in Control Agreement  

        In addition to the Retention Incentive Program, our Board of Directors has amended your Change in Control Agreements and Confidentiality and
Non-Competition Agreements, generally, (i) to decrease the effective control thresholds that would trigger a change in control from 50% to 25%, (ii) to add the occurrence of
certain other events (i.e. sale of substantially all of the Company's assets and change in a majority of the Company's Board of Directors) that would trigger a change in control, (iii) to
increase the protection period following a change in control from one year to eighteen months, and (iv) to increase your severance payment from 100% of annual base salary to 150% of annual base
salary (and correspondingly, to extend the obligations set forth in your Confidentiality and Noncompetition Agreement). In addition to these changes, we have also amended the definition of
"Disability" and "Cause" to conform with applicable law. Attached as Exhibit D is a copy of your amended Change in Control Agreement (including
your amended Confidentiality and Non-Competition Agreement) marked with all the revisions. Please let Joni or Fran know if you have any questions or concerns. 

        In
any undertaking, success depends on the vision, the will, the efforts, and the integrity of key people. You and your work really matter, and I thank you and appreciate your
contribution. 

CUTTER &
BUCK INC. 

Frances
M. Conley

Chief Executive Officer 

2

 
 
 

EXHIBIT A    
  

 
 

SEVERANCE AGREEMENT (INCLUDING RELEASE)    
  

        The employment of [Employee name] ("[    ]") with Cutter & Buck Inc. ("Cutter &
Buck") has ended. This Severance Agreement ("Agreement") acknowledges [    ]'s election to accept a separation payment from Cutter & Buck in an amount equal to
[$            ], less all lawful deductions. In consideration of the separation payment, [    ] and Cutter & Buck desire to settle
and resolve all possible disputes between them arising out of [    's] employment and to memorialize their agreement regarding certain post-termination
obligations assumed by [            ]. It is, therefore, agreed as follows: 

        1.    Confidentiality of Agreement; Agreement Not Admission.    [            ] agrees to
keep this Agreement confidential and not to disclose any information contained in this Agreement, including the existence or substance of the separation payment, except to
[    ]'s personal attorney and tax or financial advisor. [    ] agrees to inform each individual to whom disclosure is made under
this paragraph of the confidentiality provisions in this Agreement. This Agreement is not an admission by Cutter & Buck that it (or any of its employees) has violated any law or failed to
fulfill any duty to [            ]. 

        2.    Termination of Employment.    Cutter & Buck and [            ] agree that all
aspects of [            ]'s employment ceased effective [Date ]. [            ] represents that he has not knowingly
participated in any wrongdoing, misrepresentation, or breach of any duty to Cutter & Buck or to any shareholder, investor, customer, vendor, employee or governmental regulator. 

        3.    Separation Payment.    In consideration of [            ]'s release and performance
as set forth below, Cutter & Buck agrees to pay [            ] separation pay equal to [            ], subject to all
lawful deductions.
[            ] acknowledges that s/he
received all wages, benefits or other compensation due to him/her from Cutter & Buck and that this separation payment is in excess of any wages, benefits or other compensation due to him/her
from Cutter & Buck. 

        4.    Release.    [            ] accepts Cutter & Buck's undertakings in this
Agreement as full settlement of any and all claims, known or unknown, arising out of or related to [            ]'s employment with Cutter & Buck, including but not
limited to any claims of lost wages, lost benefits, discrimination, retaliation, or wrongful discharge. These claims are examples, not a complete list, of the released claims, as it is the parties'
intent that [            ] release any and all claims, of whatever kind or nature, in exchange for the severance arrangements set forth in Paragraph 3 above.
[            ] realizes this constitutes a full and final settlement of any and all such claims, and except for obligations arising under this Agreement,
[            ] hereby also releases Cutter & Buck and its subsidiaries and affiliates (together with their respective officers, directors, employees, attorneys,
accountants, agents, successors, assigns, and anyone else against whom [            ] could assert a claim based on his/her employment with Cutter & Buck from and
against any liability to [            ] (or to anyone else [            ] has power to bind in this settlement) arising out of or
in connection
with the foregoing claims or matters. 

        5.    ADEA Release.    [            ] acknowledges that s/he is knowingly and voluntarily
waiving and releasing any rights that he may have under the Age Discrimination in Employment Act ("ADEA"). [            ] also acknowledges that the consideration given for
this Agreement is in addition to anything of value to which [            ] was already entitled. [            ] further
acknowledges that s/he has
been advised by this writing, as required by the ADEA, that (a) this Agreement does not apply to any rights or claims that may arise after the execution date of this Agreement;
(b) [            ] should consult with an attorney prior to executing this Agreement; (c) [            ] has
[            ] (    ) days to consider this Agreement (although [            ] may choose to voluntarily
execute this Agreement earlier
and to waive such period of consideration); (d) [            ] has seven (7) days following the execution of this Agreement to revoke the Agreement; and
(e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Agreement is executed 

3

 

by [            ] ("Effective Date"). Nothing in this Agreement prevents or precludes [            ] from challenging or seeking a
determination
in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties or costs for doing so, unless specifically authorized by federal law. 

        6.    Return of Company Property.    [            ] represents that on or before his/her
last day of work, s/he has returned to Cutter & Buck all property and equipment furnished to or prepared by [            ] in the course of or incident to his/her
employment by Cutter & Buck, including, without limitation, all books, manuals, records, reports, notes, contracts, lists, and other documents or materials, or copies thereof (including
computer files), the master key, company credit card, computer equipment, agreements, and all other proprietary information belonging, or relating to the business of Cutter & Buck or any
affiliate. [            ]'s obligation under this Agreement precludes him/her from keeping any copies of Cutter & Buck's property or documents without Cutter &
Buck's express written permission for each such item of which s/he wishes to retain a copy. 

        7.    Other Performances Required of
[            ].    [            ] warrants and represents that s/he has not previously and will not in the
future disclose or use
confidential information related to Cutter & Buck's customers, personnel, designs, pricing, marketing plans, budgets, strategies, financial or other proprietary information that is
not otherwise available to the general public, including but not limited to information covered under the Uniform Trade Secrets Act, RCW 19.108 et seq., and that s/he will at all times continue to
keep all such information confidential. [            ] agrees to make himself reasonably available for, and cooperate with, Cutter & Buck in connection with
transitioning his/her prior job duties and providing information in connection with his prior job duties. [            ] further agrees that he will not disparage
Cutter & Buck, its officers, board members, directors, employees, customers or agents in any way now or in the future. [            ] further agrees that for a period
of twelve (12) months following the Effective Date of this Agreement, he will not, directly or indirectly, for himself or any other person or entity: (i) induce or attempt to induce any
employee, consultant, independent sales representative or independent contractor of Cutter & Buck to leave the employ of or terminate his, her or its contract with Cutter & Buck;
(ii) in any way interfere with the relationship between Cutter & Buck and any employee, consultant, independent sales representative or independent contractor of Cutter & Buck;
(iii) call on, reveal the name of, or otherwise solicit, accept business from or attempt to entice away from Cutter & Buck any actual or identified potential customer of Cutter &
Buck, nor will s/he assist others in doing any prohibited act identified above. 

