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Sample Business Contracts

Employee Stock Purchase Plan - FreeMarkets Inc.

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                                FREEMARKETS, INC.

                          EMPLOYEE STOCK PURCHASE PLAN

         The following constitute the provisions of the FreeMarkets, Inc.
Employee Stock Purchase Plan:


                             I. Purpose and History

1.1      The purpose of the Plan is to provide employees of the Company and its
         Designated Subsidiaries with an opportunity to purchase Common Stock of
         the Company. It is the Company's intention to have the Plan qualify as
         an "Employee Stock Purchase Plan" under Code Section 423. Accordingly,
         the provisions of the Plan shall be construed so as to extend and limit
         participation in a manner consistent with the requirements of that Code
         section.


                                 II. Definitions

         The following words and phrases, when used in this Plan, unless their
context clearly indicates otherwise, shall have the following meanings:

2.1      "Administrator" means the individual(s), committee or entity as may be
         appointed by the Board, with such authority and power as the Board may
         determine, to administer the terms of the Plan. The Administrator may,
         in turn, delegate all or a portion of its authority to one or more
         individuals to perform administrative functions under the terms of the
         Plan.

2.2      "Board" means the Company's Board of Directors.

2.3      "Change in Control" means the occurrence of any of the following
         events:

         (a)      the acquisition, other than from the Company, by any
                  individual, entity or group (within the meaning of Section
                  13(d)(3) or Section 14(d)(2) of the Exchange Act) (other than
                  the Company or an employee benefit plan of the Company) of
                  beneficial ownership (within the meaning of Rule 13d-3
                  promulgated under the Exchange Act) of more than 50% of the
                  combined voting power of the then outstanding voting
                  securities of the Company entitled to vote generally in the
                  election of directors (the "Voting Securities"); or

         (b)      the approval by the Company's stockholders of a
                  reorganization, merger, consolidation or recapitalization of
                  the Company (a "Business Combination"), other than a Business
                  Combination in which more than 50% of the combined voting
                  power of the outstanding voting securities of the surviving or
                  resulting entity immediately following the Business
                  Combination is held by the persons


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                  who, immediately prior to the Business Combination, were the
                  holders of the Voting Securities; or

         (c)      the approval by the Company's stockholders of a complete
                  liquidation or dissolution of the Company, or a sale of all or
                  substantially all of the Company's assets; or

         (d)      individuals who, as of the effective date of the Plan,
                  constitute the Board (the "Incumbent Board") cease for any
                  reason to constitute at least a majority of the Board;
                  provided, that any individual becoming a director subsequent
                  to such date whose election or nomination for election by the
                  Company's stockholders was approved by a vote of at least a
                  majority of the directors when comprising the Incumbent Board
                  shall be considered as though such individual were a member of
                  the Incumbent Board.

2.4      "Code" means the Internal Revenue Code of 1986, as amended.

2.5      "Common Stock" means the Company's Common Stock.

2.6      "Company" means FreeMarkets, Inc., a Delaware corporation.

2.7      "Compensation" means all cash compensation paid to an Employee by the
         Company and includes commissions, bonuses, overtime, incentive
         compensation, incentive payments and other forms of cash compensation
         as determined by the Administrator.

2.8      "Continuous Status as an Employee" means the absence of any
         interruption or termination of service as an Employee. Continuous
         Status as an Employee shall not be considered interrupted in the case
         of: (i) sick leave; (ii) military leave; (iii) any other leave of
         absence approved by the Administrator; provided, that such leave is for
         a period of not more than ninety (90) days, unless reemployment upon
         the expiration of such leave is guaranteed by contract or statute, or
         unless provided otherwise pursuant to Company policy adopted from time
         to time; or (iv) in the case of transfers between locations of the
         Company or between the Company and its Designated Subsidiaries.

2.9      "Contributions" means all amounts credited to the account of a
         participant pursuant to the Plan.

2.10     "Designated Subsidiaries" means the Subsidiaries that have been
         designated by the Board from time to time in its sole discretion as
         eligible to participate in the Plan (as set forth on Appendix A);
         provided, however, that the Board shall only have the discretion to
         designate a Subsidiary if the issuance of options to such Subsidiary's
         Employees under the Plan would not cause the Company to incur adverse
         accounting charges or cause the Plan not to qualify under Code Section
         423.

2.11     "Employee" means any person, including an Officer, who is customarily
         employed for at least twenty (20) hours per week and more than five (5)
         months in a calendar year by the Company or one of its Designated
         Subsidiaries.



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2.12     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

2.13     "Offering Date" means the first business day of each Offering Period of
         the Plan.

2.14     "Offering Period" means a period of twenty-four (24) months commencing
         on May 1 and November 1 of each year, except for the first Offering
         Period as set forth in Section 4.1.

