<PAGE>
EXHIBIT 10.2
LEVEL 8 SYSTEMS, INC.
1997 Stock Option Plan, as Amended and Restated
ARTICLE I.
PURPOSE
The purpose of this Level 8 Systems, Inc. 1997 Stock Option Plan, as
Amended and Restated (the "Plan"), is to enhance the profitability and value of
Level 8 Systems, Inc. (the "Company") for the benefit of its shareholders by
enabling the Company to offer certain employees and Consultants (as defined
herein) of the Company and its Subsidiaries (as defined herein) and non-
employee directors of the Company stock based incentives in the Company, thereby
creating a means to raise the level of stock ownership by employees, Consultants
and non-employee directors in order to attract, retain and reward such
individuals and strengthen the mutuality of interests between such individuals
and the Company's shareholders.
ARTICLE II.
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1. "Board" shall mean the Board of Directors of the Company.
2.2. "Cause" shall mean, with respect to a Participant's Termination of
Relationship, unless otherwise determined by the Committee at grant, willful
misconduct in connection with the Participant's employment or consultancy or
willful failure to perform his or her employment or consultancy responsibilities
in the best interests of the Company (including, without limitation, breach by
the Participant of any provision of any employment, nondisclosure, non-
competition or other similar agreement between the Participant and the Company),
as determined by the Committee, which determination shall be final, conclusive
and binding. With respect to a Participant's Termination of Directorship, Cause
shall mean an act or failure to act that constitutes "cause" for removal of a
director under applicable New York law.
2.3. "Change in Control" shall have the meaning set forth in Article VIII.
2.4. "Code" shall mean the Internal Revenue Code of 1986, as amended. Any
reference to any section of the Code shall also be a reference to any successor
provision.
2.5. "Committee" shall mean a committee or sub-committee of the Board
appointed from time to time by the Board or such committee, as the case may be,
which Committee shall include two or more directors who are non-employee
directors as defined in Rule 16b-3 (as defined herein) and outside directors as
defined under Section 162(m) of the Code (as defined herein). If for any reason
the appointed Committee does not meet the requirements of Rule 16b-3 or Section
162(m) of the Code, such noncompliance with the requirements of Rule 16b-3 or
Section 162(m) of the Code shall not affect the validity of the awards, grants,
interpretations or other actions of the Committee. Notwithstanding the
foregoing, with respect to grants of Options to non-employee directors and any
action hereunder relating to Options held by non-employee directors, the
Committee shall mean the Board. If and to the extent that no Committee exists
which has the authority to administer the Plan, the functions of the Committee
shall be exercised by the Board.
2.6. "Common Stock" means the Common Stock, no par value per share, of the
Company.
<PAGE>
2.7. "Consultant" means any advisor or consultant to the Company or its
Subsidiaries who is eligible pursuant to Article V to be granted Options under
this Plan.
2.8. "Disability" shall mean total and permanent disability, as defined
in Section 22(e)(3) of the Code.
2.9. "Effective Date" shall mean the effective date of the Plan as
defined in Article XII.
2.10. "Eligible Employee" shall mean the employees of the Company and its
Subsidiaries who are eligible pursuant to Article V to be granted Options under
this Plan.
2.11. "Exchange Act" shall mean the Securities Exchange Act of 1934.
2.12. "Fair Market Value" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the last sales price reported for the
Common Stock on the applicable date (i) as reported by the principal national
securities exchange in the United States on which it is then traded, or (ii) if
not traded on any such national securities exchange, as quoted on an automated
quotation system sponsored by the National Association of Securities Dealers.
If the Common Stock is not readily tradable on a national securities exchange or
any system sponsored by the National Association of Securities Dealers, its Fair
Market Value shall be set in good faith by the Committee. For purposes of the
grant of any Option, the applicable date shall be the date for which the last
sales price is available at the time of grant.
2.13. "Good Reason" shall mean, with respect to a Participant's
Termination of Relationship, (i) if there is an employment agreement between the
Company or a Subsidiary and the Participant in effect at the time of grant that
defines "good reason" (or words of like import) a termination that is or would
be deemed for "good reason" (or words of like import) as defined under such
employment agreement at the time of grant, (ii) if there is an employment
agreement between the Company or a Subsidiary and the Participant in effect at
the time of grant that does not define "good reason" (or words of like import),
a voluntary termination which is permitted under the terms of such employment
agreement and which is at least ninety (90) days after the occurrence of an
event which would be grounds for a termination by the Company that is or would
be deemed for "cause" (or words of like import) as defined under such employment
agreement at the time of grant, or (iii) if there is no employment agreement
between the Company or a Subsidiary and the Participant in effect at the time of
grant, a voluntary termination for any reason upon two (2) weeks' prior written
notice to the Company, which is at least ninety (90) days after the occurrence
of an event which would be grounds for a Termination of Relationship by the
Company for Cause (without regard to any notice or cure period requirement).
2.14. "Incentive Stock Option" shall mean any Stock Option awarded under
this Plan intended to be, and designated as, an "Incentive Stock Option" within
the meaning of Section 422 of the Code.