        8.    Agreement to Repay.    These obligations of confidentiality, transition cooperation, nondisparagement, and
nonsolicitation are material parts of the consideration and inducement to Cutter & Buck to provide the Separation Payment set forth herein. [            ] understands
and acknowledges that the provisions in this Paragraph 8 are necessary and reasonable to protect Cutter & Buck in the conduct of its business and that compliance with this Paragraph will
not prevent him/her from pursuing his/her livelihood. However, should any court find that any provision of this Paragraph is unreasonable, invalid or unenforceable, whether in period of time or
otherwise, then in that event the parties hereby agree that this Paragraph shall be interpreted and enforced to the maximum extent which the court deems reasonable. If
[    ] breaches any provision of this Agreement or if any of [    ]'s representations in the Agreement is false,
[            ] further understands and agrees to repay the Separation Payment and to pay Cutter & Buck's reasonable attorney fees, costs and damages that result from
[    ]'s breach. 

        9.    General.    This Agreement (i) contains the entire understanding of the parties with respect to the
subject matter covered; (ii) supersedes all prior or contemporaneous understandings; (iii) may only be amended in a written instrument signed by both parties; (iv) is binding on
and inures to the benefit of the heirs, successors and assigns of each party; and (v) shall be governed by the laws of the State of Washington, except to the extent superseded by federal law,
including the Employee Retirement 

4

 

Income Security Act of 1974. Each party warrants that he, she or it is the true party in interest, and fully authorized to execute this Agreement. 

        10.    Knowing and Voluntary Waiver.    [            ] acknowledges that s/he has been
advised to consult with an attorney, and has had the opportunity to do so, before signing this Agreement, which [            ] has been given a reasonable period of time to
consider. 

        11.    Payment of Separation Payment.    The separation payment promised in paragraph 3 will be paid to
[            ] in a single check on the eighth day after [            ]'s execution of this Agreement. 

        PLEASE
READ CAREFULLY. THIS IS A VOLUNTARY AGREEMENT THAT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. 

	Date:	 	 	 	[	 	]	 
	 	 	
	 	 	 	 	 
	

Date:	
 	

 	
 	

Cutter & Buck Inc.	

 
	 	 	
	 	 	 	 	 
	

 	
 	

 	
 	

By:	

 	

 	

 
	 	 	 	 	 	

	 	 	 	 	Frances M. Conley

Title: Chief Executive Officer

5

 
 
 

EXHIBIT B    
  

 
 

DEFINITION OF "CAUSE"    
  

        Each of the following shall constitute "Cause" for termination, resulting in ineligibility for any severance benefit: 

        (1)  any
violation by a participant in the program of any material obligation under the Severance Agreement; 

        (2)  conviction
for commitment of a felony, or any crime involving dishonesty or moral turpitude; 

        (3)  any
violation of law which has a material adverse effect on the Company; 

        (4)  habitual
abuse of alcohol or a controlled substance under circumstances that adversely affect the participant's performance of his or her duties in any way; 

        (5)  theft
or embezzlement from the Company; 

        (6)  repeated
unexcused absence from work; 

        (7)  Disability
of participant, which shall mean any physical, mental or other health condition which renders the participant unable to perform the essential functions of his
or her position with or without reasonable accommodation; 

        (8)  Death
of participant; and 

        (9)  repeated
failure or refusal by participant to carry out the reasonable directives, orders or resolutions of the Company's Board of Directors or any supervisor, manager,
director, or officer to whom he or she reports. 

6

 
 
 

EXHIBIT C    
  

 
 

GENERAL TERMS OF RETENTION INCENTIVE PROGRAM    
  

        1.    The
Compensation Committee of the Board of Directors of the Company (the "Committee") shall administer the Retention Incentive Program and adopt rules and regulations to
implement the Retention Incentive Program. Decisions of the Committee shall be final and binding on all parties who have an interest in the Retention Incentive Program. The Committee may at any time
amend the Retention Incentive Program, provided that such action shall not adversely affect the participants in the Retention Incentive Program. 

        2.    No
eligible employee shall earn any portion of a cash payment under the Retention Incentive Program unless and until the specific date set forth in this Program. If an
eligible employee ceases to be employed by either the Company or one or more of its subsidiaries for any reason on or before the date when the cash payment is due, then he or she shall not earn or
receive any cash payment under the Retention Incentive Program. 

        3.    No
cash payment under the Retention Incentive Program shall actually be funded, set aside or otherwise segregated prior to payment. The obligation to pay the cash payment
under the Retention Incentive Program shall at all times be an unfunded and unsecured obligation of the Company. Retention Incentive Program participants shall have the status of general creditors and
shall look solely to the general assets of the Company for the payment of their cash payments. 

        4.    No
Retention Incentive Program participant shall have the right to alienate, pledge or encumber his or her interest in the Retention Incentive Program, and such interest
shall not (to the extent permitted by law) be subject in any way to the claims of the employee's creditors or to attachment, execution or other process of law. 

        5.    No
action of the Company in establishing the Retention Incentive Program, no action taken under the Retention Incentive Program by the Committee and no provision of the
Retention Incentive Program itself shall be construed to grant any person the right to remain in the employ of the Company or its subsidiaries for any period of specific duration. Rather, each
employee will be employed "at will," which means that either such employee or the Company may terminate the employment relationship at any time and for any reason, with or without cause. 

        6.    This
Retention Incentive Program document is the full and complete agreement between the eligible employees and the Company on the terms described herein. 

7

  

 
 

EXHIBIT D    
  

 
 

CHANGE IN CONTROL AGREEMENT
  FOR

                                         
       
  (As amended September 18, 2002)    
  

        This Agreement is entered into this 9th day of September, 2002, by and between Cutter & Buck Inc. (the "Company")
and                        ("Executive").
Executive is an at-will employee of the Company. The parties wish to provide Executive with severance benefits if Executive's employment is terminated in connection with a change in
control of the Company. The Company is willing to provide such benefits if Executive enters into the Company's form of Confidentiality and Non-Competition Agreement for executive officers. 

        NOW,
THEREFORE, in consideration of the foregoing recitals and the covenants and conditions contained herein, the parties hereby agree as follows: 

        1.    CHANGE IN CONTROL.    

        (a)  If,
within the period commencing 90 days prior to the date of occurrence (the "Event Date") of a Control Event and ending on the date eighteen (18) months
after the Event Date (the "Window"), the Company terminates Executive's employment (other than for Cause) or Executive resigns for Good Reason, the Company shall pay to Executive the Severance Payment
in immediately available funds. If the termination occurs prior to the Control Event, the Severance Payment is due on the twentieth business day following the Event Date; if the termination occurs on
or subsequent to the Event Date, the Severance Payment is due on the twentieth business day following the date of termination (the "Termination Date"). 