2.15     "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.

2.16     "Plan" means the FreeMarkets, Inc. Employee Stock Purchase Plan.

2.17     "Purchase Date" means the last day of each Purchase Period of the Plan.

2.18     "Purchase Period" means a period of six (6) months within an Offering
         Period, except for the first Purchase Period as set forth in Section
         4.2.

2.19     "Purchase Price" means with respect to a Purchase Period an amount
         equal to eighty-five percent (85%) of the Fair Market Value (as defined
         in Section 7.2 below) of a Share on the Offering Date or on the
         Purchase Date, whichever is lower; provided, however, that in the event
         (i) there is any increase in the number of Shares available for
         issuance under the Plan (including without limitation an automatic
         increase pursuant to Section 13.1 below or as a result of a
         stockholder-approved amendment to the Plan), (ii) all or a portion of
         such additional Shares are to be issued with respect to one or more
         Offering Periods that are underway at the time of such increase
         ("Additional Shares"), and (iii) the Fair Market Value of a Share on
         the date of such increase (the "Approval Date Fair Market Value") is
         higher than the Fair Market Value on the Offering Date for any such
         Offering Period, then in such instance the Purchase Price with respect
         to Additional Shares shall be eighty-five percent (85%) of the Approval
         Date Fair Market Value or the Fair Market Value of a Share on the
         Purchase Date, whichever is lower.

2.20     "Share" means a share of Common Stock, as adjusted in accordance with
         Article 19 of the Plan.

2.21     "Subsidiary" means a corporation, domestic or foreign, of which not
         less than fifty percent (50%) of the voting shares are held by the
         Company or a Subsidiary, whether or not such corporation now exists or
         is hereafter organized or acquired by the Company or a Subsidiary.


                                III. Eligibility

3.1      Eligible Employees. Any person who is an Employee as of the Offering
         Date of a given Offering Period shall be eligible to participate in
         such Offering Period under the Plan, subject to the requirements of
         Section 5.1 and the limitations imposed by Code Section 423(b);
         provided, however, that eligible Employees may not participate in more
         than one Offering Period at a time.



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<PAGE>   4




3.2      Excluded Employees. Notwithstanding any Plan provisions to the
         contrary, no Employee shall be granted an option under the Plan if: (i)
         immediately after the grant, such Employee (or any other person whose
         stock would be attributed to such Employee pursuant to Code Section
         424(d)) would own capital stock of the Company and/or hold outstanding
         options to purchase stock possessing five percent (5%) or more of the
         total combined voting power or value of all classes of stock of the
         Company or of any subsidiary corporation (as defined in Code Section
         424(f)); or (ii) such option would permit his or her rights to purchase
         stock under all employee stock purchase plans (described in Code
         Section 423) of the Company and its Subsidiaries to accrue at a rate
         which exceeds twenty-five thousand dollars ($25,000) of the Fair Market
         Value (as defined in Section 7.2 below) of such stock (determined at
         the time such option is granted) for each calendar year in which such
         option is outstanding at any time.


                    IV. Offering Periods and Purchase Periods

4.1      Offering Periods. The Plan shall be implemented by a series of Offering
         Periods of twenty-four (24) months' duration, with new Offering Periods
         commencing on or about November 1 and May 1 of each year (or at such
         other time or times as may be determined by the Board). The first
         Offering Period shall commence on the beginning of the effective date
         of the Registration Statement on Form S-1 for the initial public
         offering of the Company's Common Stock (the "IPO Date") and continue
         until October 31, 2001. The Board shall have the power to change the
         duration and/or the frequency of Offering Periods with respect to
         future offerings without stockholder approval if such change is
         announced at least five (5) days prior to the scheduled beginning of
         the first Offering Period to be affected.

4.2      Purchase Periods. Each Offering Period (other than the first) shall
         consist of four (4) consecutive Purchase Periods of six (6) months'
         duration. The first Offering Period shall consist of four (4)
         consecutive Purchase Periods; the first Purchase Period shall commence
         on the IPO Date and shall end on April 30, 2000, and the next three (3)
         Purchase Periods shall be of six (6) months' duration, with the fourth
         Purchase Period ending on October 31, 2001. The last day of each
         Purchase Period shall be the Purchase Date for such Purchase Period. A
         Purchase Period commencing on November 1 shall end on the next April
         30. A Purchase Period commencing on May 1 shall end on the next October
         31. The Board shall have the power to change the duration and/or
         frequency of Purchase Periods with respect to future purchases without
         stockholder approval if such change is announced at least five (5) days
         prior to the scheduled beginning of the first Purchase Period to be
         affected.





