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                                                                    EXHIBIT 10.1

                               SMARTBARGAINS, INC.
                       (FORMERLY RETAIL CONVERGENCE, INC.)

                              AMENDED AND RESTATED
            2000 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN

1.    DEFINITIONS.

      Unless otherwise specified or unless the context otherwise requires, the
      following terms, as used in this SmartBargains, Inc. (formerly Retail
      Convergence, Inc.) 2000 Employee, Director and Consultant Stock Option
      Plan, have the following meanings:

            Administrator means the Board of Directors, unless it has delegated
            power to act on its behalf to the Committee, in which case the
            Administrator means the Committee.

            Affiliate means a corporation which, for purposes of Section 424 of
            the Code, is a parent or subsidiary of the Company, direct or
            indirect.

            Award means an Option, Restricted Stock Award or other stock-based
            award granted under the Plan.

            Award Agreement means an agreement between the Company and a
            Participant delivered pursuant to the Plan, in such form as the
            Administrator shall approve.

            Board of Directors means the Board of Directors of the Company.

            Change in Control shall be deemed to have occurred upon the
            consummation of the following transactions: (a) any consolidation or
            merger of the Company (x) where the shareholders of the Company,
            immediately prior to the consolidation or merger, would not,
            immediately after the consolidation or merger, beneficially own,
            directly or indirectly, shares representing in the aggregate more
            than 80% of the combined voting power of all the outstanding
            securities of the corporation issuing cash or securities in the
            consolidation or merger (or of its ultimate parent corporation, if
            any) or (y) where the members of the Board of Directors of the
            Company, immediately prior to the consolidation or merger, would
            not, immediately after the consolidation or merger, constitute more
            than 50% of the board of directors of the corporation issuing cash
            or securities in the consolidation or merger (or of its ultimate
            parent corporation, if any), (b) any sale, lease, exchange or other
            transfer (in one transaction or a series of transactions
            contemplated or arranged by any party as a single plan) of all or
            substantially all of the assets of the Company or (c) any plan or
            proposal for the liquidation or dissolution of the Company.

            Code means the United States Internal Revenue Code of 1986, as
            amended.

            Committee means the committee of the Board of Directors to which the
            Board of Directors has delegated power to act under or pursuant to
            the provisions of the Plan.

            Common Stock means shares of the Company's common stock, $.01 par
            value per share.

            Company means SmartBargains, Inc. (formerly Retail Convergence,
            Inc.), a Delaware corporation.

            Disability or Disabled means permanent and total disability as
            defined in Section 22(e)(3) of the Code.

            Fair Market Value of a Share of Common Stock means:

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            (1) If the Common Stock is listed on a national securities exchange
            or traded in the over-the-counter market and sales prices are
            regularly reported for the Common Stock, the closing or last price
            of the Common Stock on the Composite Tape or other comparable
            reporting system for the trading day immediately preceding the
            applicable date;

            (2) If the Common Stock is not traded on a national securities
            exchange but is traded on the over-the-counter market, if sales
            prices are not regularly reported for the Common Stock for the
            trading day referred to in clause (1), and if bid and asked prices
            for the Common Stock are regularly reported, the mean between the
            bid and the asked price for the Common Stock at the close of trading
            in the over-the-counter market for the trading day on which Common
            Stock was traded immediately preceding the applicable date; and

            (3) If the Common Stock is neither listed on a national securities
            exchange nor traded in the over-the-counter market, such value as
            the Administrator, in good faith, shall determine.

            ISO means an option meant to qualify as an incentive stock option
            under Section 422 of the Code.

            Key Employee means an employee of the Company or of an Affiliate
            (including, without limitation, an employee who is also serving as
            an officer or director of the Company or of an Affiliate),
            designated by the Administrator to be eligible to be granted one or
            more Awards under the Plan.

            Non-Qualified Option means an option which is not intended to
            qualify as an ISO.

            Option means an ISO or Non-Qualified Option granted under the Plan.

            Participant means a Key Employee, director or consultant to whom one
            or more Awards are granted under the Plan. As used herein,
            "Participant" shall include "Participant's Survivors" where the
            context requires.

            Plan means this SmartBargains, Inc. (formerly Retail Convergence,
            Inc.) 2000 Employee, Director and Consultant Stock Option Plan.

            Restricted Stock Award means an award granted under the Plan
            entitling a Participant to acquire shares of Common Stock, subject
            to the right of the Company to repurchase all or part of such
            shares.

            Shares means shares of the Common Stock as to which Options have
            been or may be granted under the Plan, shares of the Common Stock
            issued pursuant to Restricted Stock Awards or any shares of capital
            stock into which the Shares are changed or for which they are
            exchanged within the provisions of Paragraph 3 of

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            the Plan. The Shares issued pursuant to the Plan may be authorized
            and unissued shares or shares held by the Company in its treasury,
            or both.

            Survivors means a deceased Participant's legal representatives
            and/or any person or persons who acquired the Participant's rights
            to an Award by will or by the laws of descent and distribution.

2.    PURPOSES OF THE PLAN.

      The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs,
Non-Qualified Options, Restricted Stock Awards and other stock-based awards.

3.    SHARES SUBJECT TO THE PLAN.

      The number of Shares which may be issued from time to time pursuant to
this Plan shall be 14,498,300, or the equivalent of such number of Shares after
the Administrator, in its sole discretion, has interpreted the effect of any
stock split, stock dividend, combination, recapitalization or similar
transaction in accordance with Paragraph 17 of the Plan.

      If any Award expires or is terminated, surrendered or canceled without
having been fully exercised or is forfeited in whole or in part (including as
the result of shares of Common Stock subject to such Award being repurchased by
the Company at the original issuance price pursuant to a contractual repurchase
right) or results in any Common Stock not being issued, the unused Common Stock
covered by such Award shall again be available for the grant of Awards under the
Plan, subject, however, in the case of ISOs, to any limitations under the Code.

4.    ADMINISTRATION OF THE PLAN.

      The Administrator of the Plan will be the Board of Directors, except to
the extent the Board of Directors delegates its authority to the Committee, in
which case the Committee shall be the Administrator. Subject to the provisions
of the Plan, the Administrator is authorized to:

      a.    Interpret the provisions of the Plan or of any Award or Award
            Agreement and to make all rules and determinations which it deems
            necessary or advisable for the administration of the Plan;

      b.    Determine which employees of the Company or of an Affiliate shall be
            designated as Key Employees and which of the Key Employees,
            directors and consultants shall be granted Awards;

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      c.    Determine the number of Shares for which an Award or Awards shall be
            granted.

      d.    Specify the terms and conditions upon which an Award or Awards may
            be granted;

provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Awards which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Award granted under it
shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.

5.    ELIGIBILITY FOR PARTICIPATION.

      The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time an Award is
granted. Notwithstanding the foregoing, the Administrator may authorize the
grant of an Award to a person not then an employee, director or consultant of
the Company or of an Affiliate; provided, however, that the actual grant of such
Award shall be conditioned upon such person becoming eligible to become a
Participant at or prior to the time of the delivery of the Award Agreement
evidencing such Award. ISOs may be granted only to Key Employees. Non-Qualified
Options, Restricted Stock Awards and other stock-based awards may be granted to
any Key Employee, director or consultant of the Company or an Affiliate. The
granting of any Award to any individual shall neither entitle that individual
to, nor disqualify him or her from, participation in any other grant of Awards.

6.    TERMS AND CONDITIONS OF AWARDS.

      Each Award shall be set forth in writing in an Award Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Awards be
granted subject to such terms and conditions, consistent with the terms and
conditions specifically required under this Plan, as the Administrator may deem
appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any amendments thereto.

      A.    Non-Qualified Options: Each Option intended to be a Non-Qualified
            Option shall be subject to the terms and conditions which the
            Administrator determines to be appropriate and in the best interest
            of the Company, subject to the following minimum standards for any
            such Non-Qualified Option:

            a.    Option Price: Each Award Agreement shall state the option
                  price (per share) of the Shares covered by each Option, which
                  option price shall be determined by the Administrator but
                  shall not be less than the par value per share of Common
                  Stock.

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            b.    Each Award Agreement shall state the number of Shares to which
                  it pertains;

            c.    Each Award Agreement shall state the date or dates on which it
                  first is exercisable and the date after which it may no longer
                  be exercised, and may provide that the Option rights accrue or
                  become exercisable in installments over a period of months or
                  years, or upon the occurrence of certain conditions or the
                  attainment of stated goals or events; and

            d.    Exercise of any Option may be conditioned upon the
                  Participant's execution of a Share purchase agreement in form
                  satisfactory to the Administrator providing for certain
                  protections for the Company and its other shareholders,
                  including requirements that:

                  i.    The Participant's or the Participant's Survivors' right
                        to sell or transfer the Shares may be restricted; and

                  ii.   The Participant or the Participant's Survivors may be
                        required to execute letters of investment intent and
                        must also acknowledge that the Shares will bear legends
                        noting any applicable restrictions.

      B.    ISOs: Each Option intended to be an ISO shall be issued only to a
            Key Employee and be subject to the following terms and conditions,
            with such additional restrictions or changes as the Administrator
            determines are appropriate but not in conflict with Section 422 of
            the Code and relevant regulations and rulings of the Internal
            Revenue Service:

            a.    Minimum standards: The ISO shall meet the minimum standards
                  required of Non-Qualified Options, as described in Paragraph
                  6(A) above, except clause (a) thereunder.

            b.    Option Price: Immediately before the Option is granted, if the
                  Participant owns, directly or by reason of the applicable
                  attribution rules in Section 424(d) of the Code:

                  i.    Ten percent (10%) or less of the total combined voting
                        power of all classes of stock of the Company or
                        an Affiliate, the Option price per share of the Shares
                        covered by each Option shall not be less than one
                        hundred percent (100%) of the Fair Market Value per
                        share of the Shares on the date of the grant of the
                        Option.

                  ii.   More than ten percent (10%) of the total combined voting
                        power of all classes of stock of the Company or an
                        Affiliate, the Option price per share of the Shares
                        covered by each Option shall not

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                        be less than one hundred ten percent (110%) of the said
                        Fair Market Value on the date of grant.

            c.    Term of Option: For Participants who own

                  i.    Ten percent (10%) or less of the total combined voting
                        power of all classes of share capital of the Company or
                        an Affiliate, each Option shall terminate not more than
                        ten (10) years from the date of the grant or at such
                        earlier time as the Award Agreement may provide.

                  ii.   More than ten percent (10%) of the total combined voting
                        power of all classes of stock of the Company or an
                        Affiliate, each Option shall terminate not more than
                        five (5) years from the date of the grant or at such
                        earlier time as the Award Agreement may provide.

            d.    Limitation on Yearly Exercise: The Award Agreements shall
                  restrict the amount of Options which may be exercisable in any
                  calendar year (under this or any other ISO plan of the Company
                  or an Affiliate) so that the aggregate Fair Market Value
                  (determined at the time each ISO is granted) of the stock with
                  respect to which ISOs are exercisable for the first time by
                  the Participant in any calendar year does not exceed one
                  hundred thousand dollars ($100,000), provided that this
                  subparagraph (d) shall have no force or effect if its
                  inclusion in the Plan is not necessary for Options issued as
                  ISOs to qualify as ISOs pursuant to Section 422(d) of the
                  Code.

      C.    Restricted Stock: Each Restricted Stock Award shall be subject to
            the terms and conditions which the Administrator determines to be
            appropriate and in the best interest of the Company, subject to the
            following minimum standards for any such Restricted Stock Award:

            a.    Repurchase Price: Each Award Agreement shall state the price
                  at which the Company may repurchase the Shares covered by each
                  Restricted Stock Award, which such price shall be determined
                  by the Administrator. As determined by the Administrator, the
                  repurchase price of such Shares may be set by formula, or if
                  such Shares are issued at no cost, such Shares may be subject
                  to mandatory forfeiture to the Company in lieu of repurchase.

            b.    Each Award Agreement shall state the number of Shares to which
                  it pertains;

            c.    Each Award Agreement shall state the terms and conditions of
                  any Restricted Stock Award, including the conditions for
                  repurchase;

            d.    Stock Certificates: Any stock certificates issued in respect
                  of a Restricted Stock Award shall be registered in the name of
                  the Participant and, unless

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                  otherwise provided for in the Award Agreement, deposited by
                  the Participant, together with a stock power endorsed in
                  blank, with the Company (or its designee). At the expiration
                  of the applicable restriction periods, the Company (or such
                  designee) shall deliver the certificates no longer subject to
                  such restrictions to the Participant or if the Participant has
                  died, to the Survivors of the Participant.

      D.    Other Stock-Based Awards: The Administrator shall have the right to
                  grant other Awards based upon the Common Stock having such
                  terms and conditions as the Administrator may determine,
                  including the grant of shares based upon certain conditions,
                  the grant of securities convertible into Common Stock and the
                  grant of stock appreciation rights.

7.    EXERCISE OF OPTIONS AND ISSUE OF SHARES.

      An Option (or any part or installment thereof) shall be exercised by
giving written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Award
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Award Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (e) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator, or (f) at the discretion of the Administrator, by
any combination of (a), (b), (c), (d) and (e) above. Notwithstanding the
foregoing, the Administrator shall accept only such payment on exercise of an
ISO as is permitted by Section 422 of the Code.

      The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the delivery of the Shares may be delayed by the
Company in order to comply with any law or regulation (including, without
limitation, state securities or "blue sky" laws) which requires the Company to
take any action with respect to the Shares prior to their issuance. The Shares
shall, upon delivery, be evidenced by an appropriate certificate or certificates
for fully paid, non-assessable Shares.

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      The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 19) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Paragraph
6.B.d.

      The Administrator may, in its discretion, amend any term or condition of
an outstanding Award provided (i) such term or condition as amended is permitted
by the Plan, (ii) any such amendment shall be made only with the consent of the
Participant to whom the Award was granted, or in the event of the death of the
Participant, the Participant's Survivors, if the amendment is adverse to the
Participant, and (iii) any such amendment of any ISO shall be made only after
the Administrator, after consulting the counsel for the Company, determines
whether such amendment would constitute a "modification" of any Option which is
an ISO (as that term is defined in Section 424(h) of the Code) or would cause
any adverse tax consequences for the holder of such ISO.

8.    RIGHTS AS A SHAREHOLDER.

      No Participant to whom an Option has been granted shall have rights as a
shareholder with respect to any Shares covered by such Option, except after due
exercise of the Option and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.

9.    ASSIGNABILITY AND TRANSFERABILITY OF AWARDS.

      By its terms, an Award granted to a Participant shall not be transferable
by the Participant other than (i) by will or by the laws of descent and
distribution, or (ii) as otherwise determined by the Administrator and set forth
in the applicable Award Agreement. The designation of a beneficiary of an Award
by a Participant shall not be deemed a transfer prohibited by this Paragraph.
Except as provided above, an Option shall be exercisable, during the
Participant's lifetime, only by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Award or of any rights granted
thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon an Award, shall be null and void.

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10.   EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR
      DEATH OR DISABILITY.

      Except as otherwise provided in the pertinent Award Agreement for the
grant of an Option, in the event of a termination of service (whether as an
employee, director or consultant) with the Company or an Affiliate before the
Participant has exercised all Options, the following rules apply:

      a.    A Participant who ceases to be an employee, director or consultant
            of the Company or of an Affiliate (for any reason other than
            termination "for cause," Disability, or death for which events there
            are special rules in Paragraphs 11, 12, and 13, respectively), may
            exercise any Option granted to him or her to the extent that the
            Option is exercisable on the date of such termination of service,
            but only within such term as the Administrator has designated in the
            pertinent Award Agreement.

      b.    Except as provided in Subparagraph (c) below, or Paragraph 12 or 13,
            in no event may an Award Agreement provide, if the Option is
            intended to be an ISO, that the time for exercise be later than
            three (3) months after the Participant's termination of employment.

      c.    The provisions of this Paragraph, and not the provisions of
            Paragraph 12 or 13, shall apply to a Participant who subsequently
            becomes Disabled or dies after the termination of employment,
            director status or consultancy, provided, however, in the case of a
            Participant's Disability or death within three (3) months after the
            termination of employment, director status or consultancy, the
            Participant or the Participant's Survivors may exercise the Option
            within one (1) year after the date of the Participant's termination
            of employment, but in no event after the date of expiration of the
            term of the Option.

      d.    Notwithstanding anything herein to the contrary, if subsequent to a
            Participant's termination of employment, termination of director
            status or termination of consultancy, but prior to the exercise of
            an Option, the Board of Directors determines that, either prior or
            subsequent to the Participant's termination, the Participant engaged
            in conduct which would constitute "cause," then such Participant
            shall forthwith cease to have any right to exercise any Option.

      e.    A Participant to whom an Option has been granted under the Plan who
            is absent from work with the Company or with an Affiliate because of
            temporary disability (any disability other than a permanent and
            total Disability as defined in Paragraph 1 hereof), or who is on
            leave of absence for any purpose, shall not, during the period of
            any such absence, be deemed, by virtue of such absence alone, to
            have terminated such Participant's employment, director status or
            consultancy with the Company or with an Affiliate, except as the
            Administrator may otherwise expressly provide.

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      f.    Except as required by law or as set forth in the pertinent Award
            Agreement, Options granted under the Plan shall not be affected by
            any change of a Participant's status within or among the Company and
            any Affiliates, so long as the Participant continues to be an
            employee, director or consultant of the Company or any Affiliate
            provided, however, if a Participant's employment by either the
            Company or an Affiliate should cease (other than to become an
            employee of an Affiliate or the Company), such termination shall be
            treated as a termination of employment.

11.   EFFECT ON OPTIONS OF TERMINATION OF SERVICE "FOR CAUSE."

      Except as otherwise provided in the pertinent Award Agreement for the
grant of an Option, the following rules apply if the Participant's service
(whether as an employee, director or consultant) with the Company or an
Affiliate is terminated "for cause" prior to the time that all his or her
outstanding Options have been exercised:

      a.    All outstanding and unexercised Options as of the time the
            Participant is notified his or her service is terminated "for cause"
            will immediately be forfeited.

      b.    For purposes of this Plan, "cause" shall include (and is not limited
            to) dishonesty with respect to the Company or any Affiliate,
            insubordination, substantial malfeasance or non-feasance of duty,
            unauthorized disclosure of confidential information, and conduct
            substantially prejudicial to the business of the Company or any
            Affiliate. The determination of the Administrator as to the
            existence of "cause" will be conclusive on the Participant and the
            Company.

      c.    "Cause" is not limited to events which have occurred prior to a
            Participant's termination of service, nor is it necessary that the
            Administrator's finding of "cause" occur prior to termination. If
            the Administrator determines, subsequent to a Participant's
            termination of service but prior to the exercise of an Option, that
            either prior or subsequent to the Participant's termination the
            Participant engaged in conduct which would constitute "cause," then
            the right to exercise any Option is forfeited.

      d.    Any definition in an agreement between the Participant and the
            Company or an Affiliate, which contains a conflicting definition of
            "cause" for termination and which is in effect at the time of such
            termination, shall supersede the definition in this Plan with
            respect to such Participant.

12.   EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.

      Except as otherwise provided in the pertinent Award Agreement for the
grant of an Option, a Participant who ceases to be an employee, director or
consultant of the Company or of an Affiliate by reason of Disability may
exercise any Option granted to such Participant:

      a.    To the extent exercisable but not exercised on the date of
            Disability; and

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      b.    In the event rights to exercise the Option accrue periodically, to
            the extent of a pro rata portion of any additional rights as would
            have accrued had the Participant not become Disabled prior to the
            end of the accrual period which next ends following the date of
            Disability. The proration shall be based upon the number of days of
            such accrual period prior to the date of Disability.

      A Disabled Participant may exercise such rights only within the period
ending one (1) year after the date the Participant became Disabled,
notwithstanding that the Participant might have been able to exercise the Option
as to some or all of the Shares on a later date if the Participant had not
become Disabled and had continued to be an employee, director or consultant or,
if earlier, within the originally prescribed term of the Option.

      The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.

13.   EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.

      Except as otherwise provided in the pertinent Award Agreement for the
grant of an Option, in the event of the death of a Participant while the
Participant is an employee, director or consultant of the Company or of an
Affiliate, such Option may be exercised by the Participant's Survivors:

      a.    To the extent exercisable but not exercised on the date of death;
            and

      b.    In the event rights to exercise the Option accrue periodically, to
            the extent of a pro rata portion of any additional rights which
            would have accrued had the Participant not died prior to the end of
            the accrual period which next ends following the date of death. The
            proration shall be based upon the number of days of such accrual
            period prior to the Participant's death.

      If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.

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14.   EFFECT ON RESTRICTED STOCK AWARDS AND OTHER STOCK-BASED AWARDS OF
      TERMINATION OF SERVICE.

      The Administrator shall determine the effect on a Restricted Stock Award
and other stock-based award of the disability, death, retirement, authorized
leave of absence or other change in the employment or other status of a
Participant and the extent to which, and the period during which, the
Participant, the Participant's legal representative, conservator, guardian or
designated beneficiary may exercise rights under such Award.

15.   PURCHASE FOR INVESTMENT.

      Unless the offering and sale of the Shares to be issued pursuant to an
Award shall have been effectively registered under the Securities Act of 1933,
as now in force or hereafter amended (the "1933 Act"), the Company shall be
under no obligation to issue Shares pursuant to any Award unless and until the
following conditions have been fulfilled:

      a.    The person(s) acquiring Shares pursuant to an Award shall warrant to
            the Company, prior to the receipt of such Shares, that such
            person(s) are acquiring such Shares for their own respective
            accounts, for investment, and not with a view to, or for sale in
            connection with, the distribution of any such Shares, in which event
            the person(s) acquiring such Shares shall be bound by the provisions
            of the following legend which shall be endorsed upon the
            certificate(s) evidencing their Shares issued pursuant to such
            exercise or such grant:

                  "The shares represented by this certificate have been taken
                  for investment and they may not be sold or otherwise
                  transferred by any person, including a pledgee, unless (1)
                  either (a) a Registration Statement with respect to such
                  shares shall be effective under the Securities Act of 1933, as
                  amended, or (b) the Company shall have received an opinion of
                  counsel satisfactory to it that an exemption from registration
                  under such Act is then available, and (2) there shall have
                  been compliance with all applicable state securities laws."

      b.    At the discretion of the Administrator, the Company shall have
            received an opinion of its counsel that the Shares may be issued
            upon such particular exercise in compliance with the 1933 Act
            without registration thereunder.

16.   DISSOLUTION OR LIQUIDATION OF THE COMPANY.

      Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any Option to
the extent that

                                       12
<PAGE>

the Option is exercisable as of the date immediately prior tosuch dissolution or
liquidation. The Administrator may specify the effect of a liquidation or
dissolution on any Restricted Stock Award and any other stock-based award at the
time of grant of such Award.

17.   ADJUSTMENTS.

      Upon the occurrence of any of the following events, a Participant's rights
with respect to any Option granted to him or her hereunder which has not
previously been exercised in full, any Restricted Stock Award or other
stock-based award shall be adjusted as hereinafter provided, unless otherwise
specifically provided in the pertinent Award Agreement:

      A. Stock Dividends and Stock Splits. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or if additional shares or new or different shares or
other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, (i) the number of shares of Common Stock
deliverable upon the exercise of each Option shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such events and (ii) the repurchase price
per share subject to each Restricted Stock Award and the terms of each other
outstanding stock-based award shall be appropriately adjusted, in all cases, in
the manner and to the extent the Administrator shall determine.

