Document:

<PAGE>

                                                                   EXHIBIT 10.3

                                SONOSITE, INC.

                  1998 Nonofficer Employee Stock Option Plan
                  (as amended and restated on April 24, 2001)

1.   Purpose

     The purpose of the Plan is to enhance the long-term shareholder value of
the Corporation by offering opportunities to selected employees to participate
in the Corporation's growth and success, and to encourage them to remain in the
service of the Corporation and its subsidiaries and to acquire and maintain
stock ownership in the Corporation.

2.   Definitions

     The following terms have the corresponding meanings for purposes of the
Plan:

     "Change in Control" means

     (a)  a "Board Change." For purposes of the Plan, a Board Change shall have
occurred if a majority of the seats (other than vacant seats) on the
Corporation's Board of Directors (the "Board") were to be occupied by
individuals who were neither (i) nominated by a majority of the Incumbent
Directors nor (ii) appointed by directors so nominated.  An "Incumbent
Director" is a member of the Board who has been either (i) nominated by a
majority of the directors of the Corporation then in office or (ii) appointed
by directors so nominated, 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 (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person (as defined in Section 2(b))
other than the Board; or

     (b)  The acquisition by any individual, entity or group (within the
meaning of Section 13(d) (3) or 14(d) (2) of the Exchange Act) (a "Person") of
"Beneficial Ownership" (within the meaning of Rule 13d3 promulgated under the
Exchange Act) of (i) 20% or more of either (A) the then outstanding shares of
common stock (the "Outstanding Corporation Common Stock") or (B) the combined
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities"), in the case of either (A) or (B) of this
clause (i), which acquisition is not approved in advance by a
<PAGE>

majority of the Incumbent Directors or (ii) 33% or more of either (A)  the
Outstanding Corporation Common Stock or (B) the Outstanding Corporation Voting
Securities, in the case of either (A) or (B) of this clause (ii), which
acquisition is approved in advance by a majority of the Incumbent Directors;
provided, however, that the following acquisitions shall not constitute a
Change in Control: (x) any acquisition by the Corporation, (y) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation, or (z) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of the following subsection
(c) are satisfied; or

     (c)  Approval by the shareholders of the Corporation of a reorganization,
merger or consolidation, in each case, unless, following such reorganization,
merger or consolidation, (i) more than 60% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions
as their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be, (ii) no Person (excluding
the Corporation, any employee benefit plan (or related trust) of the
Corporation or such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 33% or more of
the Outstanding Corporation Common Stock or Outstanding Corporation Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 33%
or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation or the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors, and (iii)
at least a majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were Incumbent
Directors at the time of the execution of the initial agreement providing for
such reorganization, merger or consolidation; or

     (d)  Approval by the shareholders of the Corporation of (i) a complete
liquidation or dissolution of the Corporation or (ii) the sale or other
disposition of all

                                      -2-
<PAGE>

or substantially all of the assets of the Corporation, other than to a
corporation, with respect to which following such sale or other disposition,
(A) more than 60% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation Common Stock
and Outstanding Corporation Voting Securities immediately prior to such sale or
other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting Securities, as the
case may be, (B) no Person (excluding the Corporation and any employee benefit
plan (or related trust) of the Corporation or such corporation and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 33% or more of the Outstanding Corporation Common Stock
or Outstanding Corporation Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 33% or more of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors, and (C) at least a majority of the
members of the board of directors of such corporation were approved by a
majority of the Incumbent Directors at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition
of assets of the Corporation.

     "Committee" means the Committee provided for in Section 5, which shall
administer the Plan.

     "Common Stock" means common stock, par value $0.01 per share, of the
Corporation.

     "Corporation" means SonoSite, Inc., a Washington corporation.

     "Designated Beneficiary" means any person designated in writing by a
Participant as a legal recipient of payments due under an award in the event of
the Participant's death, or in the absence of such designation, the
Participant's estate.  Such designation must be on file with the Corporation in
order to be effective but, unless the Participant has made an irrevocable
designation, may be changed from time to time by the Participant.

     "Disability," unless otherwise defined by the Committee, means a mental or
physical impairment of the Participant that is expected to result in death or
that has

                                      -3-
<PAGE>

lasted or is expected to last for a continuous period of 12 months or more and
that causes the Participant to be unable, in the opinion of the Corporation, to
perform his or her duties for the Corporation or its subsidiaries and to be
engaged in any substantial gainful activity.

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

     "Fair Market Value" of the Common Stock as of any trading day means the
average (rounded to the next highest cent in the case of fractions of a cent)
of the high and low sales prices of the Common Stock as reported on such
trading day by the Nasdaq National Market.  If no sales price is reported for
the Common Stock on such trading day, then "Fair Market Value" shall mean the
highest bid price reported for the Common Stock on such trading day by the
National Quotation Bureau Incorporated or any similar nationally recognized
organization.  If there is no such reported price for the Common Stock for the
date in question, then such price on the last preceding date for which such
price exists shall be determinative of Fair Market Value.  The Committee, in
its sole discretion, shall make all determinations required by this definition.