        (b)  The
Severance Payment shall be equal to [150%] of Executive's annual base salary as of the Termination Date. If the Termination Date occurs
during the Window but prior to the Control Event, the Severance Payment shall be reduced by the sum of any severance payments previously received by Executive from the Company (but not below zero). 

        (c)  Each
of the following shall constitute a "Control Event": 

        (1)  the
acquisition of Common Stock of the Company (the "Common Stock") by any "Person" (as such term is defined in the Rights Agreement dated as of November 20, 1998
between the Company and Mellon Investor Services LLC (the "Rights Plan"), together with all Affiliates and Associates (as such terms are defined in the Rights Plan) of such Person, such that such
Person becomes, after the date of this Agreement, the Beneficial Owner (as defined in the Rights Plan) of twenty-five percent (25%) or more of the shares of Common Stock then outstanding,
but shall not include any such acquisition by (i) the Company, (ii) any subsidiary of the Company, (iii) any employee or director of the Company as of the date hereof, or
(iv) any employee benefit plan of the Company or of any subsidiary of the Company or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any
such employee benefit plan; or 

        (2)  the
consummation of any merger, consolidation, reorganization or other transaction providing for the conversion or exchange of twenty-five percent (25%) or
more of the outstanding shares of Common Stock into securities of any Person, or cash, or property, or a combination of any of the foregoing; or 

        (3)  the
consummation of any sale or other disposition of all or substantially all of the assets of the Company; or 

8

 

        (4)  individuals
who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the
Company's Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for the election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors. 

        (d)  Each
of the following shall constitute "Good Reason", provided that it occurs during the Window: 

        (1)  the
material diminution of Executive's position, duties, responsibilities or status with the Company or its successor, as compared with the position, duties,
responsibilities or status of Executive with the Company immediately prior to the Event Date, except in connection with the termination of Executive for Cause; 

        (2)  the
Company's assignment of Executive on a substantially full-time basis to work at a location where the distance between the new location and Executive's
principal residence is at least 20 miles greater than the distance between the former location and such residence; provided, however, that this paragraph shall not apply to travel in the furtherance
of the Company's business to an extent substantially consistent with Executive's business travel obligations as of the date hereof; 

        (3)  the
Company's failure to obtain an assumption of the obligations of the Company to perform this Agreement by any successor to the Company; 

        (4)  any
reduction in Executive's base salary, or a material reduction in benefits payable to Executive or failure of the Company to pay Executive any earned salary, bonus or
benefits except with the prior written consent of Executive; 

        (5)  the
exclusion or limitation of Executive from participating in some form of variable compensation plan which provides the Executive the opportunity to achieve a level of
total compensation (base salary plus variable compensation) consistent with what the Executive had the opportunity to earn at the Event Date; or 

        (6)  any
demand by any director or officer of the Company that Executive take any action or refrain from taking any action where such action or inaction, as the case may be,
would violate any law, rule, regulation or other governmental pronouncement, court order, decree or judgment, or breach any agreement or fiduciary duty. 

        (e)  Each
of the following shall constitute "Cause": 

        (1)  any
violation by Executive of any material obligation under this Agreement or the attached Confidentiality and Non-Disclosure Agreement; 

        (2)  conviction
for commitment of a felony; 

        (3)  any
violation of law which has a material adverse effect on the Company; 

        (4)  habitual
abuse of alcohol or a controlled substance under circumstances that adversely affect the Executive's performance of his or her duties in any way; 

        (5)  theft
or embezzlement from the Company; 

        (6)  repeated
unexcused absence from work; 

9

 

        (7)  Disability
of Executive (as defined below); and 

        (8)  repeated
failure or refusal by Executive to carry out the reasonable directives, orders or resolutions of the Company's Board of Directors or any officer to whom he or
she reports. 

        (f)    "Disability"
shall mean any physical, mental or other health condition which renders the Executive unable to perform the essential functions of his or her position with
or without reasonable accommodation. Any disagreement as to whether Executive is disabled shall be resolved by a physician selected by the Company after an examination of Executive. Executive hereby
consents to such physical examination and to the examination of all medical records of Executive necessary, in the judgment of the examining physician, to make the determination of disability. 

        (g)  Notwithstanding
any other provision of this Agreement to the contrary, in the event that any severance or other payment, benefit or right payable or accruing to
Executive hereunder or under any of the Company's benefit plans (the "Benefit Plans") would constitute a "parachute payment" as defined in Section 280G(b)(2) of the Internal Revenue Code of
1986, as amended (the "Code"), then the total amount of severance and other payments or benefits payable to Executive hereunder and under the Benefit Plans which is deemed to constitute a "parachute
payment" shall not exceed and shall, if necessary, be reduced to an amount (the "Revised Severance Payment") equal to 2.99 times Executive's "base amount" as defined in Code Section 280G(b)(3).
In the event of a disagreement between the Company and Executive as to whether the provisions of Code Section 280G are applicable or the amount of the Revised Severance Payment, such
determination shall be made by the Company's independent public accountants or, if such firm is unable or unwilling to render such a determination, then by a law firm mutually acceptable to Executive
and the Company. All costs relating to such determination shall be borne by the Company. The Company and the Executive shall cooperate in good faith to make the determination required by this
Section 1(g) by mutual agreement not later than the later of: (i) the fifth day preceding the date that the Severance Payment is or would be due or
(ii) the earlier of (x) the tenth day following the expiration of any period of accelerated vesting of options to purchase the Company's Common Stock provided by Section 5(n) of
the Benefit Plan or (y) the tenth day following the date of exercise by Executive of his or her last remaining option which was exercisable solely due to the application of Section 5(n)
of the Benefit Plan. Pending the final calculation of the Severance Payment or Revised Severance Payment, the Company shall pay the amounts described under subsection (b) above at the time and
in the manner provided herein; provided that, pending such determination, such payments shall be reduced by such amounts as the Company estimates in good faith to be necessary to satisfy its tax
(including excise tax) withholding obligations and effect the reduction in the amount of the Severance Payment, as contemplated by this subsection 1(g). The aggregate amount of any compensation
actually paid or provided to Executive under the terms of this Agreement and in excess of the Revised Severance Payment shall be deemed, to the extent of such excess, a loan to Executive payable upon
demand and bearing interest at the rate of 8% per annum. 

        2.    CONFIDENTIALLY AND NON-COMPETITION AGREEMENT.    In consideration of the obligations undertaken by
the Company pursuant to this Agreement, contemporaneously with the execution of this Agreement, Executive and the Company shall enter into the form of Confidentiality and Non-Competition
Agreement attached hereto as EXHIBIT A and each agreement shall be effective only if both agreements have been executed. 

        3.    TERM OF AGREEMENT.    The Company's obligations under Section 1 of this Agreement shall expire with
respect to Control Events occurring on or after the second anniversary of the date of this Agreement ("Initial Expiration Date"), provided however, that such obligations shall automatically extend for
one (1) year on each anniversary of the Initial Expiration Date unless terminated by the Company effective as of the last day of the then current one (1) year extension by written notice
to 

10

 

that effect delivered to the Executive not fewer than ninety (90) days prior to such anniversary of the Expiration Date. 