      B. Consolidations or Mergers; Change in Control. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Administrator or the board of directors of any entity assuming the obligations
of the Company hereunder (the "Successor Board"), shall:

      a.    As to outstanding Options, either (i) make appropriate provision for
            the continuation of such Options by substituting on an equitable
            basis for the Shares then subject to such Options either the
            consideration payable with respect to the outstanding shares of
            Common Stock in connection with the Acquisition or securities of any
            successor or acquiring entity or through the assumption of such
            Options by any successor or acquiring entity; or (ii) upon written
            notice to the Participants, provide that all Options must be
            exercised (either to the extent then exercisable or, at the
            discretion of the Administrator, all Options being made fully
            exercisable for purposes of this Subparagraph), within a specified
            number of days of the date of such notice, at the end of which
            period the Options shall terminate; or (iii) terminate all Options
            in exchange for a cash payment equal to the excess of the Fair
            Market Value of the Shares subject to such Options (either to the
            extent then exercisable or, at the discretion of the Administrator,
            all Options being made fully exercisable for purposes of this
            Subparagraph) over the exercise price thereof.

      b.    As to Restricted Stock and other stock-based awards, except as may
            be otherwise provided for in the Award Agreement, the repurchase and
            other rights of the

                                       13
<PAGE>

            Company under each outstanding Restricted Stock Award shall inure to
            the benefit of the Company's successor and shall apply to the cash,
            securities or other property which the Common Stock was converted
            into or exchanged for pursuant to such Acquisition in the same
            manner and to the same extent as they applied to the Common Stock
            subject to such Restricted Stock Award. The Administrator shall
            specify the effect of an Acquisition on any other stock-based award
            at the time of granting such Award.

      C. Recapitalization or Reorganization. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities which would have been
received if such Option had been exercised prior to such recapitalization or
reorganization.

      D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Administrator
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments, unless
the holder of an ISO specifically requests in writing that such adjustment be
made and such writing indicates that the holder has full knowledge of the
consequences of such "modification" on his or her income tax treatment with
respect to the ISO.

18.   ISSUANCES OF SECURITIES.

      Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no

                                       14
<PAGE>

adjustment by reason thereof shall be made withrespect to, the number or price
of shares subject to Awards. Except as expressly provided herein, no adjustments
shall be made for dividends paid in cash or in property (including without
limitation, securities) of the Company.

19.   FRACTIONAL SHARES.

      No fractional shares shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.

20.   CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.

      The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.

21.   WITHHOLDING.

      In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise of an Option or a Disqualifying Disposition (as defined in
Paragraph 22), the Company may withhold from the Participant's compensation, if
any, or may require that the Participant advance in cash to the Company, or to
any Affiliate of the Company which employs or employed the Participant, the
amount of such withholdings unless a different withholding arrangement,
including the use of shares of the Company's Common Stock or a promissory note,
is authorized by the Administrator (and permitted by law). For purposes hereof,
the Fair Market Value of the shares withheld for purposes of payroll withholding
shall be determined in the manner provided in Paragraph 1 above, as of the most
recent practicable date prior to the date of exercise. If the Fair Market Value
of the shares withheld is less than the amount of payroll withholdings required,
the Participant may be

                                       15
<PAGE>

required to advance the difference in cash to the Company or the Affiliate
employer. The Administrator in its discretion may condition the exercise of an
Option for less than the then Fair Market Value on the Participant's payment of
such additional withholding.

22.   NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.

      Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.

23.   TERMINATION OF THE PLAN.

      The Plan will terminate on the date which is ten (10) years from the
earlier of the date of its adoption and the date of its approval by the
shareholders of the Company. The Plan may be terminated at an earlier date by
vote of the shareholders of the Company; provided, however, that any such
earlier termination shall not affect any Award Agreements executed prior to the
effective date of such termination.

24.   AMENDMENT OF THE PLAN AND AGREEMENTS.

      The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Options granted under the
Plan or Options to be granted under the Plan for favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, and to the extent
necessary to qualify the shares issued or issuable pursuant to an Award for
listing on any national securities exchange or quotation in any national
automated quotation system of securities dealers. Any amendment approved by the
Administrator which the Administrator determines is of a scope that requires
shareholder approval shall be subject to obtaining such shareholder approval.
Any modification or amendment of the Plan shall not, without the consent of a
Participant, adversely affect his or her rights under an Award previously
granted to him or her. With the consent of the Participant affected, the
Administrator may amend outstanding Award Agreements in a manner which may be
adverse to the Participant but which is not inconsistent with the Plan. In the
discretion of the Administrator, outstanding Award Agreements may be amended by
the Administrator in a manner which is not adverse to the Participant.

                                       16
<PAGE>

25.   EMPLOYMENT OR OTHER RELATIONSHIP.

      Nothing in this Plan or any Award Agreement shall be deemed to prevent the
Company or an Affiliate from terminating the employment, consultancy or director
status of a Participant, nor to prevent a Participant from terminating his or
her own employment, consultancy or director status or to give any Participant a
right to be retained in employment or other service by the Company or any
Affiliate for any period of time.

26.   GOVERNING LAW.

      This Plan shall be construed and enforced in accordance with the law of
the State of Delaware.

                                       17
<PAGE>
                        INCENTIVE STOCK OPTION AGREEMENT

                               SMARTBARGAINS, INC.

         AGREEMENT made as of the ___ day of _________, 200_ by and between
SmartBargains, Inc. (the "Company"), a Delaware corporation having a principal
place of business in Boston, Massachusetts and ______________ of ___________,
__, an employee of the Company (the "Employee").

         WHEREAS, the Company desires to grant to the Employee an Option to
purchase shares of its common stock, $0.01 par value per share (the "Shares"),
under and for the purposes set forth in the Company's Amended and Restated 2000
Employee, Director and Consultant Stock Option Plan (the "Plan");

         WHEREAS, the Company and the Employee understand and agree that any
terms used and not defined herein have the same meanings as in the Plan; and

         WHEREAS, the Company and the Employee each intend that the Option
granted herein qualify as an ISO.

         NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:

         1.       GRANT OF OPTION.

         The Company hereby grants to the Employee the right and option to
purchase all or any part of an aggregate of ______ Shares, on the terms and
conditions and subject to all the limitations set forth herein and in the Plan,
which is incorporated herein by reference. The Employee acknowledges receipt of
a copy of the Plan.

         2.       PURCHASE PRICE.

         The purchase price of the Shares covered by the Option shall be $_____
per Share, subject to adjustment, as provided in the Plan, in the event of a
stock split, reverse stock split or other events affecting the holders of Shares
(the "Exercise Price"). Payment shall be made in accordance with Paragraph 7 of
the Plan.

         3.       EXERCISABILITY OF OPTION.

         Subject to the terms and conditions set forth in this Agreement and the
Plan, the Option granted hereby shall become exercisable as follows: On the
first anniversary of the Employee's hire date (__/__/__) or [date of this
Agreement, as applicable], 25% of the Shares shall be exercisable, and
thereafter 6.25% of the Shares shall be exercisable on the first day of January,
April, July and October until such time as all ______ Shares are fully
exercisable. Notwithstanding the foregoing, in the event of a Change in Control
(as defined in the Plan) of the Company, subject to the other terms and
conditions set forth in this Agreement and in the Plan, then immediately prior
to the consummation of such Change of Control, the Option shall

                                       1

<PAGE>

accelerate and become exercisable with respect to an additional 12.5% of the
shares covered by the Option, and the Option shall continue in full force and
effect with respect to any Shares as to which the Option applies, whether vested
or unvested. In the event that the Employee is terminated by the Company without
"cause" (as defined below) following any such Change of Control, the Option
shall accelerate and become exercisable with respect to all of the remaining
Shares covered by the Option at the time of such termination, subject to the
other terms and conditions set forth in this Agreement and in the Plan.

         The foregoing rights are cumulative and are subject to the other terms
and conditions of this Agreement and the Plan, including without limitation
Section 16(B) of the Plan.

         4.       TERM OF OPTION.

         The Option shall terminate ten (10) years from the date of this
Agreement or, if the Employee owns as of the date hereof more than ten percent
(10%) of the total combined voting power of all classes of capital stock of the
Company or an Affiliate, five (5) years from the date of this Agreement, but
shall be subject to earlier termination as provided herein or in the Plan.

         If the Employee ceases to be an employee of the Company or of an
Affiliate (for any reason other than the death or Disability of the Employee or
termination of the Employee's employment for "cause" as defined in the Plan),
the Option may be exercised, if it has not previously terminated, within one (1)
month after the date the Employee ceases to be an employee of the Company or an
Affiliate, or within the originally prescribed term of the Option, whichever is
earlier, but may not be exercised thereafter. In such event, the Option shall be
exercisable only to the extent that the Option has become exercisable and is in
effect at the date of such cessation of employment.

         Notwithstanding the foregoing, in the event of the Employee's
Disability or death within one (1) month after the termination of employment,
the Employee or the Employee's Survivors may exercise the Option within one (1)
year after the date of the Employee's termination of employment, but in no event
after the date of expiration of the term of the Option.

         In the event the Employee's employment is terminated by the Employee's
employer for "cause" as defined in the Plan, the Employee's right to exercise
any unexercised portion of this Option shall cease as of such termination, and
this Option shall thereupon terminate. Notwithstanding anything herein to the
contrary, if subsequent to the Employee's termination as an employee, but prior
to the exercise of the Option, the Board of Directors of the Company determines
that, either prior or subsequent to the Employee's termination, the Employee
engaged in conduct which would constitute "cause," then the Employee shall
immediately cease to have any right to exercise the Option and this Option shall
thereupon terminate.

         In the event of the Disability of the Employee, as determined in
accordance with the Plan, the Option shall be exercisable within one (1) year
after the date of Disability or, if earlier, within the term originally
prescribed by the Option. In such event, the Option shall be exercisable:

         (a)      to the extent exercisable but not exercised as of the date of
                  Disability; and

                                       2

<PAGE>

         (b)      in the event rights to exercise the Option accrue
                  periodically, to the extent of a pro rata portion of any
                  additional rights to exercise the Option as would have accrued
                  had the Employee not become Disabled prior to the end of the
                  accrual period which next ends following the date of
                  Disability. The proration shall be based upon the number of
                  days during the accrual period prior to the date of
                  Disability.

         In the event of the death of the Employee while an employee of the
Company or of an Affiliate, the Option shall be exercisable by the Participant's
Survivors within one (1) year after the date of death of the Employee or, if
earlier, within the originally prescribed term of the Option. In such event, the
Option shall be exercisable:

         (x)      to the extent exercisable but not exercised as of the date of
                  death; and

         (y)      in the event rights to exercise the Option accrue
                  periodically, to the extent of a pro rata portion of any
                  additional rights to exercise the Option as would have accrued
                  had the Employee not died prior to the end of the accrual
                  period which next ends following the date of death. The
                  proration shall be based upon the number of days during the
                  accrual period prior to the Employee's death.

For the purposes of this Agreement, "cause" shall mean dishonesty with respect
to the Company or any affiliate, insubordination, substantial malfeasance or non
feasance of duty, unauthorized disclosure of confidential information and
conduct substantially prejudicial to the business of the Company or any
affiliate. The determination of the Board of Directors as to the existence of
"cause" will be conclusive on the Employee and the Company, provided notice is
given to the Employee and the Employee is provided with the opportunity to be
heard by the Board.

         5.       METHOD OF EXERCISING OPTION.

         Subject to the terms and conditions of this Agreement, the Option may
be exercised by written notice to the Company at its principal executive office,
in substantially the form of Exhibit A attached hereto. Such notice shall state
the number of Shares with respect to which the Option is being exercised and
shall be signed by the person exercising the Option. Payment of the purchase
price for such Shares shall be made in accordance with Paragraph 7 of the Plan.
The Company shall deliver a certificate or certificates representing such Shares
as soon as practicable after the notice shall be received, provided, however,
that the Company may delay issuance of such Shares until completion of any
action or obtaining of any consent, which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws). The certificate or certificates for the Shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Employee and if the Employee shall so request in the notice exercising the
Option, shall be registered in the name of the Employee and another person
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising the Option. In the
event the Option shall be exercised, pursuant to Section 4 hereof, by any person
or persons other than the Employee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All Shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and nonassessable.

         6.       PARTIAL EXERCISE.

         Exercise of this Option to the extent above stated may be made in part
at any time and from time to time within the above limits, except that no
fractional share shall be issued pursuant to this Option.

                                        3

<PAGE>

         7.       NON-ASSIGNABILITY.

         The Option shall not be transferable by the Employee otherwise than by
will or by the laws of descent and distribution. The Option shall be
exercisable, during the Employee's lifetime, only by the Employee (or, in the
event of legal incapacity or incompetency, by the Employee's guardian or
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights
granted hereunder contrary to the provisions of this Section 7, or the levy of
any attachment or similar process upon the Option shall be null and void.

         8.       NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.

         The Employee shall have no rights as a stockholder with respect to
Shares subject to this Agreement until registration of the Shares in the
Company's share register in the name of the Employee. Except as is expressly
provided in the Plan with respect to certain changes in the capitalization of
the Company, no adjustment shall be made for dividends or similar rights for
which the record date is prior to the date of such registration.

         9.       CAPITAL CHANGES AND BUSINESS SUCCESSIONS.

         The Plan contains provisions covering the treatment of Options in a
number of contingencies such as stock splits and mergers. Provisions in the Plan
for adjustment with respect to stock subject to Options and the related
provisions with respect to successors to the business of the Company are hereby
made applicable hereunder and are incorporated herein by reference.

         10.      TAXES.

         The Employee acknowledges that any income or other taxes due from him
or her with respect to this Option or the Shares issuable pursuant to this
Option shall be the Employee's responsibility.

         In the event of a Disqualifying Disposition (as defined in Section 15
below) or if the Option is converted into a Non-Qualified Option and such
Non-Qualified Option is exercised, the Company may withhold from the Employee's
remuneration, if any, the appropriate amount of federal, state and local
withholding taxes attributable to such amount that is considered compensation
includible in such person's gross income. At the Company's discretion, the
amount required to be withheld may be withheld in cash from such remuneration,
or in kind from the Shares otherwise deliverable to the Employee on exercise of
the Option. The Employee further agrees that, if the Company does not withhold
an amount from the Employee's remuneration sufficient to satisfy the Company's
income tax withholding obligation, the Employee will reimburse the Company on
demand, in cash, for the amount under-withheld.

                                       4

<PAGE>

         11.      PURCHASE FOR INVESTMENT.

         Unless the offering and sale of the Shares to be issued upon the
particular exercise of the Option shall have been effectively registered under
the Securities Act of 1933, as now in force or hereafter amended (the
"Securities Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:

         (a)      The person(s) who exercise the Option shall warrant to the
                  Company, at the time of such exercise, that such person(s) are
                  acquiring such Shares for their own respective accounts, for
                  investment, and not with a view to, or for sale in connection
                  with, the distribution of any such Shares, in which event the
                  person(s) acquiring such Shares shall be bound by the
                  provisions of the following legend which shall be endorsed
                  upon the certificate(s) evidencing the Shares issued pursuant
                  to such exercise:

                           "The shares represented by this certificate have been
                           taken for investment and they may not be sold or
                           otherwise transferred by any person, including a
                           pledgee, unless (1) either (a) a Registration
                           Statement with respect to such shares shall be
                           effective under the Securities Act of 1933, as
                           amended, or (b) the Company shall have received an
                           opinion of counsel satisfactory to it that an
                           exemption from registration under such Act is then
                           available, and (2) there shall have been compliance
                           with all applicable state securities laws;" and

         (b)      If the Company so requires, the Company shall have received an
                  opinion of its counsel that the Shares may be issued upon such
                  particular exercise in compliance with the 1933 Act without
                  registration thereunder. Without limiting the generality of
                  the foregoing, the Company may delay issuance of the Shares
                  until completion of any action or obtaining of any consent,
                  which the Company deems reasonably necessary under any
                  applicable law (including without limitation state securities
                  or "blue sky" laws).

         12.      RESTRICTIONS ON TRANSFER OF SHARES.

         12.1 The Shares acquired by the Employee pursuant to the exercise of
the Option granted hereby shall not be transferred by the Employee except as
permitted herein.

         12.2 In the event of the Employee's termination of employment for any
reason, Disability or death, the Company shall have the option, but not the
obligation, to repurchase all or any part of the Shares issued pursuant to this
Agreement (including, without limitation, Shares purchased after termination of
employment, Disability or death in accordance with Section 4 hereof). In the
event the Company does not, upon the termination, Disability or death of the
Employee (as described above), exercise its option pursuant to this Section
12.2, the restrictions set forth in the balance of this Agreement shall not
thereby lapse, and the Employee for himself or herself, his or her heirs,
legatees, executors, administrators and other successors in interest, agrees
that the Shares shall remain subject to such restrictions. The following
provisions shall apply to a repurchase under this Section 12.2:

                                       5

<PAGE>

         (i) The per share repurchase price of the Shares to be sold to the
Company upon exercise of its option under this Section 12.2 shall be equal to
the Fair Market Value of each such Share determined in accordance with Plan as
of the date of termination, Disability or death. Notwithstanding the foregoing,
in the event the Participant's termination of employment is for cause, the
Company shall have the right to repurchase the Shares at the cash Exercise Price
of the Option.

         (ii) The Company's option to repurchase the Employee's Shares in the
event of termination of employment, Disability or death shall be valid for a
period of sixty (60) days commencing with the date of such termination of
employment.

         (iii) In the event the Company shall be entitled to and shall elect to
exercise its option to repurchase the Employee's Shares under this Section 12.2,
the Company shall notify the Employee, or in case of death, his or her
representative, in writing of its intent to repurchase the Shares. Such written
notice may be mailed by the Company up to and including the last day of the time
period provided for in Section 12.2(ii) for exercise of the Company's option to
repurchase.

         (iv) The written notice to the Employee shall specify the address at,
and the time and date on, which payment of the repurchase price is to be made
(the "Closing"). The date specified shall not be less than ten (10) days nor
more than sixty (60) days from the date of the mailing of the notice, and the
Employee or his or her successor in interest with respect to the Shares shall
have no further rights as the owner thereof from and after the date specified in
the notice. At the Closing, the repurchase price shall be delivered to the
Employee or his or her successor in interest and the Shares being purchased,
duly endorsed for transfer, shall, to the extent that they are not then in the
possession of the Company, be delivered to the Company by the Employee or his or
her successor in interest.

         (v) If the Shares are not listed on a national securities exchange nor
traded in the over the counter market, then for the purposes of this Section
12.2, Fair Market Value shall mean such value as the Administrator, in good
faith, shall determine, and, provided, however, that if, the Employee objects to
the good faith determination of the Administrator, then the Employee and the
Company shall promptly and mutually select an investment banking firm, certified
public accountant or business appraisal firm (the "Independent Appraiser") to
determine the Fair Market Value. The Company shall promptly furnish to the
Independent Appraiser such information concerning the Company's operations,
assets and properties, financial condition, earnings, capitalization and sales
of its capital stock, and any offers or indication of interest received by the
Company, as the Independent Appraiser may request or the parties may deem
relevant. The Fair Market Value as determined by the Independent Appraiser
(which determination the Independent Appraiser shall be instructed to render in
writing within thirty (30) days following the selection of such Independent
Appraiser) shall be binding upon the Employee and the Company. The fees and
expenses of the Independent Appraiser shall be borne by the Company.

         12.3 It shall be a condition precedent to the validity of any sale or
other transfer of any Shares by the Employee that the following restrictions be
complied with (except as hereinafter otherwise provided):

                                       6

<PAGE>

         (i)      No Shares owned by the Employee may be sold, pledged or
                  otherwise transferred (including by gift or devise) to any
                  person or entity, voluntarily, or by operation of law, except
                  in accordance with the terms and conditions hereinafter set
                  forth.

         (ii)     Before selling or otherwise transferring all or part of the
                  Shares, the Employee shall give written notice of such
                  intention to the Company, which notice shall include the name
                  of the proposed transferee, the proposed purchase price per
                  share, the terms of payment of such purchase price and all
                  other matters relating to such sale or transfer and shall be
                  accompanied by a copy of the binding written agreement of the
                  proposed transferee to purchase the Shares of the Employee.
                  Such notice shall constitute a binding offer by the Employee
                  to sell to the Company such number of the Shares then held by
                  the Employee as are proposed to be sold in the notice at the
                  monetary price per share designated in such notice, payable on
                  the terms offered to the Employee by the proposed transferee
                  (provided, however, that the Company shall not be required to
                  meet any non-monetary terms of the proposed transfer,
                  including, without limitation, delivery of other securities in
                  exchange for the Shares proposed to be sold). The Company
                  shall give written notice to the Employee as to whether such
                  offer has been accepted in whole by the Company within twenty
                  (20) days after its receipt of written notice from the
                  Employee. The Company may only accept such offer in whole and
                  may not accept such offer in part. Such acceptance notice
                  shall fix a time, location and date for the closing on such
                  purchase ("Closing Date") which shall not be less than ten
                  (10) nor more than sixty (60) days after the giving of the
                  acceptance notice. The place for such closing shall be at the
                  Company's principal office. At such closing, the Employee
                  shall accept payment as set forth herein and shall deliver to
                  the Company in exchange therefor certificates for the number
                  of Shares stated in the notice accompanied by duly executed
                  instruments of transfer.

         (iii)    If the Company shall fail to accept any such offer, the
                  Employee shall be free to sell all, but not less than all, of
                  the Shares set forth in his or her notice to the designated
                  transferee at the price and terms designated in the Employee's
                  notice, provided that (i) such sale is consummated within six
                  (6) months after the giving of notice by the Employee to the
                  Company as aforesaid, and (ii) the transferee first agrees in
                  writing to be bound by the provisions of this Section 12 so
                  that such transferee (and all subsequent transferees) shall
                  thereafter only be permitted to sell or transfer the Shares in
                  accordance with the terms hereof. After the expiration of such
                  six (6) months, the provisions of this Section 12.3 shall
                  again apply with respect to any proposed voluntary transfer of
                  the Employee's Shares.

         (iv)     The restrictions on transfer contained in this Section 12.3
                  shall not apply to (a) transfers by the Employee to his or her
                  spouse or children or to a trust for the benefit of his or her
                  spouse or children, (b) transfers by the Employee to his or
                  her guardian or conservator, and (c) or transfers by the
                  Employee, in the event of his or her death, to his or her
                  executor(s) or administrator(s) or to trustee(s) under his or
                  her will (collectively, "Permitted Transferees"); provided
                  however, that in any such event the Shares so transferred in
                  the hands of each such Permitted Transferee shall remain
                  subject to this Agreement, and each such Permitted

                                       7

<PAGE>

                  Transferee shall so acknowledge in writing as a condition
                  precedent to the effectiveness of such transfer.

         (v)      The provisions of this Section 12.3 may be waived upon such
                  conditions as the Company may impose.

         12.4 In the event that the Employee or his or her successor in interest
fails to deliver the Shares to be repurchased by the Company under this
Agreement, the Company may elect (a) to establish a segregated account in the
amount of the repurchase price, such account to be turned over to the Employee
or his or her successor in interest upon delivery of such Shares, and (b)
immediately to take such action as is appropriate to transfer record title of
such Shares from the Employee to the Company and to treat the Employee and such
Shares in all respects as if delivery of such Shares had been made as required
by this Agreement. The Employee hereby irrevocably grants the Company a power of
attorney which shall be coupled with an interest for the purpose of effectuating
the preceding sentence.

         12.5 If the Company shall pay a stock dividend or declare a stock split
on or with respect to any of its Common Stock, or otherwise distribute
securities of the Company to the holders of its Common Stock, the number of
shares of stock or other securities of Company issued with respect to the shares
then subject to the restrictions contained in this Agreement shall be added to
the Shares subject to the Company's rights to repurchase pursuant to this
Agreement. If the Company shall distribute to its stockholders shares of stock
of another corporation, the shares of stock of such other corporation,
distributed with respect to the Shares then subject to the restrictions
contained in this Agreement, shall be added to the Shares subject to the
Company's rights to repurchase pursuant to this Agreement.

         12.6 If the outstanding shares of Common Stock of the Company shall be
subdivided into a greater number of shares or combined into a smaller number of
shares, or in the event of a reclassification of the outstanding shares of
Common Stock of the Company, or if the Company shall be a party to a merger,
consolidation or capital reorganization, there shall be substituted for the
Shares then subject to the restrictions contained in this Agreement such amount
and kind of securities as are issued in such subdivision, combination,
reclassification, merger, consolidation or capital reorganization in respect of
the Shares subject immediately prior thereto to the Company's rights to
repurchase pursuant to this Agreement.