     "Participant" means a person who has received an award under the Plan.

     "Plan" means this SonoSite, Inc. 1998 Nonofficer Employee Stock Option
Plan.

     "Retirement" means retirement as of the Participant's normal retirement
date under the Corporation's 401(k) Plan or other similar successor plan
applicable to salaried employees, unless otherwise defined by the Committee
from time to time for purposes of the Plan.

     "Withholding Tax" means any tax, including any federal, state or local
income tax, required by any governmental entity to be withheld or otherwise
deducted and paid with respect to the transfer of shares of Common Stock as a
result of the exercise of an option.

3.   Stock Subject to the Plan

     There are reserved for issuance upon the exercise of options under the
Plan 1,500,000 shares of Common Stock.  Such shares may be authorized and
unissued shares of Common Stock or shares now held or subsequently acquired by
the Corporation.  If any option granted under the Plan shall expire or
terminate for any reason (including, without limitation, by reason of its
surrender, pursuant to the

                                      -4-
<PAGE>

provisions of the third paragraph of Section 7(b) or otherwise, or
cancellation, in whole or in part, pursuant to the provisions of Section 7(c)
or otherwise, or the substitution in place thereof of a new option) without
having been exercised in full, the shares subject thereto shall again be
available for the purposes of issuance under the Plan.

4.   Administration

     The Plan shall be administered by the Committee.  Subject to the express
provisions of the Plan, the Committee shall have plenary authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, options shall be granted and the number of shares to be covered by each
such grant. In making such determinations, the Committee may take into account
the nature of the services rendered by the respective Participants, their
present and potential contributions to the Corporation's success and such other
factors as the Committee in its discretion may deem relevant.  Subject to the
express provisions of the Plan, the Committee shall have plenary authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of option agreements
(which need not be identical) and to make all other determinations necessary or
advisable for the administration of the Plan.  The Committee's determinations
of the matters referred to in this Section 4 shall be conclusive.

     To the extent consistent with applicable law, the Board may authorize a
senior executive officer of the Corporation to grant options under the Plan,
within the limits specifically prescribed by the Board.

5.   The Committee

     The Board shall designate a Committee of members of the Board.  Currently,
the Committee shall consist solely of two or more members of the Board.  The
Committee shall be appointed by the Board, which may from time to time appoint
members of the Committee in substitution for members previously appointed and
may fill vacancies, however caused, in the Committee.  The Committee shall
select one of its members as its Chairman and shall hold its meetings at such
times and places as it may determine.  A majority of its members shall
constitute a quorum.  All determinations of the Committee shall be made by not
less than a majority of its members.  Any decision or determination reduced to
writing and signed by all the members shall be fully as effective as if it had
been made by a majority vote at a meeting duly called and held.  The Committee
may appoint a secretary, shall keep minutes of its meetings and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable.

                                      -5-
<PAGE>

6.   Eligibility

     The Committee may grant options only to employees of the Corporation and
of its present and future subsidiary corporations ("subsidiaries") who are not
"executive officers," within the meaning prescribed by Rule 16a-1(f)
promulgated under the Exchange Act, or directors of the Corporation.  Any
person eligible under the Plan may receive one or more grants of options as the
Committee shall from time to time determine, and such determinations may be
different as to different Participants and may vary as to different grants.

7.   Option Grants

     (a)  The Committee is authorized under the Plan, in its discretion, to
issue options as "nonqualified stock options" that are not intended to qualify
as "incentive stock options" under Section 422 of the United States Internal
Revenue Code of 1986, as amended (the "Code") and the options shall be
designated as nonqualified stock options in the applicable option agreement.
The purchase price of the Common Stock under each option granted under the Plan
shall be determined by the Committee but shall be not less than 100% of the
Fair Market Value of the Common Stock at the time such option is granted.
Notwithstanding the previous sentence, any option may provide that the purchase
price be equal to the average Fair Market Value of the Common Stock over any
continuous period of trading days beginning and ending no more than 30 business
days before or after the date such option is granted.

     (b)  The Committee shall be authorized in its discretion to prescribe in
the option grant the installments, if any, in which an option granted under the
Plan shall become exercisable, provided that no option shall be exercisable
prior to the six months prior to the date of grant thereof except as provided
in Sections 7(c), (d), (g), (h) and (i) or except as the Committee otherwise
determines.  In no case may an option be exercised as to less than 50 shares at
any one time (or the remaining shares covered by the option if less than 50)
during the term of the option.  The Committee shall also be authorized to
establish the manner of the exercise of an option.  The term of each option
shall be not more than 10 years from the date of grant thereof.