2.15. "Non-Qualified Stock Option" shall mean any Stock Option awarded
under this Plan that is not an Incentive Stock Option.
2.16. "Participant" shall mean the following persons to whom an Option has
been granted pursuant to this Plan: Eligible Employees and Consultants of the
Company or its Subsidiaries and non-employee directors of the Company.
2.17. "Retirement" with respect to a Participant's Termination of
Relationship shall mean a Termination of Relationship without Cause from the
Company and/or a Subsidiary by a Participant who has attained (i) at least age
sixty-five (65); or (ii) such earlier date after age fifty-five (55) as approved
by the Committee with regard to such Participant. With respect to a
Participant's Termination of Directorship, Retirement shall mean the failure to
stand for reelection or the failure to be reelected after a Participant has
attained age sixty-five (65).
2.18. "Rule 16b-3" shall mean Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
2.19. "Section 162(m) of the Code" shall mean the exception for
performance-based compensation under Section 162(m) of the Code and any Treasury
regulations thereunder.
<PAGE>
2.20. "Stock Option" or "Option" shall mean any option to purchase shares
of Common Stock granted to Eligible Employees, Consultants or non-employee
directors pursuant to Article VI.
2.21. "Subsidiary" shall mean any corporation that is defined as a
subsidiary corporation in Section 424(f) of the Code.
2.22. "Ten Percent Shareholder" shall mean a person owning Common Stock of
the Company possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company as defined in Section 422 of the
Code.
2.23. "Termination of Consultancy" shall mean (i) an individual is no
longer acting as a Consultant to the Company or a Subsidiary; or (ii) when an
entity which is retaining a Participant as a Consultant ceases to be a
Subsidiary, unless the Participant thereupon is retained as a Consultant by the
Company or another Subsidiary.
2.24. "Termination of Directorship" shall mean, with respect to a non-
employee director, that the non-employee director has ceased to be a director of
the Company for any reason.
2.25. "Termination of Employment" shall mean (i) a termination of service
(for reasons other than a military or personal leave of absence granted by the
Company) of a Participant from the Company and its Subsidiaries; or (ii) when
an entity which is employing a Participant ceases to be a Subsidiary, unless the
Participant thereupon becomes employed by the Company or another Subsidiary.
2.26. "Termination of Relationship" shall mean a Termination of Employment
or a Termination of Consultancy, as applicable.
2.27. "Transfer" or "Transferred" shall mean anticipate, alienate, attach,
sell, assign, pledge, encumber, charge or otherwise transfer.
2.28. "Withholding Election" shall have the meaning set forth in Section
11.4.
ARTICLE III.
ADMINISTRATION
3.1. The Committee. The Plan shall be administered and interpreted by the
Committee.
3.2. Awards. The Committee shall have full authority to grant Stock
Options, pursuant to the terms of this Plan. In particular, the Committee shall
have the authority:
(a) to select the Eligible Employees, Consultants and non-
employee directors to whom Stock Options may from time to time be granted
hereunder;
(b) to determine whether and to what extent Stock Options are to
be granted hereunder to one or more Eligible Employees, Consultants or non-
employee directors;
(c) to determine, in accordance with the terms of this Plan, the
number of shares of Common Stock to be covered by each Stock Option granted
to an Eligible Employee, Consultant or non-employee director;
(d) to determine the terms and conditions, not inconsistent with
the terms of this Plan, of any Stock Option granted hereunder to an
Eligible Employee, Consultant or non-employee director (including, but not
limited to, the share price, any restriction or limitation, any vesting
schedule or acceleration thereof, or any forfeiture restrictions or waiver
thereof, and the shares of Common Stock relating thereto, based on such
factors, if any, as the Committee shall determine, in its sole discretion);
<PAGE>
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash and/or Common Stock under Subsection 6.3(d);
(f) to determine whether, to what extent and under what
circumstances to provide loans (which shall be on a recourse basis and
shall bear a reasonable rate of interest) to Eligible Employees,
Consultants or non-employee directors in order to exercise Options under
the Plan; and
(g) to determine whether to require Eligible Employees,
Consultants or non-employee directors, as a condition of the granting of
any Option, to not sell or otherwise dispose of shares acquired pursuant to
the exercise of an Option for a period of time as determined by the
Committee, in its sole discretion, following the date of the acquisition of
such Option.
3.3. Guidelines. Subject to Article IX hereof, the Committee shall have
the authority to adopt, alter and repeal such administrative rules, guidelines
and practices governing this Plan and perform all acts, including the delegation
of its administrative responsibilities, as it shall, from time to time, deem
advisable; to construe and interpret the terms and provisions of this Plan and
any Option granted under this Plan (and any agreements relating thereto); and to
otherwise supervise the administration of this Plan. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in this Plan or
in any agreement relating thereto in the manner and to the extent it shall deem
necessary to carry this Plan into effect, but only to the extent any such action
would be permitted under the applicable provisions of Rule 16b-3 (if any) and
the applicable provisions of Section 162(m) of the Code (if any). The Committee
may adopt special guidelines and provisions for persons who are residing in, or
subject to, the taxes of, countries other than the United States to comply with
applicable tax and securities laws. If and solely to the extent applicable,
this Plan is intended to comply with Rule 16b-3 and Section 162(m) of the Code
and shall be limited, construed and interpreted in a manner so as to comply
therewith.
