F5 NETWORKS, INC.

 

                           2005 EQUITY INCENTIVE PLAN

 

                            ADOPTED DECEMBER 31, 2004

                   APPROVED BY SHAREHOLDERS FEBRUARY 24, 2005

                       TERMINATION DATE: DECEMBER 30, 2014

 

1.    PURPOSES.

 

      (a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock

Awards are the Employees, Directors and Consultants of the Company and its

Affiliates.

 

      (b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means

by which eligible recipients of Stock Awards may be given an opportunity to

benefit from increases in value of the Common Stock through the granting of the

following Stock Awards: (i) Options and (ii) Stock Units.

 

      (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain

the services of the group of persons eligible to receive Stock Awards, to secure

and retain the services of new members of this group and to provide incentives

for such persons to exert maximum efforts for the success of the Company and its

Affiliates.

 

2.    DEFINITIONS.

 

      (a) "AFFILIATE" means any parent corporation or subsidiary corporation of

the Company, whether now or hereafter existing, as those terms are defined in

Sections 424(e) and (f), respectively, of the Code.

 

      (b) "APPLICABLE LAWS" means the legal requirements relating to the

administration of equity compensation plans, including under applicable U.S.

state corporate laws, U.S. federal and applicable state securities laws, other

U.S. federal and state laws, the Code, any stock exchange rules or regulations

and the applicable laws, rules and regulations of any other country or

jurisdiction where Stock Awards are granted under the Plan, as such laws, rules,

regulations and requirements shall be in place from time to time.

 

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

 

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

 

      (e) "COMMITTEE" means a committee appointed by the Board in accordance

with subsection 3(c).

 

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      (f) "COMMON STOCK" means the common stock of the Company.

 

      (g) "COMPANY" means F5 Networks, Inc., a Washington corporation.

 

      (h) "CONSULTANT" means any person, including an advisor, (i) who is

engaged by the Company or an Affiliate to render services other than as an

Employee or as a Director or (ii) who is a member of the Board of Directors of

an Affiliate.

 

      (i) "CONTINUOUS SERVICE" means that the Participant's service with the

Company or an Affiliate, whether as an Employee, Director or Consultant, is not

interrupted or terminated. The Participant's Continuous Service shall not be

deemed to have terminated merely because of a change in the capacity in which

the Participant renders service to the Company or an Affiliate as an Employee,

Consultant or Director or a change in the entity among the Company or an

Affiliate for which the Participant renders such service, provided that there is

no interruption or termination of the Participant's Continuous Service. For

example, a change in status from an Employee of the Company to a Consultant of

an Affiliate or a Director of the Company will not constitute an interruption of

Continuous Service. Subject to Section 6(e)(ii), the Board or the chief

executive officer of the Company, in that party's sole discretion, may determine

whether Continuous Service shall be considered interrupted in the case of any

leave of absence approved by that party, including sick leave, military leave or

any other personal leave.

 

      (j) "COVERED EMPLOYEE" means the chief executive officer and the four (4)

other highest compensated officers of the Company for whom total compensation is

required to be reported to shareholders under the Exchange Act, as determined

for purposes of Section 162(m) of the Code.

 

      (k) "DIRECTOR" means a member of the Board of Directors of the Company.

 

      (l) "DISABILITY" means the permanent and total disability of a person

within the meaning of Section 22(e)(3) of the Code.

 

      (m) "EMPLOYEE" means any person employed by the Company or an Affiliate.

Subject to the Applicable Laws, the determination of whether an individual

(including a leased and temporary employees) is an Employee hereunder shall be

made by the Board (or its Committee), in its sole discretion. Mere service as a

Director or payment of a director's fee by the Company or an Affiliate shall not

be sufficient to constitute "employment" by the Company or an Affiliate.

 

      (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

 

      (o) "FAIR MARKET VALUE" means, as of any date, the value of the Common

Stock determined as follows:

 

            (i) If the Common Stock is listed on any established stock exchange

or traded on the Nasdaq National Market, the Fair Market Value of a Share shall

be the closing sales price

 

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for such stock (or the closing bid, if no sales were reported) as quoted on such

exchange or market (or such other exchange or market with the greatest volume of

trading in the Common Stock) on the day of determination or, if the day of

determination is not a market trading day, then on the last market trading day

prior to the day of determination, as reported in such source or sources as the

Board deems reliable, or

 

            (ii) In the absence of such markets for the Common Stock, the Fair

Market Value shall be determined in good faith by the Board.