        4.    AT WILL EMPLOYMENT.    Unless and to the extent otherwise agreed by the Company and Executive in a separate
written employment agreement, Executive's employment shall be "at will", with either party permitted to terminate the employment at any time, with or without cause. No term of any employment agreement
between the Company and Executive shall be construed to conflict with, lessen or expand the obligations of the parties under this Agreement. 

        5.    NOTICES.    All notices and other communications called for or required by this Agreement shall be in writing
and shall be addressed to the parties at their respective addresses stated below or to such other address as a party may subsequently specify by written notice and shall be deemed to have been
received (i) upon delivery in person, (ii) five days after mailing it by U.S. certified or registered mail, return receipt requested and postage prepaid, or (iii) two days after
depositing it with a commercial overnight carrier which provides written verification of delivery: 

	To the Company:	 	701 N. 34th Street, Suite 400

Seattle, Washington 98103

Attention: Chief Executive Officer
	

To Executive:	
 	

    
    
    

        6.    WITHHOLDING.    Except as described in subsection 1(g) of this Agreement, all payments
due to and all benefits to be provided to Executive hereunder shall be subject to reduction for any applicable withholding taxes, including excise taxes. 

        7.    ASSIGNMENT.    Executive's rights and duties hereunder are personal to Executive and are not assignable to
others, but Executive's obligations hereunder will bind his heirs, successors, and assigns. The Company may assign its rights under this Agreement in connection with any merger or consolidation of the
Company or any sale of all or any portion of the Company's assets (including, without limitation, any division or product line), provided that any such successor or assignee expressly assumes in
writing the Company's obligations hereunder. 

        8.    NO DUTY TO MITIGATE.    Executive shall not be required to mitigate the amount of any payment made or benefit
provided hereunder. The Company may offset any payment due hereunder by the amount of damages to the Company resulting from any breach of this Agreement by Executive. 

        9.    GENERAL.    This Agreement constitutes the exclusive agreement of the parties with respect to the subject matter
hereof and supersedes all prior agreements or understandings of the parties. No waiver of or forbearance to enforce any right or provision hereof shall be binding unless in writing and signed by the
party to be bound, and no such waiver or forbearance in any instance shall apply to any other instance or to any other right or provision. This Agreement will be governed by the local laws of the
State of Washington without regard to its conflicts of laws rules to the contrary. The parties hereby consent to the exclusive jurisdiction and venue of the state and federal courts sitting in King
County, Washington for all matters and actions arising under this Agreement. The prevailing party shall be entitled to reasonable attorneys' fees and costs incurred in connection with such litigation.
No term hereof shall be construed to limit or supersede any other right or remedy of the Company under applicable law with respect to the protection of trade secrets or otherwise. If any provision of
this Agreement is held to be invalid or unenforceable to any extent in any context, it shall nevertheless be enforced to the fullest extent allowed by law in that and other contexts, and the validity
and force of the remainder of this Agreement shall not be affected thereby. 

11

 

        IN
WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the date first above written. 

	CUTTER & BUCK INC.	 	EXECUTIVE:
	

By:	

    
	
 	

Signature	

    

	 	Frances M. Conley	 	Printed Name:	 
	Its:	Chief Executive Officer	 	 	 

12

 
 
 

EXHIBIT A    
  

TO CHANGE IN CONTROL AGREEMENT  

 
 

CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
  FOR

                                         
           

        This
Agreement is entered into this        day of                        , 2002, by and between
Cutter & Buck Inc. (the "Company") and                        ("Executive").
Executive is an at-will employee of the Company. In consideration of entering into an agreement to provide Executive with severance benefits if Executive's employment is terminated in
connection with a change in control in the Company, Executive promises, on the terms set forth herein,
at all times to protect the Company's proprietary information and to not compete with the Company following termination of Executive's employment in connection with a change in control. 

        NOW,
THEREFORE, in consideration of the foregoing recitals and the covenants and conditions contained herein, the parties hereby agree as follows: 

        1.    Non-competition and Non-solicitation.    

        (a)  Executive
agrees that during the term of Executive's employment with the Company and, subject to receipt of the Severance Payment (as defined below) by the Executive,
until eighteen (18) months following the Termination Date (as defined below), Executive will not in any capacity directly or indirectly engage in, assist others to engage in or own a material
interest in any business or activity that is, or is preparing to be, in competition with the Company with respect to any product or service sold or service provided by the Company up to the time of
termination of employment in any geographical area in which at the time of termination of employment such product or service is sold or is actively engaged in. For the purposes of this Agreement, the
terms "Severance Payment" and "Termination Date" shall have the meanings assigned to them in the Change in Control Agreement (as defined in Section 6 below). 

        (b)  Executive
further agrees that during the period stated above, he/she will not directly or indirectly call on, reveal the name of, or otherwise solicit, accept business
from or attempt to entice away from the Company any actual or identified potential customer of the Company, nor will he/she assist others in doing so. Executive further agrees that he/she will not,
during the period stated above, encourage or solicit any other employee or consultant of the Company to leave such employment for any reason, nor will he/she assist others to do so. 

        (c)  Executive
acknowledges that the covenants in this Section 1 are necessary and reasonable to protect the Company in the conduct of its business and that compliance
with such covenants will not prevent him/her from pursuing his/her livelihood. However, should any court find that any provision of such covenants is unreasonable, invalid or unenforceable, whether in
period of time, geographical area, or otherwise, then in that event the parties hereby agree that such covenants shall be interpreted and enforced to the maximum extent which the court deems
reasonable. 

        2.    Trade Secrets and Confidential Information.    

        (a)  Executive
acknowledges that the Company's business and future success depend upon the preservation of the trade secrets and other confidential information of the Company
and its suppliers and customers (the "Secrets"). The Secrets may include, without limitation, existing and to-be-developed or acquired product designs, new product plans or
ideas, market surveys, the identities of past, present
or potential customers, business and financial information, pricing methods or data, terms of contracts with present or past customers, proposals or bids, marketing 

13

 

plans, personnel information, procedural and technical manuals and practices, servicing routines, and parts and supplier lists proprietary to the Company or its customers or suppliers, and any other
sorts of items or information of the Company or its customers or suppliers which are not generally known to the public at large. Executive agrees to protect and to preserve as confidential during and
after the term of his employment all of the Secrets at any time known to Executive or in his/her possession or control (whether wholly or partially developed by Executive or provided to Executive, and
whether embodied in a tangible medium or merely remembered). 

        (b)  Executive
shall mark all items containing any of the Secrets with prominent confidentiality notices acceptable to the Company. Executive shall neither use nor allow any
other person to use any of the Secrets in any way, except for the benefit of the Company and as directed by Executive's supervisor. All material containing or disclosing any portion of the Secrets
shall be and remain the property of the Company, shall not be removed from the Company's premises without specific consent from an officer of the Company, and shall be returned to the Company upon the
termination of Executive's employment or the earlier request of Executive's supervisor. At such time, Executive shall also assemble all materials in his possession or control which contain any of the
Secrets, and promptly deliver such items to the Company. 

