INCENTIVE STOCK OPTION AGREEMENT

INCENTIVE STOCK OPTION AGREEMENT

1. Grant of Option. Pursuant to the Incentive Stock Option Plan (the "Plan") for certain employees of The Vermont Teddy Bear Co., Inc. (the "Company"), the Company grants to Elisabeth Xxxxxx (the "Option Holder") an option to purchase from the Company a total of 50,000 shares of Common Stock of the Company at $3.1875 per share (being at least the fair market value per share of the Common Stock on the date of this grant), in the amounts, during the periods and upon the terms and conditions set forth in this Agreement.

2. Time of Exercise. Except only as specifically provided elsewhere in this agreement, this option is exercisable in the following cumulative installments.

First Installment. Up to 50% of the total optioned shares on the earlier of (i) the date the average of the Company's closing stock price of its Common Stock for a thirty (30) day period is equal to or greater than Six Dollars ($6.00) or (ii) the date the Company reports annual pre-tax income of at least $3,000,000;

Second Installment. Up to 50% of the total optioned shares on the earlier of (i) the date the average of the Company's closing stock price of its Common Stock for a thirty (30) day period is equal to or greater than Nine Dollars ($9.00) or (ii) the date the Company reports annual pre-tax income of at least $4,000,000;

If an installment covers a fractional share, such installment will be rounded off to the next highest share, except the final installment, which will be for the balance of the total optioned shares. These options shall vest on seven years after the original date of grant regardless of the market price of the Company's stock on that date. In the event that (i) the Option Holder terminates his employment without Good Reason, or (ii) the Company terminates his employment for Cause, this option will only be exercisable to the extent that the Option Holder could have exercised it on the date of his termination of employment. If the Option Holder's employment with the Company is (i) terminated by him for Good Reason, (ii) by the Company for any reason other than Cause, or (iii) due to his death or disability which lasts (or is likely, based on reasonable medical evidence, to last) for more than six consecutive months and renders him unable to perform his duties, then this option will be exercisable to the extent that it would have been exercisable at the end of the Company's fiscal year in which the Option Holder's employment is terminated. In the

event that the Company undergoes a Change in Control, this option shall immediately be exercisable in full and the Option Holder shall be entitled to purchase the balance of the total optioned shares not yet purchased. The terms "Good Reason," "Cause" and "Change in Control" shall have the same meanings as in the Option Holder's Employment Agreement.

3. Subject to Plan. This option and the grant and exercise thereof are subject to the terms and conditions of the Plan, which is incorporated herein by reference and made a part hereof, but the terms of the Plan shall not be considered an enlargement of any benefits under this Agreement. In addition, this option is subject to any rules and regulations promulgated pursuant to the Plan, now or hereafter in effect.

4. Term. This option will terminate at 5 p.m. on ten years from date of grant.

5. Who May Exercise. During the lifetime of the Option Holder, this option may be exercised only by the Option Holder. If the Option Holder dies or becomes disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code) prior to the termination date specified in Section 4 without having exercised the option as to all of the shares covered thereby, the option may be exercised to the extent the Option Holder could have exercised the option on the date of his or her death or disability at any time prior to the earliest of the dates specified in Section 4(a) and (b) by (i) the Option Holder's estate or a person who acquired the right to exercise the option by bequest or inheritance or by reason of the death of the Option Holder in the event of the Option Holder's death, or (ii) the Option Holder or his personal representative in the event of the Option Holder's disability, subject to the other terms of this Agreement, the Plan and applicable laws, rules and regulations. For purposes of this Agreement, the Company shall determine the date of disability of the Option Holder.

6. Restrictions on Exercise. This option:

(a) may be exercised only with respect to full shares and no fractional share of stock shall be issued;

(b) may not be exercised in whole or in part and no cash or certificates representing shares subject to such option shall be delivered, if any requisite approval or consent of any government authority of any kind having jurisdiction over the exercise of options shall not have been secured; and

may be exercised only if at all times during the period beginning with the date of the granting of the option and ending on the date one week prior to the date of exercise the Option Holder was an employee of either the Company or a subsidiary of the Company; provided, if the Option Holder's continuous employment is terminated by (i) disability, the option may be exercised in accordance with Section 5, or (ii) death, or if the Option Holder dies within said one-week period, the option may be exercised in accordance with Section 5.

7. Disqualifying Exercise. In the event that this option is not exercised on or before the date three months after the Option Holder's employment terminates with the Company or a subsidiary of the Company for any reason other than the employee's death or disability, upon exercise of the option, federal income taxes will not be deferred, rather, the Option Holder shall recognize ordinary income upon exercise of the option and the Company may be required to comply with the income tax withholding requirements of the Internal Revenue Code. If employment is terminated as a result of the Option Holder's death or disability, exercise of the option during the remainder of its term shall not constitute a disqualifying exercise.