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<PAGE>   5



                                V. Participation

5.1      Employee Participation. An eligible Employee may become a participant
         in the Plan by completing a subscription agreement on the form provided
         by the Company and filing it with the Administrator prior to the
         applicable Offering Date, unless a later time for filing the
         subscription agreement is set by the Administrator for all eligible
         Employees with respect to a given Offering Period. The subscription
         agreement shall set forth the percentage of a participant's
         Compensation (subject to Section 6.1 below) to be paid as Contributions
         under the Plan.

5.2      Payroll Deductions. Payroll deductions shall commence as of the first
         payroll following the Offering Date and shall end on the last payroll
         paid on or prior to the last Purchase Date of the Offering Period to
         which the subscription agreement is applicable, unless sooner
         terminated by the participant as provided in Section 10.


                     VI. Method of Payment of Contributions

6.1      Amount of Payroll Deductions. A participant shall elect to have payroll
         deductions made on each payday during the Offering Period in an amount
         not less than one percent (1%) and not more than twenty percent (20%)
         (or such lesser or greater percentage as the Board may establish from
         time to time before an Offering Date) of such participant's
         Compensation on each payday during the Offering Period. All payroll
         deductions made by a participant shall be credited to his or her
         account under the Plan. A participant may not make any additional
         payments into such account.

6.2      Change and Discontinuation of Payroll Deduction Election. A participant
         may discontinue his or her participation in the Plan as provided in
         Article 10, or, on one occasion only during an Offering Period may
         increase and on one occasion only during such Offering Period may
         decrease the rate of his or her Contributions with respect to the
         Offering Period by completing and filing a new subscription agreement
         with the Administrator. Any such change in the payroll deduction rate
         shall be effective as soon as administratively practicable after the
         Administrator receives the new subscription agreement from the
         participant.

6.3      Limit on Payroll Deductions. Notwithstanding the foregoing, to the
         extent necessary to comply with Code Section 423(b)(8) and Section 3.2
         herein, a participant's payroll deductions may be decreased during any
         Offering Period scheduled to end during the current calendar year to
         zero percent (0%) at such time that the aggregate of all payroll
         deductions accumulated with respect to such Offering Period and any
         other Offering Period ending within the same calendar year equal
         $21,250. Payroll deductions shall resume at the elected rate set forth
         in such participant's subscription agreement at the beginning of the
         first Offering Period that is scheduled to end in the following
         calendar year, unless terminated by the participant as provided in
         Article 10. Notwithstanding the foregoing, to the extent necessary to
         comply with Section 423(b)(8) of the Code and Section 3.2 hereof, a
         participant's payroll deductions may be decreased to zero percent (0%)
         at any time during a Purchase Period. Payroll deductions shall
         recommence at the rate provided in such participant's subscription
         agreement at the beginning of the first Purchase Period which is
         scheduled to end in the following calendar year, unless terminated by
         the participant as provided in Article 10.



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<PAGE>   6





                              VII. Grant of Option

7.1      Grant of Option. On each Offering Date, each eligible Employee
         participating in such Offering Period shall be granted an option to
         purchase a number of Shares as determined by dividing such Employee's
         Contributions accumulated prior to each Purchase Date during the
         Offering Period and retained in the participant's account as of the
         Purchase Date by the applicable Purchase Price. There is no limit on
         the number of Shares that a participant may purchase under the Plan;
         provided, however, that the Board may impose a limit on the number of
         Shares a participant may purchase under the Plan at any time; provided,
         further, that such purchase shall be subject to the limitations set
         forth in Section 3.2 and Article 13.

7.2      Fair Market Value of Options. For all purposes under the Plan, the term
         "Fair Market Value" shall mean, as of any applicable date: (i) if the
         principal securities market on which the Common Stock is traded is a
         national securities exchange or The Nasdaq National Market ("NNM"), the
         closing price of the Common Stock on such exchange or NNM, as the case
         may be, or if no sale of the Common Stock shall have occurred on such
         date, on the next preceding date on which there was a reported sale;
         (ii) if the Common Stock is not traded on a national securities
         exchange or NNM, the closing price on such date as reported by The
         Nasdaq SmallCap Market, or if no sale of the Common Stock shall have
         occurred on such date, on the next preceding date on which there was a
         reported sale; (iii) if the principal securities market on which the
         Common Stock is traded is not a national securities exchange, NNM or
         The Nasdaq SmallCap Market, the average of the bid and asked prices
         reported by the National Quotation Bureau, Inc.; or (iv) if the price
         of the Common Stock is not so reported, the Fair Market Value of the
         Common Stock as determined in good faith by the Board.