        3.    Intellectual Properties.    

        (a)  All
ownership, copyright, patent, trade secrecy and other rights in all works, designs, inventions, ideas, manuals, improvements, discoveries, processes, customer lists
or other properties (the "Intellectual Properties") made or conceived by Executive during the term of his/her employment by the Company shall be the rights and property solely of the Company, whether
developed independently by Executive or jointly with others, and whether or not developed or conceived during regular working hours or at the Company's facilities, and whether or not the Company uses,
registers, or markets the same. 

        (b)  In
accordance with the Company's policy and RCW 49.44.140 and RCW 49.44.150, this Agreement (other than Subsection 3(c)) does not apply to, and Executive has no
obligation to assign to the Company, any invention for which no Company trade secrets and no equipment, supplies, services, or facilities of the Company were used and which was developed entirely on
Executive's own time, unless: (i) the invention relates directly to the business of the Company, (ii) the invention relates to actual or demonstrably anticipated research or development
work of the Company, or (iii) the invention results from any work performed by Executive for the Company. 

        (c)  If
and to the extent that Executive makes use, in the course of his employment, of any items or Intellectual Properties previously developed by Executive or developed by
Executive outside of the scope of this Agreement, Executive hereby grants the Company a nonexclusive, royalty-free, perpetual,
irrevocable, worldwide license (with right to sublicense) to make, use, sell, copy, distribute, modify, and otherwise to practice and exploit any and all such items and Intellectual Properties. 

        (d)  Executive
will assist the Company as reasonably requested during and after the term of his employment to further evidence and perfect, and to enforce, the Company's
rights in and ownership of the Intellectual Properties covered hereby, including without limitation, the execution of additional instruments of conveyance and assisting the Company with applications
for patents or copyright or other registrations. 

        4.    Authority and Non-Infringement.    Executive warrants that any and all items, technology, and
Intellectual Properties of any nature developed or provided by Executive under this Agreement and in any way for or related to the Company will be original to Executive and will not, as provided to
the Company or when used and exploited by the Company and its contractors and customers and its and 

14

 

their successors and assigns, infringe in any respect on the rights or property of Executive or any third party. Executive will not, without the prior written approval of the Company, use any
equipment, supplies, facilities, or proprietary information of any other party. Executive warrants that Executive is fully authorized to enter into employment with the Company and to perform under
this Agreement, without conflicting with any of Executive's other commitments, agreements, understandings or duties, whether to prior employers or otherwise. Executive will indemnify the Company for
all losses, claims, and expenses (including reasonable attorneys' fees) arising from any breach of by him/her of this Agreement. 

        5.    Remedies.    The harm to the Company from any breach of Executive's obligations under this Agreement may be
wholly or partially irreparable, and Executive agrees that such obligations may be enforced by injunctive relief and other appropriate remedies, as well as by damages. If any bond from the Company is
required in connection with such enforcement, the parties agree that a reasonable value of such bond shall be $5,000. Any amounts received by Executive or by any other through Executive in breach of
this Agreement shall be held in constructive trust for the benefit of the Company. 

        6.    Executive Agreement.    In consideration of the obligations undertaken by Executive pursuant to this Agreement,
contemporaneously with the execution of this Agreement, Executive and the Company are entering into a Change in Control Agreement (the "Change in Control Agreement"), and each agreement shall be
effective only if both agreements have been executed. 

        7.    At Will Employment.    Unless and to the extent otherwise agreed by the Company and Executive in a separate
written employment agreement, Executive's employment shall be "at will", with either party permitted to terminate the employment at any time, with or without cause. No term of any employment agreement
between the Company and Executive shall be construed to conflict with or lessen Executive's obligations under this Agreement. 

        8.    Notices.    All notices and other communications called for or required by this Agreement shall be in writing
and shall be addressed to the parties at their respective addresses stated below or to such other address as a party may subsequently specify by written notice and shall be deemed to have been
received (i) upon delivery in person, (ii) five days after mailing it by U.S. certified or registered mail, return receipt requested and postage prepaid, or (iii) two days after
depositing it with a commercial overnight carrier which provides written verification of delivery: 

	To the Company:	 	701 N. 34th Street, Suite 400

Seattle, Washington 98103

Attention: Chief Executive Officer
	

To Executive:	
 	

    
    
    

        9.    Assignment.    Executive's rights and duties hereunder are personal to Executive and are
not assignable to others, but Executive's obligations hereunder will bind his/her heirs, successors, and assigns. The Company may assign its rights under this Agreement in connection with any merger
or consolidation of the Company or any sale of all or any portion of the Company's assets (including, without limitation, any division or product line), provided that any such successor or assignee
expressly assumes in writing the Company's obligations under the Executive Agreement. 

        10.    General.    This Agreement constitutes the exclusive agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings of the parties. No waiver of or forbearance to enforce any right or provision hereof shall be binding unless in writing and signed
by the party to be bound, and no such waiver or forbearance in any instance shall apply to any other instance or to any other right or provision. This Agreement will be governed by the local laws of
the State of Washington without regard to its conflicts of laws rules to the contrary. The parties hereby consent to the exclusive jurisdiction and venue of the state and federal courts residing in
King County, 

15

 

Washington for all matters and actions arising under this Agreement. The prevailing party shall be entitled to reasonable attorneys' fees and costs incurred in connection with such litigation. No
term hereof shall be construed to limit or supersede any other right or remedy of the Company under applicable law with respect to the protection of trade secrets or otherwise. If any provision of
this Agreement is held to be invalid or unenforceable to any extent in any context, it shall nevertheless be enforced to the fullest extent allowed by law in that and other contexts, and the validity
and force of the remainder of this Agreement shall not be affected thereby. 

        IN
WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the date first above written. 

	CUTTER & BUCK INC.	 	EXECUTIVE:
	

By:	

    
	
 	

Signature	

    

	 	Frances M. Conley	 	Printed Name	 
	Its:	Chief Executive Officer	 	 	 

16

QuickLinks

EXHIBIT 10.26

EXHIBIT A

SEVERANCE AGREEMENT (INCLUDING RELEASE)

EXHIBIT B

DEFINITION OF "CAUSE"

EXHIBIT C

GENERAL TERMS OF RETENTION INCENTIVE PROGRAM

EXHIBIT D

CHANGE IN CONTROL AGREEMENT FOR (As amended September 18, 2002)

EXHIBIT A

CONFIDENTIALITY AND NON-COMPETITION AGREEMENT FORQuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.4    
  

 
 

SI INTERNATIONAL TELECOM CORPORATION    
    
    2001 SERVICE AWARD STOCK OPTION PLAN    
  

 
 

ARTICLE 1    
    
    Purpose of Plan    
  

        The 2001 Service Award Stock Option Plan (the "Plan") of SI International Telecom Corporation (the
"Company"), for employees of the Company and its subsidiaries (the "Company Group"), is intended to advance the best interests of the Company and its stockholders by
allowing employees to acquire an ownership interest in the Company and thereby encourage them to remain in the employ of the Company Group and to contribute to its success. 