 

      (p) "INDEPENDENT DIRECTOR" means a Director who qualifies as an

"independent" director under applicable Nasdaq rules (or the rules of any

exchange on which the Common Stock is then listed or approved for listing).

 

      (q) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either (i)

is not a current Employee or Officer of the Company or its parent or a

subsidiary, does not receive compensation (directly or indirectly) from the

Company or its parent or a subsidiary for services rendered as a consultant or

in any capacity other than as a Director (except for an amount as to which

disclosure would not be required under Item 404(a) of Regulation S-K promulgated

pursuant to the Securities Act ("Regulation S-K")), does not possess an interest

in any other transaction as to which disclosure would be required under Item

404(a) of Regulation S-K and is not engaged in a business relationship as to

which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)

is otherwise considered a "non-employee director" for purposes of Rule 16b-3.

 

      (r) "OFFICER" means a person who is an officer of the Company within the

meaning of Section 16 of the Exchange Act and the rules and regulations

promulgated thereunder.

 

      (s) "OPTION" means a nonstatutory stock option (meaning, an option not

intended to qualify as an incentive stock option under Code Section 422) granted

pursuant to the Plan.

 

      (t) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is

not a current Employee of the Company or an "affiliated corporation" (within the

meaning of Treasury Regulations promulgated under Section 162(m) of the Code),

is not a former Employee of the Company or an "affiliated corporation" receiving

compensation for prior services (other than benefits under a tax qualified

pension plan), was not an officer of the Company or an "affiliated corporation"

at any time and is not currently receiving direct or indirect remuneration from

the Company or an "affiliated corporation" for services in any capacity other

than as a Director or (ii) is otherwise considered an "outside director" for

purposes of Section 162(m) of the Code.

 

      (u) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant

to the Plan or, if applicable, such other person who holds an outstanding Stock

Award.

 

      (v) "PLAN" means this F5 Networks, Inc. 2005 Equity Incentive Plan.

 

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      (w) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or

any successor to Rule 16b-3, as in effect from time to time.

 

      (x) "SECURITIES ACT" means the Securities Act of 1933, as amended.

 

      (y) "SHARE" means a share of the Common Stock, as adjusted in accordance

with Section 11 below.

 

      (z) "STOCK AWARD" means any right involving Shares granted under the Plan,

including an Option or Stock Unit.

 

      (aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company

and a holder of a Stock Award evidencing the terms and conditions of an

individual Stock Award grant. Each Stock Award Agreement shall be subject to the

terms and conditions of the Plan.

 

      (bb) "STOCK UNIT" means an award giving the right to receive Shares

granted under Section 7 below.

 

3.    ADMINISTRATION.

 

      (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless

and until the Board delegates administration to a Committee or an administrator,

as provided in subsection 3(c).

 

      (b) POWERS OF BOARD. The Board shall have the power, subject to, and

within the limitations of, the express provisions of the Plan:

 

            (i) To determine from time to time which of the persons eligible

under the Plan shall be granted Stock Awards; when and how each Stock Award

shall be granted; what type or combination of types of Stock Awards shall be

granted; the provisions, terms and conditions of each Stock Award granted (which

need not be identical as among Participants or as among types of Stock Awards),

including, without limitation: the time or times when a person shall be

permitted to receive Shares pursuant to a Stock Award, the number of Shares with

respect to which a Stock Award shall be granted to each such person, the

exercise or purchase price (if any) of a Stock Award, the time or times when

Stock Awards may be exercised (which may be based on performance criteria), any

vesting acceleration or waiver of forfeiture restrictions, any pro rata

adjustment to vesting as a result of a Participant's transitioning from full- to

part-time service (or vice versa), and any other restriction (including

forfeiture restriction), limitation or term of any Stock Award, based in each

case on such factors as the Board, in its sole discretion, shall determine;

provided, however, that such provisions, terms and conditions are not

inconsistent with the terms of the Plan.

 

            (ii) In order to fulfill the purposes of the Plan and without

amending the Plan, to modify grants of Stock Awards to Participants who are

foreign nationals or employed outside of the United States in order to recognize

differences in local law, tax policies or customs.