                            VIII. Exercise of Option

8.1      Exercise of Option. Unless a participant withdraws from the Plan as
         provided in Article 10, his or her option for the purchase of Shares
         will be exercised automatically on each Purchase Date of an Offering
         Period, and the maximum number of full Shares subject to the option
         will be purchased at the applicable Purchase Price with the accumulated
         Contributions in his or her account. No fractional Shares shall be
         issued under the Plan. The Shares purchased upon exercise of an option
         hereunder shall be deemed to be transferred to the participant on the
         Purchase Date. During his or her lifetime, a participant's option to
         purchase Shares hereunder is exercisable only by him or her.





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<PAGE>   7



                                  IX. Delivery

9.1      Delivery of Shares. As soon as administratively practicable after each
         Purchase Date of each Offering Period, the Administrator shall arrange
         the delivery to each participant, as appropriate, of a certificate
         representing the Shares purchased upon exercise of his or her option.
         As an alternative, the Administrator may make arrangements with a
         brokerage firm to establish a brokerage account for each participant,
         to which Shares purchased for the participant upon exercise of his or
         her option shall be credited and held for the participant. Any payroll
         deductions accumulated in a participant's account which are not
         sufficient to purchase a full Share shall be retained in the
         participant's account for the subsequent Purchase Period or Offering
         Period, subject to earlier withdrawal by the participant as provided in
         Article 10 below. Any other amounts left over in a participant's
         account after a Purchase Date shall be returned to the participant.


                   X. Withdrawal and Termination of Employment

10.1     Voluntary Withdrawal of Participation. A participant may withdraw all
         (partial withdrawals are not permitted) Contributions credited to his
         or her account under the Plan at any time prior to each Purchase Date
         by giving written notice to the Administrator. All of the participant's
         Contributions credited to his or her account will be paid to him or her
         as soon as administratively practicable after receipt of his or her
         withdrawal notice and his or her option for the current period will be
         automatically terminated. In addition, no further Contributions for the
         purchase of Shares will be made during the Offering Period on the
         participant's behalf.

10.2     Withdrawal Upon Termination of Employment. Upon termination of the
         participant's Continuous Status as an Employee prior to the Purchase
         Date of an Offering Period for any reason, including retirement or
         death, the Contributions credited to his or her account will be
         returned to him or her or, in the case of his or her death, to the
         person or persons entitled thereto under Article 14, and his or her
         option will terminate automatically.

10.3     Involuntary Withdrawal of Participation. In the event an Employee fails
         to remain in Continuous Status as an Employee of the Company for at
         least twenty (20) hours per week during the Offering Period in which
         the Employee is a participant, he or she will be deemed to have elected
         to withdraw from the Plan and the Contributions credited to his or her
         account will be returned to him or her and his or her option will be
         terminated.

10.4     Effect of Withdrawal. A participant's withdrawal from an offering will
         not have any effect upon his or her eligibility to participate in a
         succeeding offering or in any similar plan which may hereafter be
         adopted by the Company.




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<PAGE>   8



                            XI. Automatic Withdrawal

11.1     Automatic Withdrawal. If the Fair Market Value of the Shares on any
         Purchase Date of an Offering Period is less than the Fair Market Value
         of the Shares on the Offering Date for such Offering Period, then every
         participant shall automatically: (i) be withdrawn from such Offering
         Period at the close of such Purchase Date and after the acquisition of
         Shares for such Purchase Period; and (ii) be enrolled in the Offering
         Period commencing on the first business day subsequent to such Purchase
         Period. Participants shall automatically be withdrawn as of April 30,
         2000 from the Offering Period beginning on the IPO Date and re-enrolled
         in the Offering Period beginning on May 1, 2000 if the Fair Market
         Value of the Shares on the Offering Date of the first Offering Period
         is greater than the Fair Market Value of the Shares on April 30, 2000,
         unless a participant notifies the Administrator prior to April 30, 2000
         that he or she does not wish to be withdrawn and re-enrolled.


                                  XII. Interest

12.1     Interest Accrual. No interest shall accrue on the Contributions of a
         Plan participant.


                                  XIII. Shares

13.1     Shares Available Under the Plan. Subject to adjustment as provided in
         Section 19, the maximum number of Shares that initially shall be made
         available for sale under the Plan shall be 500,000 Shares. In addition,
         on the first day of each of the Company's fiscal years, the aggregate
         number of Shares reserved for issuance under the Plan shall be
         increased automatically by the number of Shares purchased under the
         Plan in the preceding fiscal year; provided, that the aggregate number
         of Shares reserved under the Plan shall not exceed 2,000,000 Shares. If
         the Board determines that, on a given Purchase Date, the number of
         Shares with respect to which options are to be exercised may exceed:
         (i) the number of Shares that were available for sale under the Plan on
         the Offering Date of the applicable Offering Period; or (ii) the number
         of Shares available for sale under the Plan on such Purchase Date, the
         Board may in its sole discretion provide: (x) that the Company shall
         make a pro rata allocation of the Shares available for purchase on such
         Offering Date or Purchase Date, as applicable, in as uniform a manner
         as shall be practicable and as it shall determine in its sole
         discretion to be equitable among all participants exercising options to
         purchase Common Stock on such Purchase Date, and continue all Offering
         Periods then in effect; or (y) that the Company shall make a pro rata
         allocation of the Shares available for purchase on such Offering Date
         or Purchase Date, as applicable, in as uniform a manner as shall be
         practicable and as it shall determine in its sole discretion to be
         equitable among all participants exercising options to purchase Common
         Stock on such Purchase Date, and terminate any or all Offering Periods
         then in effect pursuant to Section 20 below. Notwithstanding any
         authorization of additional Shares for issuance under the Plan by the
         Company's stockholders subsequent to such Offering Date, the Company
         may make a pro rata allocation of the Shares available on the Offering
         Date of any applicable Offering Period pursuant to the preceding
         sentence.