 
 

ARTICLE 2    
    
    Definitions    
  

        For purposes of the Plan, except where the context clearly indicates otherwise, the following terms shall have the meanings set forth below: 

        "Affiliate"
shall mean a majority-owned subsidiary, at any tier, of a controlling parent of the Company, other than the Company and its subsidiaries. 

        "Applicable
Anniversary Date" shall mean the seventh anniversary of the date of grant of an option. 

        "Board"
shall mean the Board of Directors of the Company. 

        "Business
Unit Sale" shall mean the sale to an unaffiliated party of a controlling interest in a subsidiary or Affiliate of the Company, or the sale of the
assets and business of any division or business unit of the Company, a subsidiary, or an Affiliate of the Company to an unaffiliated party. 

        "Change
in Control" shall mean a transaction or series of transactions (including by way of merger, consolidation, or sale of stock, but not including a
Public Offering) the result of which is that the holders of the Issuer's outstanding voting stock immediately prior to such transaction(s) are after giving effect to such transaction(s) no longer, in
the aggregate, the 'beneficial owners' (as such term is defined in Rule 13d-3 and Rule 13d-5 promulgated under the Securities Exchange Act), directly or
indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding voting stock of the Issuer. 

        "Code"
shall mean the Internal Revenue Code of 1986, as amended, and any successor statute. 

        "Committee"
shall mean the Compensation Committee of the Board; provided that the Board may in its discretion, at any time and
from time to time, resolve to administer the Plan or to delegate the administration of the Plan to another committee of the Board as contemplated by Section 3.1, in
which case the term "Committee" shall mean the Board or such other committee, as the case may be, for all purposes herein. 

        "Common
Stock" shall mean the Company's Common Stock, par value $.01 per share. 

        "Company"
or "Company Group" shall mean SI International Telecom Corporation, a Delaware corporation, and (except to the extent
the context requires otherwise) any "subsidiary corporation" of SI International Telecom Corporation, as such term is defined in Section 424(f) of the Code. 

        "Fair
Market Value" of the Common Stock shall be the average, over a period of 21 days consisting of the day as of which Fair Market Value is being
determined and the 20 consecutive business days prior to such day, of the average of the closing prices of the sales of such Common Stock 

 

on all securities exchanges on which such Common Stock may at that time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the Nasdaq System as of
4:00 P.M., New York time, or, if on any day the Common Stock is not quoted in the Nasdaq System, the average of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau Incorporated or any similar successor organization. If at any time the Common Stock is not listed on any
securities exchange or quoted in the Nasdaq System or the over-the-counter market, the Fair Market Value shall be the fair value of the Common Stock determined in good faith by
the Board, giving due consideration to factors it deems appropriate, including recent financial and operating information of the Company and its subsidiaries, their potential value and future
prospects, market and industry factors, as well as the most recent independent valuation of the common stock of the Company. The Board shall cause an independent valuation of the common stock to be
conducted and reported to the Board at least annually. 

        "Incentive
Stock Option" means an option conforming to the requirements of Section 422 of the Code and any successor thereto. 

        "Nonqualified
Stock Option" means any stock option other than an Incentive Stock Option. 

        "Option"
means an Incentive Stock Option or a Nonqualified Stock Option issued pursuant to the Plan. 

        "Participant"
shall mean any individual who has completed more than 90 days of service as a full or part-time employee of one or more
members of the Company Group. 

        "Person"
means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 

        "Public
Offering" means an initial underwritten public offering of the common stock of the Company. 

        "Qualifying
Termination" means a termination of employment due to permanent disability, retirement, death, or as the result of a Business Unit Sale 

        "Triggering
Event" means the earliest to occur of: (a) 180 days following the effective date of a Public Offering; (b) the Applicable
Anniversary Date of an Option; and (c) the effective date of a Change in Control of the Company 

 
 

ARTICLE 3    
    
    Administration of the Plan    
  

        3.1    Administrator.    The
Plan shall be administered by the Committee. The Committee may, to the extent permissible by law, delegate
any or all of its authority and responsibilities hereunder to an "Executive Committee" or other committee appointed by the Board, or to such other persons as the Committee or the Board shall deem
appropriate. The Committee or the Board may revoke any such delegation at any time in its sole discretion. 

        3.2    Powers
of the Committee.    Subject to the limitations of the Plan, the Committee shall have the sole and complete authority in
its discretion: (i) to select Participants, (ii) to grant Options to Participants in such forms and amounts, and with such terms, as it shall determine, (iii) to impose such
limitations, restrictions and conditions upon such Options as it shall deem appropriate, (iv) to interpret the Plan and adopt, amend and rescind administrative guidelines and other rules and
regulations relating to the Plan, (v) to correct any defect or omission or reconcile any inconsistency in the Plan or in any Option granted hereunder and (vi) make all other
determinations and take all other actions 

2

 

necessary or advisable for the implementation and administration of the Plan. The Committee's determinations on matters within its authority shall be conclusive and binding upon the Participants, the
Company and all other Persons. 

        3.3    Administrative
Expenses; Indemnification.    All expenses associated with the Committee's administration of the Plan shall be
borne by the Company. The members of the Committee shall be indemnified to the fullest extent of the law in accordance with the provisions set forth in the
Company's charter and by-laws for all costs and expenses incurred by them in connection with any action, suit or proceeding to which they or any of them may become party by reason of any
action taken or failure to act under or in connection with the Plan or any Option granted thereunder. 

 
 

ARTICLE 4    
    
    Stock Subject to the Plan    
  

        4.1    Limitation
on Aggregate Shares.    Subject to Section 4.2, the number of shares of Common
Stock with respect to which Options may be granted under the Plan and which may be issued upon the exercise thereof shall not exceed, in the aggregate,  100,000 shares; provided that the type and
the aggregate number of shares which may be subject to Options shall be subject
to adjustment in accordance with the provisions of Section 7.1 below. 

        4.2    Reversion
of Unused Shares to the Plan.    In the event any Options expire unexercised or are canceled, terminated or forfeited in
any manner without the issuance of Common Stock thereunder, the shares of Common Stock which were subject to such Options shall be returned to the Plan and shall again be available for future
distribution hereunder. Shares of Common Stock actually issued under the Plan upon exercise of any Options shall not be returned to the Plan and shall not become available for future distribution
hereunder; provided that if shares of Common Stock issued upon exercise of Options are repurchased by the Company at the original exercise price paid for such shares, such
shares shall revert to the Plan and shall be available for future issuance hereunder. 

        4.3    Source
of Shares for Plan.    The 100,000 shares of Common Stock available under
the Plan may be either authorized and unissued shares, treasury shares or a combination thereof, as the Committee shall determine. 