 

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            (iii) To construe and interpret the Plan and Stock Awards granted

under it, and to establish, amend and revoke rules and regulations for its

administration. The Board, in the exercise of this power, may correct any

defect, omission or inconsistency in the Plan or in any Stock Award Agreement,

in a manner and to the extent it shall deem necessary or expedient to make the

Plan fully effective.

 

            (iv) To amend the Plan or a Stock Award as provided in Section 12.

 

            (v) Generally, to exercise such powers and to perform such acts as

the Board deems necessary or expedient to promote the best interests of the

Company which are not in conflict with the provisions of the Plan.

 

      (c) DELEGATION TO COMMITTEE. The Board may delegate administration of the

Plan to a Committee or Committees of one or more members of the Board, and the

term "Committee" shall apply to any person or persons to whom such authority has

been delegated. In the discretion of the Board, the Committee may consist solely

of two or more Outside Directors, in accordance with Section 162(m) of the Code,

and/or solely of two or more Non-Employee Directors, in accordance with Rule

16b-3, and/or solely of two or more Independent Directors under applicable

Nasdaq (or other exchange) rules. The Board or the Committee may further

delegate its authority and responsibilities under the Plan to an Officer.

However, if administration is delegated to an Officer, such Officer may grant

Stock Awards only within guidelines established by the Board or the Committee,

and only the Board or the Committee may make a Stock Award to an Officer or

Director. If administration is delegated to a Committee, the Committee shall

have, in connection with the administration of the Plan, the powers theretofore

possessed by the Board, including the power to delegate to a subcommittee any of

the administrative powers the Committee is authorized to exercise (and

references in this Plan to the Board shall thereafter be to the Committee or

subcommittee, or an Officer to whom authority has been delegated), subject,

however, to such resolutions, not inconsistent with the provisions of the Plan,

as may be adopted from time to time by the Board. The Board may abolish the

Committee at any time and revest in the Board the administration of the Plan,

and unless otherwise specified by the Board shall retain any authority granted

to a committee or individual hereunder unto itself.

 

4.    SHARES SUBJECT TO THE PLAN.

 

      (a) SHARE RESERVE. Subject to the provisions of Section 11 relating to

adjustments upon changes in stock, the stock that may be issued pursuant to

Stock Awards shall not exceed in the aggregate One Million Seven Hundred

Thousand (1,700,000) Shares of Common Stock.

 

      (b) SECTION 162(m) LIMITATION ON SHARE NUMBERS. No Employee shall be

eligible to be granted Stock Awards covering more than One Million (1,000,000)

Shares during any fiscal year of the Company.

 

      (c) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for

any reason expire or otherwise terminate, in whole or in part, without having

been exercised in full,

 

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the Shares not acquired under such Stock Award shall revert to and again become

available for issuance under the Plan. Further, if any previously-issued Shares

are forfeited under the terms and conditions of the Stock Award, then any Shares

so forfeited shall revert to and again become available for issuance under the

Plan. The provisions of this Section 4(c) are qualified by Section 4(a) such

that the total number of Shares issued and outstanding under the Plan at any

time may not exceed the number set forth in Section 4(a) (as adjusted under

Section 11).

 

      (d) SOURCE OF SHARES. The stock subject to the Plan may be unissued Shares

or reacquired Shares, bought on the market or otherwise.

 

5.    ELIGIBILITY. Stock Awards may be granted to Employees, Directors and

Consultants.

 

6.    OPTION PROVISIONS.

 

      Each Option shall be in such form and shall contain such terms and

conditions as the Board shall deem appropriate. The provisions of separate

Options need not be identical, but each Option shall include (through

incorporation of provisions hereof by reference in the Option or otherwise) the

substance of each of the following provisions:

 

      (a) TERM. No Option shall be exercisable after the expiration of ten (10)

years from the date it was granted.

 

      (b) EXERCISE PRICE OF AN OPTION. The exercise price of each Option shall

be at least equal to the Fair Market Value of the stock subject to the Option on

the date the Option is granted. Notwithstanding the foregoing, an Option may be

granted with an exercise price lower than that set forth in the preceding

sentence if such Option is granted pursuant to an assumption or substitution for

another option in a manner satisfying the provisions of Section 424(a) of the

Code.