         12.7 The Company shall not be required to transfer any Shares on its
books which shall have been sold, assigned or otherwise transferred in violation
of this Agreement, or to treat as owner of such Shares, or to accord the right
to vote as such owner or to pay dividends to, any person or organization to
which any such Shares shall have been so sold, assigned or otherwise
transferred, in violation of this Agreement.

         12.8 The provisions of Sections 12.1, 12.2 and 12.3 shall terminate
upon the effective date of the initial public offering of the Company's
securities pursuant to the Securities Act.

         12.9 If, in connection with a registration statement filed by the
Company pursuant to the Securities Act relating to an underwritten public
offering of the Company's securities, the Company or its underwriter so
requests, the Employee will agree not to sell any Shares for a

                                       8

<PAGE>

period not to exceed 180 days following the effectiveness of such registration
(but not greater than the period applicable to all executive officers and
directors of the Company).

         12.10 The Employee acknowledges and agrees, except in connection with
the exercise of his Options, that neither the Company, its shareholders nor its
directors and officers, has any duty or obligation to disclose to the Employee
any material information regarding the business of the Company or affecting the
value of the Shares before, at the time of, or following a termination of the
employment of the Employee by the Company, including, without limitation, any
information concerning plans for the Company to make a public offering of its
securities or to be acquired by or merged with or into another firm or entity.

         12.11 All certificates representing the Shares to be issued to the
Employee pursuant to this Agreement shall have endorsed thereon a legend
substantially as follows: "The shares represented by this certificate are
subject to restrictions set forth in an Incentive Stock Option Agreement dated
_________, 200_ with this Company, a copy of which Agreement is available for
inspection at the offices of the Company or will be made available upon
request."

         13.      NO OBLIGATION TO EMPLOY.

         The Company is not, by the Plan or this Option, obligated to continue
the Employee as an employee of the Company.

         14.      OPTION IS INTENDED TO BE AN ISO.

         The parties each intend that the Option be an ISO so that the Employee
(or the Employee's Survivors) may qualify for the favorable tax treatment
provided to holders of Options that meet the standards of Section 422 of the
Code. Any provision of this Agreement or the Plan which conflicts with the Code
so that this Option would not be deemed an ISO is null and void and any
ambiguities shall be resolved so that the Option qualifies as an ISO.
Nonetheless, if the Option is determined not to be an ISO, the Employee
understands that neither the Company nor any Affiliate is responsible to
compensate him or her or otherwise make up for the treatment of the Option as a
Non-qualified Option and not as an ISO. The Employee should consult with the
Employee's own tax advisors regarding the tax effects of the Option and the
requirements necessary to obtain favorable tax treatment under Section 422 of
the Code, including, but not limited to, holding period requirements.

         15.      NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.

         The Employee agrees to notify the Company in writing immediately after
the Employee makes a Disqualifying Disposition of any of the Shares acquired
pursuant to the exercise of the Option. A Disqualifying Disposition is defined
in Section 424(c) of the Code and includes any disposition (including any sale)
of such Shares before the later of (a) two years after the date the Employee was
granted the Option or (b) one year after the date the Employee acquired Shares
by exercising the Option, except as otherwise provided in Section 424(c) of the
Code. If the Employee has died before the Shares are sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.

                                       9

<PAGE>

         16.      NOTICES.

         Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by recognized courier service, facsimile, registered or
certified mail, return receipt requested, addressed as follows:

If to the Company:                  SmartBargains, Inc.
                                    10 Milk Street, 10th Floor
                                    Boston, MA  02108
                                    Attention:  Chief Financial Officer

If to the Employee:

or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given upon
the earlier of receipt, one business day following delivery to a recognized
courier service, or three business days following mailing by registered or
certified mail.

         17.      GOVERNING LAW.

         This Agreement shall be construed and enforced in accordance with the
law of the State of Delaware, without giving effect to the conflict of law
principles thereof.

         18.      BENEFIT OF AGREEMENT.

         Subject to the provisions of the Plan and the other provisions hereof,
this Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.

         19.      ENTIRE AGREEMENT.

         This Agreement, together with the Plan, embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement not expressly set forth in this Agreement shall affect or
be used to interpret, change, or restrict the express terms and provisions of
this Agreement, provided, however, in any event, this Agreement shall be subject
to and governed by the Plan.

         20.      MODIFICATIONS AND AMENDMENTS.

         The terms and provisions of this Agreement may be modified or amended
as provided in the Plan.

                                       10

<PAGE>

         21.      WAIVERS AND CONSENTS.

         Except as provided in the Plan, the terms and provisions of this
Agreement may be waived, or consent for the departure therefrom granted, only by
written document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.

         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Employee has hereunto set his
or her hand, all as of the day and year first above written.

                                   SmartBargains, Inc.

                                   By: _______________________________
                                       Stephen M. Joseph
                                       Executive Vice President
                                       Chief Financial Officer

                                   ___________________________________
                                   Employee

                                       11

<PAGE>

                                                                       Exhibit A

                  NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION

                         [FORM FOR UNREGISTERED SHARES]

To: SmartBargains, Inc.

Ladies and Gentlemen:

         I hereby exercise my Incentive Stock Option to purchase ___________
shares (the "Shares") of the common stock, $.01 par value, of SmartBargains,
Inc. (the "Company"), at the exercise price of $____ per share, pursuant to and
subject to the terms of that certain Incentive Stock Option Agreement between
the undersigned and the Company dated ________________, 200__.

         I am aware that the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"), or any state securities
laws. I understand that the reliance by the Company on exemptions under the 1933
Act is predicated in part upon the truth and accuracy of the statements by me in
this Notice of Exercise.

         I hereby represent and warrant that (1) I have been furnished with all
information which I deem necessary to evaluate the merits and risks of the
purchase of the Shares; (2) I have had the opportunity to ask questions
concerning the Shares and the Company and all questions posed have been answered
to my satisfaction; (3) I have been given the opportunity to obtain any
additional information I deem necessary to verify the accuracy of any
information obtained concerning the Shares and the Company; and (4) I have such
knowledge and experience in financial and business matters that I am able to
evaluate the merits and risks of purchasing the Shares and to make an informed
investment decision relating thereto.

         I hereby represent and warrant that I am purchasing the Shares for my
own personal account for investment and not with a view to the sale or
distribution of all or any part of the Shares.

         I understand that because the Shares have not been registered under the
1933 Act, I must continue to bear the economic risk of the investment for an
indefinite time and the Shares cannot be sold unless the Shares are subsequently
registered under applicable federal and state securities laws or an exemption
from such registration requirements is available.

         I agree that I will in no event sell or distribute or otherwise dispose
of all or any part of the Shares unless (1) there is an effective registration
statement under the 1933 Act and applicable state securities laws covering any
such transaction involving the Shares or (2) the Company receives an opinion of
my legal counsel (concurred in by legal counsel for the Company) stating that
such transaction is exempt from registration or the Company otherwise satisfies
itself that such transaction is exempt from registration.

                                       12

<PAGE>

         I consent to the placing of a legend on my certificate for the Shares
stating that the Shares have not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Shares until the Shares may be legally resold or distributed without
restriction.

         I understand that at the present time Rule 144 of the Securities and
Exchange Commission (the "SEC") may not be relied on for the resale or
distribution of the Shares by me. I understand that the Company has no
obligation to me to register the sale of the Shares with the SEC and has not
represented to me that it will register the sale of the Shares.

         I understand the terms and restrictions on the right to dispose of the
Shares set forth in the 2000 Employee, Director and Consultant Stock Option
Plan, as amended and the Incentive Stock Option Agreement, both of which I have
carefully reviewed. I consent to the placing of a legend on my certificate for
the Shares referring to such restriction and the placing of stop transfer orders
until the Shares may be transferred in accordance with the terms of such
restrictions.

         I have considered the Federal, state and local income tax implications
of the exercise of my Option and the purchase and subsequent sale of the Shares.

         I am paying the option exercise price for the Shares as follows:

                    ________________________________________

         Please issue the stock certificate for the Shares (check one):

         |_| to me; or

         |_| to me and ________________, as joint tenants with right of

survivorship and mail the certificate to me at the following address:

___________________________________________

___________________________________________

___________________________________________

                                       13

<PAGE>

         My mailing address for shareholder communications, if different from
the address listed above is:

___________________________________________

___________________________________________

___________________________________________

                                        Very truly yours,

                                        _____________________________________
                                        Employee (signature)

                                        _____________________________________
                                        Print Name

                                        _____________________________________
                                        Date

                                        _____________________________________
                                        Social Security Number

                                       14

<PAGE>

                                                                       Exhibit A

                  NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION

                          [FORM FOR REGISTERED SHARES]

TO: SmartBargains, Inc.

IMPORTANT NOTICE: This form of Notice of Exercise may only be used at such time
as the Company has filed a Registration Statement with the Securities and
Exchange Commission under which the issuance of the Shares for which this
exercise is being made is registered and such Registration Statement remains
effective.

Ladies and Gentlemen:

         I hereby exercise my Incentive Stock Option to purchase _________
shares (the "Shares") of the common stock, $.01 par value, of SmartBargains,
Inc. (the "Company"), at the exercise price of $________ per share, pursuant to
and subject to the terms of that certain Incentive Stock Option Agreement
between the undersigned and the Company dated _______________, 200__.

         I understand the nature of the investment I am making and the financial
risks thereof. I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.

         I am paying the option exercise price for the Shares as follows:

                  ____________________________________________

         Please issue the stock certificate for the Shares (check one):

         |_| to me; or

         |_| to me and ____________________________, as joint tenants with right

of survivorship, and mail the certificate to me at the following address:

___________________________________________

___________________________________________

___________________________________________

                                       15

<PAGE>

         My mailing address for shareholder communications, if different from
the address listed above, is:

___________________________________________

___________________________________________

___________________________________________

                                        Very truly yours,

                                        _____________________________________
                                        Employee (signature)

                                        _____________________________________
                                        Print Name

                                        _____________________________________
                                        Date

                                        _____________________________________
                                        Social Security Number

                                       16

<PAGE>
                      NON-QUALIFIED STOCK OPTION AGREEMENT

                               SMARTBARGAINS, INC.

         AGREEMENT made as of the ____ day of __________ 200_, by and between
SmartBargains, Inc. (the "Company"), a Delaware corporation having a principal
place of business in Boston, Massachusetts and _________________of
_________________, ________ (the "Participant").

         WHEREAS, the Company desires to grant to the Participant an option (the
"Option") to purchase shares of its common stock, $0.01 par value per share (the
"Shares"), under and for the purposes set forth in the Company's Amended and
Restated 2000 Participant, Director and Consultant Stock Option Plan (the
"Plan");

         WHEREAS, the Company and the Participant understand and agree that any
terms used and not defined herein have the same meanings as in the Plan; and

         WHEREAS, the Company and the Participant each intend that the Option
granted herein does not qualify as an incentive stock option ("ISO") under
Section 422 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder (the "Code").

         NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:

         1.       GRANT OF OPTION.

         The Company hereby grants to the Participant the right and option to
purchase all or any part of an aggregate of _____________________________
(__________) Shares, on the terms and conditions and subject to all the
limitations set forth herein and in the Plan, which is incorporated herein by
reference. The Participant acknowledges receipt of a copy of the Plan.

         2.       PURCHASE PRICE.

         The purchase price of the Shares covered by the Option shall be $.36
per Share, subject to adjustment, as provided in the Plan, in the event of a
stock split, reverse stock split or other events affecting the holders of Shares
(the "Exercise Price"). Payment shall be made in accordance with Paragraph 7 of
the Plan.

         3.       EXERCISABILITY OF OPTION.

         Subject to the terms and conditions set forth in this Agreement and the
Plan, the Option granted hereby shall become exercisable as follows: On the
first anniversary of the date of this Agreement [OR DATE OF HIRE, AS APPLICABLE]
(__________), 25% of the Shares shall be exercisable, and thereafter 6.25% of
the Shares shall be exercisable on the first day of January, April, July and
October until such time as all 100,000 Shares are fully exercisable.

<PAGE>

Notwithstanding the foregoing, in the event of a Change in Control (as defined
in the Plan) of the Company, subject to the other terms and conditions set forth
in this Agreement and in the Plan, then immediately prior to the consummation of
such Change of Control, the Option shall accelerate and become exercisable with
respect to an additional 12.5% of the shares covered by the Option, and the
Option shall continue in full force and effect with respect to any Shares as to
which the Option applies, whether vested or unvested. In the event that the
Participant's employment, directorship or consultancy is terminated by the
Company without "cause" (as defined below) following any such Change of Control,
the Option shall accelerate and become exercisable with respect to all of the
remaining Shares covered by the Option at the time of such termination, subject
to the other terms and conditions set forth in this Agreement and in the Plan.

         The foregoing rights are cumulative and are subject to the other terms
and conditions of this Agreement and the Plan, including without limitation
Section 16(B) of the Plan.

         4.       TERM OF OPTION.

         The Option shall terminate ten (10) years from the date of this
Agreement.

         If the Participant ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than the death or
Disability of the Participant or termination of Participant for "cause" as
defined in the Plan), the Option may be exercised, if it has not previously
terminated, within one (1) month after the date the Participant ceases to be an
employee, director or consultant of the Company or an Affiliate, or within the
originally prescribed term of the Option, whichever is earlier, but may not be
exercised thereafter. In such event, the Option shall be exercisable only to the
extent that the Option has become exercisable and is in effect at the date of
such cessation of employment, directorship or consultancy.

         Notwithstanding the foregoing, in the event of the Participant's
Disability or death within one (1) month after the termination of employment,
directorship or consultancy, the Participant or the Participant's Survivors may
exercise the Option within one (1) year after the date of the Participant's
termination of employment, directorship or consultancy, but in no event after
the date of expiration of the term of the Option.

         In the event the Participant's employment, directorship or consultancy
is terminated by the Participant's employer for "cause" as defined in the Plan,
the Participant's right to exercise any unexercised portion of this Option shall
cease as of such termination, and this Option shall thereupon terminate.
Notwithstanding anything herein to the contrary, if subsequent to the
Participant's termination, but prior to the exercise of the Option, the Board of
Directors of the Company determines that, either prior or subsequent to the
Participant's termination, the Participant engaged in conduct which would
constitute "cause," then the Participant shall immediately cease to have any
right to exercise the Option and this Option shall thereupon terminate.

         In the event of the Disability of the Participant, as determined in
accordance with the Plan, the Option shall be exercisable within one (1) year
after the date of Disability or, if earlier, within the term originally
prescribed by the Option. In such event, the Option shall be

                                       2

<PAGE>

exercisable:

         (a)      to the extent exercisable but not exercised as of the date of
                  Disability; and

         (b)      in the event rights to exercise the Option accrue
                  periodically, to the extent of a pro rata portion of any
                  additional rights to exercise the Option as would have accrued
                  had the Participant not become Disabled prior to the end of
                  the accrual period which next ends following the date of
                  Disability. The proration shall be based upon the number of
                  days during the accrual period prior to the date of
                  Disability.

         In the event of the death of the Participant while an employee,
director or consultant of the Company or of an Affiliate, the Option shall be
exercisable by the Participant's Survivors within one (1) year after the date of
death of the Participant or, if earlier, within the originally prescribed term
of the Option. In such event, the Option shall be exercisable:

         (x)      to the extent exercisable but not exercised as of the date of
                  death; and

         (y)      in the event rights to exercise the Option accrue
                  periodically, to the extent of a pro rata portion of any
                  additional rights to exercise the Option as would have accrued
                  had the Participant not died prior to the end of the accrual
                  period which next ends following the date of death. The
                  proration shall be based upon the number of days during the
                  accrual period prior to the Participant's death.

         5.       METHOD OF EXERCISING OPTION.

         Subject to the terms and conditions of this Agreement, the Option may
be exercised by written notice to the Company at its principal executive office,
in substantially the form of Exhibit A attached hereto. Such notice shall state
the number of Shares with respect to which the Option is being exercised and
shall be signed by the person exercising the Option. Payment of the purchase
price for such Shares shall be made in accordance with Paragraph 7 of the Plan.
The Company shall deliver a certificate or certificates representing such Shares
as soon as practicable after the notice shall be received, provided, however,
that the Company may delay issuance of such Shares until completion of any
action or obtaining of any consent, which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws). The certificate or certificates for the Shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Participant and if the Participant shall so request in the notice exercising the
Option, shall be registered in the name of the Participant and another person
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising the Option. In the
event the Option shall be exercised, pursuant to Section 4 hereof, by any person
or persons other than the Participant, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All Shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and nonassessable.

                                       3

<PAGE>

         6.       PARTIAL EXERCISE.

         Exercise of this Option to the extent above stated may be made in part
at any time and from time to time within the above limits, except that no
fractional share shall be issued pursuant to this Option.

         7.       NON-ASSIGNABILITY.

         The Option shall not be transferable by the Participant otherwise than
by will or by the laws of descent and distribution. The Option shall be
exercisable, during the Participant's lifetime, only by the Participant (or, in
the event of legal incapacity or incompetency, by the Participant's guardian or
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights
granted hereunder contrary to the provisions of this Section 7, or the levy of
any attachment or similar process upon the Option shall be null and void.

         8.       NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.

         The Participant shall have no rights as a stockholder with respect to
Shares subject to this Agreement until registration of the Shares in the
Company's share register in the name of the Participant. Except as expressly
provided in the Plan with respect to certain changes in the capitalization of
the Company, no adjustment shall be made for dividends or similar rights for
which the record date is prior to the date of such registration.

         9.       CAPITAL CHANGES AND BUSINESS SUCCESSIONS.

                  The Plan contains provisions covering the treatment of Options
in a number of contingencies such as stock splits and mergers. Provisions in the
Plan for adjustment with respect to stock subject to Options and the related
provisions with respect to successors to the business of the Company are hereby
made applicable hereunder and are incorporated herein by reference.

         10.      TAXES.

         The Participant acknowledges that upon exercise of the Option the
Participant will be deemed to have taxable income measured by the difference
between the then fair market value of the Shares received upon exercise and the
price paid for such Shares pursuant to this Agreement. The Participant
acknowledges that any income or other taxes due from him or her with respect to
this Option or the Shares issuable pursuant to this Option shall be the
Participant's responsibility.

         In the event of an exercise of this Option, the Company may withhold
from the Participant's remuneration, if any, the appropriate amount of federal,
state and local withholding taxes attributable to such amount that is considered
compensation includible in such person's gross income. At the Company's
discretion, the amount required to be withheld may be

                                       4

<PAGE>

withheld in cash from such remuneration, or in kind from the Shares otherwise
deliverable to the Participant on exercise of the Option. The Participant
further agrees that, if the Company does not withhold an amount from the
Participant's remuneration sufficient to satisfy the Company's income tax
withholding obligation, the Participant will reimburse the Company on demand, in
cash, for the amount under-withheld.

         11.      PURCHASE FOR INVESTMENT.

         Unless the offering and sale of the Shares to be issued upon the
particular exercise of the Option shall have been effectively registered under
the Securities Act of 1933, as now in force or hereafter amended (the
"Securities Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:

         (a)      The person(s) who exercise the Option shall warrant to the
                  Company, at the time of such exercise, that such person(s) are
                  acquiring such Shares for their own respective accounts, for
                  investment, and not with a view to, or for sale in connection
                  with, the distribution of any such Shares, in which event the
                  person(s) acquiring such Shares shall be bound by the
                  provisions of the following legend which shall be endorsed
                  upon the certificate(s) evidencing the Shares issued pursuant
                  to such exercise:

                           "The shares represented by this certificate have been
                           taken for investment and they may not be sold or
                           otherwise transferred by any person, including a
                           pledgee, unless (1) either (a) a Registration
                           Statement with respect to such shares shall be
                           effective under the Securities Act of 1933, as
                           amended, or (b) the Company shall have received an
                           opinion of counsel satisfactory to it that an
                           exemption from registration under such Act is then
                           available, and (2) there shall have been compliance
                           with all applicable state securities laws;" and

         (b)      If the Company so requires, the Company shall have received an
                  opinion of its counsel that the Shares may be issued upon such
                  particular exercise in compliance with the 1933 Act without
                  registration thereunder. Without limiting the generality of
                  the foregoing, the Company may delay issuance of the Shares
                  until completion of any action or obtaining of any consent,
                  which the Company deems reasonably necessary under any
                  applicable law (including without limitation state securities
                  or "blue sky" laws).

         12.      RESTRICTIONS ON TRANSFER OF SHARES.

         12.1 The Shares acquired by the Participant pursuant to the exercise of
the Option granted hereby shall not be transferred by the Participant except as
permitted herein.

         12.2 In the event of the Participant's termination of employment,
directorship or consultancy for any reason, death or Disability, the Company
shall have the option, but not the obligation, to repurchase all or any part of
the Shares issued pursuant to this Agreement

                                       5

<PAGE>

(including, without limitation, Shares purchased after termination of
employment, Disability or death in accordance with Section 4 hereof). In the
event the Company does not, upon the termination of Participant's employment,
directorship or consultancy, Disability or death (as described above), exercise
its option pursuant to this Section 12.2, the restrictions set forth in the
balance of this Agreement shall not thereby lapse, and the Participant for
himself or herself, his or her heirs, legatees, executors, administrators and
other successors in interest, agrees that the Shares shall remain subject to
such restrictions. The following provisions shall apply to a repurchase under
this Section 12.2:

         (i) The per share repurchase price of the Shares to be sold to the
Company upon exercise of its option under this Section 12.2 shall be equal to
the Fair Market Value of each such Share determined in accordance with the Plan
as of the date of termination, Disability or death. Notwithstanding the
foregoing, in the event the Participant's termination is for cause (as defined
in the Plan), the Company shall have the right to repurchase the Shares at the
cash Exercise Price of the Option.

         (ii) The Company's option to repurchase the Participant's Shares in the
event of termination, Disability or death shall be valid for a period of sixty
(60) days commencing with the date of such termination, Disability or death.

         (iii) In the event the Company shall be entitled to and shall elect to
exercise its option to repurchase the Participant's Shares under this Section
12.2, the Company shall notify the Participant, or in case of death, his or her
representative, in writing of its intent to repurchase the Shares. Such written
notice may be mailed by the Company up to and including the last day of the time
period provided for in Section 12.2(ii) for exercise of the Company's option to
repurchase.

         (iv) The written notice to the Participant shall specify the address
at, and the time and date on, which payment of the repurchase price is to be
made (the "Closing"). The date specified shall not be less than ten (10) days
nor more than sixty (60) days from the date of the mailing of the notice, and
the Participant or his or her successor in interest with respect to the Shares
shall have no further rights as the owner thereof from and after the date
specified in the notice. At the Closing, the repurchase price shall be delivered
to the Participant or his or her successor in interest and the Shares being
purchased, duly endorsed for transfer, shall, to the extent that they are not
then in the possession of the Company, be delivered to the Company by the
Participant or his or her successor in interest.

         (v) If the Shares are not listed on a national securities exchange nor
traded in the over the counter market, then for the purposes of this Section
12.2, Fair Market Value shall mean such value as the Administrator, in good
faith, shall determine, and, provided, however, that if, the Participant objects
to the good faith determination of the Administrator, then the Participant and
the Company shall promptly and mutually select an investment banking firm,
certified public accountant or business appraisal firm (the "Independent
Appraiser") to determine the Fair Market Value. The Company shall promptly
furnish to the Independent Appraiser such information concerning the Company's
operations, assets and properties, financial condition, earnings, capitalization
and sales of its capital stock, and any offers or indication of interest

                                       6

<PAGE>

received by the Company, as the Independent Appraiser may request or the parties
may deem relevant. The Fair Market Value as determined by the Independent
Appraiser (which determination the Independent Appraiser shall be instructed to
render in writing within thirty (30) days following the selection of such
Independent Appraiser) shall be binding upon the Participant and the Company.
The fees and expenses of the Independent Appraiser shall be borne by the
Company.