 
 

ARTICLE 5    
    
    Award of Options    
  

        5.1    Options.    The
Committee may grant Options to Participants in accordance with this Article V. Participation in the Plan
shall be limited to employees of the Company Group selected by the Committee who qualify as Participants. By accepting any award under the Plan, each Participant and each person claiming under or
through him or her shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board or the Committee.
Incentive Stock Options or Nonqualified Stock Options may be granted to such persons and for such number of shares of Common Stock as the Committee shall determine (such individuals to whom grants are
made being sometimes herein called "optionees" or "grantees, " as the case may be). Determinations with respect to grants under the plan shall be made by the Committee under the Plan based upon
milestones established by the Committee relating to Participant's time of service as an employee of one or more members of the Company Group. The Committee may amend applicable requirements with
respect to time of service of Participants from time to time, and may discontinue or suspend the award of Options pursuant to the Plan at any time. The Committee is specifically authorized to take
into account time of service of Participants prior to adoption or commencement of this Plan, and to take into account time of service of Participants with an employer prior to the time that such
employer becomes a member of the Company Group. A grant 

3

 

of any type made hereunder in any one year to an eligible participant shall neither guarantee nor preclude a further grant of that or any other type to such participant in that year or subsequent
years. 

        5.2    Nature
of Options.    The Committee may from time to time grant to eligible participants Incentive Stock Options or Nonqualified
Stock Options; provided that the Committee may grant Incentive Stock Options only to eligible employees of the Company or its subsidiaries (as defined for this purpose in Section 424(f) of the
Code). The Options granted shall take such form as the Committee shall determine, subject to the terms and conditions set forth herein. It is the Company's intent that Nonqualified Stock Options
granted under the Plan not be classified as Incentive Stock Options, that Incentive Stock Options be consistent with and contain or be deemed to contain all provisions required under
Section 422 of the Code and any successor thereto, and that any ambiguities in construction be interpreted in order to effectuate such intent. If an Incentive Stock Option granted under the
Plan does not qualify as such for any reason, then to the extent of such nonqualification, the Option represented thereby shall be regarded as a Nonqualified Stock Option duly granted under the Plan,
provided that such Option otherwise meets the Plan's requirements for Nonqualified Stock Options. 

        5.3    Exercise
Price.    The price per share deliverable upon the exercise of each Option ("exercise price") shall be established by the
Committee, except that the exercise price of any Option may not be less than 100% of the Fair Market Value of a share of Common Stock as of the date of grant of the Option, and in the case of the
grant of any Incentive Stock Option to an employee who, at the time of the grant, owns more than 10% of the total combined voting power of all classes of stock of the Company or any of its
Subsidiaries, the exercise price may not be less that 110% of the Fair Market Value of a share of Common Stock as of the date of grant of the Option, in each case unless otherwise permitted by
Section 422 of the Code. 

        5.4    Written
Agreement.    Each Option granted hereunder to a Participant shall be embodied in a written agreement (an
"Option Agreement"), which shall be signed by the Participant and by the chief executive officer of the Company (or another officer of the Company authorized for such
purpose by the Committee or the Board) for and in the name and on behalf of the Company, and any shares of
Common Stock issued or issuable upon exercise of such Option shall be subject to the terms and conditions set forth in the Plan and to such terms and conditions as are prescribed in the Option
Agreement which shall include the number of Options granted, the exercise price, the option term, vesting and forfeiture provisions, nonassignability provisions, restrictions on exercise, together
with appropriate representations and warranties and tax provisions, as applicable. The Committee may include such other provisions in the Option Agreement as it shall deem advisable, including, but
not limited to holdback and other registration right restrictions in the event of a public registration of any equity securities of the Company. 

        5.5    Term
of Options.    The term of each Option to its date of expiration shall be determined by the Committee, but, except as
otherwise provided herein, in no event shall an Option be exercisable in whole or in part, in the case of a Nonqualified Stock Option or an Incentive Stock Option (other than as described below), more
than ten years from the date it is granted or, in the case of an Incentive Stock Option granted to an employee who at the time of the grant owns more than 10% of the total combined voting power of all
classes of stock of the Company or any of its Subsidiaries, if required by the Code, more than five years from the date it is granted. All rights to purchase Common Stock pursuant to an Option shall,
unless sooner terminated, expire at the date designated by the Committee. 

        Unless
otherwise provided herein or in the terms of the related grant, an optionee may exercise an Option only if he or she is, and has continuously since the date the Option was
granted, been an employee of one or more members of the Company Group. Prior to the exercise of an Option and delivery of the Common Stock represented thereby, the optionee shall have no rights as a
stockholder with respect to any Common Stock covered by such outstanding Option (including any dividend or voting rights), and until such time as the Option has been exercised and shares of common
stock have 

4

 

been issued pursuant thereto, the optionee shall not be listed on the books of the Company as the owner of any shares of common stock with respect to such Option. 

        5.6    Limitations
on Grants.    If required by the Code, the aggregate Fair Market Value (determined as of the grant date) of shares for
which an Incentive Stock Option is exercisable by an employee for the first time during any calendar year under all equity incentive plans of the Company and its subsidiaries (as defined in
Section 422 of the Code) may not exceed $100,000. 

 
 

ARTICLE 6    
    
    Exercise of Options    
  

        6.1    Conditions
and Limitations on Exercisability.    Options granted hereunder shall not be exerciseable in any event prior to the
occurrence of a Triggering Event. Subject to the foregoing, Options granted hereunder shall otherwise vest at such time or times at or subsequent to grant as shall be determined by the Committee in
its discretion and set forth in the Option Agreement. Options may be made to vest in one or more installments, upon the happening of certain events, upon the passage of time, upon the fulfillment of
certain requirements, upon the achievement by the Company of certain performance goals, or subject to such other limitations or conditions, in each case as shall be determined by the Committee in its
discretion at the time of grant and set forth in the Option Agreement. 

        6.2    Expiration
and Termination of Options.    

        (a)    Normal
Expiration.    In no event shall any portion of any Option be exercisable after the date of expiration of the term thereof,
as determined pursuant to Section 5.5 above (the "Expiration Date"). 

        (b)    Early
Termination upon Termination of Employment Relationship.    Options issued hereunder shall immediately terminate and shall
not be exerciseable in the event that the Participant to which the Option has been granted shall no longer be employed by a member of the Company Group at any time prior to the occurrence of a
Triggering Event. Following the occurrence of a Triggering Event, except as otherwise provided by the Committee in the Option Agreement, any portion of any of a Participant's Options that are not
vested and exercisable on the date such Participant ceases to be so employed (the "Termination Date") shall expire and be forfeited as of such date, and except as
otherwise provided herein or in the Option Agreement, any portion of any of a Participant's Options that are vested and exercisable on the Termination Date shall expire and be forfeited 60 days
after the Termination Date, but in no event after the Expiration Date. 

        (c)    Termination
upon Change in Control of the Company.    In the event of a Triggering Event that is a Change in Control of the
Company, each outstanding Option issued hereunder shall be canceled in exchange for (a) a payment for each vested Option equal to the excess of the per share acquisition price over the exercise
price of such vested Option payable in cash or in such other form of non-cash consideration as received by the holders of shares of common stock in the transaction, as determined by the
Board, or (b) if determined by the committee, an equivalent option with respect to the common stock of the acquiror. 