     In general, upon exercise, the option price is to be paid in full in cash;
however, the Committee can determine at any time prior to exercise of an
option, that additional forms of payment will be permitted.  To the extent
permitted by the Committee and applicable laws and regulations (including, but
not limited to, federal tax and securities laws and regulations and state
corporate law), an option may be exercised (i) in Common Stock owned by the
option holder having a Fair Market Value on the date of exercise equal to the
aggregate option price, or in a combination of cash and stock;

                                      -6-
<PAGE>

provided, however, that payment in stock shall not be made unless such stock
shall have been owned by the option holder for a period of at least six months
prior thereto (or any shorter period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes); or (ii) by delivery
of a properly executed exercise notice, together with irrevocable instructions
to a broker designated by the Corporation, all in accordance with the
regulations of the Federal Reserve Board, to deliver promptly to the
Corporation the amount of sale or loan proceeds to pay the exercise price and
any federal, state or local withholding tax obligations that may arise in
connection with the exercise.

     In lieu of requiring an option holder to pay cash or stock and to receive
in turn certificates for shares of Common Stock upon the exercise of an option,
if the option so provides, the Committee may elect to require the option holder
to surrender the option to the Corporation for cancellation as to all or any
portion of the number of shares covered by the intended exercise and receive in
exchange for such surrender a payment, at the election of the Committee, in
cash, in shares of Common Stock or in a combination of cash and shares of
Common Stock, equivalent to the appreciated value of the shares covered by the
option surrendered for cancellation.  Such appreciated value shall be the
difference between the option price of such shares (as adjusted pursuant to
Section 10) and the Fair Market Value of such shares, which shall for this
purpose be determined by the Committee taking into consideration all relevant
factors, but which shall not be less than the Fair Market Value of such shares
on the date on which the option holder's notice of exercise is received by the
Corporation.  Upon delivery to the Corporation of a notice of exercise of
option, the Committee may avail itself of its right to require the option
holder to surrender the option to the Corporation for cancellation as to shares
covered by such intended exercise.  The Committee's right of election shall
expire, if not exercised, at the close of business on the fifth business day
following the delivery to the Corporation of such notice.  Should the Committee
not exercise such right of election, the delivery of the aforesaid notice of
exercise shall constitute an exercise by the option holder of the option to the
extent therein set forth, and payment for the shares covered by such exercise
shall become due immediately.

     (c)  In the event that a Participant's services for the Corporation or one
of its subsidiaries shall cease and the termination of such individual's
service is for cause, the option shall automatically terminate upon first
notification to the option holder of such termination of services, unless the
Committee determines otherwise, and such option shall automatically terminate
upon the date of such termination of services for all shares which were not
purchasable upon such date.  For purposes of this Section 7(c), "cause" is
defined as a determination by the Committee that the option holder (i) has
committed a felony, (ii) has engaged in an act or acts of deliberate and

                                      -7-
<PAGE>

intentional dishonesty resulting or intended to result directly or indirectly
in improper material gain to or personal enrichment of the individual at the
Corporation's expense, or (iii) has willfully disobeyed the Corporation's
appropriate rules, instructions or orders, and such willful disobeyance has
continued for a period of 10 days following notice thereof from the
Corporation.

     In the event of the termination of the services of the holder of an option
because of Retirement, Early Retirement at the Corporation's request or
Disability, he may (unless such option shall have been previously terminated
pursuant to the provisions of the preceding paragraph or unless otherwise
provided in his option grant) exercise such option at any time prior to the
expiration of the option, (i) in the event of Disability or Retirement, to the
extent of the number of shares covered by such option, whether or not such
shares had become purchasable by him at the date of the termination of his
services and (ii) in the event of Early Retirement at the Corporation's
request, to the extent of the number of shares covered by such option at such
time or times as such option becomes purchasable by him in accordance with its
terms.

     In the event of the death of an individual to whom an option has been
granted under the Plan, while he is performing services for the Corporation or
a subsidiary, the option theretofore granted to him (unless his option shall
have been previously terminated pursuant to the provisions of this Section 7(c)
or unless otherwise provided in his option grant) may, subject to the
limitations described in Section 7(f), be exercised by his Designated
Beneficiary, by his legatee or legatees of the option under his last will, or
by his personal representatives or distributees, at any time within a period of
one year after his death, but not after the expiration of the option, to the
extent of the remaining shares covered by his option whether or not such shares
had become purchasable by such an individual at the date of his death.  In the
event of the death of an individual (i) during the 30-day period, or the 90-day
period, as applicable, following termination of his services or (ii) following
termination of his services by reason of Retirement, Early Retirement at the
Corporation's request or Disability, then the option (if not previously
terminated pursuant to the provisions of this Section 7(c)) may be exercised
during the one-year period following termination of his services or during the
remaining term of the option, respectively, but not after the expiration of the
option, by his Designated Beneficiary, by his legatee under his last will, or
by his personal representative or distributee, but only to the extent of the
number of shares purchasable by such Participant pursuant to the provisions of
Section 7(d) at the date of termination of his services.

     In the event of the termination of the services of the holder of an
option, other than by reason of Retirement, Early Retirement at the
Corporation's request, Disability

                                      -8-
<PAGE>

or death, he may (unless his option shall have been previously terminated
pursuant to the provisions of this Section 7(c) or unless otherwise provided in
his option grant) exercise his option at any time within 30 days after such
termination, if such option was granted prior to February 8, 2001, or within 90
days after such termination, if such option was granted on or after February 8,
2001, or such longer period as determined by the Committee, but not after the
expiration of the option, to the extent of the number of shares covered by his
option which were purchasable by him at the date of the termination of his
services, and such option shall automatically terminate upon the date of such
termination of services for all shares which were not purchasable upon such
date.