         12.3 It shall be a condition precedent to the validity of any sale or
other transfer of any Shares by the Participant that the following restrictions
be complied with (except as hereinafter otherwise provided):

         (i)      No Shares owned by the Participant may be sold, pledged or
                  otherwise transferred (including by gift or devise) to any
                  person or entity, voluntarily, or by operation of law, except
                  in accordance with the terms and conditions hereinafter set
                  forth.

         (ii)     Before selling or otherwise transferring all or part of the
                  Shares, the Participant shall give written notice of such
                  intention to the Company, which notice shall include the name
                  of the proposed transferee, the proposed purchase price per
                  share, the terms of payment of such purchase price and all
                  other matters relating to such sale or transfer and shall be
                  accompanied by a copy of the binding written agreement of the
                  proposed transferee to purchase the Shares of the Participant.
                  Such notice shall constitute a binding offer by the
                  Participant to sell to the Company such number of the Shares
                  then held by the Participant as are proposed to be sold in the
                  notice at the monetary price per share designated in such
                  notice, payable on the terms offered to the Participant by the
                  proposed transferee (provided, however, that the Company shall
                  not be required to meet any non-monetary terms of the proposed
                  transfer, including, without limitation, delivery of other
                  securities in exchange for the Shares proposed to be sold).
                  The Company shall give written notice to the Participant as to
                  whether such offer has been accepted in whole by the Company
                  within twenty (20) days after its receipt of written notice
                  from the Participant. The Company may only accept such offer
                  in whole and may not accept such offer in part. Such
                  acceptance notice shall fix a time, location and date for the
                  closing on such purchase ("Closing Date") which shall not be
                  less than ten (10) nor more than sixty (60) days after the
                  giving of the acceptance notice. The place for such closing
                  shall be at the Company's principal office. At such closing,
                  the Participant shall accept payment as set forth herein and
                  shall deliver to the Company in exchange therefor certificates
                  for the number of Shares stated in the notice accompanied by
                  duly executed instruments of transfer.

         (iii)    If the Company shall fail to accept any such offer, the
                  Participant shall be free to sell all, but not less than all,
                  of the Shares set forth in his or her notice to the designated
                  transferee at the price and terms designated in the
                  Participant's notice, provided that (i) such sale is
                  consummated within six (6) months after the giving of notice
                  by the Participant to the Company as aforesaid, and (ii) the
                  transferee first agrees in writing to be bound by the
                  provisions of this Section 12 so that such

                                       7

<PAGE>

                  transferee (and all subsequent transferees) shall thereafter
                  only be permitted to sell or transfer the Shares in accordance
                  with the terms hereof. After the expiration of such six (6)
                  months, the provisions of this Section 12.3 shall again apply
                  with respect to any proposed voluntary transfer of the
                  Participant's Shares.

         (iv)     The restrictions on transfer contained in this Section 12.3
                  shall not apply to (a) transfers by the Participant to his or
                  her spouse or children or to a trust for the benefit of his or
                  her spouse or children, (b) transfers by the Participant to
                  his or her guardian or conservator, and (c) or transfers by
                  the Participant, in the event of his or her death, to his or
                  her executor(s) or administrator(s) or to trustee(s) under his
                  or her will (collectively, "Permitted Transferees"); provided
                  however, that in any such event the Shares so transferred in
                  the hands of each such Permitted Transferee shall remain
                  subject to this Agreement, and each such Permitted Transferee
                  shall so acknowledge in writing as a condition precedent to
                  the effectiveness of such transfer.

         (v)      The provisions of this Section 12.3 may be waived upon such
                  conditions as the Company may impose.

         12.4 In the event that the Participant or his or her successor in
interest fails to deliver the Shares to be repurchased by the Company under this
Agreement, the Company may elect (a) to establish a segregated account in the
amount of the repurchase price, such account to be turned over to the
Participant or his or her successor in interest upon delivery of such Shares,
and (b) immediately to take such action as is appropriate to transfer record
title of such Shares from the Participant to the Company and to treat the
Participant and such Shares in all respects as if delivery of such Shares had
been made as required by this Agreement. The Participant hereby irrevocably
grants the Company a power of attorney which shall be coupled with an interest
for the purpose of effectuating the preceding sentence.

         12.5 If the Company shall pay a stock dividend or declare a stock split
on or with respect to any of its Common Stock, or otherwise distribute
securities of the Company to the holders of the Common Stock, the number of
shares of stock or securities of the Company issued with respect to the Shares
then subject to the restrictions contained in this Agreement shall be added to
the Shares subject to the Company's rights to repurchase pursuant to this
Agreement. If the Company shall distribute to its stockholders shares of stock
of another corporation, the shares of stock of such other corporation,
distributed with respect to the Shares then subject to the restrictions
contained in this Agreement, shall be added to the Shares subject to the
Company's rights to repurchase pursuant to this Agreement.

         12.6 If the outstanding shares of Common Stock of the Company shall be
subdivided into a greater number of shares or combined into a smaller number of
shares, or in the event of a reclassification of the outstanding shares of
Common Stock of the Company, or if the Company shall be a party to a merger,
consolidation or capital reorganization, there shall be substituted for the
Shares then subject to the restrictions contained in this Agreement such amount
and kind of securities as are issued in such subdivision, combination,
reclassification, merger, consolidation

                                       8

<PAGE>

or capital reorganization in respect of the Shares subject immediately prior
thereto to the Company's rights to repurchase pursuant to this Agreement.

         12.7 The Company shall not be required to transfer any Shares on its
books which shall have been sold, assigned or otherwise transferred in violation
of this Agreement, or to treat as owner of such Shares, or to accord the right
to vote as such owner or to pay dividends to, any person or organization to
which any such Shares shall have been so sold, assigned or otherwise
transferred, in violation of this Agreement.

         12.8 The provisions of Sections 12.1, 12.2, and 12.3 shall terminate
upon the effective date of the initial public offering of the Company's
securities pursuant to the Securities Act.

         12.9 If, in connection with a registration statement filed by the
Company pursuant to the Securities Act relating to an underwritten public
offering of the Company's securities, the Company or its underwriter so
requests, the Participant will agree not to sell any Shares for a period not to
exceed 180 days following the effectiveness of such registration (but not
greater than the period applicable to all executive officers and directors of
the Company).

         12.10 The Participant acknowledges and agrees, except in connection
with the exercise of his Options, that neither the Company, its shareholders nor
its directors and officers, has any duty or obligation to disclose to the
Participant any material information regarding the business of the Company or
affecting the value of the Shares before, at the time of, or following a
termination of the employment of the Participant by the Company, including,
without limitation, any information concerning plans for the Company to make a
public offering of its securities or to be acquired by or merged with or into
another firm or entity.

         12.11 All certificates representing the Shares to be issued to the
Participant pursuant to this Agreement shall have endorsed thereon a legend
substantially as follows: "The shares represented by this certificate are
subject to restrictions set forth in a Non-Qualified Stock Option Agreement
dated ______________, 200_ with this Company, a copy of which Agreement is
available for inspection at the offices of the Company or will be made available
upon request."

         13.      NO OBLIGATION TO MAINTAIN A RELATIONSHIP.

         The Company is not, by the Plan or this Option, obligated to continue
the Participant as an employee, director or consultant of the Company.

         14.      OPTION IS NOT INTENDED TO BE AN ISO.

         The parties each intend that the Option be a Non-Qualified Stock Option
so that the Participant (or the Participant's Survivors) may not qualify for the
favorable tax treatment provided to holders of Options that meet the standards
of Section 422 of the Code. The Participant understands that neither the Company
nor any Affiliate is responsible to compensate him or her or otherwise make up
for the treatment of the Option as a Non-Qualified Option and not as an ISO. The
Participant should consult with the Participant's own tax advisors regarding the
tax effects of the Option, including, but not limited to, holding period
requirements.

                                       9

<PAGE>

         15.      NOTICES.

         Any notices required or permitted by the terms of this Agreement shall
be given by recognized courier service, facsimile, registered or certified mail,
return receipt requested, addressed as follows:

If to the Company:
                                    SmartBargains, Inc.
                                    10 Milk Street, 10th Floor
                                    Boston, MA 02108
                                    Attention:  Chief Financial Officer

If to the Participant:

                                    __________________________________________

                                    __________________________________________

                                    __________________________________________

or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given upon
the earlier of receipt, one business day following delivery to a recognized
courier service, or three business days following mailing by registered or
certified mail.

         16.      GOVERNING LAW.

         This Agreement shall be construed and enforced in accordance with the
law of the State of Delaware, without giving effect to the conflict of law
principles thereof.

         17.      BENEFIT OF AGREEMENT.

         Subject to the provisions of the Plan and the other provisions hereof,
this Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.

         18.      ENTIRE AGREEMENT.

         This Agreement, together with the Plan, embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement not expressly set forth in this Agreement shall affect or
be used to interpret, change, or restrict the express terms and provisions of
this Agreement, provided, however, in any event, this Agreement shall be subject
to and governed by the Plan.

                                       10

<PAGE>

         19.      MODIFICATIONS AND AMENDMENTS.

         The terms and provisions of this Agreement may be modified or amended
as provided in the Plan.

         20.      WAIVERS AND CONSENTS.

         Except as provided in the Plan, the terms and provisions of this
Agreement may be waived, or consent for the departure therefrom granted, only by
written document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       11

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Participant has hereunto set
his or her hand, all as of the day and year first above written.

                                       SmartBargains, Inc.

                                       By: _______________________________
                                           Stephen M. Joseph
                                           Executive Vice President
                                           Chief Financial Officer

                                       ___________________________________
                                       Participant Signature

                                       12

<PAGE>

                                                                       Exhibit A

                NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION

                         [FORM FOR UNREGISTERED SHARES]

To: SmartBargains, Inc.

Ladies and Gentlemen:

         I hereby exercise my Non-Qualified Stock Option to purchase ___________
shares (the "Shares") of the common stock, $.01 par value, of SmartBargains,
Inc. (the "Company"), at the exercise price of $_______ per share, pursuant to
and subject to the terms of that certain Non-Qualified Stock Option Agreement
between the undersigned and the Company dated _______________, 200_ (the "Stock
Option Agreement").

         I am aware that the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"), or any state securities
laws. I understand that the reliance by the Company on exemptions under the 1933
Act is predicated in part upon the truth and accuracy of the statements by me in
this Notice of Exercise.

         I hereby represent and warrant that (1) I have been furnished with all
information which I deem necessary to evaluate the merits and risks of the
purchase of the Shares; (2) I have had the opportunity to ask questions
concerning the Shares and the Company and all questions posed have been answered
to my satisfaction; (3) I have been given the opportunity to obtain any
additional information I deem necessary to verify the accuracy of any
information obtained concerning the Shares and the Company; and (4) I have such
knowledge and experience in financial and business matters that I am able to
evaluate the merits and risks of purchasing the Shares and to make an informed
investment decision relating thereto.

         I hereby represent and warrant that I am purchasing the Shares for my
own personal account for investment and not with a view to the sale or
distribution of all or any part of the Shares.

         I understand that because the Shares have not been registered under the
1933 Act, I must continue to bear the economic risk of the investment for an
indefinite time and the Shares cannot be sold unless the Shares are subsequently
registered under applicable federal and state securities laws or an exemption
from such registration requirements is available.

         I agree that I will in no event sell or distribute or otherwise dispose
of all or any part of the Shares unless (1) there is an effective registration
statement under the 1933 Act and applicable state securities laws covering any
such transaction involving the Shares or (2) the Company receives an opinion of
my legal counsel (concurred in by legal counsel for the

                                       13

<PAGE>

Company) stating that such transaction is exempt from registration or the
Company otherwise satisfies itself that such transaction is exempt from
registration.

         I consent to the placing of a legend on my certificate for the Shares
stating that the Shares have not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Shares until the Shares may be legally resold or distributed without
restriction.

         I understand that at the present time Rule 144 of the Securities and
Exchange Commission (the "SEC") may not be relied on for the resale or
distribution of the Shares by me. I understand that the Company has no
obligation to me to register the sale of the Shares with the SEC and has not
represented to me that it will register the sale of the Shares.

         I understand the terms and restrictions on the right to dispose of the
Shares set forth in the Amended and Restated 2000 Employee, Director and
Consultant Stock Option Plan and the Non-Qualified Stock Option Agreement, which
I have carefully reviewed. I consent to the placing of a legend on my
certificate for the Shares referring to such restriction and the placing of stop
transfer orders until the Shares may be transferred in accordance with the terms
of such restrictions.

         I have considered the Federal, state and local income tax implications
of the exercise of my Option and the purchase and subsequent sale of the Shares.

         I am paying the option exercise price for the Shares as follows:

                       __________________________________

         Please issue the stock certificate for the Shares (check one):

         |_| to me; or

         |_| to me and ________________, as joint tenants with right of

survivorship and mail the certificate to me at the following address:

___________________________________

___________________________________

___________________________________

                                       14

<PAGE>

         My mailing address for shareholder communications, if different from
the address listed above is:

___________________________________

___________________________________

___________________________________

                                           Very truly yours,

                                           ____________________________________
                                           Participant (signature)

                                           ____________________________________
                                           Print Name

                                           ____________________________________
                                           Date

                                           ____________________________________
                                           Social Security Number

                                       15

<PAGE>

                                                                       Exhibit A

                NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION

                          [FORM FOR REGISTERED SHARES]

TO: SmartBargains, Inc.

IMPORTANT NOTICE: This form of Notice of Exercise may only be used at such time
as the Company has filed a Registration Statement with the Securities and
Exchange Commission under which the issuance of the Shares for which this
exercise is being made is registered and such Registration Statement remains
effective.

Ladies and Gentlemen:

         I hereby exercise my Non-Qualified Stock Option to purchase _________
shares (the "Shares") of the common stock, $.01 par value, of SmartBargains,
Inc. (the "Company"), at the exercise price of $_______ per share, pursuant to
and subject to the terms of that certain Non-Qualified Stock Option Agreement
between the undersigned and the Company dated _______________, 200__.

         I understand the nature of the investment I am making and the financial
risks thereof. I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.

         I am paying the option exercise price for the Shares as follows:

                    _________________________________________

         Please issue the stock certificate for the Shares (check one):

         |_| to me; or

         |_| to me and ____________________________, as joint tenants with right

of survivorship, and mail the certificate to me at the following address:

___________________________________

___________________________________

___________________________________

                                       16

<PAGE>

         My mailing address for shareholder communications, if different from
the address listed above, is:

___________________________________

___________________________________

___________________________________

                                           Very truly yours,

                                           ____________________________________
                                           Participant (signature)

                                           ____________________________________
                                           Print Name

                                           ____________________________________
                                           Date

                                           ____________________________________
                                           Social Security Number

                                       17

<PAGE>
                        INCENTIVE STOCK OPTION AGREEMENT
                                     ("MIP")

                               SMARTBARGAINS, INC.

         AGREEMENT made as of the _____ day of _________________, 200__ by and
between SmartBargains, Inc. (the "Company"), a Delaware corporation having a
principal place of business in Boston, Massachusetts and _____________ of
_________, __, an employee of the Company (the "Employee").

         WHEREAS, the Company desires to grant to the Employee an Option to
purchase shares of its common stock, $0.01 par value per share (the "Shares"),
under and for the purposes set forth in the Company's Amended and Restated 2000
Employee, Director and Consultant Stock Option Plan (the "Plan");

         WHEREAS, the Company and the Employee understand and agree that any
terms used and not defined herein have the same meanings as in the Plan; and

         WHEREAS, the Company and the Employee each intend that the Option
granted herein qualify as an ISO.

         NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:

         1.       GRANT OF OPTION.

         The Company hereby grants to the Employee the right and option to
purchase all or any part of an aggregate of _____ Shares, on the terms and
conditions and subject to all the limitations set forth herein and in the Plan,
which is incorporated herein by reference. The Employee acknowledges receipt of
a copy of the Plan.

         2.       PURCHASE PRICE.

         The purchase price of the Shares covered by the Option shall be $.36
per Share, subject to adjustment, as provided in the Plan, in the event of a
stock split, reverse stock split or other events affecting the holders of Shares
(the "Exercise Price"). Payment shall be made in accordance with Paragraph 7 of
the Plan.

         3.       EXERCISABILITY OF OPTION.

         Subject to the terms and conditions set forth in this Agreement and the
Plan, the Option granted hereby shall be immediately vested and exercisable.

         The foregoing rights are cumulative and are subject to the other terms
and conditions of this Agreement and the Plan, including without limitation
Section 16(B) of the Plan.

                                       1

<PAGE>

         4.       TERM OF OPTION.

         The Option shall terminate ten (10) years from the date of this
Agreement or, if the Employee owns as of the date hereof more than ten percent
(10%) of the total combined voting power of all classes of capital stock of the
Company or an Affiliate, five (5) years from the date of this Agreement, but
shall be subject to earlier termination as provided herein or in the Plan.

         If the Employee ceases to be an employee of the Company or of an
Affiliate (for any reason other than the death or Disability of the Employee or
termination of the Employee's employment for "cause" as defined in the Plan),
the Option may be exercised, if it has not previously terminated, within one (1)
month after the date the Employee ceases to be an employee of the Company or an
Affiliate, or within the originally prescribed term of the Option, whichever is
earlier, but may not be exercised thereafter. In such event, the Option shall be
exercisable only to the extent that the Option has become exercisable and is in
effect at the date of such cessation of employment.

         Notwithstanding the foregoing, in the event of the Employee's
Disability or death within one (1) month after the termination of employment,
the Employee or the Employee's Survivors may exercise the Option within one (1)
year after the date of the Employee's termination of employment, but in no event
after the date of expiration of the term of the Option.

         In the event the Employee's employment is terminated by the Employee's
employer for "cause" as defined in the Plan, the Employee's right to exercise
any unexercised portion of this Option shall cease as of such termination, and
this Option shall thereupon terminate. Notwithstanding anything herein to the
contrary, if subsequent to the Employee's termination as an employee, but prior
to the exercise of the Option, the Board of Directors of the Company determines
that, either prior or subsequent to the Employee's termination, the Employee
engaged in conduct which would constitute "cause," then the Employee shall
immediately cease to have any right to exercise the Option and this Option shall
thereupon terminate.

         In the event of the Disability of the Employee, as determined in
accordance with the Plan, the Option shall be exercisable within one (1) year
after the date of Disability or, if earlier, within the term originally
prescribed by the Option. In such event, the Option shall be exercisable:

         (a)      to the extent exercisable but not exercised as of the date of
                  Disability; and

         (b)      in the event rights to exercise the Option accrue
                  periodically, to the extent of a pro rata portion of any
                  additional rights to exercise the Option as would have accrued
                  had the Employee not become Disabled prior to the end of the
                  accrual period which next ends following the date of
                  Disability. The proration shall be based upon the number of
                  days during the accrual period prior to the date of
                  Disability.

         In the event of the death of the Employee while an employee of the
Company or of an Affiliate, the Option shall be exercisable by the Participant's
Survivors within one (1) year after the date of death of the Employee or, if
earlier, within the originally prescribed term of the Option. In such event, the
Option shall be exercisable:

                                       2

<PAGE>

         (x)      to the extent exercisable but not exercised as of the date of
                  death; and

         (y)      in the event rights to exercise the Option accrue
                  periodically, to the extent of a pro rata portion of any
                  additional rights to exercise the Option as would have accrued
                  had the Employee not died prior to the end of the accrual
                  period which next ends following the date of death. The
                  proration shall be based upon the number of days during the
                  accrual period prior to the Employee's death.

For the purposes of this Agreement, "cause" shall mean dishonesty with respect
to the Company or any affiliate, insubordination, substantial malfeasance or
non feasance of duty, unauthorized disclosure of confidential information and
conduct substantially prejudicial to the business of the Company or any
affiliate. The determination of the Board of Directors as to the existence of
"cause" will be conclusive on the Employee and the Company, provided with the
opportunity to be heard by the Board.

         5.       METHOD OF EXERCISING OPTION.

         Subject to the terms and conditions of this Agreement, the Option may
be exercised by written notice to the Company at its principal executive office,
in substantially the form of Exhibit A attached hereto. Such notice shall state
the number of Shares with respect to which the Option is being exercised and
shall be signed by the person exercising the Option. Payment of the purchase
price for such Shares shall be made in accordance with Paragraph 7 of the Plan.
The Company shall deliver a certificate or certificates representing such Shares
as soon as practicable after the notice shall be received, provided, however,
that the Company may delay issuance of such Shares until completion of any
action or obtaining of any consent, which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws). The certificate or certificates for the Shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Employee and if the Employee shall so request in the notice exercising the
Option, shall be registered in the name of the Employee and another person
jointly, with right of survivorship) and shall be delivered as provided above to
or upon the written order of the person or persons exercising the Option. In the
event the Option shall be exercised, pursuant to Section 4 hereof, by any person
or persons other than the Employee, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All Shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and nonassessable.

         6.       PARTIAL EXERCISE.

         Exercise of this Option to the extent above stated may be made in part
at any time and from time to time within the above limits, except that no
fractional share shall be issued pursuant to this Option.

         7.       NON-ASSIGNABILITY.

         The Option shall not be transferable by the Employee otherwise than by
will or by the laws of descent and distribution. The Option shall be
exercisable, during the Employee's lifetime, only by the Employee (or, in the
event of legal incapacity or incompetency, by the Employee's guardian or
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights
granted hereunder contrary to the provisions of this Section 7, or the levy of
any attachment or similar process upon the Option shall be null and void.

                                       3

<PAGE>

         8.       NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.

         The Employee shall have no rights as a stockholder with respect to
Shares subject to this Agreement until registration of the Shares in the
Company's share register in the name of the Employee. Except as is expressly
provided in the Plan with respect to certain changes in the capitalization of
the Company, no adjustment shall be made for dividends or similar rights for
which the record date is prior to the date of such registration.

         9.       CAPITAL CHANGES AND BUSINESS SUCCESSIONS.

         The Plan contains provisions covering the treatment of Options in a
number of contingencies such as stock splits and mergers. Provisions in the Plan
for adjustment with respect to stock subject to Options and the related
provisions with respect to successors to the business of the Company are hereby
made applicable hereunder and are incorporated herein by reference.

         10.      TAXES.

         The Employee acknowledges that any income or other taxes due from him
or her with respect to this Option or the Shares issuable pursuant to this
Option shall be the Employee's responsibility.

         In the event of a Disqualifying Disposition (as defined in Section 15
below) or if the Option is converted into a Non-Qualified Option and such
Non-Qualified Option is exercised, the Company may withhold from the Employee's
remuneration, if any, the appropriate amount of federal, state and local
withholding taxes attributable to such amount that is considered compensation
includible in such person's gross income. At the Company's discretion, the
amount required to be withheld may be withheld in cash from such remuneration,
or in kind from the Shares otherwise deliverable to the Employee on exercise of
the Option. The Employee further agrees that, if the Company does not withhold
an amount from the Employee's remuneration sufficient to satisfy the Company's
income tax withholding obligation, the Employee will reimburse the Company on
demand, in cash, for the amount under-withheld.