        (d)    Termination
in the case of a Qualifying Termination.    If, prior to a Triggering Event, a grantee ceases to be an employee of the
Company Group by reason of a Qualifying Termination, all of the grantee's Options shall terminate immediately and in lieu thereof the grantee shall be entitled to receive a cash payment from the
Company (the "Option Cash Payment") for each such canceled Option equal to the excess of the most recent board valuation of a share of common stock over the exercise price of the canceled Option. 

5

 

        (e)    Termination
Upon Termination of Employment Other than a Qualifying Termination.    If, prior to a Triggering Event, a grantee
ceases to be an employee of the Company Group by reason other than a Qualifying Termination, all of the grantee's Options shall terminate immediately and in lieu thereof the grantee shall (if so
provided in the applicable Option Agreement and provided further that such employee's employment was not terminated by a member of the Company Group for cause) be entitled to receive an Option Cash
Payment for each vested option which has been canceled equal to the excess of the most recent board valuation of a share of common stock over the exercise price of the canceled Option. 

        (f)    Manner
of Making Option Cash Payments.    Option Cash Payments may be: (i) made at the time of termination;
(ii) deferred by the Company until the occurrence of a Triggering Event; or (iii) paid in equal cash installments, with the first installment payable on the first anniversary of the
effective date of termination of the Option, and the remaining installments payable on the corresponding date in each of the next two years. Payments pursuant to (ii) and (iii) above
shall include interest on the unpaid principal computed at the prime rate published in the Wall Street Journal for the first business day of the calendar quarter in which the termination of the Option
occurs. 

        (g)    Termination
at the election of the Company.    The Company may terminate any Option issued hereunder, effective on the seventh
anniversary of the date of grant of the Option, and before the Option becomes exerciseable, by giving notice to the option holder and making payment to the option holder in an amount equal to the
number of shares covered by the Option multiplied by the difference between the Fair Market Value per share, determined as of a date within three months prior to the effective date of the termination,
and the exercise price per share specified in the Option. 

 
 

ARTICLE 7    
    
    General Provisions    
  

        7.1    Adjustments.    Subject
to any required action by the stockholders of the Company, the number of shares of Common Stock covered by
each Option, and the price per share thereof in each such Option shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock of the Company resulting
from a stock split (whether by subdivision or consolidation of shares) or the payment of a share dividend (but only on the Common Stock). In the event of any merger, consolidation (other than a
consolidation of shares covered by previous sentence), reorganization, recapitalization, combination of shares, exchange of shares, change in corporate structure, or other change in the shares of
Common Stock, the Committee may in its discretion make such adjustments in the number and type of shares authorized by the Plan, the number and type of shares covered by outstanding Options and the
option exercise prices specified therein as it determines to be appropriate and equitable (and such adjustment shall in no event be considered an amendment
or modification of the Plan or any Options hereunder). The issuance by the Company of shares of stock of any class, or options or securities exercisable or convertible into shares of stock of any
class, for cash or property, or for labor or services either upon direct sale, or upon the exercise of rights or warrants to subscribe therefor, or upon exercise or conversion of other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock then subject to any Options or authorized under the Plan. 

        7.2    Listing,
Registration and Compliance with Laws and Regulations.    Options shall be subject to the requirement that if at any time
the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares subject to the Options upon any securities exchange or under any state, federal, or
foreign securities or other law or regulation, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to or in connection with the granting of the
Options or the issuance or purchase of shares thereunder, no Options may be granted 

6

 

or exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
The holders of such Options shall supply the Company with such certificates, representations and information as the Company shall request and shall otherwise cooperate with the Company in obtaining
such listing, registration, qualification, consent or approval. In the case of officers and other Persons subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the
Committee may at any time impose any limitations upon the exercise of an Option that, in the Board's discretion, are necessary or desirable in order to comply with such Section 16(b) and the
rules and regulations thereunder. If the Company, as part of an offering of securities or otherwise, finds it desirable because of federal, state, or foreign regulatory requirements to reduce the
period during which any Options may be exercised, the Committee, may, in its discretion and without the Participant's consent, so reduce such period on not less than 15 days written notice to
the holders thereof. 

        Subject
to the foregoing, If neither a Public Offering nor a Change of Control nor termination of the Options occurs on or before the seventh anniversary of the first date upon which a
Stock Option is issued then the Triggering Event will occur as to that Option on that date and grantee will receive that number of shares of Common Stock subject to the Options (subject to proper
exercise by the grantee and payment of the applicable exercise price), with delivery to be made by the Company as soon as reasonably practicable after the effective date of a registration statement
filed by the Company on Form S-1 or, if available, Form S-8 (or any successor form) with respect to such shares of Common Stock. The Company, under such
circumstances, shall file the applicable Securities Act registration form on or before the occurrence of the Triggering Event upon an Applicable Anniversary Date. 

        7.3    Nontransferability.    Options
are not negotiable, and may not be sold, given, transferred, assigned, pledged or otherwise
hypothecated by the grantee thereof. Any attempted transfer of an Option in violation of these prohibitions shall be void ab initio. Options may be
exercised only by the Participant (or his legal guardian or legal representative); provided that Incentive Stock Options may be exercised by such guardian or legal representative only if permitted by
the Code and any regulations promulgated thereunder. 

        7.4    Retention
of Company's Rights.    The Company's adoption of this Plan and its issuance of Options to the Participants hereunder
shall not interfere with or limit in any way the right of any member of the Company Group to terminate any Participant's employment at any time and for any reason, nor confer upon any Participant any
right to continue in the employ of any member of the Company Group for any period of time or to continue his present (or any other) rate of compensation. No employee shall have a right to be selected
as a Participant or, having been so selected, to be selected again as a Participant. 

        7.5    Amendment,
Suspension and Termination of Plan.    The date of commencement of the Plan shall be March 1, 2001, subject to
approval by the shareholders of the Company. Unless previously terminated upon the adoption of a resolution of the Board terminating the Plan, the Plan shall terminate at the close of business on
February 28, 2011. No termination of the Plan shall materially and adversely affect any of the rights or obligations of any person, without his or her consent, under any grant of Options under
the Plan. 

        7.6    Amendment,
Modification and Cancellation of Outstanding Options.    The Board may amend or modify any Option in any manner to the
extent that the Board would have had the authority under the Plan initially to grant such Option; provided that no such amendment or modification shall impair the rights
of any Participant under any Option without the consent of a majority (based on the number of Option Shares (as defined in the Option Agreements) held) of the Participants whose Options are so
amended. With the Participant's consent, the Committee may cancel any Option and issue a new Option to such Participant. 

*            *            *            *    
        * 

7

QuickLinks

Exhibit 10.4

SI INTERNATIONAL TELECOM CORPORATION 2001 SERVICE AWARD STOCK OPTION PLAN

ARTICLE 1 Purpose of Plan

ARTICLE 2 Definitions

ARTICLE 3 Administration of the Plan

ARTICLE 4 Stock Subject to the Plan

ARTICLE 5 Award of Options

ARTICLE 6 Exercise of Options

ARTICLE 7 General Provisions

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