     (d)  Notwithstanding the foregoing provisions, the Committee may
determine, in its sole discretion, in the case of any termination of services,
that the holder of an option may exercise such option to the extent of some or
all of the remaining shares covered thereby whether or not such shares had
become purchasable by such an individual at the date of the termination of his
services and may exercise such option at any time prior to the expiration of
the original term of the option.  Options granted under the Plan shall not be
affected by any change of relationship with the Corporation so long as the
holder continues to be an employee, consultant or independent contractor of the
Corporation or of a subsidiary.  The Committee, in its absolute discretion, may
determine all questions of whether particular leaves of absence constitute a
termination of services.  Nothing in the Plan or in any option granted pursuant
to the Plan shall confer on any individual any right to continue in the employ
or other service of the Corporation or any other person or interfere in any way
with the right of the Corporation or any other person to terminate his
employment or other services at any time.

     (e)  The date of grant of an option pursuant to the Plan shall be the date
specified by the Committee at the time it grants such option, provided that
such date shall not be prior to the date of such action by the Committee and
that the price shall be determined in accordance with Section 7(a) on such
date.  The Committee shall promptly notify a grantee of an award and a written
option grant shall promptly be duly executed and delivered by or on behalf of
the Corporation.

     (f)  Notwithstanding any contrary waiting period, installment period or
other limitation or restriction in any option agreement or in the Plan, in the
event of a Change in Control, each option outstanding under the Plan shall
thereupon become exercisable at any time during the remaining term of the
option, but not after the term of the option, to the extent of the number of
shares covered by the option, whether or not such shares had become purchasable
by the Participant thereunder immediately prior to such Change in Control, by
the holder of the option.

                                      -9-
<PAGE>

     (g)  Anything in the Plan to the contrary notwithstanding, during the 90-
day period from and after a Change in Control (x) an optionee (other than an
optionee who initiated a Change in Control in a capacity other than as an
officer or a director of the Corporation) who is an executive officer or a
director of the Corporation (within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder) with respect to an
option that was granted at least six months prior to the date of exercise
pursuant to this sentence and is unaccompanied by a stock appreciation right
and (y) any other optionee who is not an executive officer or a director with
respect to an option that is unaccompanied by a stock appreciation right shall,
unless the Committee shall determine otherwise at the time of grant, have the
right, in lieu of the payment of the full purchase price of the shares of
Common Stock being purchased under the option and by giving written notice to
the Corporation, to elect (within such 90-day period) to surrender all or part
of the option to the Corporation and to receive in cash an amount equal to the
amount by which the amount determined pursuant to Section 7(h) hereof on the
date of exercise (determined as if the optionee had exercised a limited stock
appreciation right on such date) shall exceed the purchase price per share
under the option multiplied by the number of shares of Common Stock granted
under the stock option as to which the right granted by this sentence shall
have been exercised.  Such written notice shall specify the optionee's election
to purchase shares granted under the option or to receive the cash payment
referred to in the immediately preceding sentence.

     (h)  For the purpose of determining the amount payable under Section 7(g)
hereof, the fair market value of the Common Stock will be equal to the higher
of (a) the highest Fair Market Value of the Common Stock during the 90-day
period ending on the date the limited stock appreciation right is exercised and
(b) whichever of the following is applicable:

          (1)  the highest per share price paid in any tender or exchange
          offer which is in effect at any time during the 90 calendar days
          preceding the exercise of the limited right;

          (2)  the fixed or formula price for the acquisition of shares of
          Common Stock in a merger or similar agreement approved by the
          Corporation's shareholders or Board, if such price is determinable
          on the date of exercise; and

          (3)  the highest price per share paid to any shareholder of the
          Corporation in a transaction or group of transactions giving rise to
          the exercisability of the limited right.

                                      -10-
<PAGE>

     (i)  Notwithstanding the foregoing provisions, the optionee's employment
or other contract with the Corporation may provide that upon termination of his
employment or other services for other than cause or for "good reason" (as
defined in his contract), all stock options shall become immediately
exercisable.

8.   Withholding Taxes

     In connection with the transfer of shares of Common Stock as a result of
the exercise of an option, the Corporation (a) shall not issue a certificate
for such shares until it has received payment from the Participant of any
Withholding Tax in cash or by the retention or acceptance upon delivery thereof
by the Participant of shares of Common Stock sufficient in Fair Market Value to
cover the amount of such Withholding Tax and (b) shall have the right to retain
or sell without notice, or to demand surrender of, shares of Common Stock in
value sufficient to cover any Withholding Tax.  The Corporation shall have the
right to withhold from any cash amounts due from the Corporation to the award
recipient pursuant to the Plan an amount equal to the Withholding Tax.  In
either case, the Corporation shall make payment (or reimburse itself for
payment made) to the appropriate taxing authority of an amount in cash equal to
the amount of such Withholding Tax, remitting any balance to the Participant.
For purposes of this Section 8, the value of shares of Common Stock so retained
or surrendered shall be equal to the Fair Market Value of such shares on the
date that the amount of the Withholding Tax is to be determined (the "Tax
Date"), and the value of shares of Common Stock so sold shall be the actual net
sale price per share (after deduction of commissions) received by the
Corporation.