         11.      PURCHASE FOR INVESTMENT.

         Unless the offering and sale of the Shares to be issued upon the
particular exercise of the Option shall have been effectively registered under
the Securities Act of 1933, as now in force or hereafter amended (the
"Securities Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:

         (a)      The person(s) who exercise the Option shall warrant to the
                  Company, at the time of such exercise, that such person(s) are
                  acquiring such Shares for their own respective accounts, for
                  investment, and not with a view to, or for sale in connection
                  with, the distribution of any such Shares, in which event the
                  person(s) acquiring such Shares shall be bound by the
                  provisions of the following legend which shall be endorsed
                  upon the certificate(s) evidencing the Shares issued pursuant
                  to such exercise:

                                       4

<PAGE>

                           "The shares represented by this certificate have been
                           taken for investment and they may not be sold or
                           otherwise transferred by any person, including a
                           pledgee, unless (1) either (a) a Registration
                           Statement with respect to such shares shall be
                           effective under the Securities Act of 1933, as
                           amended, or (b) the Company shall have received an
                           opinion of counsel satisfactory to it that an
                           exemption from registration under such Act is then
                           available, and (2) there shall have been compliance
                           with all applicable state securities laws;" and

         (b)      If the Company so requires, the Company shall have received an
                  opinion of its counsel that the Shares may be issued upon such
                  particular exercise in compliance with the 1933 Act without
                  registration thereunder. Without limiting the generality of
                  the foregoing, the Company may delay issuance of the Shares
                  until completion of any action or obtaining of any consent,
                  which the Company deems reasonably necessary under any
                  applicable law (including without limitation state securities
                  or "blue sky" laws).

         12.      RESTRICTIONS ON TRANSFER OF SHARES.

         12.1 The Shares acquired by the Employee pursuant to the exercise of
the Option granted hereby shall not be transferred by the Employee except as
permitted herein.

         12.2 In the event of the Employee's termination of employment for any
reason, Disability or death, the Company shall have the option, but not the
obligation, to repurchase all or any part of the Shares issued pursuant to this
Agreement (including, without limitation, Shares purchased after termination of
employment, Disability or death in accordance with Section 4 hereof). In the
event the Company does not, upon the termination, Disability or death of the
Employee (as described above), exercise its option pursuant to this Section
12.2, the restrictions set forth in the balance of this Agreement shall not
thereby lapse, and the Employee for himself or herself, his or her heirs,
legatees, executors, administrators and other successors in interest, agrees
that the Shares shall remain subject to such restrictions. The following
provisions shall apply to a repurchase under this Section 12.2:

         (i) The per share repurchase price of the Shares to be sold to the
Company upon exercise of its option under this Section 12.2 shall be equal to
the Fair Market Value of each such Share determined in accordance with the Plan
as of the date of termination, Disability or death. Notwithstanding the
foregoing, in the event the Participant's termination of employment is for
cause, the Company shall have the right to repurchase the Shares at the cash
Exercise Price of the Option.

         (ii) The Company's option to repurchase the Employee's Shares in the
event of termination of employment, Disability or death shall be valid for a
period of sixty (60) days commencing with the date of such termination of
employment.

         (iii) In the event the Company shall be entitled to and shall elect to
exercise its option to repurchase the Employee's Shares under this Section 12.2,
the Company shall notify the Employee, or in case of death, his or her
representative, in writing of its intent to repurchase the

                                       5

<PAGE>

Shares. Such written notice may be mailed by the Company up to and including the
last day of the time period provided for in Section 12.2(ii) for exercise of the
Company's option to repurchase.

         (iv) The written notice to the Employee shall specify the address at,
and the time and date on, which payment of the repurchase price is to be made
(the "Closing"). The date specified shall not be less than ten (10) days nor
more than sixty (60) days from the date of the mailing of the notice, and the
Employee or his or her successor in interest with respect to the Shares shall
have no further rights as the owner thereof from and after the date specified in
the notice. At the Closing, the repurchase price shall be delivered to the
Employee or his or her successor in interest and the Shares being purchased,
duly endorsed for transfer, shall, to the extent that they are not then in the
possession of the Company, be delivered to the Company by the Employee or his or
her successor in interest.

         (v) If the Shares are not listed on a national securities exchange nor
traded in the over the counter market, then for the purposes of this Section
12.2, Fair Market Value shall mean such value as the Administrator, in good
faith, shall determine, and, provided, however, that if, the Employee objects to
the good faith determination of the Administrator, then the Employee and the
Company shall promptly and mutually select an investment banking firm, certified
public accountant or business appraisal firm (the "Independent Appraiser") to
determine the Fair Market Value. The Company shall promptly furnish to the
Independent Appraiser such information concerning the Company's operations,
assets and properties, financial condition, earnings, capitalization and sales
of its capital stock, and any offers or indication of interest received by the
Company, as the Independent Appraiser may request or the parties may deem
relevant. The Fair Market Value as determined by the Independent Appraiser
(which determination the Independent Appraiser shall be instructed to render in
writing within thirty (30) days following the selection of such Independent
Appraiser) shall be binding upon the Employee and the Company. The fees and
expenses of the Independent Appraiser shall be borne by the Company.

         12.3 It shall be a condition precedent to the validity of any sale or
other transfer of any Shares by the Employee that the following restrictions be
complied with (except as hereinafter otherwise provided):

         (i)      No Shares owned by the Employee may be sold, pledged or
                  otherwise transferred (including by gift or devise) to any
                  person or entity, voluntarily, or by operation of law, except
                  in accordance with the terms and conditions hereinafter set
                  forth.

         (ii)     Before selling or otherwise transferring all or part of the
                  Shares, the Employee shall give written notice of such
                  intention to the Company, which notice shall include the name
                  of the proposed transferee, the proposed purchase price per
                  share, the terms of payment of such purchase price and all
                  other matters relating to such sale or transfer and shall be
                  accompanied by a copy of the binding written agreement of the
                  proposed transferee to purchase the Shares of the Employee.
                  Such notice shall constitute a binding offer by the Employee
                  to sell to the Company such number of the Shares then held by
                  the Employee as are proposed to be sold in the notice at the
                  monetary price per share designated in such notice, payable on
                  the terms offered to the Employee by the proposed transferee

                                       6

<PAGE>

                  (provided, however, that the Company shall not be required to
                  meet any non-monetary terms of the proposed transfer,
                  including, without limitation, delivery of other securities in
                  exchange for the Shares proposed to be sold). The Company
                  shall give written notice to the Employee as to whether such
                  offer has been accepted in whole by the Company within twenty
                  (20) days after its receipt of written notice from the
                  Employee. The Company may only accept such offer in whole and
                  may not accept such offer in part. Such acceptance notice
                  shall fix a time, location and date for the closing on such
                  purchase ("Closing Date") which shall not be less than ten
                  (10) nor more than sixty (60) days after the giving of the
                  acceptance notice. The place for such closing shall be at the
                  Company's principal office. At such closing, the Employee
                  shall accept payment as set forth herein and shall deliver to
                  the Company in exchange therefor certificates for the number
                  of Shares stated in the notice accompanied by duly executed
                  instruments of transfer.

         (iii)    If the Company shall fail to accept any such offer, the
                  Employee shall be free to sell all, but not less than all, of
                  the Shares set forth in his or her notice to the designated
                  transferee at the price and terms designated in the Employee's
                  notice, provided that (i) such sale is consummated within six
                  (6) months after the giving of notice by the Employee to the
                  Company as aforesaid, and (ii) the transferee first agrees in
                  writing to be bound by the provisions of this Section 12 so
                  that such transferee (and all subsequent transferees) shall
                  thereafter only be permitted to sell or transfer the Shares in
                  accordance with the terms hereof. After the expiration of such
                  six (6) months, the provisions of this Section 12.3 shall
                  again apply with respect to any proposed voluntary transfer of
                  the Employee's Shares.

         (iv)     The restrictions on transfer contained in this Section 12.3
                  shall not apply to (a) transfers by the Employee to his or her
                  spouse or children or to a trust for the benefit of his or her
                  spouse or children, (b) transfers by the Employee to his or
                  her guardian or conservator, and (c) or transfers by the
                  Employee, in the event of his or her death, to his or her
                  executor(s) or administrator(s) or to trustee(s) under his or
                  her will (collectively, "Permitted Transferees"); provided
                  however, that in any such event the Shares so transferred in
                  the hands of each such Permitted Transferee shall remain
                  subject to this Agreement, and each such Permitted Transferee
                  shall so acknowledge in writing as a condition precedent to
                  the effectiveness of such transfer.

         (v)      The provisions of this Section 12.3 may be waived upon such
                  conditions as the Company may impose.

         12.4 In the event that the Employee or his or her successor in interest
fails to deliver the Shares to be repurchased by the Company under this
Agreement, the Company may elect (a) to establish a segregated account in the
amount of the repurchase price, such account to be turned over to the Employee
or his or her successor in interest upon delivery of such Shares, and (b)
immediately to take such action as is appropriate to transfer record title of
such Shares from the Employee to the Company and to treat the Employee and such
Shares in all respects as if delivery of such Shares had been made as required
by this Agreement. The Employee hereby

                                       7

<PAGE>

irrevocably grants the Company a power of attorney which shall be coupled with
an interest for the purpose of effectuating the preceding sentence.

         12.5 If the Company shall pay a stock dividend or declare a stock split
on or with respect to any of its Common Stock, or otherwise distribute
securities of the Company to the holders of its Common Stock, the number of
shares of stock or other securities of Company issued with respect to the shares
then subject to the restrictions contained in this Agreement shall be added to
the Shares subject to the Company's rights to repurchase pursuant to this
Agreement. If the Company shall distribute to its stockholders shares of stock
of another corporation, the shares of stock of such other corporation,
distributed with respect to the Shares then subject to the restrictions
contained in this Agreement, shall be added to the Shares subject to the
Company's rights to repurchase pursuant to this Agreement.

         12.6 If the outstanding shares of Common Stock of the Company shall be
subdivided into a greater number of shares or combined into a smaller number of
shares, or in the event of a reclassification of the outstanding shares of
Common Stock of the Company, or if the Company shall be a party to a merger,
consolidation or capital reorganization, there shall be substituted for the
Shares then subject to the restrictions contained in this Agreement such amount
and kind of securities as are issued in such subdivision, combination,
reclassification, merger, consolidation or capital reorganization in respect of
the Shares subject immediately prior thereto to the Company's rights to
repurchase pursuant to this Agreement.

         12.7 The Company shall not be required to transfer any Shares on its
books which shall have been sold, assigned or otherwise transferred in violation
of this Agreement, or to treat as owner of such Shares, or to accord the right
to vote as such owner or to pay dividends to, any person or organization to
which any such Shares shall have been so sold, assigned or otherwise
transferred, in violation of this Agreement.

         12.8 The provisions of Sections 12.1, 12.2 and 12.3 shall terminate
upon the effective date of the initial public offering of the Company's
securities pursuant to the Securities Act.

         12.9 If, in connection with a registration statement filed by the
Company pursuant to the Securities Act relating to an underwritten public
offering of the Company's securities, the Company or its underwriter so
requests, the Employee will agree not to sell any Shares for a period not to
exceed 180 days following the effectiveness of such registration (but not
greater than the period applicable to all executive officers and directors of
the Company).

         12.10 The Employee acknowledges and agrees, except in connection with
the exercise of his Options, that neither the Company, its shareholders nor its
directors and officers, has any duty or obligation to disclose to the Employee
any material information regarding the business of the Company or affecting the
value of the Shares before, at the time of, or following a termination of the
employment of the Employee by the Company, including, without limitation, any
information concerning plans for the Company to make a public offering of its
securities or to be acquired by or merged with or into another firm or entity.

         12.11 All certificates representing the Shares to be issued to the
Employee pursuant to this Agreement shall have endorsed thereon a legend
substantially as follows: "The shares represented by this certificate are
subject to restrictions set forth in an Incentive Stock Option

                                       8

<PAGE>

Agreement dated _____________, 200__ with this Company, a copy of which
Agreement is available for inspection at the offices of the Company or will be
made available upon request."

         13.      NO OBLIGATION TO EMPLOY.

         The Company is not, by the Plan or this Option, obligated to continue
the Employee as an employee of the Company.

         14.      OPTION IS INTENDED TO BE AN ISO.

         The parties each intend that the Option be an ISO so that the Employee
(or the Employee's Survivors) may qualify for the favorable tax treatment
provided to holders of Options that meet the standards of Section 422 of the
Code. Any provision of this Agreement or the Plan which conflicts with the Code
so that this Option would not be deemed an ISO is null and void and any
ambiguities shall be resolved so that the Option qualifies as an ISO.
Nonetheless, if the Option is determined not to be an ISO, the Employee
understands that neither the Company nor any Affiliate is responsible to
compensate him or her or otherwise make up for the treatment of the Option as a
Non-qualified Option and not as an ISO. The Employee should consult with the
Employee's own tax advisors regarding the tax effects of the Option and the
requirements necessary to obtain favorable tax treatment under Section 422 of
the Code, including, but not limited to, holding period requirements.

         15.      NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.

         The Employee agrees to notify the Company in writing immediately after
the Employee makes a Disqualifying Disposition of any of the Shares acquired
pursuant to the exercise of the Option. A Disqualifying Disposition is defined
in Section 424(c) of the Code and includes any disposition (including any sale)
of such Shares before the later of (a) two years after the date the Employee was
granted the Option or (b) one year after the date the Employee acquired Shares
by exercising the Option, except as otherwise provided in Section 424(c) of the
Code. If the Employee has died before the Shares are sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.

                                       9

<PAGE>

         16.      NOTICES.

         Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by recognized courier service, facsimile, registered or
certified mail, return receipt requested, addressed as follows:

If to the Company:                  SmartBargains, Inc.
                                    10 Milk Street, 10th Floor
                                    Boston, MA  02108
                                    Attention:  Chief Financial Officer

If to the Employee:

or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given upon
the earlier of receipt, one business day following delivery to a recognized
courier service, or three business days following mailing by registered or
certified mail.

         17.      GOVERNING LAW.

         This Agreement shall be construed and enforced in accordance with the
law of the State of Delaware, without giving effect to the conflict of law
principles thereof.

         18.      BENEFIT OF AGREEMENT.

         Subject to the provisions of the Plan and the other provisions hereof,
this Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.

         19.      ENTIRE AGREEMENT.

         This Agreement, together with the Plan, embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement not expressly set forth in this Agreement shall affect or
be used to interpret, change, or restrict the express terms and provisions of
this Agreement, provided, however, in any event, this Agreement shall be subject
to and governed by the Plan.

         20.      MODIFICATIONS AND AMENDMENTS.

         The terms and provisions of this Agreement may be modified or amended
as provided in the Plan.

                                       10

<PAGE>

         21.      WAIVERS AND CONSENTS.

         Except as provided in the Plan, the terms and provisions of this
Agreement may be waived, or consent for the departure therefrom granted, only by
written document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.

         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Employee has hereunto set his
or her hand, all as of the day and year first above written.

                                        SmartBargains, Inc.

                                        By: _______________________________
                                            Stephen M. Joseph
                                            Executive Vice President
                                            Chief Financial Officer

                                        __________________________________
                                        Employee

                                       11

<PAGE>

                                                                       Exhibit A

                  NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION

                         [FORM FOR UNREGISTERED SHARES]

To: SmartBargains, Inc.

Ladies and Gentlemen:

         I hereby exercise my Incentive Stock Option to purchase ___________
shares (the "Shares") of the common stock, $.01 par value, of SmartBargains,
Inc. (the "Company"), at the exercise price of $____ per share, pursuant to and
subject to the terms of that certain Incentive Stock Option Agreement between
the undersigned and the Company dated ________________, 200__.

         I am aware that the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"), or any state securities
laws. I understand that the reliance by the Company on exemptions under the 1933
Act is predicated in part upon the truth and accuracy of the statements by me in
this Notice of Exercise.

         I hereby represent and warrant that (1) I have been furnished with all
information which I deem necessary to evaluate the merits and risks of the
purchase of the Shares; (2) I have had the opportunity to ask questions
concerning the Shares and the Company and all questions posed have been answered
to my satisfaction; (3) I have been given the opportunity to obtain any
additional information I deem necessary to verify the accuracy of any
information obtained concerning the Shares and the Company; and (4) I have such
knowledge and experience in financial and business matters that I am able to
evaluate the merits and risks of purchasing the Shares and to make an informed
investment decision relating thereto.

         I hereby represent and warrant that I am purchasing the Shares for my
own personal account for investment and not with a view to the sale or
distribution of all or any part of the Shares.

         I understand that because the Shares have not been registered under the
1933 Act, I must continue to bear the economic risk of the investment for an
indefinite time and the Shares cannot be sold unless the Shares are subsequently
registered under applicable federal and state securities laws or an exemption
from such registration requirements is available.

         I agree that I will in no event sell or distribute or otherwise dispose
of all or any part of the Shares unless (1) there is an effective registration
statement under the 1933 Act and applicable state securities laws covering any
such transaction involving the Shares or (2) the Company receives an opinion of
my legal counsel (concurred in by legal counsel for the Company) stating that
such transaction is exempt from registration or the Company otherwise satisfies
itself that such transaction is exempt from registration.

                                       12

<PAGE>

         I consent to the placing of a legend on my certificate for the Shares
stating that the Shares have not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Shares until the Shares may be legally resold or distributed without
restriction.

         I understand that at the present time Rule 144 of the Securities and
Exchange Commission (the "SEC") may not be relied on for the resale or
distribution of the Shares by me. I understand that the Company has no
obligation to me to register the sale of the Shares with the SEC and has not
represented to me that it will register the sale of the Shares.

         I understand the terms and restrictions on the right to dispose of the
Shares set forth in the Amended and Restated 2000 Employee, Director and
Consultant Stock Option Plan and the Incentive Stock Option Agreement, both of
which I have carefully reviewed. I consent to the placing of a legend on my
certificate for the Shares referring to such restriction and the placing of stop
transfer orders until the Shares may be transferred in accordance with the terms
of such restrictions.

         I have considered the Federal, state and local income tax implications
of the exercise of my Option and the purchase and subsequent sale of the Shares.

         I am paying the option exercise price for the Shares as follows:

                  ____________________________________________

         Please issue the stock certificate for the Shares (check one):

         |_| to me; or

         |_| to me and ________________, as joint tenants with right of

survivorship and mail the certificate to me at the following address:

________________________________________

________________________________________

________________________________________

                                       13

<PAGE>

         My mailing address for shareholder communications, if different from
the address listed above is:

________________________________________

________________________________________

________________________________________

                                      Very truly yours,

                                      _____________________________________
                                      Employee (signature)

                                      _____________________________________
                                      Print Name

                                      _____________________________________
                                      Date

                                      _____________________________________
                                      Social Security Number

                                       14

<PAGE>

                                                                       Exhibit A

                  NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION

                          [FORM FOR REGISTERED SHARES]

TO: SmartBargains, Inc.

IMPORTANT NOTICE: This form of Notice of Exercise may only be used at such time
as the Company has filed a Registration Statement with the Securities and
Exchange Commission under which the issuance of the Shares for which this
exercise is being made is registered and such Registration Statement remains
effective.

Ladies and Gentlemen:

         I hereby exercise my Incentive Stock Option to purchase _________
shares (the "Shares") of the common stock, $.01 par value, of SmartBargains,
Inc. (the "Company"), at the exercise price of $________ per share, pursuant to
and subject to the terms of that certain Incentive Stock Option Agreement
between the undersigned and the Company dated _______________, 200__.

         I understand the nature of the investment I am making and the financial
risks thereof. I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.

         I am paying the option exercise price for the Shares as follows:

                      ____________________________________

         Please issue the stock certificate for the Shares (check one):

         |_| to me; or

         |_| to me and ____________________________, as joint tenants with right

of survivorship, and mail the certificate to me at the following address:

________________________________________

________________________________________

________________________________________

                                       15

<PAGE>

         My mailing address for shareholder communications, if different from
the address listed above, is:

________________________________________

________________________________________

________________________________________

                                      Very truly yours,

                                      _____________________________________
                                      Employee (signature)

                                      _____________________________________
                                      Print Name

                                      _____________________________________
                                      Date

                                      _____________________________________
                                      Social Security Number

                                       16<PAGE>

                                                                    EXHIBIT 10.4

                               SMARTBARGAINS, INC.

                           SECOND AMENDED AND RESTATED
                             SHAREHOLDERS' AGREEMENT

      SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT ("Agreement"), made as
of the 16th day of September, 2003, by and among SmartBargains, Inc., a Delaware
corporation (the "Company"), and the undersigned holders of capital stock of the
Company.

      WHEREAS, the Company and the undersigned are parties to that certain
Amended and Restated Shareholders' Agreement, dated July 26, 2002 (the "Prior
Agreement");

      WHEREAS, the Company and the undersigned desire to amend and restate the
Prior Agreement to clarify the rights and obligations of the parties set forth
therein and have executed and delivered this Agreement, which amends, restates
and supercedes the Prior Agreement;

      WHEREAS, Schedule A hereto sets forth the names of (a) those individuals
or entities that are GBG Shareholders (as further defined in Section 1 hereof,
each individually a "GBG Shareholder" and collectively, the "GBG Shareholders"),
(b) those individuals or entities that are Common Shareholders (together with
any permitted successor or assign, each individually a "Common Shareholder" and
collectively, the "Common Shareholders"), (c) America Online, Inc. ("AOL"), (d)
John Kerney (individually a "Management Shareholder"), and (e) those individuals
or entities listed as an Investor (together with any permitted successor or
assign, each individually an "Investor" and collectively, the "Investors"),
which, for the avoidance of doubt, includes AOL as an Investor hereunder (the
Investors, the GBG Shareholders and Management Shareholders, collectively, the
"Shareholders");

      WHEREAS, the Company desires to grant to the Shareholders certain rights
of first refusal, rights to participate in sales, preemptive rights,
registration rights and such other rights as set forth herein, together with
such obligations and on the terms and conditions contained herein;

      WHEREAS, the Company desires to grant to the Common Shareholders certain
registration rights and such other rights as set forth herein, together with
such obligations and on the terms and conditions contained herein;

      WHEREAS, certain of the undersigned hold shares of the Company's Series A
Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred
Stock"), the Company's Series A-1 Convertible Preferred Stock, par value $0.01
per share (the Series A-1 Preferred Stock"), the Company's Series B Convertible
Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock"), and
the Company's Series C Convertible Preferred Stock, par value $0.01 per share
(the "Series C Preferred Stock"), (collectively, the Series A Preferred Stock,
the Series A-1 Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock, the "Preferred Stock");

<PAGE>

      WHEREAS, certain of the undersigned hold warrants to purchase shares of
Series B Preferred Stock (the "Series B Warrants") and warrants to purchase
shares of Series C Preferred Stock (the "Series C Warrants", and together with
the Series B Warrants, the "Warrants");

      WHEREAS, the Preferred Stock is convertible into shares of Class A Voting
Common Stock, par value $0.01 per share of the Company (the "Common Stock");

      WHEREAS, the Company and certain of the undersigned who represent a
majority of the outstanding shares of Preferred Stock desire to amend and
restate the Prior Agreement and have executed and delivered this Agreement,
which amends, restates and supercedes the Prior Agreement;

      WHEREAS, the Company and certain of the undersigned who represent
two-thirds of the outstanding shares of Series A Preferred Stock, Series A-1
Preferred Stock and Series B Preferred Stock, considered together as a single
class on an as-converted basis into shares of Common Stock, desire to amend and
restate the Prior Agreement, including the amendment, modification and waiver of
the provisions of Section 6(f) of the Prior Agreement, as set forth herein, and
have executed and delivered this Agreement, which amends, restates and
supercedes the Prior Agreement, including Section 6(f) of the Prior Agreement;

      WHEREAS, the Company and certain of the Shareholders who represent a
majority of the outstanding shares of Series C Preferred Stock desire to amend
and restate the Prior Agreement, including the amendment, modification and
waiver of the provisions of Section 6(f) of the Prior Agreement, as set forth
herein, and have executed and delivered this Agreement, which amends, restates
and supercedes the Prior Agreement, including Section 6(f) of the Prior
Agreement;

      WHEREAS, the Company and all of the Common Shareholders desire to amend
and restate the Prior Agreement, including the amendment, modification and
waiver of the provisions of Section 6(f) of the Prior Agreement, as set forth
herein, and have executed and delivered this Agreement, which amends, restates
and supercedes the Prior Agreement, including Section 6(f) of the Prior
Agreement.

      NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth below, and the parties' desire to provide for continuity of ownership of
the Company to further the interests of the Company and its present and future
shareholders, the parties hereby agree with each other as follows:

      1.    Definitions. As used in this Agreement:

      "GBG Shareholder" shall mean each of those holders of capital stock of the
Company listed as a GBG Shareholder on Schedule A hereto, which, for the
avoidance of doubt, includes Gordon Brothers Group, LLC ("Gordon Brothers") as a
GBG Shareholder hereunder. GBG Shareholder shall also include any Permitted
Transferee (as defined in Section 2 hereof) of a GBG Shareholder.
Notwithstanding anything contained in this Agreement to the contrary, a GBG
Shareholder shall remain a GBG Shareholder hereunder only for so long as such
individual or entity continues to hold any of the shares of capital stock of the
Company received by such

                                     - 2 -
<PAGE>

individual or entity pursuant to a Permitted Transfer (as defined in Section 2
hereof) from a GBG Shareholder.

      "Major Investor" shall mean a Shareholder who, together with its
affiliates, owns shares of Preferred Stock having an aggregate value of at least
$5,000,000, calculated based on the purchase price of such shares of Preferred
Stock at the time such shares were purchased from the Company.

      "Shares" shall mean and include all shares of the Common Stock and shares
issued upon exercise of any vested options or warrants to purchase shares of
Common Stock and/or Preferred Stock, and other equity securities of the Company
convertible into Common Stock, including Preferred Stock, on an as converted
basis now owned or hereafter acquired by a Shareholder.

      2.    Prohibited Transfers and Other Matters. No GBG Shareholder,
Management Shareholder or Common Shareholder shall sell, assign, transfer,
pledge, hypothecate, mortgage, encumber or dispose of all or any of his Common
Stock except in compliance with the applicable terms of this Agreement. To the
extent any other agreement between the Company and a GBG Shareholder, Management
Shareholder or Common Shareholder provides for restrictions on the transfer of
shares of Common Stock by such GBG Shareholder, Management Shareholder or Common
Shareholder that conflict with the terms of this Agreement, the terms of this
Agreement shall govern. Notwithstanding anything to the contrary contained in
this Agreement, no transfer restriction contained in this Agreement shall apply
to any transfer (a) by any party hereto that is a partnership to its partners or
former partners in accordance with partnership interests, (b) by a limited
liability company to its members or former members in accordance with their
interests in the limited liability company, (c) by a corporation, partnership or
limited liability company to any other corporation, partnership, limited
liability company or any other entity or organization directly or indirectly
controlling, controlled by, or under common control with the transferor, (d) by
an individual to such individual's family members or a trust for the benefit of
such individual's family members, (e) from one GBG Shareholder to any other GBG
Shareholder (or to an employee of Gordon Brothers pursuant to Section 12 of the
Operating Agreement dated June 13, 2000 between the Company and Gordon
Brothers), or (f) from Gordon Brothers to any employee, consultant or affiliate
of Gordon Brothers, in a distribution or other transfer directly from Gordon
Brothers; provided that in each case the transferee will be subject to the terms
of this Agreement as if it were an original party hereto to the same extent and
subject to the provisions applicable to the transferor (any such transfer being
referred to herein as a "Permitted Transfer" and any transferee of shares in a
Permitted Transfer being referred to herein as a "Permitted Transferee").

      3.    Right of First Refusal on Dispositions of a Management Shareholder,
GBG Shareholder or Common Shareholder.

            (a)   If at any time a Management Shareholder, GBG Shareholder or
Common Shareholder desires to sell or otherwise transfer (other than a Permitted
Transfer) any shares of Common Stock (other than Common Stock directly or
indirectly issued upon conversion of the Preferred Stock or the exercise of the
Warrants) (a "Selling Shareholder") pursuant to a bona fide offer from a third
party (the "Proposed Transferee"), the Selling Shareholder shall submit a
written offer to the Company (the "Company Offer") to sell such shares of Common
Stock (the

                                     - 3 -
<PAGE>

"Offered Shares") to the Company on terms and conditions, including price, not
less favorable than those on which the Selling Shareholder proposes to sell such
Offered Shares to the Proposed Transferee. The Company Offer shall disclose the
identity of the Proposed Transferee, the number of Offered Shares proposed to be
sold, the total number of Shares owned by the Selling Shareholder, the terms and
conditions, including price, of the proposed sale, and any other material facts
relating to the proposed sale. The Company Offer shall further state that the
Company may acquire, in accordance with the provisions of this Agreement, all,
or any portion of the Offered Shares for the price and upon the other terms and
conditions set forth therein.

            (b)   The Company shall have the first option to purchase the
Offered Shares. If the Company desires to purchase some or all of the Offered
Shares, it shall communicate in writing its election to purchase the Offered
Shares to the Selling Shareholder and the other Shareholders, which such
communication shall be given within 20 days of the date the Company Offer was
made. Such communication shall, when taken in conjunction with the Company
Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of such Offered Shares.

            (c)   To the extent that the Company does not elect to purchase all
or any portion of the Offered Shares, the Shareholders that are holders of
Preferred Stock (the "Preferred Shareholders") other than the Selling
Shareholder shall have a second option to purchase any Offered Shares that are
not purchased by the Company (the "Remaining Shares"). The Selling Shareholder
shall submit a written offer to such Preferred Shareholders (the "Shareholder
Offer") to sell the Remaining Shares to such Preferred Shareholders on terms and
conditions, including price, not less favorable than those on which the Selling
Shareholder proposes to sell the Offered Shares to the Proposed Transferee. The
Shareholder Offer shall disclose the identity of the Proposed Transferee, the
number of Offered Shares proposed to be sold to the Proposed Transferee, the
total number of Shares purchased by the Company, the total number of Shares
owned by the Selling Shareholder, the terms and conditions, including price, of
the proposed sale, and any other material facts relating to the proposed sale.
The Shareholder Offer shall further state that such Preferred Shareholders may
acquire, in accordance with the provisions of this Agreement, all, or any
portion of the Remaining Shares for the price and upon the other terms and
conditions set forth therein.

            (d)   Upon receipt of the Shareholder Offer, Preferred Shareholders
(other than the Selling Shareholder) shall have the right to purchase that
number of Remaining Shares as shall be equal to the number of such Remaining
Shares multiplied by a fraction, the numerator of which shall be the number of
shares of Preferred Stock, on an as converted basis into shares of Common Stock,
then owned by such Preferred Shareholder and the denominator of which shall be
the aggregate number of shares of Preferred Stock, on an as converted basis into
shares of Common Stock, then owned by all of the Preferred Shareholders who
elect to purchase the Remaining Shares. The amount of such Remaining Shares that
each Preferred Shareholder is entitled to purchase under this Section 3(d) shall
be referred to as its "Pro Rata Fraction." A Preferred Shareholder may
designate, at any time prior to actual purchase, any affiliate of such Preferred
Shareholder as the entity entitled to purchase all or a portion of such
Preferred Shareholder's Pro Rata Fraction of the Remaining Shares (and/or any
over-subscription pursuant to Section 3(e)), provided that (i) such designee
agrees to be bound by the terms of this Agreement in the same capacity as the
Preferred Shareholder hereunder and (ii) the purchase of

                                     - 4 -
<PAGE>

such Remaining Shares by such designee does not violate the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act") or
any applicable state securities laws.

            (e)   Each Preferred Shareholder shall have a right of
oversubscription such that if any Preferred Shareholder fails to accept the
Shareholder Offer as to its full Pro Rata Fraction, the remaining Preferred
Shareholders shall, among them, have the right to purchase up to the balance of
the Remaining Shares not so purchased. The Preferred Shareholders may exercise
such right of oversubscription by accepting the Shareholder Offer for the
Remaining Shares as to more than their Pro Rata Fraction. If, as a result
thereof, such oversubscriptions exceed the total number of Remaining Shares
available in respect of such oversubscription privilege, the oversubscribing
Preferred Shareholders shall be cut back with respect to oversubscriptions on a
pro rata basis in accordance with their respective Pro Rata Fractions or as they
may otherwise agree among themselves.

            (f)   Those Preferred Shareholders who desire to purchase all or any
part of the Remaining Shares shall communicate in writing their election to
purchase such Remaining Shares to the Selling Shareholder and the Company, which
communication shall state the number of Remaining Shares said Preferred
Shareholder desires to purchase and shall be provided within ten (10) business
days of the date the Shareholder Offer was made. The Company shall forward such
communication to the other Shareholders. Such communication shall, when taken in
conjunction with the Shareholder Offer, be deemed to constitute a valid, legally
binding and enforceable agreement for the sale and purchase of such Remaining
Shares (subject to the aforesaid limitations as to the right of the Preferred
Shareholders to purchase more than their Pro Rata Fraction).

            (g)   Sales of such Offered Shares to be sold to the Company or
sales of such Remaining Shares to be sold to the Preferred Shareholders pursuant
to this Section 3 shall be made at the offices of the Company within sixty (60)
days following the date the Company Offer or the Shareholder Offer, as the case
may be, was made.

            (h)   If the Company and/or the Preferred Shareholders do not
purchase all of the Offered Shares and Remaining Shares, as applicable, then
all, but not fewer than all, of the remaining Offered Shares and Remaining
Shares, as the case may be, may be sold by the Selling Shareholder at any time
within 120 days after the date the Offer was made, subject to the provisions of
Section 4 hereof. Any such sale shall be to the Proposed Transferee, at not less
than the price and upon other terms and conditions, if any, not more favorable
to the Proposed Transferee than those specified in the Company Offer and/or the
Shareholder Offer. If the Offered Shares and Remaining Shares, as the case may
be, are not sold within such 120-day period, they shall continue to be subject
to the requirements of a prior offer pursuant to this Section 3, and may not be
transferred except in compliance with the provisions of this Section 3. If
Offered Shares and Remaining Shares, as the case may be, are sold pursuant to
this Section 3 to any purchaser who is not a party to this Agreement, the
purchaser of such Offered Shares or Remaining Shares, as applicable, shall
execute a counterpart of this Agreement as a precondition of the purchase of
such Offered Shares or Remaining Shares, as applicable, and any Offered Shares
or Remaining Shares, as applicable, sold to such purchaser shall continue to be
subject to the provisions of this Agreement.

                                     - 5 -
<PAGE>

            (i)   Notwithstanding anything contained herein to the contrary, the
provisions of this Section 3 shall not apply to any Permitted Transfer.
Notwithstanding anything contained herein to the contrary, no Management
Shareholder shall be entitled to participate in any purchase of shares pursuant
to this Section 3 unless at the time such Management Shareholder participates
therein such Management Shareholder is an employee of the Company.

      4.    Participation in Sales.

            (a)   If, following the Selling Shareholder's compliance with the
provisions of Section 3 hereof, there are any Offered Shares that remain to be
sold to a Proposed Transferee, then, prior to and as a condition of such sale by
the Selling Shareholder (the "`Section 4 Selling Shareholder") to the Proposed
Transferee, each other Shareholder shall have the right to sell to the Proposed
Transferee, at the same effective price per share on an as-converted basis into
shares of Common Stock and on the same terms and conditions as involved in such
sale by the Section 4 Selling Shareholder, a pro rata portion of the amount of
Shares proposed to be sold to the Proposed Transferee by the Section 4 Selling
Shareholder. The "pro rata portion" of Shares which each Shareholder shall be
entitled to sell to the Proposed Transferee shall be that number of Shares as
shall equal the number of Shares proposed to be sold to the Proposed Transferee
by the Section 4 Selling Shareholder multiplied by a fraction, the numerator of
which shall be the number of Shares then owned by such Shareholder wishing to
participate in the sale, and the denominator of which shall be the aggregate
number of Shares then owned by the Section 4 Selling Shareholder and all other
Shareholders wishing to participate in any sale under this Section 4.

            (b)   If the Section 4 Selling Shareholder wishes to make a sale to
a Proposed Transferee which is subject to this Section 4, the Section 4 Selling
Shareholder shall, after complying with the provisions of Section 3 hereof, give
to each other Shareholder notice of such proposed sale. Such notice shall state
that all Shares were not purchased pursuant to the Company Offer and the
Shareholder Offer as set forth in Section 3 hereof. Such notice shall be given
at least twenty (20) days prior to the date of the proposed sale to the Proposed
Transferee. Each other Shareholder wishing to so participate in any sale under
this Section 4 shall notify the Section 4 Selling Shareholder in writing of such
intention within fifteen (15) days after such other Shareholder's receipt of the
notice described in the preceding sentence.

            (c)   The Section 4 Selling Shareholder and each Shareholder wishing
to participate in such sale shall sell to the Proposed Transferee all, or at the
option of the Proposed Transferee, any part of the Shares proposed to be sold by
them at not less than the price and upon other terms and conditions, if any, not
more favorable to the Proposed Transferee than those in the notice provided by
the Section 4 Selling Shareholder under subparagraph (b) above; provided,
however, that any purchase of less than all of such Shares by the Proposed
Transferee shall be made from the Section 4 Selling Shareholder and each
participating Shareholder pro rata based upon the "pro rata portion" of the
Shares that the Section 4 Selling Shareholder and each participating Shareholder
is otherwise entitled to sell pursuant to Section 4(a) hereof.

            (d)   If any Shares are sold pursuant to this Section 4 to any
purchaser who is not a party to this Agreement, the purchaser of such Shares
shall execute a counterpart of this Agreement as a precondition to the purchase
of such Shares and such Shares shall continue to be

                                     - 6 -
<PAGE>

subject to the provisions of this Agreement to the same extent that such Shares
would have been subject to this Agreement had the Section 4 Selling Shareholder
continued to hold such Shares.

            (e)   The rights granted to the Shareholders under Sections 3 and 4
hereof shall expire immediately prior to, and shall not apply in connection
with, the consummation of the first Qualified Public Offering (as defined in
Section 9 hereof). Notwithstanding anything contained herein to the contrary,
the provisions of this Section 4 shall not apply to any Permitted Transfer.

            (f)   Notwithstanding anything contained herein to the contrary, no
Management Shareholder shall have any rights to participate in sales pursuant to
this Section 4 unless, at the time such Management Shareholder exercises such
right, such Management Shareholder is an employee of the Company. Nothing herein
shall relieve any Management Shareholder from its obligation to comply with this
Section 4 as a Section 4 Selling Shareholder.

            (g)   Notwithstanding anything contained herein to the contrary, the
rights of any GBG Shareholder to participate in sales pursuant to this Section 4
shall, if exercised, be exercised by Gordon Brothers, as the designated
representative for all of the GBG Shareholders. Any notice to a GBG Shareholder
required by this Section 4 shall be deemed effective if given in accordance with
this Section 4 to Gordon Brothers, on behalf of the GBG Shareholders. Gordon
Brothers shall have the right on behalf of itself and the other GBG Shareholders
to participate in sales pursuant to this Section 4. For purposes of Section 4(a)
hereof, the "pro rata portion" of Shares that Gordon Brothers, on behalf of all
of the GBG Shareholders, shall be entitled to sell to the Proposed Transferee
shall equal the number of Shares proposed to be sold to the Proposed Transferee
by the Section 4 Selling Shareholder multiplied by a fraction, the numerator of
which shall be the number of Shares then owned in the aggregate by Gordon
Brothers and all of the other GBG Shareholders, and the denominator of which
shall be the aggregate number of Shares then owned by the Section 4 Selling
Shareholder, the Shares owned by Gordon Brothers and all of the other GBG
Shareholders and all other Shareholders wishing to participate in any sale under
this Section 4.

      5.    Drag Along Rights.

            (a)   If at any time following the date hereof, the Company's Board
of Directors and holders of a majority of the Preferred Stock then outstanding
(voting as a single class on an as-converted basis into shares of Common Stock)
(the "Majority Shareholders") shall vote or otherwise enter into an agreement to
(A) sell in a bona fide arms' length transaction at least 75% of the Shares
owned by such Majority Shareholders to any independent third party, person or
group of persons who are not affiliated with the Majority Shareholders, or (B)
enter into a bona fide arms' length transaction pursuant to which the Company
agrees to merge with or into another entity or agrees to sell all or
substantially all of the assets of the Company to, another independent, third
party entity that is not affiliated with the Majority Shareholders (in each case
a "Corporate Transaction"), then the Majority Shareholders may require that each
Shareholder and each Common Shareholder sell a number of Shares owned by such
Shareholder or Common Shareholder (equal to the number of Shares owned by such
Shareholder or Common Shareholder multiplied by a fraction, the numerator of
which is the number of Shares to be sold by the Majority Shareholders in such
transaction and the denominator of which is all of the

                                     - 7 -
<PAGE>

Shares owned by the Majority Shareholders), to such independent third party,
person or group of persons at the same price per share and on the same terms and
conditions as are applicable to the proposed sale by such Majority Shareholders
and/or vote such securities in favor of the Corporate Transaction. Each
Shareholder and Common Shareholder hereby grants to the President of the Company
an irrevocable proxy, coupled with an interest, to vote all shares of capital
stock owned by such Shareholder or Common Shareholder and to take such other
actions to the extent necessary to carry out the provisions of this Section 5 in
the event of any breach by such Shareholder or Common Shareholder of its
obligations hereunder.

            (b)   In order to exercise the rights under this Section 5, the
Majority Shareholders must give notice to each Shareholder and Common
Shareholder (other than the Majority Shareholders) not less than thirty (30)
days prior to the proposed date upon which the contemplated Corporate
Transaction is to be consummated.

            (c)   The obligations of the Shareholders and Common Shareholders
pursuant to this Section 5 are subject to the satisfaction of the following
conditions:

                  (i)   upon the consummation of the Corporate Transaction, each
of the Shareholders and Common Shareholders shall receive the same proportion of
the aggregate consideration from such Corporate Transaction that such
Shareholder or Common Shareholder would have received if such aggregate
consideration had been distributed by the Company in complete liquidation
pursuant to the rights and preferences set forth in the Company's Certificate of
Incorporation as in effect immediately prior to the entrance into the first
agreement entered into in connection with, and prior to, such Corporate
Transaction (giving effect to applicable orders of priority);

                  (ii)  if any holders of a class or series of capital stock are
given an option as to the form and of consideration to be received, each other
holder of such class or series shall be given the same option;

                  (iii) the Corporate Transaction must be a bona fide, arms'
length transaction;

                  (iv)  the purchaser, acquirer or similar counterparty in the
Corporate Transaction must not be affiliated with any of the Majority
Shareholders, including, without limitation, that the purchaser, acquirer or
similar counterparty must not, directly or indirectly, be a stockholder,
officer, director, partner, member or manager of any of the Majority
Shareholders;

                  (v)   prior to the Corporate Transaction, the purchaser,
acquirer or similar counterparty in the Corporate Transaction must not, directly
or indirectly, control, be controlled by, or be under common control with, any
of the Majority Shareholders;

                  (vi)  if any Shareholder obtains in connection with the
Corporate Transaction any contractual rights, such as registration rights,
rights of co-sale, preemptive rights, and the like, each other Shareholder shall
receive substantially commensurate contractual rights in connection with such
Corporate Transaction;

                                     - 8 -
<PAGE>

                  (vii) no options, warrants or similar rights to acquire equity
in the purchaser or acquirer (or its parent) in the Corporate Transaction may be
granted, issued or sold to any Shareholder unless granted, or issued to each
Shareholder on a pro rata basis (except for options granted to Shareholders who
are employees of the Company), based on the proportion of outstanding Common
Stock held by each Shareholder as of immediately prior to the consummation of
the Corporate Transaction (assuming conversion of all then outstanding Preferred
Stock of the Company);

                  (viii) each holder of then currently exercisable rights to
acquire capital stock of the Company (whether by exercise of a security,
conversion of a security or otherwise) shall be given adequate opportunity to
exercise such rights prior to consummation of the Corporate Transaction;

                  (ix)  no Shareholder or Common Shareholder shall be obligated
to make any out-of-pocket expenditure prior to the consummation of the Corporate
Transaction and no Shareholder or Common Shareholder shall be obliged to pay
more than such Shareholder's or Common Shareholder's pro rata share (based upon
the amount of consideration received) of reasonable expenses incurred in
connection with a consummated Corporate Transaction to the extent such costs are
incurred for the benefit of all Shareholders and Common Shareholders and are not
otherwise paid by the Company or the acquiring party (costs incurred by or on
behalf of a Shareholder or Common Shareholder for such Shareholder's or Common
Shareholder's sole benefit will not be considered costs of the transaction
hereunder), provided that a Shareholder's or Common Shareholder's liability for
such expenses shall be capped at the total purchase price received by such
Shareholder or Common Shareholder in such Corporate Transaction for such
Shareholder's or Common Shareholder's Shares;

                  (x)   in the event that the Shareholders and Common
Shareholders are required to provide any representations or indemnities in
connection with the Corporate Transaction, each Shareholder and Common
Shareholder shall not be liable for more than such Shareholder's or Common
Shareholder's pro rata share (based upon the amount of consideration received)
of any liability for misrepresentation or indemnity and such liability shall not
exceed the total purchase price or consideration received by such Shareholder or
Common Shareholder for such Shareholder's or Common Shareholder's Shares in such
Corporate Transaction; and

                  (xi)  each Shareholder and Common Shareholder shall only be
obligated to make representations or warranties in any such Corporate
Transaction as to such Shareholder's or Common Shareholder's (A) title and
ownership of the Shares to be sold by such Shareholder or Common Shareholder,
(B) authorization, execution and delivery of relevant documents by such
Shareholder or Common Shareholder, and (C) the enforceability of relevant
documents against such Shareholder or Common Shareholder.

      6.    Preemptive Rights.

            (a)   Right of Purchase. The Company hereby grants to each Preferred
Shareholder the right to purchase all or part of its pro rata share of New
Securities (as defined in Section 6(b) below) which the Company, from time to
time, proposes to sell and issue. Such Preferred Shareholder's pro rata share,
for purposes of this preemptive right, is the ratio of the

                                     - 9 -
<PAGE>

number of shares of Preferred Stock, on an as converted basis into shares of
Common Stock, then owned by such Preferred Shareholder to the total number of
shares of Preferred Stock, on an as converted basis into shares of Common Stock,
then owned by all Preferred Shareholders. Each Preferred Shareholder shall have
a right of over-allotment pursuant to this Section 6 such that, to the extent a
Preferred Shareholder does not exercise its preemptive right in full hereunder,
such additional portion of New Securities which such Preferred Shareholder did
not purchase may be purchased by other Preferred Shareholders in proportion to
the total number of shares of Preferred Stock, on an as converted basis into
shares of Common Stock, which each such other Preferred Shareholder owns
compared to the total number of shares of Preferred Stock, on an as-converted
basis into shares of Common Stock, which all such Preferred Shareholders own. A
Preferred Shareholder may designate, at any time prior to actual purchase, any
affiliate of such Preferred Shareholder as the entity entitled to purchase all
or a portion of such Preferred Shareholder's pro rata shares of New Securities
(and/or any over-allotment right), provided that (i) such designee agrees to be
bound by the terms of this Agreement in the same capacity as the Preferred
Shareholder hereunder and (ii) the purchase of such New Securities by such
designee does not violate the registration requirements of the Securities Act or
any applicable state securities laws.