13.2     Voting of Shares. The participant shall have no interest or voting
         right in Shares covered by his or her option until such option has been
         exercised.




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13.3     Registration of Shares. Shares to be delivered to a participant under
         the Plan will be registered in the name of the participant or in the
         name of the participant and his or her spouse (or, where applicable, in
         the name of a broker or other nominee or custodian for the benefit of
         the participant or the participant and his or her spouse).


                               XIV. Administration

14.1     Plan Administration. The Board shall supervise and administer the Plan
         and shall have full power to adopt, amend and rescind any rules deemed
         desirable and appropriate for the administration of the Plan and not
         inconsistent with the Plan, to construe and interpret the Plan, and to
         make all other determinations necessary or advisable for the
         administration of the Plan. In its sole discretion, the Board may
         appoint an Administrator and delegate all or a portion of its authority
         to such Administrator to administer the terms of the Plan.


                         XV. Designation of Beneficiary

15.1     Beneficiary Designation. A participant may file a written beneficiary
         designation with the Administrator designating the beneficiary who is
         to receive any Shares and cash, if any, from the participant's account
         under the Plan in the event of such participant's death subsequent to
         the end of a Purchase Period but prior to delivery to him or her of
         such Shares and cash. In addition, a participant may file a beneficiary
         designation with the Administrator who is to receive any cash from the
         participant's account under the Plan in the event of such participant's
         death prior to the Purchase Date of an Offering Period. If a
         participant is married and the designated beneficiary is not the
         participant's spouse, spousal consent shall be required for such
         designation to be effective.

15.2     Change of Beneficiary Designation. Such beneficiary designation may be
         changed by the participant (and his or her spouse, if any) at any time
         by written notice. In the event of the death of a participant and in
         the absence of a valid beneficiary designation who is living at the
         time of such participant's death, the Administrator shall deliver such
         Shares and/or cash to the executor or administrator of the estate of
         the participant, or if no such executor or administrator has been
         appointed (to the knowledge of the Administrator), the Administrator,
         in its discretion, may deliver such Shares and/or cash to the spouse or
         to any one or more dependents or relatives of the participant, or if no
         spouse, dependent or relative is known to the Administrator, then to
         such other person as the Administrator may designate.

                              XVI. Transferability

16.1     Transfer of Plan Benefits. Neither Contributions credited to a
         participant's account nor any rights with regard to the exercise of an
         option or to receive Shares under the Plan may be assigned,
         transferred, pledged or otherwise disposed of in any way (other than by
         will, the laws of descent and distribution, or as provided in Article
         15) by the participant. Any such attempt at assignment, transfer,
         pledge or other disposition shall be without effect, except that the
         Company may treat such act as a voluntary election to withdraw funds in
         accordance with Article 10.




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                           XVII. Use of Contributions

17.1     Use of Contributions. All Contributions received or held by the Company
         under the Plan may be used by the Company for any corporate purpose,
         and the Company shall not be obligated to segregate such Contributions
         from other Company assets.


                          XVIII. Reporting of Accounts

18.1     Reporting of Accounts. Individual accounts will be maintained for each
         participant in the Plan. Statements of account will be given to
         participating Employees at least annually, which statements will set
         forth the amounts of Contributions, the per Share Purchase Price, the
         number of Shares purchased and the remaining cash balance, if any.


                XIX. Adjustments Upon Changes in Capitalization;
                                Change in Control

19.1     Adjustment. Subject to any required action by the Company's
         stockholders, the number of Shares covered by each option under the
         Plan that has not yet been exercised and the number of Shares which
         have been authorized for issuance under the Plan but have not yet been
         placed under option (collectively, the "Reserves"), as well as the
         maximum number of Shares which may be purchased by a participant in a
         Purchase Period, the number of Shares set forth in Section 13.1 above,
         and the price per Share covered by each option under the Plan that has
         not yet been exercised, shall be appropriately adjusted to reflect any
         stock dividend, stock split, combination or exchange of shares or other
         change in capitalization with a similar substantive effect upon the
         Plan or the awards granted under the Plan. The Board shall have the
         power and sole discretion to determine the nature and amount of the
         adjustment to be made in each case. The adjustment so made shall be
         final and binding on all participants.