     Notwithstanding the foregoing, the Participant may elect, subject to
approval by the Committee, to satisfy the obligation to pay any Withholding
Tax, in whole or in part, by providing the Corporation with funds sufficient to
enable the Corporation to pay such Withholding Tax or by having the Corporation
retain or accept upon delivery thereof by the Participant shares of Common
Stock sufficient in Fair Market Value to cover the amount of such Withholding
Tax.  Each election by a Participant to have shares retained or to deliver
shares for this purpose must be in writing and made on or prior to the Tax
Date.

9.   Transferability and Ownership Rights of Options

     No option granted under the Plan shall be transferable otherwise than
pursuant to the designation of a Designated Beneficiary or by will, descent or
distribution, and an option may be exercised, during the lifetime of the holder
thereof, only by him.  The holder of an option shall have none of the rights of
a shareholder until the shares

                                      -11-
<PAGE>

subject thereto shall have been registered in the name of such holder on the
transfer books of the Corporation.

10.  Adjustments Upon Changes in Capitalization

     Except as otherwise provided in Section 7(f), in the event of any changes
in the outstanding stock of the Corporation by reason of stock dividends, stock
splits, recapitalizations, mergers, consolidations, combinations or exchanges
of shares, split-ups, split-offs, spin-offs, liquidations or other similar
changes in capitalization, or any distribution to shareholders other than cash
dividends, the Committee shall make such adjustments, if any, in light of the
change or distribution as the Committee in its sole discretion shall determine
to be appropriate, in the number and class of shares or rights subject to
options and the exercise prices of the options.  In the event of any such
change in the outstanding Common Stock of the Corporation, the aggregate number
and class of shares available under the Plan and the maximum number of shares
as to which options may be granted shall be appropriately adjusted by the
Committee.

11.  Amendment and Termination

     Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan shall terminate on, and no grants of options shall be made
after, December 11, 2008; provided, however, that such termination shall have
no effect on grants of options made prior thereto.  The Board of Directors of
the Corporation may terminate the Plan, or modify or amend the Plan in such
respects as it shall deem advisable in order to conform to any change in any
law or regulation applicable thereto, or in other respects.  The amendment or
termination of the Plan shall not, without the consent of the recipient of any
award under the Plan, alter or impair any rights or obligations under any award
theretofore granted under the Plan.

12.  Effectiveness of the Plan

     The Plan shall become effective on December 11, 1998.  The Committee may
in its discretion authorize the granting of options, the issuance or exercise
of which shall be expressly subject to the condition that a registration
statement under the Securities Act of 1933, as amended, with respect to such
shares shall have become effective.

     Adopted by the Board on December 11, 1998. Plan amended and restated by the
Board on May 6, 1999, July 27, 2000, February 8, 2001, and April 24, 2001.

                                      -12-
<PAGE>

                   PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
                                 SUMMARY PAGE
<TABLE>
<CAPTION>
                                                                   Date of
Date of                                                            Shareholder
Board Action       Action          Section/Effect of Amendment     Approval
<S>                <C>             <C>                             <C>

December 11, 1998  Initial Plan                                    Not required
                   Adoption

May 6, 1999        Amendment and   Various Sections amended.       Not required
                   Restatement
                   of Plan

July 27, 2000      Amendment and   Section 3, Stock Subject        Not required
                   Restatement     to Plan - the number of
                   of Plan         shares of common stock
                                   reserved for issuance
                                   under the Plan was
                                   increased from 600,000
                                   shares to 1,000,000
                                   shares of common stock

February 8, 2001   Amendment and   Section 3, Stock Subject        Not required
                   Restatement     to Plan - the number of
                   of Plan         shares of common stock
                                   reserved for issuance
                                   under the Plan was
                                   increased from 1,000,000
                                   shares to 1,500,000
                                   shares of common stock.

                                   Section 7(c), Option Grants -
                                   certain options granted on or
                                   after February 8, 2001, may
                                   be exercised for a 90-day
                                   period after termination.

April 24, 2001    Amendment and    Section 6, Eligibility -        Not required
                  Restatement      clarification of the
                  of Plan          meaning of the term
                                   "executive officers."

                                   Section 7(g) - certain
                                   references to "officer"
                                   changed to "executive
                                   officer."
</TABLE>

                                     -13-<PAGE>

                                                                    EXHIBIT 10.1

                                ONVIA.COM, INC.
                           RETENTION BONUS AGREEMENT
                             (Kristen McLaughlin)

     This Retention Bonus Agreement ("Agreement") is made as of March 30, 2001
(the "Effective Date"), by and between Onvia.com, Inc., a Delaware corporation
("Company" or "Onvia") and Kristen M. McLaughlin ("Employee").