 

      (c) CONSIDERATION. The purchase price of stock acquired pursuant to an

Option shall be paid, to the extent permitted by applicable statutes and

regulations, either (i) in cash, check or wire transfer at the time the Option

is exercised or (ii) at the discretion of the Board at the time of the grant of

the Option or subsequently by (1) by delivery to the Company of other Shares

that have a Fair Market Value on the date of surrender equal to the aggregate

exercise price of the Shares as to which the Option is exercised, provided that

in the case of Shares acquired, directly or indirectly, from the Company, such

Shares must have been owned by the Partcipant for more than six (6) months on

the date of surrender (or such other period as may be required to avoid the

Company's incurring an adverse accounting charge), (2) if, as of the date of

exercise of an Option the Company then is permitting Employees to engage in a

"same-day sale" cashless brokered exercise program involving one or more

brokers, through such a program that complies with the Applicable Laws

(including without limitation the requirements of Regulation T and other

applicable regulations promulgated by the Federal Reserve Board) and that

ensures prompt delivery to the Company of the amount required to pay the

exercise price and any applicable withholding taxes, (3) in any other form of

legal consideration that may be acceptable to the

 

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Board, or (4) any combination of the foregoing methods. In making its

determination as to the type of consideration to accept, the Board shall

consider if acceptance of such consideration may be reasonably expected to

benefit the Company and the Board may, in its sole discretion, refuse to accept

a particular form of consideration at the time of any Option exercise.

 

      (d) TRANSFERABILITY OF AN OPTION. The Option shall not be transferable

except by will or by the laws of descent and distribution and shall be

exercisable during the lifetime of the Participant only by the Participant.

Notwithstanding the foregoing provisions of this subsection 6(d), the

Participant may, by delivering written notice to the Company, in a form

satisfactory to the Company, designate a third party who, in the event of the

death of the Participant, shall thereafter be entitled to exercise the Option.

 

      (e)   VESTING.

 

            (i) GENERALLY. The total number of Shares of Common Stock subject to

an Option may, but need not, vest and therefore become exercisable in periodic

installments which may, but need not, be equal. The Option may be subject to

such other terms and conditions on the time or times when it may be exercised

(which may be based on performance or other criteria) as the Board may deem

appropriate. The vesting provisions of individual Options may vary. The

provisions of this subsection 6(e) are subject to any Option provisions

governing the minimum number of Shares as to which an Option may be exercised.

 

            (ii) LEAVE OF ABSENCE. The Board (or any other party to whom such

authority has been delegated, including under this Plan) shall have the

discretion to determine whether and to what extent the vesting of Options shall

be tolled during any unpaid leave of absence; provided, however, that in the

absence of such determination, vesting of Options shall be tolled during any

such unpaid leave (unless otherwise required by the Applicable Laws). In the

event of military leave, vesting shall toll during any unpaid portion of such

leave, provided that, upon a Participant's returning from military leave (under

conditions that would entitle him or her to protection upon such return under

the Uniform Services Employment and Reemployment Rights Act), he or she shall be

given vesting credit with respect to Options to the same extent as would have

applied had the Participant continued to provide services to the Company

throughout the leave on the same terms as he or she was providing services

immediately prior to such leave.

 

      (f) TERMINATION OF CONTINUOUS SERVICE. In the event a Participant's

Continuous Service terminates (other than upon the Participant's death or

Disability), the Participant may exercise his or her Option (to the extent that

the Participant was vested in the Option Shares and entitled to exercise such

Option as of the date of termination) but only within such period of time ending

on the earlier of (i) the date three (3) months following the termination of the

Participant's Continuous Service (or such longer or shorter period specified in

the Option Agreement), or (ii) the expiration of the term of the Option as set

forth in the Option Agreement. If, after termination, the Participant does not

exercise his or her Option within the time specified in the Option Agreement,

the Option shall terminate.

 

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      (g) EXTENSION OF TERMINATION DATE. Following the termination of the

Participant's Continuous Service (other than upon the Participant's death or

Disability), if the Participant would be prohibited at any time solely because

the issuance of Shares would violate the registration requirements under the

Securities Act or violate any prohibition on trading on the basis of possession

of material nonpublic information involving the Company and its business, then

the Option shall terminate on the earlier of (i) the expiration of the term of

the Option set forth in subsection 6(a), or (ii) the expiration of a period of

three (3) months after the termination of the Participant's Continuous Service

during which the exercise of the Option would not be in violation of such

requirements.