            (b)   Definition of New Securities. "New Securities" shall mean any
capital stock of the Company whether now authorized or not, and rights, options
or warrants to purchase capital stock, and securities of any type whatsoever
that are, or may become convertible into or exchangeable for capital stock, and
any debt securities of the Company issued on or after the date hereof; provided
that the term "New Securities" shall not include (i) shares of Common Stock
issued upon conversion of the Preferred Stock, (ii) an aggregate of 14,498,300
shares of Common Stock and/or options, warrants or other Common Stock purchase
rights, and the Common Stock issued pursuant to such options, warrants or other
rights issued or issuable to employees, directors and consultants of the
Corporation, in their capacity as such, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors
of the Corporation, as such number of shares of Common Stock and/or options,
warrants or other rights may be increased from time to time with at least a
majority of those members of the Board of Directors who are (x) Preferred
Directors (as defined in Section 7) and (y) are designated by a Major Investor
pursuant to Section 7 hereof (the "Specified Directors"), (iii) securities
issued in connection with any senior debt bank financing or equipment lease
financing if (x) such issuance has been approved by at least a majority of the
Specified Directors and (y) such Specified Directors have expressly provided in
writing that the terms of this Section 6(b) shall not apply to such issuance,
provided, however, in the event that any other equity securities or securities
exchangeable or exercisable for, or convertible into equity securities of the
Corporation are issued at an effective purchase price per share of Common Stock
greater than the Original Series A Conversion Value, Series A-1 Conversion Value
or Series B Conversion Value (as such terms are defined in the Company's
Certificate of Incorporation, as amended from time to time) but less than the
Series C Conversion Value (as such term is defined in the Company's Certificate
of Incorporation, as amended from time to time), then such approval and waiver
shall not be effective unless it includes the approval of the Series C Designee
(as defined herein), (iv) any securities issued in connection with the
acquisition of any other corporation or business concern, whether by acquisition
of assets or stock if such issuance has been approved by at least a majority of
the Specified Directors, (v) securities issued in connection with any joint
venture or strategic partnership, if such issuance has been approved by at least
a majority of the

                                     - 10 -
<PAGE>

Specified Directors, (vi) shares of Series A-1 Preferred Stock issued upon
conversion of Original Series A Preferred Stock, as defined in and contemplated
by that certain Series B Convertible Preferred Stock Purchase Agreement, dated
as of April 17, 2002, as amended from time to time, by and between the Company
and the other parties thereto (the "Series B Purchase Agreement"), (vii) up to
1,100,082 shares of Series B Preferred Stock or other securities issued upon
exercise of the Series B Warrants, or (viii) up to 3,958,334 shares of Series C
Preferred Stock issued or issuable upon exercise of the Series C Warrants.

            (c)   Notice from the Company. In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Preferred
Shareholder written notice (the "Preemptive Rights Notice") of its intention,
describing the type of New Securities and the price and the terms upon which the
Company proposes to issue the same. Each Preferred Shareholder shall have twenty
(20) business days from the date of receipt of any such notice to agree to
purchase up to the Preferred Shareholder's pro rata share of such New Securities
(and any over-allotment amount pursuant to the operation of Section 6(a) hereof)
for the price and upon the terms specified in the Preemptive Rights Notice by
giving written notice to the Company and stating therein the quantity of New
Securities that such Preferred Shareholder desires to purchase. The closing of
the purchase of the New Securities shall be at the Company's principal place of
business within fifteen (15) days following the expiration of the 20-day period,
or at such other time or place as the Company and such Preferred Shareholders
may determine.

            (d)   Sale by the Company. In the event any Preferred Shareholder
fails to exercise in full its preemptive right (after giving effect to the
over-allotment provision of Section 6(a) hereof), the Company shall have ninety
(90) days thereafter to sell the New Securities with respect to which the
preemptive right under this Section 6 was not exercised by the Preferred
Shareholders, at a price and upon terms no more favorable to the purchasers
thereof than specified in the Preemptive Rights Notice. To the extent the
Company does not sell all the New Securities offered within said 120-day period,
the Company shall not thereafter issue or sell such New Securities without first
again offering such securities to the Preferred Shareholders in the manner
provided above.

            (e)   Termination of Rights. The rights granted to the Preferred
Shareholders under this Section 6 shall expire immediately prior to, and shall
not apply in connection with, the consummation of the first Qualified Public
Offering. Notwithstanding anything contained herein to the contrary, no
Management Shareholder shall be entitled to participate in any purchase of
shares pursuant to this Section 6 unless at the time such Management Shareholder
participates therein such Management Shareholder is an employee of the Company.

            (f)   Amendments and Waivers. The rights of any Preferred
Shareholder contained in this Section 6 may be waived with the written consent
of such Preferred Shareholder. The rights of, or provisions in any manner
affecting, all holders of Series A Preferred Stock, Series A-1 Preferred Stock
and Series B Preferred Stock contained in this Section 6 may be amended,
modified and waived with the written consent of Preferred Shareholders who then
own at least two-thirds of the outstanding shares of Series A Preferred Stock,
Series A-1 Preferred Stock and Series B Preferred Stock, considered together as
a single class, on an as-converted basis into shares of Common Stock. The rights
of, or provisions in any manner affecting, all holders of Series C Preferred
Stock contained in this Section 6 may be

                                     - 11 -
<PAGE>

amended, modified and waived with the written consent of Preferred Shareholders
who then own at least a majority of the outstanding shares of Series C
Preferred Stock. Notwithstanding the foregoing, in the event that such amendment
adversely affects the obligations and/or rights of one group of Preferred
Shareholders in a manner that is different from and more adverse than the effect
on the obligations and/or rights of the Preferred Shareholders who approved such
waiver, such amendment or waiver shall also require the written consent of a
majority of Shares held by such more adversely affected group.

      7.    Board of Directors. The directors designated in subsections (a)(i)
through (a)(iii) and (a)(vii) and (a)(viii) of this Section 7 shall be the sole
directors deemed designated by the holders of Preferred Stock (the "Preferred
Directors"), irrespective of whether any other party who is entitled to
designate a director under this Section 7 holds shares of Preferred Stock.

            (a)   At each annual meeting of the shareholders of the Company, and
at each special meeting of the shareholders of the Company called for the
purpose of electing directors of the Company, and at any time at which
shareholders of the Company shall have the fight to, or shall, vote for or
consent to the election of directors of the Company, then, and in each event,
the Shareholders shall vote or give consent with respect to all Shares owned by
them for the election of a Board of Directors consisting of nine (9) directors,
designated in the manner designated below:

                  (i)   one director shall be designated by Highland Capital
Partners V, Limited Partnership (which designee shall initially be Robert
Higgins);

                  (ii)  one director shall be designated by General Catalyst
Group, LLC (which designee shall initially be David Fialkow);

                  (iii) one director shall be designated by Dorset Capital
Management, LLC;

                  (iv)  two directors shall be designated by Gordon Brothers
Group, LLC (one of which designees shall initially be Michael Frieze);

                  (v)   one director shall be the Company's Chief Executive
Officer (which shall initially be Carl Rosendorf);

                  (vi)  one director shall be designated by the mutual agreement
of the other members of the Board of Directors (which designee shall initially
be Norman Matthews);

                  (vii) one director shall be designated by New England
Development (which designee shall initially be Stephen Karp); and

                  (viii) one director shall be designated by Maveron Equity
Partners 2000, L.P., so long as Maveron Equity Partners 2000, L.P., Maveron
Equity Partners 2000-B, L.P. and MEP 2000 Associates, LLC, continue to own in
the aggregate at least 1,650,000 shares of Series C Preferred Stock or warrants
to purchase Series C Preferred Stock (as adjusted to reflect stock splits, stock
dividends or the like) (which designee shall initially be Debra Somberg) (the
"Series C Designee")).

                                     - 12 -
<PAGE>

            (b)   Notwithstanding anything to the contrary contained in Section
7(a) above, the parties hereto acknowledge that AOL has the right pursuant to
that certain Interactive Marketing Agreement, dated June 1, 2000, between the
Company and AOL, as amended to date, to designate one director to the Board of
Directors at any time and the parties further agree to take such action as is
necessary to permit AOL to designate such director should AOL provide written
notice to the Company of its desire to designate such a director.

            (c)   Any director of the Company may be removed from the Company's
Board of Directors in the manner allowed by law and the Company's Certificate of
Incorporation and Bylaws; provided that no Shareholder shall vote for the
removal of a director designated by a party or group pursuant to Section 7(a)
above, and no such vote shall be effective, unless the party or group that
designated such director, voting separately among themselves in accordance with
Section 7(a) above, shall specify. If such party or group specifies the removal
of such director, the Shareholders agree to vote their respective shares of
capital stock of the Company owned by them or as to which they have voting power
for the removal of such director. If a vacancy occurs on the Board of Directors
as a result, the successor to such director shall be designated and elected in
accordance with Section 7(a) above.

            (d)   The Board of Directors shall maintain an Audit Committee and a
Compensation Committee. The Audit Committee shall be composed of the directors
designated pursuant to each of Sections 7(a)(i), 7(a)(vi) and 7(a)(viii). The
Compensation Committee shall be composed of the directors designated pursuant to
each of Sections 7(a)(i), 7(a)(ii) and Section 7(a)(viii).

            (e)   The Company shall reimburse all of the directors for their
reasonable out-of-pocket costs and expenses incurred as a result of serving on
the Company's Board of Directors or any committee thereof.

      8.    Registration Rights.

            (a)   Certain Definitions. As used in this Section 8, the following
terms shall have the following respective meanings:

                  (i)   "Holder" shall mean the person who is then the record
owner of Registrable Securities or Subordinate Registrable Securities which have
not been sold to the public; provided, however, that any person who was at any
time an employee of the Company shall be a Holder only during such time as such
person is an employee of the Company.

                  (ii)  "Initiating Holders" shall mean one or more Investors or
their assignees who in the aggregate are holders of at least fifty percent (50%)
of the Shares held by all Investors and their assignees.

                  (iii) "Registrable Securities" shall mean (i) all of the
shares of Common Stock issued or issuable upon conversion of the Preferred Stock
now owned or hereafter acquired by the Investors, (ii) all shares of Common
Stock issuable with respect to any securities of the Company acquired after the
date hereof by any Investor that are convertible into or exercisable for shares
of Common Stock and (iii) any Common Stock issued in respect of the shares

                                     - 13 -
<PAGE>

described in clauses (i) and (ii) upon any stock split, stock dividend,
recapitalization or other similar event.

                  (iv)  The term "register" shall mean to register under the
Securities Act and applicable state securities laws for the purpose of effecting
a public sale of securities.

                  (v)   "Registration Expenses" shall mean all expenses incurred
by the Company in compliance with subsections (b), (c) or (e) of this Section 8,
including, without limitation, all registration and filing fees, printing
expenses, transfer taxes, fees and disbursements of counsel for the Company,
blue sky fees and expenses, reasonable fees and disbursements of one counsel for
all the selling Holders and other security holders, and the expense of any
special audits incident to or required by any such registration.

                  (vi)  "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities.

                  (vii) "Subordinate Registrable Shares" shall mean shares of
Common Stock (other than Registrable Securities) held as of the date hereof by
the Shareholders and the Common Shareholders, or that are issued or issuable
with respect thereto pursuant to any stock split or stock dividend or other such
event.

            (b)   Requested Registrations.

                  (i)   If at any time after the earlier of (i) one (1) year
after the effective date of the first firmly underwritten registration statement
effected by the Company or (ii) eighteen (18) months after the date hereof, the
Company shall receive from one or more of the Initiating Holders a written
request that the Company effect the registration of Registrable Securities that
have an anticipated aggregate public offering price (before any underwriting
discounts and commissions) of not less than $5,000,000 (or $15,000,000 if such
requested registration is in connection with the Company's initial public
offering), the Company will:

                        (A)   promptly give written notice of the proposed
registration to all other Holders holding Registrable Securities; and

                        (B)   use best efforts to file such registration as soon
as practicable but in any event within 45 days and cause such registration to
become effective as soon as practicable but in any event within 120 days of the
initial request as would permit or facilitate the sale and distribution of such
portion of such Registrable Securities as are specified in such request,
together with such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within thirty (30) days after receipt of such written notice from the Company.
If the underwriter managing the offering advises the Holders who have requested
inclusion of their Registrable Securities in such registration that marketing
considerations require a limitation on the number of shares offered, such
limitation shall be pro rata among such Holders (including the Initiating
Holders) who requested inclusion of Registrable Securities in such registration
according to the number of Registrable Securities each such Holder requested to
be included in such registration. No shares other than Registrable Securities
shall be included in a registration effected under this subsection (b) without
the consent of the Holders holding a majority of the Registrable Securities
sought to

                                     - 14 -
<PAGE>

be included in such registration. No registration initiated by Initiating
Holders hereunder shall count as a registration under this subsection (b) unless
and until it shall have been declared effective, unless such registration is
later withdrawn at the request of the Initiating Holders and such request is not
due to an adverse change in the Company's business or operations.

                  (ii)  Selection of Underwriter. The underwriter of any
underwriting requested under this subsection (b) shall be selected by the
Holders holding a majority of the Registrable Securities included therein and be
reasonably acceptable to the Company.

                  (iii) Limitation. The Investors shall not be permitted to
require more than two registrations under this subsection (b); provided,
however, that any underwriting requested under this subsection (b) in which
fewer than 50%of the Registrable Securities sought to be included in such
underwriting by the Holders are actually sold in the underwriting shall not
count towards such limitation.

                  (iv)  Deferral Rights. Notwithstanding the foregoing, if the
Company shall furnish to the Holders requesting a registration statement
pursuant to this subsection (b), a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its Shareholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer such filing for a period of not more than 90 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in a six-month period and twice in the
aggregate.

            (c)   "Piggy Back" Registrations.

                  (i)   If the Company shall determine to register any of its
securities, either for its own account or the account of a security holder or
holders exercising their registration rights, other than a registration relating
solely to employee benefit plans or relating to securities issued in connection
with the acquisition of another Company or other business entity, or a
registration on any registration form which does not permit secondary sales or
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable Securities
or Subordinate Registrable Securities (together, the "Eligible Shares"), the
Company will:

                        (A)   Promptly give to each Holder of Eligible Shares
written notice thereof (which shall include the number of shares the Company or
other security holder proposes to register and, if known, the name of the
proposed underwriter); and

                        (B)   Use its best efforts to include in such
registration all the Eligible Shares specified in a written request or requests,
made by any Holder within twenty (20) days after the date of delivery of the
written notice from the Company described in clause (i) above (such request a
"Piggyback Request"). If, in connection with any Piggyback Request or S-3
Request (as defined below) hereunder, the underwriter managing the applicable
offering determines that, because of marketing factors, all of the Eligible
Shares requested to be registered may not be included in the offering, the
Eligible Shares shall be eliminated from such

                                     - 15 -
<PAGE>

offering pro rata based upon the number of Eligible Shares requested to be
so registered; provided, however, all of the Subordinated Registrable Securities
and other securities included in such offering (other than shares sold by the
Company and the Registrable Securities) shall be eliminated from the offering
before any Registrable Securities are eliminated. If any Registrable Securities
are to be eliminated from the offering, they shall be eliminated from such
offering pro rata based upon the number of Registrable Securities requested to
be so registered.

                  (ii)  The Company shall select the underwriter for an offering
made pursuant to this subsection (c).

            (d)   Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
subsections (b), (c) or (e) of this Section 8 shall be paid by the Company. All
Selling Expenses incurred in connection with any such registration,
qualification or compliance shall be borne by the holders of the securities
registered, pro rata on the basis of the number of their shares so registered.

            (e)   Registration on Form S-3. The Company shall use its reasonable
best efforts to qualify for registration on Form S-3 or any comparable or
successor form; and to that end the Company shall register (whether or not
required by law to do so) the Common Stock under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in accordance with the provisions of the
Exchange Act on or following the effective date of the first registration of any
securities of the Company on Form S-1 or any comparable or successor form. After
the Company has qualified for the use of Form S-3, in addition to the rights
contained in the foregoing provisions of this Section 8, the Holders of Eligible
Shares shall have the right to request registrations on Form S-3 (such request
an "S-3 Request," which shall be in writing and shall state the number of shares
of Eligible Shares to be disposed of and the intended methods of disposition of
such shares by the holders thereof). Upon receipt of an S-3 Request, the Company
shall use all commercially reasonable efforts to file such registration as soon
as practicable but in any event within 30 days and cause such registration to
become effective as soon as practicable but in any event within 90 days of the
S-3 Request. In no event shall the Company be required to register shares
pursuant to this Section 8(e) more than one time in any twelve (12) month period
or with an aggregate market value of less than $2,000,000.

            (f)   Registration Procedures. In the ease of each registration
effected by the Company pursuant to this Section 8, the Company will keep each
Holder of Eligible Shares included in such registration (each individually a
"Participating Holder", and collectively the "Participating Holders") advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will do the following for the benefit of
such Holders:

                  (i)   Keep such registration effective for a period of one
hundred twenty (120) days or until the Participating Holder or Participating
Holders have completed the distribution described in the registration statement
relating thereto, whichever first occurs, and amend or supplement such
registration statement and the prospectus contained therein from time to time to
the extent necessary to comply with the Securities Act and applicable state
securities laws;

                                     - 16 -
<PAGE>

                  (ii)  Use its reasonable best efforts to register or qualify
the Eligible Shares covered by such registration under the applicable securities
or "blue sky" laws of such jurisdictions as the selling shareholders may
reasonably request; provided, that the Company shall not be obligated to qualify
to do business in any jurisdiction where it is not then so qualified or
otherwise required to be so qualified or to take any action which would subject
it to the service of process in suits other than those arising out of such
registration;

                  (iii) Furnish such number of prospectuses and other documents
incident thereto as a Participating Holder from time to time may reasonably
request;

                  (iv)  In connection with any underwritten offering pursuant to
a registration statement filed pursuant to subsection (b) of this Section 8, the
Company will enter into any underwriting agreement reasonably necessary to
effect the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and is entered into by all of the
Participating Holders included in such registration;

                  (v)   To the extent then permitted under applicable
professional guidelines and standards, obtain a comfort letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters and an opinion from
the Company's counsel in customary form and covering such matters of the type
customarily covered in a public issuance of securities, in each case addressed
to the Participating Holders, and provide copies thereof to the Participating
Holders;

                  (vi)  Permit the counsel to the selling shareholders whose
expenses are being paid pursuant to subsection (d) of this Section 8 to inspect
and copy such corporate documents as he may reasonably request;

                  (vii) Prepare and file with the Securities and Exchange
Commission (the "Commission") such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;

                  (viii) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and

                  (ix)  Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to this Agreement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.

            (g)   Indemnification.

                  (i)   The Company will, and hereby does, indemnify each
Participating Holder, each of its officers, directors, partners, members and
managers, legal counsel and

                                     - 17 -
<PAGE>

accountants and each person controlling such Participating Holder within the
meaning of the Securities Act and each underwriter (as defined in the Securities
Act), if any, and each person who controls such underwriter within the meaning
of the Securities Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any preliminary or
final prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or the Exchange Act or securities act of any state
or any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each Participating
Holder, each of its officers, directors, partners, members, managers, legal
counsel and accountants, and each person controlling such Participating Holder,
each such underwriter and each person who controls any such underwriter,, for
any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
whether or not resulting in any liability, provided that the Company will not be
liable in any such case to any holder that furnishes information to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement (or alleged untrue statement) or omission (or
alleged omission) based upon written information furnished to the Company by
such holder of Eligible Shares or underwriter and stated to be specifically for
use with respect to such registration.

                  (ii)  Each Participating Holder will severally but not jointly
indemnify the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of the
Securities Act and the rules and regulations thereunder, each other
Participating Holder and each of their officers, directors, partners, members
and managers, legal counsel and accountants, and each person controlling a
Participating Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Participating Holder's directors, officers, partners,
persons, members and managers, legal counsel and accountants and underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, whether or not resulting in liability, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such
Participating Holder and stated to be specifically for use therein; provided,
however, that the indemnity agreement contained in this subsection 8(g)(ii)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Participating Holder from whom indemnification is sought; and provided further,
that the total amounts payable by a Participating

                                     - 18 -
<PAGE>

Holder under this subsection 8(g)(ii) shall not exceed the net proceeds received
by such Participating Holder in the applicable registered offering.

                  (iii) Each party entitled to indemnification under this
subsection (g) (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, but the failure of any Indemnified Party to give such notice shall not
relieve the Indemnifying Party of its obligations under this subsection (g)
(except and to the extent the Indemnifying Party has been materially prejudiced
as a consequence thereof). The Indemnifying Party will be entitled to
participate in, and to the extent that it may elect by written notice delivered
to the Indemnified Party promptly after receiving the aforesaid notice from such
Indemnified Party, at its expense to assume, the defense of any such claim or
any litigation resulting therefrom, with counsel reasonably satisfactory to such
Indemnified Party, provided that the Indemnified Party may participate in such
defense at its expense, notwithstanding the assumption of such defense by the
Indemnifying Party, and provided, further, that if the defendants in any such
action shall include both the Indemnified Party and the Indemnifying Party and
the Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it and/or other Indemnified Parties which are different
from or additional to those available to the Indemnifying Party, the Indemnified
Party or Parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such Indemnified Party or Parties and the reasonable fees and expenses
of such counsel shall be paid by the Indemnifying Party. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
(i) furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom and (ii) shall reasonably assist the Indemnifying Party in any such
defense, provided that the Indemnified Party shall be entitled to be reimbursed
by this Indemnifying Party for its out-of-pocket expenses paid in connection
with such assistance.

                  (iv)  No holder of Eligible Shares shall be required to
participate in a registration pursuant to which it would be required to execute
an underwriting agreement in connection with a registration effected under
subsections (b) or (e) of this Section 8 which imposes indemnification or
contribution obligations on such holder more onerous than those imposed
hereunder; provided, however, that the Company shall not be deemed to breach the
provisions of subsections (b) or (c) of this Section 8 if a holder of Eligible
Shares is not permitted to participate in a registration on account of his
refusal to execute an underwriting agreement on the basis of this subparagraph
(iv).

            (h)   Information by Holder. Each Participating Holder shall furnish
to the Company such information regarding such Participating Holder and the
distribution proposed by such Participating Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Section 8 or
otherwise required by applicable state or federal securities laws.

                                     - 19 -
<PAGE>

            (i)   Limitations on Registration Rights. From and after the date of
this Agreement, the Company shall not enter into any agreement with any holder
or prospective holder of any securities of the Company giving such holder or
prospective holder any registration rights.

            (j)   Exception to Registration. The Company shall not be required
to effect a registration under this Section 8 if (i) in the written opinion of
counsel for the Company, which counsel and the opinion so rendered shall be
reasonably acceptable to the Holders, such Holders may sell without registration
under the Securities Act the Registrable Securities for which they requested
registration under the provisions of the Securities Act and in the manner and in
the quantity in which the Registrable Securities were proposed to be sold, or
(ii) the Company shall have obtained from the Commission a "no-action" letter to
that effect; provided that this subsection (j) shall not apply to sales made
under Rule 144(k) or any successor rule promulgated by the Commission until
after the effective date of the Company's initial registration of shares under
the Securities Act. Notwithstanding the foregoing, in no event shall the
provisions of this subsection (j) be construed to preclude a Holder from
exercising rights under this Section 8 for a period of six (6) years after the
effective date of the Company's initial registration of shares under the
Securities Act.

            (k)   Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of restricted securities (as that term is used in Rule 144 under the
Securities Act) to the public without registration, the Company agrees to:

                  (i)   make and keep public information available as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times from and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;

                  (ii)  use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements; and

                  (iii) so long as a Shareholder owns any restricted securities,
furnish to the Shareholder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as a Shareholder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Shareholder to sell any such
securities without registration.

            (l)   Listing Application. If shares of any class of stock of the
Company shall be listed on a national securities exchange, the Company shall, at
its expense, include in its listing application all of the shares of the listed
class then owned by any Shareholder.

                                     - 20 -
<PAGE>

            (m)   Damages. The Company recognizes and agrees that the Holders
shall not have an adequate remedy if the Company fails to comply with the
provisions of this Section 8, and that damages will not be readily
ascertainable, and the Company expressly agrees that in the event of such
failure any Holder shall be entitled to seek specific performance of the
Company's obligations hereunder.

            (n)   "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration (up to, but not exceeding, 180 days) specified by
the Company and the managing underwriter of Common Stock or other securities of
the Company, following the effective date of a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
provided, however, that such agreement shall be applicable only:

                  (i)   to the first such registration statement of the Company
which covers Common Stock (or other securities) to be sold on its behalf to the
public in an underwritten offering; and

                  (ii)  if all officers and directors of the Company, all
securityholders holding one-percent or more of the Company's Shares, and all
other persons with registration rights (whether or not pursuant to this
Agreement) enter into and are not subsequently released from similar agreements.