     The President and Board of Directors of the Company want to enter into this
Agreement for the purpose of retaining Employee as a valued employee of Company
and providing an incentive for her to maximize her efforts on Company's behalf.

     NOW, THEREFORE, Company and Employee agree as follows:

     1.  Repurchase of Employee Shares.  The Company agrees to repurchase a
total of $400,000 of Common Stock of Onvia owned by Employee, directly or
indirectly ("Employee Shares"), at a price per share equal to the price per
share of the last recorded trade on the Nasdaq Stock Market on two (2) dates
chosen by the Employee, provided that the first date is within the range of
dates set forth in Section 1(a) and the second date is within the range of dates
set forth in Section 1(b):

          (a)  $200,000 of Employee Shares on a date between March 30, 2001
               through May 1, 2001; and

          (b)  $200,000 of Employee Shares on a date between May 2, 2001 through
               July 1, 2001.

     2.  Repayment of Loan to First Republic Bank.  Employee has a loan in the
amount of approximately Three Hundred Thirty-Five Thousand Seven Hundred Sixty-
Seven Dollars ($335,767) from First Republic Bank, as evidenced by a Promissory
Note and Loan Agreement Modification dated as of September 30, 2000 (the "Bank
Note"). The outstanding balance plus all accrued and unpaid interest under the
Bank Note as of the Effective Date is approximately $335,767. Employee shall pay
the entire outstanding balance and all accrued but unpaid interest under the
Bank Note with proceeds from the sale of Employee Shares as described in Section
1 of this Agreement.

     3.  Company Notes.

          (a)  Current Status.  Employee has two (2) loans from Company, the
first in the amount of Three Hundred and Fifty Thousand Dollars ($350,000), as
evidenced by a Promissory Note dated as of April 10, 2000, and the second in the
amount of One Hundred Thousand Dollars ($100,000), as evidenced by a Promissory
Note dated as of February 8, 2000 (together, the "Company Notes"). Employee has
pledged 350,000 shares of Common Stock of Company and 100,000 shares of Common
Stock of Company owned by Employee (together, the "Pledged Shares") to Company
under a certain Pledge Agreement dated April 10, 2000 and a certain Pledge
Agreement dated February 8, 2000, respectively (together, the "Pledge

                                      -1-
<PAGE>

Agreements"). The outstanding balance plus all accrued and unpaid interest under
the Company Notes as of the Effective Date is approximately $466,000.

           (b)  Amendment of Pledge Agreements.  Company and Employee agree that
the Company Notes shall be amended to be nonrecourse notes and that the only
collateral Company may seek against Employee is the Pledged Shares. Accordingly,
Section 5 of each of the Pledge Agreements are deleted in their entirety and
replaced with the following:

     "5.  Remedies.  Upon the occurrence of any Event of Default, Secured Party
     may then, or at any time thereafter, exercise all of the rights and
     remedies afforded by this Agreement and in any other instrument or
     agreement relating to the Obligations, all rights and remedies of a secured
     party under the laws of the State of Washington. Debtor shall not become
     personally liable for the payment of the principal sum or any interest due
     under the Obligations and the Secured Party agrees that in no event shall
     any monetary deficiency judgment for such amounts be sought or secured
     against the Debtor, it being the intention of the parties that the only
     recourse of the Secured Party for the satisfaction of such amounts shall be
     against the Collateral. The Secured Party, without demand of performance or
     other demand, presentment, protest, advertisement or notice of any kind
     (except any notice required by law) to or upon the Debtor or any other
     person (all of which demands, defenses, advertisements and notices are
     hereby waived), may in such circumstances collect, receive, appropriate and
     realize upon any or all of the Collateral, and/or may sell, lease, assign,
     give an option or options to purchase, or otherwise dispose of and deliver
     any or all of the Collateral (or contract to do any of the foregoing), in
     one or more parcels at a public or private sale or sales, at any exchange,
     broker's board or office of the Secured Party shall have the right upon any
     such public sale or sales and, to the extent permitted by law, upon any
     such private sale or sales, to purchase all or any party of the Collateral
     so sold, free of any right or equity of redemption in the Debtor, which
     right or equity is hereby waived or released. If any notice of a proposed
     sale or other disposition of Collateral shall be required by law, such
     notice shall be deemed reasonable and proper if given at least five (5)
     days before such sale or other disposition."

          (c)  Amendment of Company Notes.  A new Section 8 shall be added to
each of the Company Notes as follows:

     "8.  Nonrecourse.  Upon the occurrence of any Event of Default, Secured
     Party may then, or at any time thereafter, exercise all of the rights and
     remedies afforded by this Agreement and in any other instrument or
     agreement relating to the Obligations, all rights and remedies of a secured
     party under the laws of the State of Washington. Debtor shall not become
     personally liable for the payment of the principal sum or any interest due
     under the Obligations and the Secured Party agrees that in no event shall
     any monetary deficiency judgment for such amounts be sought or secured
     against the Debtor, it being the intention of the parties that the only
     recourse of the Secured Party for the satisfaction of such amounts shall be
     against the Collateral."