8. Manner of Exercise. Subject to such administrative regulations as the Board of Directors of the Company may from time to time adopt, the Option Holder or beneficiary shall, in order to exercise this option, give written notice to the Company of the number of shares being purchased and purchase price to be paid therefore accompanied by the following:

(a) full payment in United States dollars of the option price in the form of cash or check for the shares of stock being purchased; and

(b) such documents as the Company in its discretion deems necessary (i) to evidence the exercise, in whole or in part, of the option evidenced by this Agreement, (ii) to comply with any Shareholder's Agreement then in effect with respect to the shareholders of the Company and (iii) to comply with or satisfy the requirements of the Securities Act of 1933, or any other law, as then in effect.

9. Non-Assignability. This option is not assignable or transferable by the Option Holder except by will or by the laws of descent and distribution.

10. Rights of Stockholder. The Option Holder will have no rights as a stockholder with respect to any shares covered by this option until the issuance of a certificate or certificates to the Option Holder for the shares. Except as otherwise provided in Section 10 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate of certificates.

11. Capital Adjustment. The number of shares of Common Stock covered by this option, and the option price thereof, shall be subject to such adjustment as the Board of Directors of the Company deems appropriate to reflect any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like, of or by the Company.

IN WITNESS WHEREOF, the Company has caused this Agreement to be exercised by its duly authorized officer and the Option Holder, to evidence his or her consent and approval of all the terms hereof, has duly executed this Agreement as of the 11^th day of June, 1999.

THE VERMONT TEDDY BEAR CO., INC

BY: /s/ Xxxx Xxxxx

Its Duly Authorized Agent

BY: /s/ Xxxxxxxxx X. Xxxxxx

Xxxxxxxxx Xxxxxx

INCENTIVE STOCK OPTION AGREEMENT

1. Grant of Option. Pursuant to the Incentive Stock Option Plan (the "Plan") for certain employees of The Vermont Teddy Bear Co., Inc. (the "Company"), the Company grants to Xxxxxx Xxxxxx (the "Option Holder") an option to purchase from the Company a total of 2,500 shares of Common Stock of the Company at $3.1875 per share (being at least the fair market value per share of the Common Stock on the date of this grant), in the amounts, during the periods and upon the terms and conditions set forth in this Agreement.

2. Time of Exercise. Except only as specifically provided elsewhere in this agreement, this option is exercisable in the following cumulative installments.

First Installment. Up to 25% of the total optioned shares when the average of the Company's closing stock price of its Common Stock for each trading day within a three (3) month period is equal to or greater than Three Dollars ($3.00);

Second Installment. Up to 25% of the total optioned shares when the average of the Company's closing stock price of its Common Stock for each trading day within a three (3) month period is equal to or greater than Four Dollars ($4.00);

Third Installment. Up to 25% of the total optioned shares when the average of the Company's closing stock price of its Common Stock for each trading day within a three (3) month period is equal to or greater than Five Dollars ($5.00);

Fourth Installment. Up to 25% of the total optioned shares when the average of the Company's closing stock price of its Common Stock for each trading day within a three (3) month period is equal to or greater than Six Dollars ($6.00);

Term. This option will terminate at the first of the following:

(a) 5 p.m. on ten years from date of grant.

(b) 5 p.m. on the date one year following the date the Option Holder's employment with the Company and its subsidiaries terminates by reason of the Option Holder's death or disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code).

(c) 5 p.m. on the date ninety days following the date the Option Holder's employment with the Company and its subsidiaries terminates for a reason other than death or disability.

6. Restrictions on Exercise. This option:

(a) may be exercised only with respect to full shares and no fractional share of stock shall be issued;

(c) may be exercised only if at all times during the period beginning with the date of the granting of the option and ending on the date one week prior to the date of exercise the Option Holder was an employee of either the Company or a subsidiary of the Company; provided, if the Option Holder's continuous employment is terminated by (i) disability, the option may be exercised in accordance with Section 5, or (ii) death, or if the Option Holder dies within said one-week period, the option may be exercised in accordance with Section 5.

7. Manner of Exercise. Subject to such administrative regulations as the Board of Directors of the Company may from time to time adopt, the Option Holder or beneficiary shall, in order to exercise this option, give written notice to the Company of the number of shares being purchased and purchase price to be paid therefore accompanied by the following:

(a) full payment in United States dollars of the option price in the form of cash or check for the shares of stock being purchased; and

8. Non-Assignability. This option is not assignable or transferable by the Option Holder except by will or by the laws of descent and distribution.

9. Rights of Stockholder. The Option Holder will have no rights as a stockholder with respect to any shares covered by this option until the issuance of a certificate or certificates to the Option Holder for the shares. Except as otherwise provided in Section 10 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate of certificates.

10. Capital Adjustment. The number of shares of Common Stock covered by this option, and the option price thereof, shall be subject to such adjustment as the Board of Directors of the Company deems appropriate to reflect any stock dividend, stock split, share combination, exchange of shares, recapitalization, merger, consolidation, separation, reorganization, liquidation or the like, of or by the Company.

THE VERMONT TEDDY BEAR CO., INC

BY: ____________________________

Its Duly Authorized Agent

BY: ____________________________

Xxxxxx Xxxxxx

Document Metadata

Table of Contents

INCENTIVE STOCK OPTION AGREEMENT

Document Metadata