19.2     Change in Control. Upon a Change of Control, each outstanding option
         shall be assumed by the "Acquiring Corporation" (as defined below) or
         parent thereof or replaced with a comparable option or right to
         purchase shares of the capital stock, or equity equivalent instrument,
         of the Acquiring Corporation or parent thereof, or other comparable
         rights (such assumed and comparable options and rights, together, the
         "Replacement Options"); provided, however, that if the Acquiring
         Corporation or parent thereof does not agree to grant Replacement
         Options, then all outstanding Options which have been granted under the
         Plan and which are not exercisable as of the effective date of the
         Change of Control shall automatically accelerate and become exercisable
         immediately prior to the effective date of the Change of Control as
         described below. The term "Acquiring Corporation" means the surviving,
         continuing, successor or purchasing corporation, as the case may



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         be. In the event that the successor corporation refuses to grant
         Replacement Options, each Purchase Period and Offering Period then in
         progress shall be shortened and a new Purchase Date shall be set (the
         "New Purchase Date"), as of which date any Purchase Period and Offering
         Period then in progress will terminate. The New Purchase Date shall be
         on or before the date of consummation of the Change in Control and the
         Board shall notify each participant in writing, at least ten (10) days
         prior to the New Purchase Date, that the Purchase Date for his or her
         option has been changed to the New Purchase Date and that his or her
         option will be exercised automatically on the New Purchase Date, unless
         prior to such date he or she has withdrawn from the Offering Period as
         provided in Article 10. For purposes of this Article 19, an option
         granted under the Plan shall be deemed to be assumed, without
         limitation, if, at the time of issuance of the stock or other
         consideration upon a Change in Control, each holder of an option under
         the Plan would be entitled to receive upon exercise of the option the
         same number and kind of shares of stock or the same amount of property,
         cash or securities as such holder would have been entitled to receive
         upon the occurrence of the Change in Control if the holder had been,
         immediately prior to the transaction, the holder of the number of
         Shares of Common Stock covered by the option at such time (after giving
         effect to any adjustments in the number of Shares covered by the option
         as provided for in this Article 19); provided, however, that if the
         consideration received in the transaction is not solely common stock of
         the Acquiring Corporation, the Board may, with the consent of the
         Acquiring Corporation, provide for the consideration to be received
         upon exercise of the option to be solely common stock of the Acquiring
         Corporation or its parent equal in Fair Market Value to the per Share
         consideration received by holders of Common Stock in the transaction.
         Notwithstanding any other provision of this Section, the Board may
         determine, in its discretion, to terminate any Purchase Period and
         Offering Period in progress immediately prior to the effective date of
         a Change of Control and to return all unused Contributions to
         Participants.

19.3     Liquidation and Dissolution. In the event of a dissolution or
         liquidation of the Company, any Purchase Period and Offering Period
         then in progress will terminate immediately prior to the consummation
         of such action, unless otherwise provided by the Board.


                          XX. Amendment or Termination

20.1     Authority to Amend or Terminate Plan. The Board may at any time and for
         any reason terminate or amend the Plan. Except as provided in Article
         19, no such termination of the Plan may affect options previously
         granted; provided, that the Plan or an Offering Period may be
         terminated by the Board on a Purchase Date or by the Board's setting a
         new Purchase Date with respect to an Offering Period and Purchase
         Period then in progress if the Board determines that termination of the
         Plan and/or the Offering Period is in the Company's best interests and
         the stockholders' or if continuation of the Plan and/or the Offering
         Period would cause the Company to incur adverse accounting charges as a
         result of a change after the effective date of the Plan in the
         generally accepted accounting rules applicable to the Plan. Except as
         provided in Section 19 and in this Section 20, no amendment to the Plan
         shall make any change in any option previously granted which adversely
         affects the rights of any participant. In addition, to



                                       11

<PAGE>   12



         the extent necessary to comply with Rule 16b-3 under the Exchange Act,
         or under Code Section 423 (or any successor rule or provision or any
         applicable law or regulation), the Company shall obtain stockholder
         approval in such a manner and to such a degree as so required.