                                      -2-
<PAGE>

          (d)  Forgiveness of Company Notes.  Company and Employee agree that so
long as Employee is a full-time employee of the Company in full compliance with
all of her duties and obligations to the Company, the Company Notes shall be
forgiven in eight (8) equal installments over a period of eight (8) calendar
quarters beginning January 1, 2001 (first installment shall occur within ten
(10) day of the date of this Agreement). Employee must be employed by the
Company on the last day of the quarter for which forgiveness shall occur. For
purposes of clarification, if Employee's employment with the Company terminates
for any reason or no reason before December 31, 2002, Company shall have no
further obligation to forgive Employee's indebtedness under the Company Notes
after the date of Employee's termination of employment and Employee shall have
no obligation to reimburse the Company for forgiveness of Company Notes which
occurred before Employee's termination of employment. Company shall retain all
of the Pledged Shares until the outstanding principal balance plus all accrued
and unpaid interest under the Company Notes is paid in full.

     4.  Gross-Up.  Within fifteen (15) days of the end of the calendar quarter
in which forgiveness shall occur, Employee shall receive gross-up payments from
the Company, not to exceed an aggregate of $180,000, in eight (8) equal
installments over a period of eight (8) calendar quarters beginning January 1,
2001 (first installment shall be paid by April 15, 2001) to pay income taxes
associated with forgiveness of the Company Notes as set forth above in Section
3(d). Payment shall be made upon receipt of documentation from Employee
evidencing the calculation of the income taxes due. Employee must be employed by
the Company on the date that gross-up payments shall be made.

     5.  Payment of Federal Taxes Resulting from Disgorgement of Section 16(b)
Trades.  Employee has agreed to voluntarily disgorge all profits received by a
certain family trust that bought and sold shares of Common Stock of Onvia
("Disgorgement"). Employee agrees to pay Employee's federal tax liability
resulting from the Disgorgement on or before April 15, 2001.

     6.  Right of First Refusal; Rule 10b5-1 Program.

          (a)  Right of First Refusal.  In addition to the shares being
repurchased by Onvia under Section 1 of this Agreement, Employee may sell up to
$250,000 of Company Common Stock held by her during each of the fiscal years
ending 2001 and 2002 (the "Shares"), subject to the Company's Right of First
Refusal and on the terms and conditions set forth in this Section 6(a). Before
any Shares held by Employee or any transferee of Employee (either being
sometimes referred to herein as the "Holder") may be sold or otherwise
transferred (including transfer by gift or operation of law), 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 6 (the "Right of First Refusal").
For purposes of clarification, if Employee is employed by the Company after the
end of fiscal year 2002, Employee is no longer limited as to the amount of
Company Common Stock she can sell or transfer, subject to applicable securities
laws, and the Company's Right of First Refusal lapses until Employee ceases to
be employed by the Company. After Employee ceases to be employed by Onvia,
Employee and Company shall no longer be bound by Section 6(a), but shall be
bound by Section 6(b) for a period of two years from the date her employment
ceases.

                                      -3-
<PAGE>

          (i)  Notice of Proposed Transfer.  The Holder of the Shares shall
deliver to Onvia a written notice (the "Notice") stating: (A) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (B) the name of each
proposed purchaser or other transferee or a statement that such Shares are to be
sold on the open market in one or more transactions to unidentified purchasers
(the "Proposed Transferee"); (C) the number of Shares to be sold or transferred,
which number of Shares shall not exceed the number of Shares permitted to be
sold or transferred in accordance with applicable law; and (D) the terms and
conditions of each proposed sale or transfer or a statement that such Shares
will be sold on the open market at yet to be determined prices. The Holder shall
offer such Shares upon the terms (or terms as similar as reasonably possible) as
described herein to Onvia or its assignee(s).

          (ii)  Exercise of Right of First Refusal.  At any time within 3
trading days (24 hours if Right of First Refusal is exercised under Section
6(b)) after receipt of the Notice, Onvia 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
(iii) below. Employee then has until 8:00 a.m. PST of the next trading day to
accept or reject Onvia's Right of First Refusal.

          (iii)  Purchase Price.  The purchase price per share ("Purchase
Price") for the Shares purchased by Onvia or its assignee(s) under this Section
6(a) shall be the closing sale price per share on the Nasdaq Stock Market on the
date the Right of First Refusal is exercised by Onvia pursuant to subsection
(ii) above. If the Shares are being sold for consideration that includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of Onvia in good
faith and included as part of the Purchase Price.

          (iv)  Payment.  Payment of the Purchase Price shall be made in cash
(by check or wire transfer of immediately available funds) within 5 days after
receipt of the Notice or in the manner and at the times set forth in the Notice.