 

      (h) DISABILITY OF PARTICIPANT. In the event a Participant's Continuous

Service terminates as a result of the Participant's Disability, the Participant

may exercise his or her Option (to the extent that the Participant was vested in

the Option Shares and entitled to exercise the Option as of the date of

termination), but only within such period of time ending on the earlier of (i)

the date twelve (12) months following such termination (or such longer or

shorter period specified in the Option Agreement) or (ii) the expiration of the

term of the Option as set forth in the Option Agreement. If, after termination,

the Participant does not exercise his or her Option within the time specified

herein, the Option shall terminate.

 

      (i) DEATH OF PARTICIPANT. In the event (i) an Participant's Continuous

Service terminates as a result of the Participant's death or (ii) the

Participant dies within the period (if any) specified in the Option Agreement

after the termination of the Participant's Continuous Service for a reason other

than death, then the Option may be exercised (to the extent the Participant was

vested in the Option Shares and entitled to exercise the Option as of the date

of death) by the Participant's estate, by a person who acquired the right to

exercise the Option by bequest or inheritance or by a person designated to

exercise the Option upon the Participant's death pursuant to subsection 6(d),

but only within the period ending on the earlier of (1) the date eighteen (18)

months following the date of death (or such longer or shorter period specified

in the Option Agreement) or (2) the expiration of the term of such Option as set

forth in the Option Agreement. If, after death, the Option is not exercised

within the time specified herein, the Option shall terminate.

 

      (j) EXERCISE GENERALLY. Options shall be considered exercised when the

Company (or its authorized agent) receives (i) written or electronic notice from

the person entitled to exercise the Option of intent to exercise a specific

number of Shares, (ii) full payment or appropriate provision for payment in a

form and method acceptable to the Board or Committee, for the Shares being

exercised, and (iii) if applicable, payment or appropriate provision for payment

of any withholding taxes due on exercise. An Option may not be exercised for a

fraction of a Share. The Option may, at the discretion of the Board or

Committee, include a provision whereby the Participant may elect to exercise the

Option as to Shares that are not yet vested. Unvested Shares exercised in such

manner may be subject to a Company repurchase right under Section 10(f) or such

other restrictions or conditions as the Board or Committee may determine.

 

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      (k) ADMINISTRATOR DISCRETION. Notwithstanding the provisions of this

Section 6, the Board or the Committee shall have complete discretion exercisable

at any time to (i) extend the period of time for which an Option is to remain

exercisable, following the Participant's termination of Continuous Service, but

in no event beyond the expiration date for the Option, and (ii) permit the

Option to be exercised, during the applicable post-termination exercise period,

not only with respect to the number of Shares that were vested on the date of

termination, cut also with respect to additional Shares on such terms and

conditions as the Board or Committee may determine.

 

7.    PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

 

      Each Stock Award Agreement reflecting the issuance of a Stock Unit shall

be in such form and shall contain such terms and conditions as the Board shall

deem appropriate. The terms and conditions of such agreements may change from

time to time, and the terms and conditions of separate agreements need not be

identical, but each such agreement shall include (through incorporation of

provisions hereof by reference in the agreement or otherwise) the substance of

each of the following provisions:

 

            (a) CONSIDERATION. A Stock Unit may be awarded in consideration for

such property or services as is permitted under Applicable Law, including for

past services actually rendered to the Company or an Affiliate for its benefit.

 

            (b) VESTING; RESTRICTIONS. Shares of Common Stock awarded under the

agreement reflecting a Stock Unit award may, but need not, be subject to a Share

repurchase option, forfeiture restriction or other conditions in favor of the

Company in accordance with a vesting or lapse schedule to be determined by the

Board.

 

            (c) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a

Participant's Continuous Service terminates, the Company may reacquire any or

all of the Shares of Common Stock held by the Participant which have not vested

or which are otherwise subject to forfeiture or other conditions as of the date

of termination under the terms of the agreement.

 

            (d) TRANSFERABILITY. Rights to acquire Shares of Common Stock under

a Stock Unit agreement shall not be transferable except by will or by the laws

of descent and distribution, and Shares of Common Stock issued upon vesting of a

Stock Unit shall be issuable during the lifetime of the Participant only to the

Participant. Notwithstanding the foregoing provisions of this subsection 7(d),

the Participant may, by delivering written notice to the Company, in a form

satisfactory to the Company, designate a third party who, in the event of the

death of the Participant, shall thereafter be entitled to receive Shares of

Common Stock issued upon vesting of a Stock Unit.