20.2     Amendment of Plan Provisions. Without stockholder consent and without
         regard to whether any participant rights may be considered to have been
         adversely affected, the Board shall be entitled to change the Offering
         Periods and Purchase Periods, limit the frequency and/or number of
         changes in the amount withheld during an Offering Period, establish the
         exchange ratio applicable to amounts withheld in a currency other than
         U.S. dollars, permit payroll withholding in excess of the amount
         designated by a participant in order to adjust for delays or mistakes
         in the Company's processing of properly completed withholding
         elections, establish reasonable waiting and adjustment periods and/or
         accounting and crediting procedures to ensure that amounts applied
         toward the purchase of Common Stock for each participant properly
         correspond with amounts withheld from the participant's Compensation,
         and establish such other limitations or procedures as the Board, in its
         sole discretion, determines to be advisable.


                                  XXI. Notices

21.1     Notices. All notices or other communications by a participant to the
         Company under or in connection with the Plan shall be deemed to have
         been duly given when received in the form specified by the Company at
         the location, or by the person, designated by the Company for the
         receipt thereof.


                      XXII. Conditions Upon Share Issuance

22.1     Conditions Upon Share Issuance. Shares shall not be issued with respect
         to an option unless the exercise of such option and the issuance and
         delivery of such Shares pursuant thereto shall comply with all
         applicable provisions of law, domestic or foreign, including, without
         limitation, the Securities Act of 1933, as amended, the Exchange Act,
         the rules and regulations promulgated thereunder, applicable state
         securities laws and the requirements of any stock exchange upon which
         the Shares may then be listed, and shall be further subject to the
         approval of counsel for the Company with respect to such compliance. As
         a condition to the exercise of an option, the Company may require the
         person exercising such option to represent and warrant at the time of
         any such exercise that the Shares are being purchased only for
         investment and without any present intention to sell or distribute such
         Shares if, in the opinion of counsel for the Company, such a
         representation is required by any of the aforementioned applicable
         provisions of law.




                                       12

<PAGE>   13





                              XXIII. Miscellaneous

23.1     Term of Plan and Effective Date. The Plan shall become effective upon
         the IPO Date. It shall continue in effect for a term of twenty (20)
         years unless sooner terminated under Article 20.

23.2     Additional Restrictions. The terms and conditions of options granted
         hereunder to, and the purchase of Shares by, persons subject to Section
         16 of the Exchange Act shall comply with the applicable provisions of
         Rule 16b-3. This Plan shall be deemed to contain, and such options
         shall contain, and the Shares issued upon exercise thereof shall be
         subject to, such additional conditions and restrictions as may be
         required by Rule 16b-3 to qualify for the maximum exemption from
         Section 16 of the Exchange Act with respect to Plan transactions.

23.3     Withholding. The Company shall have the right to deduct from all
         amounts paid to a participant in cash as salary, bonus or other
         compensation any taxes required by law to be withheld in respect of
         awards granted under the Plan. In the Administrator's discretion, a
         participant may be permitted to elect to have withheld from the Shares
         otherwise issuable to the participant, or to tender to the Company, the
         number of Shares whose Fair Market Value equals the amount required to
         be withheld.

23.4     Construction of the Plan. The validity, construction, interpretation,
         administration and effect of the Plan and of its rules and regulations,
         and rights relating to the Plan, shall be determined solely by the
         Board. Any determination by the Board shall be final and binding on all
         participants. The Plan shall be governed in accordance with the laws of
         the State of Delaware, without regard to the conflict of law provisions
         of such laws.

23.5     No Right to Option; No Right to Employment. No person shall have any
         claim of right to be granted an option under the Plan. Neither the Plan
         nor any action taken hereunder shall be construed as giving any
         employee any right to be retained in the Company's employ or any of its
         subsidiaries or as giving any consultant, advisor or director any right
         to continue to serve in such capacity.

23.6     Awards Not Includable for Benefit Purposes. Income recognized by a
         participant pursuant to the provisions of the Plan shall not be
         included in the determination of benefits under any "employee benefit
         plan" (as such term is defined in Section 3(3) of the Employee
         Retirement Income Security Act of 1974) or such other benefit plan,
         policy or arrangement applicable to the participant that are maintained
         by the Company or any of its subsidiaries, except as may be provided
         under the terms of such plans or determined by resolution of the Board.

23.7     No Strict Construction. No rule of strict construction shall be implied
         against the Company, the Board, or any other person in the
         interpretation of any of the terms of the Plan, any award granted under
         the Plan or any rule or procedure established by the Board.



                                       13

<PAGE>   14


23.8     Captions. All Section headings used in the Plan are for convenience
         only, do not constitute a part of the Plan, and shall not be deemed to
         limit, characterize or affect in any way any provisions of the Plan,
         and all provisions of the Plan shall be construed as if no captions
         have been used in the Plan.

23.9     Severability. Whenever possible, each provision in the Plan and every
         option at any time granted under the Plan shall be interpreted in such
         manner as to be effective and valid under applicable law, but if any
         provision of the Plan or any option at any time granted under the Plan
         shall be held to be prohibited by or invalid under applicable law, then
         such provision shall be deemed amended to accomplish the objectives of
         the provision as originally written to the fullest extent permitted by
         law, and all other provisions of the Plan and every other option at any
         time granted under the Plan shall remain in full force and effect.