            (o)   This Section 8 supercedes, replaces and terminates all prior
registration rights granted to the Investors, including, but not limited to
pursuant to Article VI of that certain Series A Convertible Preferred Stock
Purchase Agreement dated as of June 13, 2000, by and between the Company and the
parties thereto (the "Series A Purchase Agreement"), Article VI of the Series B
Purchase Agreement, and Section 8 of the Prior Agreement, and the undersigned
waive all rights they may have with respect thereto. The provisions set forth in
Article VI of the Series A Purchase Agreement, Article VI of the Series B
Purchase Agreement and Section 8 of the Prior Agreement shall have no further
force and effect.

      9.    Term. This Agreement (other than Section 8 hereof) shall terminate
on the earlier to occur of (a) immediately prior to consummation of the first
Qualified Public Offering (as defined below), (b) such date as all Shares owned
by the Investors and their transferees have been repurchased or redeemed by the
Company, or (c) September 16, 2013. A "Qualified Public Offering" means a firmly
underwritten public offering by the Company of its Common Stock pursuant to a
registration statement filed and declared effective under the Securities Act, at
a per share price not less than $4.00 (as adjusted for stock splits, dividends
and the like) and in which the reasonably anticipated gross proceeds to the
Company from such offering would not be less than $40,000,000.

      10.   Failure to Deliver Shares. If any Shareholder or Common Shareholder
becomes obligated to sell any Shares to another Shareholder or Common
Shareholder under this

                                     - 21 -
<PAGE>

Agreement and fails to deliver such Shares in accordance with the terms of this
Agreement, such other Shareholder or Common Shareholder may, at its option, in
addition to all other remedies it may have, send to the defaulting Shareholder
or Common Shareholder the purchase price for such Shares as is herein specified.
Thereupon, the Company, upon written notice to the defaulting Shareholder or
Common Shareholder, (a) shall cancel on its books the certificate or
certificates representing the Shares to be sold and (b) shall issue, in lieu
thereof, in the name of the Company, a new certificate or certificates
representing such Shares, and thereupon all of the defaulting Shareholder's or
Common Shareholder's rights in and to such Shares shall terminate.

      11.   Specific Enforcement. Each Shareholder and Common Shareholder
expressly agrees that the other Shareholders, Common Shareholders and the
Company may be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach or threatened breach of the terms, covenants and/or
conditions of this Agreement by any Shareholder or Common Shareholder, the other
Shareholders, Common Shareholders and the Company shall, in addition to all
other remedies, each be entitled to apply for a temporary or permanent
injunction, and/or a decree for specific performance, in accordance with the
provisions hereof.

      12.   Legend. Each certificate evidencing any of the Shares now owned or
hereafter acquired by the Shareholders and Common Shareholders shall bear in
addition to any other legends required by other agreements or by law a legend
substantially as follows:

            "Any sale, assignment, transfer or other disposition of the shares
            represented by this certificate is restricted by, and subject to,
            the terms and provisions of a certain Amended and Restated
            Shareholders' Agreement dated as of July 26, 2002, as amended from
            time to time. A copy of said Agreement is on file with the Secretary
            of the Corporation."

      13.   Notices. Notices given hereunder shall be deemed to have been duly
given (i) on the date of personal delivery, (ii) one day after deposit with
federal express or other overnight courier, or (iii) on the date of postmark if
mailed by certified or registered mail, return receipt requested, to the party
being notified at his or its address specified on Schedule A hereto, and if not
so indicated on Schedule A, at the address as set forth on the Company's stock
ledger records or such other address as the addressee may subsequently notify
the other parties of in writing.

      14.   Entire Agreement and Amendments. This Agreement amends, restates and
supercedes the Prior Agreement in its entirety and constitutes the entire
agreement of the parties with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be waived, modified, amended or
terminated except by a written agreement signed by the Company and Preferred
Shareholders holding a majority of the outstanding shares of Preferred Stock
held by all Preferred Shareholders, voting together as a single class on an
as-converted basis into shares of Common Stock. Any such waiver, modification,
amendment, or termination agreement shall be effective and binding on all
Shareholders and Common Shareholders, whether or not such Shareholders or Common
Shareholders consented to such waiver, modification, amendment, or termination
agreement; provided, however, that no such waiver, modification, amendment, or
termination which adversely affects the rights of one group of Shareholders
hereunder in a manner that is different from and more adverse than the affect of
such waiver, modification, amendment or termination on the rights of the
Shareholders who

                                     - 22 -
<PAGE>

approved such waiver, modification, amendment or termination shall be effective
against such adversely affected group of Shareholders unless also approved by
holders of a majority of Shares held by such adversely affected group; provided
further, however, that no amendment shall be made to the rights of any party
hereto to nominate or designate a director pursuant to Section 7 without the
written consent of such party and that no amendment shall be made to Section 5
without the written consent of the holders of a majority of the outstanding
shares of Series C Preferred Stock. Each of the Shareholders and Common
Shareholders represents that he, she or it is not a party to any other agreement
which would prevent him, her or it from performing his, her or its obligations
hereunder. No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature. Notwithstanding
anything to the contrary in this Section 14, the amendment, modification or
waiver of any provision of Section 6 of this Agreement shall be governed by
Section 6(f) of this Agreement and not Section 14 of this Agreement.
Notwithstanding anything contained in this Agreement to the contrary, the
waiver, modification, amendment, or termination of this Agreement or any
provision of this Agreement, including Section 6 of this Agreement, shall not
require the consent of any Common Shareholder.

      15.   Authorization of Additional Shares of Series C Preferred Stock For
Issuance upon Exercise of Warrants. The Company, the Common Shareholders and the
Shareholders agree to take or cause to occur any an all such actions, including,
without limitation, execution of documents, execution of consents, calling of
one or more special stockholders' meetings, casting of votes at such special
stockholders' meetings, amendment of the Certificate of Incorporation of the
Company to increase the number of authorized shares of Preferred Stock and
authorized or designated number of shares of Series C Preferred Stock or
otherwise, and amendment of the by-laws of the Company, as may be necessary to
create and authorize for issuance any such number of additional shares of Series
C Preferred Stock as may be required so that sufficient shares of Series C
Preferred Stock are authorized and available for issuance upon exercise of the
Series C Warrants.

      16.   Governing Law; Successors and Assigns. This Agreement shall be
governed by the internal laws of the State of Delaware without giving effect to
the conflicts of laws principles thereof and, except as otherwise provided
herein, shall be binding upon and inure to the benefit of the heirs, personal
representatives, executors, administrators, successors and assigns of the
parties.

      17.   Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carded out as if any such illegal,
invalid or unenforceable provision were not contained herein.

      18.   Captions. Captions are for convenience only and are not deemed to be
part of this Agreement.

                                     - 23 -
<PAGE>

      19.   Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                                      ***

                                     - 24 -
<PAGE>

               SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT

                           Counterpart Signature Page

      IN WITNESS WHEREOF, this Agreement has been executed as an instrument
under SEAL as of the date and year first above written.

                                 SMARTBARGAINS, INC.

                                 By: /s/ Carl Rosendorf
                                    ____________________________________________
                                    Name:  Carl Rosendorf
                                    Title: President and Chief Executive Officer

                                 GORDON BROTHERS GROUP, LLC

                                 By: /s/ Alan R. Goldstein
                                    ____________________________________________
                                    Name: Alan R. Goldstein
                                    Title: CFO and Manager

                                 GBG HOLDING, INC.

                                 By: /s/ Alan R. Goldstein
                                    ____________________________________________
                                    Name: Alan R. Goldstein
                                    Title: Treas.

                                 /s/ Bruce J. Armbruster
                                 _______________________________________________
                                 Bruce J. Armbruster

                                 /s/ Debra A. Anderson
                                 _______________________________________________
                                 Debra A. Anderson

                                 /s/ David Gage Andrews
                                 _______________________________________________
                                 David Gage Andrews

                                 /s/ Michael D. Chartock
                                 _______________________________________________
                                 Michael D. Chartock

                                 _______________________________________________
                                 Cynthia R. Cohen

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                      S-1
<PAGE>

                                 /s/ Mitchell H. Cohen
                                 -----------------------------------------------
                                 Mitchell H. Cohen

                                 /s/ Lee L. Cote
                                 -----------------------------------------------
                                 Lee L. Cote

                                 DJM Asset Management, Inc.

                                 By:/s/ Emilio Amendola
                                    --------------------------------------------
                                    Name:  Emilio Amendola
                                    Title: President

                                 DJM Realty Services, Inc.

                                 By: /s/ Andrew Graiser
                                    --------------------------------------------
                                    Name:  Andrew Graiser
                                    Title: Co-President

                                 /s/ Richard P. Edwards
                                 -----------------------------------------------
                                 Richard P. Edwards

                                 /s/ David M. Frieze
                                 -----------------------------------------------
                                 David M. Frieze

                                 /s/ Deborah E. Frieze
                                 -----------------------------------------------
                                 Deborah E. Frieze

                                 /s/ Kenneth S. Frieze
                                 -----------------------------------------------
                                 Kenneth S. Frieze

                                 /s/ Michael G. Frieze
                                 -----------------------------------------------
                                 Michael G. Frieze

                                 -----------------------------------------------
                                 Stephen A. Goldberger Trustee of the Stephen A.
                                 Goldberger 1974 Revocable Trust

     Signature page to Second Amended and Restated Shareholders' Agreement

                                      S-2
<PAGE>
                                 /s/ Alan R. Goldstein
                                 -----------------------------------------------
                                 Alan R. Goldstein

                                 /s/ Philip H. Gordon
                                 -----------------------------------------------
                                 Philip H. Gordon

                                 /s/ Barry S. Greiff
                                 -----------------------------------------------
                                 Barry S. Greiff

                                 /s/ Robert Grosskopf
                                 -----------------------------------------------
                                 Robert Grosskopf

                                 /s/ Peter J. Haley
                                 -----------------------------------------------
                                 Peter J. Haley

                                 -----------------------------------------------
                                 Peter Hayes

                                 /s/ Matthew R. Kahn
                                 -----------------------------------------------
                                 Matthew R. Kahn

                                 -----------------------------------------------
                                 Yvonne P. Kizner

                                 /s/ Douglas N. Koplow
                                 -----------------------------------------------
                                 Douglas N. Koplow and Susan Hilzenrath, as
                                 Trustees under the Koplow Par B Generation
                                 -Skipping Trust f/b/o Deborah R. Koplow

                                 /s/ Douglas N. Koplow
                                 -----------------------------------------------
                                 Douglas N. Koplow and Susan Hilzenrath, as
                                 Trustees under the Koplow Par B Generation-
                                 Skipping Trust f/b/o Stacey N. Koplow

                                 /s/ Douglas N. Koplow
                                 -----------------------------------------------
                                 Douglas N. Koplow and Susan Hilzenrath, as
                                 Trustees under the Koplow Par B Generation-
                                 Skipping Trust f/b/o Douglas N. Koplow

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                      S-3
<PAGE>

                                 /s/ Kevin Kulinowski
                                 _______________________________________________
                                 Kevin Kulinowski

                                 /s/ Gary M. Kulp
                                 _______________________________________________
                                 Gary M. Kulp

                                 /s/ Thomas M. Lonabocker
                                 _______________________________________________
                                 Thomas M. Lonabocker

                                 /s/ Robert S. Marshall
                                 _______________________________________________
                                 Robert S. Marshall

                                 /s/ Karen A. Meier
                                 _______________________________________________
                                 Karen A. Meier

                                 /s/ Ann H. Merrill
                                 _______________________________________________
                                 Ann H. Merrill

                                 /s/ Kenneth J. Novack
                                 _______________________________________________
                                 Kenneth J. Novack, Esq.

                                 /s/ Patricia E. Parent
                                 _______________________________________________
                                 Patricia E. Parent

                                 /s/ Jeffrey Pollock
                                 _______________________________________________
                                 Jeffrey Pollock

                                 /s/ Robert C. Sager
                                 _______________________________________________
                                 Robert C. Sager

                                 /s/ Elaine H. Sager
                                 _______________________________________________
                                 Elaine H. Sager, Custodian for Shane Sager

                                 /s/ Elaine H. Sager
                                 _______________________________________________
                                 Elaine H. Sager, Custodian for Tess Sager

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                      S-4
<PAGE>
                                 /s/ Malcolm L. Sherman
                                 _______________________________________________
                                 Malcolm L. Sherman

                                 /s/ Lawrence Siff
                                 _______________________________________________
                                 Lawrence Siff

                                 /s/ Bradley W. Snyder
                                 _______________________________________________
                                 Bradley W. Snyder

                                 /s/ Fulton H. Stokes
                                 _______________________________________________
                                 Fulton H. Stokes

                                 WEICH & BILOTTI, INC.

                                 By: /s/ M.D. Weich
                                    ____________________________________________
                                    Name: M.D. Weich
                                    Title: President

                                 WEICH & BILOTTI, INC. c/o Mervyn D. Weich

                                 By: /s/ M.D. Weich
                                    ____________________________________________
                                 Name: M.D. Weich
                                 Title: President

                                 /s/ Mark Weinberg
                                 _______________________________________________
                                 Mark Weinberg

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                      S-5
<PAGE>
                                 /s/ Charles J. Anderson
                                 _______________________________________________
                                 Charles J. Anderson

                                 /s/ Jeanette T. Bedell and Peter B. Bedell
                                 _______________________________________________
                                 Jeanette T. Bedell and Peter B. Bedell, JTROS

                                 /s/ Beverly Dantz
                                 _______________________________________________
                                 Beverly Dantz and Christopher Richard Dantz, as
                                 joint tenants with right of survivorship

                                 /s/ Gerald Elovitz
                                 _______________________________________________
                                 Gerald Elovitz

                                 /s/ Ben Fischman
                                 _______________________________________________
                                 Ben Fischman

                                 /s/ Samuel J. Gerson, Executrix
                                 _______________________________________________
                                 Samuel J. Gerson

                                 /s/ Beth MacGillivray
                                 _______________________________________________
                                 Beth MacGillivray

                                 /s/ Judith A. MacGregor
                                 _______________________________________________
                                 Judith A. MacGregor

                                 /s/ Carl Rosendorf
                                 _______________________________________________
                                 Carl Rosendorf

                                 /s/ Laura S. Williams, 09/09/2003
                                 _______________________________________________
                                 Laura S. Williams

                                 /s/ Stefanie Wolf
                                 _______________________________________________
                                 Stefanie Wolf

                                 /s/ John Kerney
                                 _______________________________________________
                                 John Kerney

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                      S-6
<PAGE>
                                 AMERICA ONLINE, INC.

                                 By: /s/ Joseph A. Ripp
                                    ____________________________________________
                                    Name:  Joseph A. Ripp
                                    Title: Vice-Chairman

                                 BERKSHIRE FUND IV, LIMITED PARTNERSHIP

                                 By:     Fourth Berkshire Associates LLC,
                                         its General Partner

                                 By: /s/ Bradley M. Bloom
                                    ____________________________________________
                                    Name:  Bradley M. Bloom
                                    Title: Managing Director

                                 BERKSHIRE FUND V, LIMITED PARTNERSHIP

                                 By:     Fifth Berkshire Associates LLC,
                                         its General Partner

                                 By: /s/ Bradley M. Bloom
                                    ____________________________________________
                                    Name:  Bradley M. Bloom
                                    Title: Managing Director

                                 BERKSHIRE INVESTORS, LLC

                                 By: /s/ Bradley M. Bloom
                                    ____________________________________________
                                    Name:  Bradley M. Bloom
                                    Title: Managing Director

                                 DORSET CAPITAL, L.P.

                                 By: /s/ John A. Berg
                                    ____________________________________________
                                    Name:
                                    Title:

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                      S-7
<PAGE>

                                 GENERAL CATALYST GROUP, LLC

                                 By:    General Catalyst Group, LLC,
                                        its Managing Member

                                 By: /s/ William J. Fitzgerald
                                    ____________________________________________
                                    Name: William J. Fitzgerald
                                    Title: Member & CFO

                                 GORDON BROTHERS GROUP, LLC

                                 By: /s/ Alan R. Goldstein
                                    ____________________________________________
                                    Name: Alan R. Goldstein
                                    Title: CFO & Manager

                                 INNOVATIVE PROMOTIONS, LLC

                                 By: /s/ Stephen R. Karp
                                    ____________________________________________
                                    Name: Stephen R. Karp
                                    Title:

                                 INTERACTIVE CAPITAL PARTNERS

                                 By: /s/ J. Jeffery Nixon
                                    ____________________________________________
                                    Name: J. Jeffery Nixon
                                    Title: Managing Partner

                                   /s/ J. Jeffery Nixon
                                 _______________________________________________
                                 J. Jeffery Nixon

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                   S-8
<PAGE>
                                 HIGHLAND CAPITALPARTNERS V, LIMITED PARTNERSHIP

                                 By:    Highland Management Partners V Limited
                                        Partnership, Inc., its General Partner

                                 By:    Highland Management Partners V, Inc.,
                                        its General Partner

                                 By: /s/ Robert Higgins
                                    ____________________________________________
                                    Name: Robert Higgins
                                    Title:

                                 HIGHLAND CAPITAL PARTNERS V-B, LIMITED
                                 PARTNERSHIP

                                 By:     Highland Management Partners V Limited
                                         Partnership, Inc., its General Partner

                                 By:     Highland Management Partners V, Inc.,
                                         its General Partner

                                 By: /s/ Robert Higgins
                                    ____________________________________________
                                    Name: Robert Higgins
                                    Title:

                                 HIGHLAND ENTREPRENEURS' FUND V, LIMITED
                                 PARTNERSHIP

                                 By:    HEF V Limited Partnership, its
                                        General Partner

                                 By:    Highland Management Partners V, Inc.,its
                                        General Partner

                                 By: /s/ Robert Higgins
                                    ____________________________________________
                                    Name: Robert Higgins
                                    Title:

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                      S-9
<PAGE>

                                 MADISON DEARBORN CAPITAL
                                 PARTNERS III, L.P.

                                 By: Madison Dearborn Partners III, L.P.,
                                     its General Partner

                                 By: Madison Dearborn Partners LLC,
                                     its General Partner

                                 By: /s/ Robin P. Selati
                                    ____________________________________________
                                    Name: Robin P. Selati
                                    Title: Managing Director

                                 MADISON DEARBORN SPECIAL EQUITY III, L.P.

                                 By: Madison Dearborn Partners III, L.P.,
                                     its General Partner

                                 By: Madison Dearborn Partners LLC,
                                     its General Partner

                                 By: /s/ Robin P. Selati
                                    ____________________________________________
                                    Name: Robin P. Selati
                                    Title: Managing Director

                                 SPECIAL ADVISORS FUND I, LLC

                                 By: Madison Dearborn Partners III, L.P.,
                                     its General Partner

                                 By: Madison Dearborn Partners LLC,
                                     its General Partner

                                 By: /s/ Robin P. Selati
                                    ____________________________________________
                                    Name: Robin P. Selati
                                    Title: Managing Director

                                 MAVERON EQUITY PARTNERS 2000, L.P.

                                 By:  Maveron General Partner 2000, LLC

                                      /s/ Dan Levitan
                                 _______________________________________________
                                 By:   Dan Levitan
                                 Title:

                                 MAVERON EQUITY PARTNERS 2000-B, L.P.

                                 By:  Maveron General Partner 2000, LLC

                                      /s/ Dan Levitan
                                 _______________________________________________
                                 By:   Dan Levitan
                                 Title:

                                 MEP 2000 ASSOCIATES, LLC

                                      /s/ Dan Levitan
                                 _______________________________________________
                                 By:   Dan Levitan
                                 Title:

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                     S-10
<PAGE>

                                 MONITOR CLIPPER EQUITY PARTNERS
                                 (FOREIGN), L.P.

                                 By:   Monitor Clipper Partners, L.P.,
                                       its General Partner

                                 By:   MCP GP, Inc., its General Partner

                                 By: /s/ Travis R. Metz
                                    ____________________________________________
                                    Name:  Travis R. Metz
                                    Title: Authorized Signatory

                                 MONITOR CLIPPER EQUITY PARTNERS, L.P.

                                 By:   Monitor Clipper Partners, L.P.,
                                       its General Partner

                                 By:   MCP GP, Inc.

                                 By: /s/ Travis R. Metz
                                    ____________________________________________
                                    Name:  Travis R. Metz
                                    Title: Authorized Signatory

                                 RB INVESTMENT PARTNERS II, LLC

                                 By:____________________________________________
                                    Name:
                                    Title:

     Signature Page to Second Amended and Restated Shareholders' Agreement

                                     S-11
<PAGE>

                                   SCHEDULE A

<TABLE>
<S>                                                      <C>
GBG SHAREHOLDERS:
Gordon Brothers Group, LLC                               Douglas N. Koplow and Susan Hilzenrath, as
GBG Holding, Inc.                                           trustees under the Koplow Part B Generation-
Ambruster, Bruce J.                                         Skipping Trust f/b/o Deborah R. Koplow
Anderson, Debra A.                                       Douglas N. Koplow and Susan Hilzenrath, as
Andrews, David Gage                                         trustees under the Koplow Part B Generation-
Chartock, Michael D.                                        Skipping Trust f/b/o Douglas N. Koplow
Cohen, Cynthia R.                                        Douglas N. Koplow and Susan Hilzenrath, as
Cohen, Mitchell H.                                          trustees under the Koplow Part B Generation-
Cote, Lee L.                                                Skipping Trust f/b/o Stacey N. Koplow
DJM Asset Management, Inc.                               Kulinowski, Kevin
DJM Realty Services, Inc.                                Kulp, Gary M.
Edwards, Richard P.                                      Lonabocker, Thomas M.
Frieze, David M.                                         Marshall, Robert S.
Frieze, Deborah E.                                       Meier, Karen A.
Frieze, Kenneth S.                                       Merrill, Ann H.
Frieze, Michael G.                                       Novack, Kenneth J. Esq.
Goldberg, Stephen A., Trustee of the Stephen             Parent, Patricia E.
    A. Goldberger 1974 Revocable Trust                   Pollock, Jeffrey
Goldstein, Alan R.                                       Sager, Elaine H., Custodian for Shane Sager
Gordon, Philip H.                                        Sager, Elaine H., Custodian for Tess Sager
Greiff, Barrie S.                                        Sager, Robert C.
Grosskopf, Robert                                        Sherman, Malcolm L.
Haley, Peter J.                                          Siff, Lawrence
Hayes, Peter                                             Snyder, Bradley W.
Kahn, Matthew R.                                         Stokes, Fulton H.
Kizner, Yvonne P.                                        Weich & Bilotti, Inc.
                                                         Weich & Bilotti, Inc. c/o Mervyn D. Weich
                                                         Weinberg, Mark

COMMON SHAREHOLDERS:
Anderson, Charles                                        MacGillivray,Beth
Bedell, Jeanette T. and Peter B. JTROS                   MacGregor, Judith
Dantz, Beverly                                           Rosendorf, Carl
Elovitz, Gerald                                          Williams, Laura
Fischman, Benjamin                                       Wolf, Stefanie
Gerson, Samuel J.

MANAGEMENT SHAREHOLDER:
Kerney, John

INVESTORS:
America Online, Inc.                                     Highland Capital Partners V-B, LP
Berkshire Fund IV, LP                                    Highland Entrepreneurs' Fund V, LP
Berkshire Fund V, LP                                     Madison Dearborn Capital Partners III, LP
Berkshire Investors, LLC                                 Madison Dearborn Special Equity III, LP
Dorset Capital, LP                                       Special Advisors Fund I, LLC
General Catalyst Group, LLC                              Maveron Equity Partners 2000, LP
Gordon Brothers Group, LLC                               Maveron Equity Partners 2000-B, LP
Innovative Promotions, LLC                               MEP 2000 Associates, LLC
Interactive Capital Partners                             Monitor Clipper Equity Partners, LP
J. Jeffrey Nixon                                         Monitor Clipper Equity Partners (Foreign), LP
Highland Capital Partners V, LP                          RB Investment Partners II, LLC
</TABLE>

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