 

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8.    COVENANTS OF THE COMPANY.

 

      (a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the

Company shall keep available at all times the number of Shares of Common Stock

required to satisfy such Stock Awards.

 

      (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each

regulatory commission or agency having jurisdiction over the Plan such authority

as may be required to grant Stock Awards and to issue and sell Shares upon

exercise of the Stock Awards; provided, however, that this undertaking shall not

require the Company to register under the Securities Act the Plan, any Stock

Award or any stock issued or issuable pursuant to any such Stock Award. If,

after reasonable efforts, the Company is unable to obtain from any such

regulatory commission or agency the authority which counsel for the Company

deems necessary for the lawful issuance and sale of stock under the Plan, the

Company shall be relieved from any liability for failure to issue and sell stock

upon exercise of such Stock Awards unless and until such authority is obtained.

 

9.    USE OF PROCEEDS FROM STOCK; UNFUNDED PLAN.

 

      Proceeds from the sale of stock pursuant to Stock Awards shall constitute

general funds of the Company. The Plan shall be unfunded. Although bookkeeping

accounts may be established with respect to Participants who are granted Stock

Awards hereunder, any such accounts will be used merely as a bookkeeping

convenience. The Company shall not be required to segregate any asset which may

at any time be represented by Stock Awards, nor shall this Plan be construed as

providing for such segregation, nor shall the Company nor any party authorized

to administer the Plan be deemed to be a trustee of stock or cash to be awarded

under the Plan. Any liability of the Company to any Participant with respect to

a Stock Award shall be based solely upon any contractual obligations which may

be created by the Plan; no such obligation of the Company shall be deemed to be

secured by any pledge or other encumbrance on any property of the Company.

Neither the Company nor any party authorized to administer the Plan shall be

required to give any security or bond for the performance of any obligation

which may be created by this Plan.

 

10.   MISCELLANEOUS.

 

      (a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the

power to accelerate the time at which a Stock Award may first be exercised or

the time during which a Stock Award or any part thereof will vest, become

exercisable or be settled in accordance with the Plan, notwithstanding the

provisions in the Stock Award stating the time at which it may first vest, be

exercised or be settled.

 

      (b) SHAREHOLDER RIGHTS. No Participant shall be deemed to be the holder

of, or to have any of the rights of a holder with respect to, any Shares subject

to such Stock Award unless

 

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and until such Participant has satisfied all requirements for exercise of the

Stock Award pursuant to its terms.

 

      (c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any

instrument executed or any Stock Award granted pursuant thereto shall confer

upon any Participant or other holder of Stock Awards any right to continue to

serve the Company or an Affiliate in the capacity in effect at the time the

Stock Award was granted or shall affect the right of the Company or an Affiliate

to terminate (i) the employment of an Employee with or without notice and with

or without cause, (ii) the service of a Consultant pursuant to the terms of such

Consultant's agreement with the Company or an Affiliate or (iii) the service of

a Director pursuant to the Bylaws of the Company or an Affiliate, and any

applicable provisions of the corporate law of the state in which the Company or

the Affiliate is incorporated, as the case may be.

 

      (d) INVESTMENT ASSURANCES. The Company may require a Participant, as a

condition of exercising or acquiring Shares under any Stock Award, (i) to give

written assurances satisfactory to the Company as to the Participant's knowledge

and experience in financial and business matters and/or to employ a purchaser

representative reasonably satisfactory to the Company who is knowledgeable and

experienced in financial and business matters and that he or she is capable of

evaluating, alone or together with the purchaser representative, the merits and

risks of exercising the Stock Award; and (ii) to give written assurances

satisfactory to the Company stating that the Participant is acquiring the stock

subject to the Stock Award for the Participant's own account and not with any

present intention of selling or otherwise distributing the stock. The foregoing

requirements, and any assurances given pursuant to such requirements, shall be

inoperative if (iii) the issuance of the Shares upon the exercise or acquisition

of stock under the Stock Award has been registered under a then currently

effective registration statement under the Securities Act or (iv) as to any

particular requirement, a determination is made by counsel for the Company that

such requirement need not be met in the circumstances under the then applicable

securities laws. The Company may, upon advice of counsel to the Company, place

legends on stock certificates issued under the Plan as such counsel deems

necessary or appropriate in order to comply with applicable securities laws,

including, but not limited to, legends restricting the transfer of the stock.