23.10    Legends. All certificates for Common Stock delivered under the Plan
         shall be subject to such transfer and other restrictions as the Board
         may deem advisable under the rules, regulations and other requirements
         of the Securities and Exchange Commission, any stock exchange or
         quotation system upon which the Common Stock is then listed or quoted
         and any applicable federal or state securities law, and the Board may
         cause a legend or legends to be put on any such certificates to make
         appropriate references to such restrictions.




                                       14

<PAGE>   15



                                   APPENDIX A

              DESIGNATED SUBSIDIARIES PARTICIPATING UNDER THE PLAN







<PAGE>   16



                                FREEMARKETS, INC.
                          EMPLOYEE STOCK PURCHASE PLAN

                             SUBSCRIPTION AGREEMENT


New Election ______
Change of Election ______

         1. I, ________________________, hereby elect to participate in the
FreeMarkets, Inc. Employee Stock Purchase Plan (the "Plan") for the Offering
Period from __________________, ____ to _______________, ____, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.

         2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).

         3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of Shares at the applicable purchase price determined in accordance
with the Plan. I further understand that, except as otherwise set forth in the
Plan, Shares will be purchased for me automatically on the Purchase Date of each
Offering Period unless I otherwise withdraw from the Plan by giving written
notice to the Company for such purpose.

         4. I understand that I may discontinue my participation in accordance
with the Plan's terms at any time prior to a Purchase Date. I also understand
that I can increase or decrease the rate of my Contributions on one occasion
only with respect to any increase and one occasion only with respect to any
decrease during any Offering Period by completing and filing a new Subscription
Agreement, such Subscription Agreement to take effect as soon as
administratively practicable after the date it is filed with the Administrator.
Further, I may change the rate of deductions for future Offering Periods by
filing a new Subscription Agreement, and any such change will be effective as of
the beginning of the next Offering Period. In addition, I acknowledge that,
unless I discontinue my participation in the Plan, my election will continue to
be effective for each successive Offering Period.

         5. I have received a copy of the complete "FreeMarkets, Inc. Employee
Stock Purchase Plan" and a prospectus describing the Plan's terms. I understand
that my participation in the Plan is in all respects subject to the terms of the
Plan.

         6. Shares purchased for me under the Plan should be issued in the
name(s) of (name of employee or employee and spouse only):

                  _____________________________________________

<PAGE>   17







         7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:


NAME:    (Please print)______________________________________________________
                (First)                (Middle)                (Last)

         (Relationship)______________________________________________________


              (Address)______________________________________________________

                       ______________________________________________________

                       ______________________________________________________



         8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.

         I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER
THE DATE OF ANY SUCH DISPOSITION, AND I WILL MAKE ADEQUATE PROVISION FOR
FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON
THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated
to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions or
benefits attributable to the sale or early disposition of Common Stock by me.

         9. If I dispose of such shares at any time after expiration of the
2-year and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received compensation income only to the
extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares under the option, or (2) 15% of the fair market
value of the shares on the Offering Date. The remainder of the gain or loss, if
any, recognized on such disposition will be treated as capital gain or loss.

         I UNDERSTAND THAT THIS TAX SUMMARY IS ONLY A SUMMARY AND IS SUBJECT TO
CHANGE. I further understand that I should consult a tax advisor concerning the
tax implications of the purchase and sale of stock under the Plan.



                                        2

<PAGE>   18




         10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.

SIGNATURE:



------------------------------
SOCIAL SECURITY #





------------------------------
DATE:





------------------------------
SPOUSE'S SIGNATURE
(necessary only if beneficiary
is not spouse):



------------------------------
(Signature)



------------------------------
(Print name)





                                        3

<PAGE>   19



                                FREEMARKETS, INC.
                          EMPLOYEE STOCK PURCHASE PLAN

                              NOTICE OF WITHDRAWAL

         I, __________________________, hereby elect to withdraw my
participation in the FreeMarkets, Inc. Employee Stock Purchase Plan (the "Plan")
for the Offering Period that began on ____________, _____. This withdrawal
covers all Contributions currently credited to my account and is effective on
the date designated below.

         I understand that all Contributions credited to my account will be paid
to me as soon as administratively practicable following receipt by the
Administrator of this Notice of Withdrawal and that my option for the current
period will automatically terminate, and that no further Contributions for the
purchase of shares can be made by me during the Offering Period.

         The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.



Dated:
      -----------------                 ---------------------------------------
                                        Signature of Employee


                                        ---------------------------------------
                                        Social Security Number




                                        4