          (v)  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
Onvia and/or its assignee(s) as provided in this Section 6(a), then the Holder
may: (A) sell or otherwise transfer such Shares to that Proposed Transferee at
the price per share offered to Company or at a higher price, or at a lower
price, provided that such sale or other transfer is consummated within 15 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 6
shall continue to apply to the Shares in the hands of such Proposed Transferee
if such transfer is effected other than by a sale on the open market; or (B)
enter into any periodic sale or other similar program designed to rely on the
defense to liability provided by Rule 10b5-1 of the Securities Exchange Act of
1934, as amended (the "Controlled Sales Program"), with respect to the Shares
only. If the price of the Shares decreases after Notice is delivered to Onvia,
and Holder has not yet signed an agreement to transfer the Shares, then Onvia
shall have the right to notify the Holder of its desire to exercise the right to
purchase the Shares at the new market price. Upon receipt of such notice from

                                      -4-
<PAGE>

Onvia, the Holder may: (1) elect to sell the Shares to Onvia at the new market
price; or (2) elect not to sell the Shares at that time given the decrease in
market price.

          If, in a private sale transaction, the Shares described in the Notice
are not transferred to the Proposed Transferee within the period set forth in
Section 6(a)(v)(A), or if the Holder proposes to change the price or other terms
to make them more favorable to the Proposed Transferee, a new Notice shall be
given to Onvia, and Onvia 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.

          (b)  Right of First Refusal Upon Termination of Employment.  For two
(2) years after Employee's employment is terminated, Holder may not sell or
otherwise transfer more than 5,000 shares of Common Stock of Onvia in any single
sale without giving Onvia a Right of First Refusal on the terms and conditions
set forth in Section 6(a) above. For purposes of clarification, following
expiration of the two (2) years set forth in this Section 6(b), Onvia's Right of
First Refusal ceases.

          (c)  Rule 10b-5-1 Program.  Excluding the Shares subject to the
Company's Right of First Refusal in Section 6(a), Employee (during her
employment with Onvia) shall not enter into any Controlled Sales Program with
respect to any remaining shares of Common Stock of Company held by Employee
without the prior written consent of Company (which consent may not be
unreasonably withheld).

     7.  Mutual Release.  Except for the rights and obligations created by this
Agreement, Employee and Onvia, and their agents, heirs, representatives,
successors and assigns, and each of them hereby release and forever discharge
each other and their agents, heirs, representatives, successors and assigns, and
each of them, from any and all claims, disputes, suits, demands, causes of
action, liabilities, damages, expenses (including but not limited to attorneys'
fees and costs), and obligations of every nature, character and kind
(collectively "Claims"), whether known or unknown, which may now exist or
hereafter may be discovered, whether arising in law or equity, upon contract or
tort, or under state or federal law or laws, or under common law, or otherwise,
which they have had, now have, or hereafter may have, or claim to have, by
reason of any act, omission, matter, cause or thing whatsoever, whether such
Claims are matured or unmatured, or known or unknown, and whether the same may
hereafter develop, be discovered or matured, arising from or relating to this
Agreement, the Disgorgement and the events and occurrences leading up to and
surrounding the Disgorgement.

     8.  Further Documentation.  At any time and from time to time, Employee
shall promptly and duly execute and deliver such further instruments and
documents and take such further action as Company may reasonably request for the
purpose of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted.

     9.  Miscellaneous.

          (a)  Amendments.  Any term of this Agreement may be amended only by
written consent of the parties.

                                      -5-
<PAGE>

          (b)  Successors and Assigns.  The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

          (c)  Governing Law.  This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed, and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law.

          (d)  Severability.  If one or more provisions of this Agreement are
     held to be unenforceable under applicable law, the parties agree to
     renegotiate such provision in good faith. In the event that the parties
     cannot reach a mutually agreeable and enforceable replacement for such
     provision, then (i) such provision shall be excluded from this Agreement,
     (ii) the balance of the Agreement shall be interpreted as if such provision
     were so excluded, and (iii) the balance of the Agreement shall be
     enforceable in accordance with its terms.

          (e)  Notices.  Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party's address
or facsimile number as set forth below, or as subsequently modified by written
notice.

          If to Onvia:

          1260 Mercer Street
          Seattle, WA 98109
          Fax:  206-373-9419
          Attn:  Legal Counsel

          If to Employee:

          2630 Warren Avenue North
          Seattle, WA 98109
          Fax:  206-286-9640

          (f)  Advice of Legal Counsel.  Each party acknowledges and represents
that, in executing this Agreement, such party has had the opportunity to seek
advice as to such party's legal rights from legal counsel and that the person
signing on its behalf has read and understood all of the terms and provisions of
this Agreement. This Agreement shall not be construed against any party by
reason of the drafting or preparation thereof.

          (g)  Entire Agreement.  This Agreement, and the documents referred to

                                      -6-
<PAGE>

herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto concerning such subject matter are expressly
canceled.

     IN WITNESS WHEREOF, this Agreement is made and effective as of the
Effective Date.

                                       Onvia.com, Inc.

                                       By: /s/ Michael D. Pickett
                                           -------------------------------------
                                           Michael D. Pickett, President and CEO

                                       Employee

                                       By: /s/ Kristen M. McLaughlin
                                           -------------------------------------
                                           Kristen M. McLaughlin, an individual

                                      -7-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00025-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00025-of-00352.parquet"}]]