 

      (e) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a

Stock Award Agreement, the Participant may satisfy any federal, state or local

tax withholding obligation relating to the exercise or acquisition of Shares

under a Stock Award by any of the following means (in addition to the Company's

right to withhold from any compensation paid to the Participant by the Company)

or by a combination of such means: (i) tendering a cash payment; (ii)

authorizing the Company to withhold Shares from the Shares otherwise issuable to

the Participant as a result of the exercise or acquisition of stock under the

Stock Award; or (iii) delivering to the Company owned and unencumbered Shares.

 

      (f) REPURCHASE LIMITATION. The terms of any repurchase option shall be

specified in the Stock Award and may be at Fair Market Value at the time of

repurchase, at the original

 

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purchase price or on such other terms and conditions as the Board may determine

(and as shall be reflected in the Stock Award Agreement).

 

      (g) CANCELLATION AND RE-GRANT OF OPTIONS. The Company may not reprice any

outstanding Stock Awards under the Plan, including implement any program whereby

outstanding Stock Awards will be cancelled and replaced with Stock Awards

bearing a lower purchase or exercise price, without first obtaining the approval

of the shareholders of the Company; provided however that this Section 10(g)

shall in no way limit the Company's ability to adjust Stock Awards as provided

under Section 11 below.

 

      (h) INTERPRETATION OF PLAN AND STOCK AWARDS. In the event that any

provision of the Plan or any Stock Award granted under the Plan is declared to

be illegal, invalid or otherwise unenforceable by a court of competent

jurisdiction, such provision shall be reformed, if possible, to the extent

necessary to render it legal, valid and enforceable, or otherwise deleted, and

the remainder of the terms of the Plan and/or Stock Award shall not be affected

to the extent necessary to reform or delete such illegal, invalid or

unenforceable provision. All questions arising under the Plan or under any Stock

Award shall be decided by the Board or the Committee in its or their total and

absolute discretion and such decisions shall be final and binding on all

parties.

 

      (i) ELECTRONIC COMMUNICATION. Any document required to be delivered under

the Plan, including under the Applicable Laws, may be delivered in writing or

electronically. Signature may also be electronic if permitted by the Board or

the Committee, and if permitted by Applicable Law.

 

      (j) ESCROW OF SHARES. To enforce any restriction applicable to Shares

issued under the Plan, the Board or the Committee may require a Participant or

other holder of such Shares to deposit the certificates representing such

Shares, with approved stock powers or other transfer instruments endorsed in

blank, with the Company or an agent of the Company until the restrictions have

lapsed. Such certificates (or other notations representing the Shares) may bear

a legend or legends referencing the applicable restrictions.

 

11.   ADJUSTMENTS UPON CHANGES IN STOCK.

 

      (a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject

to the Plan, or subject to any Stock Award, without the receipt of consideration

by the Company (through merger, consolidation, reorganization, recapitalization,

reincorporation, stock dividend, dividend in property other than cash, stock

split, liquidating dividend, combination of shares, exchange of shares, change

in corporate structure or other transaction not involving the receipt of

consideration by the Company), the Plan will be appropriately adjusted in the

class(es) and maximum number of securities subject to the Plan pursuant to

subsection 4(a) and the maximum number of securities subject to award to any

person pursuant to subsection 4(b), and the outstanding Stock Awards will be

appropriately adjusted in the class(es) and number of securities and price per

Share of stock subject to such outstanding Stock Awards. The Board, the

 

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<PAGE>

 

determination of which shall be final, binding and conclusive, shall make such

adjustments. (The conversion of any convertible securities of the Company shall

not be treated as a transaction "without receipt of consideration" by the

Company.)

 

      (b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a

dissolution or liquidation of the Company, then such Stock Awards shall be

terminated if not exercised (if applicable) prior to such event.

 

      (c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER

OR ACQUISITION OF STOCK.

 

            (i) In the event of (1) a sale of substantially all of the assets of

the Company, or (2) a merger or consolidation in which the Company is not the

surviving corporation or (3) a reverse merger in which the Company is the

surviving corporation but the shares of Common Stock outstanding immediately

preceding the merger are converted by virtue of the merger into other property,

whether in the form of securities, cash or otherwise, or (4) the direct or

indirect acquisition (including by way of a tender or exchange offer) by any

person, or persons acting as a group, of beneficial ownership or a right to

acquire beneficial ownership of shares representing a majority of the voting

power of the then outstanding shares of capital stock of the Company, then any

surviving corporation or acquiring corporation shall assume any Stock Awards

outstanding under the Plan or shall substitute similar awards (including with

respect to a Stock Award an award to acquire the same consideration paid to the

shareholders in the transaction described in this subsection 11(c) for those

outstanding under the Plan).

 

            (ii) For purposes of subsection 11(c) a Stock Award shall be deemed

assumed if, following the change in control, the Stock Award confers the right

to purchase in accordance with its terms and conditions, for each share of

Common Stock subject to the Stock Award immediately prior to the change in

control, the consideration (whether stock, cash or other securities or property)

to which a holder of a share of Common Stock on the effective date of the change

in control was entitled.

 

            (iii) Subject to the provisions of any Stock Award Agreement, in the

event any surviving corporation or acquiring corporation refuses to assume such

Stock Awards or to substitute similar stock awards for those outstanding under

the Plan, then with respect to Stock Awards held by Participants whose

Continuous Service has not terminated, the vesting of 50% of such Stock Awards

(and, if applicable, the time during which such Stock Awards may be exercised or

settled) shall be accelerated in full, and the Stock Awards shall terminate if

not exercised or settled (if applicable) at or prior to such event. With respect

to any other Stock Awards outstanding under the Plan, such Stock Awards shall

terminate if not exercised (if applicable) prior to such event.

 

            (iv) The Board shall at all times have the authority, in its sole

discretion, to provide for additional or different vesting, exercisability,

settlement or forfeiture conditions with respect to Stock Awards than that

reflected in this Section 11(c), provided that its determinations

 

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<PAGE>

 

in this regard shall be reflected in the Stock Award Agreement (including in

amendments thereto) issued to the affected Participant.

 

12.   AMENDMENT OF THE PLAN AND STOCK AWARDS.

 

      (a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may

amend the Plan. However, except as provided in Section 11 relating to

adjustments upon changes in stock, no amendment shall be effective unless

approved by the shareholders of the Company to the extent shareholder approval

is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or

securities exchange listing requirements.

 

      (b) SHAREHOLDER APPROVAL. The Board may, in its sole discretion, submit

any other amendment to the Plan for shareholder approval, including, but not

limited to, amendments to the Plan intended to satisfy the requirements of

Section 162(m) of the Code and the regulations thereunder regarding the

exclusion of performance-based compensation from the limit on corporate

deductibility of compensation paid to certain executive officers.

 

      (c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board

may amend the Plan in any respect the Board deems necessary or advisable to

provide eligible Employees with the maximum benefits provided or to be provided

under the provisions of the Code or any other Applicable Law.

 

      (d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before

amendment of the Plan shall not be materially impaired by any amendment of the

Plan unless (i) the Company requests the consent of the Participant and (ii) the

Participant consents in writing.

 

      (e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to

time, may amend the terms of any one or more Stock Awards; provided, however,

that the rights under any Stock Award shall not be materially impaired by any

such amendment unless (i) the Company requests the consent of the Participant

and (ii) the Participant consents in writing.

 

13.   TERMINATION OR SUSPENSION OF THE PLAN.

 

      (a) PLAN TERM. The Board may suspend or terminate the Plan at any time.

Unless sooner terminated, the Plan shall terminate on the day before the tenth

(10th) anniversary of the date the Plan is adopted by the Board or approved by

the shareholders of the Company, whichever is earlier. No Stock Awards may be

granted under the Plan while the Plan is suspended or after it is terminated.

 

      (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall

not materially impair rights and obligations under any Stock Award granted while

the Plan is in effect except with the written consent of the Participant.

 

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<PAGE>

 

14.   EFFECTIVE DATE OF PLAN.

 

      The Plan shall become effective as determined by the Board, but no Stock

Award shall be exercised unless and until the Plan has been approved by the

shareholders of the Company, which approval shall be within twelve (12) months

before or after the date the Plan is adopted by the Board.

 

15.   GOVERNING LAW. All questions concerning the construction, validity and

interpretation of this Plan shall be governed by the law of the State of

Washington, without regard to such states conflict of laws rules.

 

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</TEXT>

</DOCUMENT>