3.4. Decisions Final. Any decision, interpretation or other action made
or taken in good faith by or at the direction of the Company, the Board, or the
Committee (or any of its members) arising out of or in connection with the Plan
shall be within the absolute discretion of all and each of them, as the case may
be, and shall be final, conclusive and binding on the Company and all employees,
directors, consultants and Participants and their respective heirs, executors,
administrators, successors and assigns.
3.5. Reliance on Counsel. The Company, the Board or the Committee may
consult with legal counsel, who may be counsel for the Company or other counsel,
with respect to its obligations or duties hereunder, or with respect to any
action or proceeding or any question of law, and shall not be liable with
respect to any action taken or omitted by it in good faith pursuant to the
advice of such counsel.
3.6. Procedures. If the Committee is appointed, the Board shall designate
one of the members of the Committee as chairman and the Committee shall hold
meetings, subject to the By-Laws of the Company, at such times and places as it
shall deem advisable. A majority of the Committee members shall constitute a
quorum. All determinations of the Committee shall be made by a majority of its
members. Any decision or determination reduced to writing and signed by all
Committee members in accordance with the By-Laws of the Company shall be fully
effective as if it had been made by a vote at a meeting duly called and held.
The Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
3.7. Designation of Advisors -- Liability.
(a) The Committee may designate employees of the Company and
professional advisors to assist the Committee in the administration of the
Plan and may grant authority to employees to execute agreements or other
documents on behalf of the Committee.
(b) The Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may
rely upon any opinion received from any such counsel or consultant and any
computation received from any such consultant or agent. Expenses incurred
by the Committee or Board in the engagement of any such counsel, consultant
or agent shall be paid by the Company. The Committee, its members and any
person designated pursuant to paragraph (a) above shall
<PAGE>
not be liable for any action or determination made in good faith with
respect to the Plan. To the maximum extent permitted by applicable law, no
officer or former officer of the Company or member or former member of the
Committee or of the Board shall be liable for any action or determination
made in good faith with respect to the Plan or any Stock Option granted
under it. To the maximum extent permitted by applicable law and the
Certificate of Incorporation and By-Laws of the Company and to the extent
not covered by insurance, each officer or former officer and member or
former member of the Committee or of the Board shall be indemnified and
held harmless by the Company against any cost or expense (including
reasonable fees of counsel reasonably acceptable to the Company) or
liability (including any sum paid in settlement of a claim with the
approval of the Company), and advanced amounts necessary to pay the
foregoing at the earliest time and to the fullest extent permitted, arising
out of any act or omission to act in connection with the Plan, except to
the extent arising out of such officer's or former officer's, member's or
former member's own fraud or bad faith. Such indemnification shall be in
addition to any rights of indemnification the officers, directors or
members or former officers, directors or members may have under applicable
law or under the Certificate of Incorporation or By-Laws of the Company or
Subsidiary. Notwithstanding anything else herein, this indemnification will
not apply to the actions or determinations made by an individual with
regard to Stock Options granted to him or her under this Plan.
ARTICLE IV.
SHARE AND OTHER LIMITATIONS
4.1. Shares.
(a) General Limitation. The aggregate number of shares of Common
Stock which may be issued under this Plan with respect to which Stock
Options may be granted shall not exceed 1,400,000 shares/1/ (subject to any
increase or decrease pursuant to Section 4.2) which may be either
authorized and unissued Common Stock or Common Stock held in or acquired
for the treasury of the Company. If any Stock Option granted under this
Plan expires, terminates or is cancelled for any reason without having been
exercised in full or the Company repurchases any Stock Option pursuant to
Section 6.3(f), the number of shares of Common Stock underlying the
repurchased Option, and/or the number of shares of Common Stock underlying
any unexercised Option shall again be available for the purposes of Options
under the Plan.
(b) Individual Participant Limitations. The maximum number of
shares of Common Stock subject to any Option which may be granted under
this Plan to each Participant shall not exceed 200,000 shares (subject to
any increase or decrease pursuant to Section 4.2) during each fiscal year
of the Company.
4.2. Changes.
(a) The existence of the Plan and the Options granted hereunder
shall not affect in any way the right or power of the Board or the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company or
Subsidiary, any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting Common Stock, the dissolution or liquidation of
the Company or Subsidiary, any sale or transfer of all or part of its
assets or business or any other corporate act or proceeding.
(b) In the event of any such change in the capital structure or
business of the Company by reason of any stock dividend or distribution,
stock split or reverse stock split, recapitalization, reorganization,
merger, consolidation, split-up, combination or exchange of shares,
distribution with respect to its outstanding Common Stock or capital stock
other than Common Stock, sale or transfer of all or part of its assets or
business, reclassification of its capital stock, or any similar change
affecting the Company's capital
__________________
/1/ The Board of Directors and the Shareholders of the Company have subsequently
amended the plan to authorize increases in the number of shares issuable under
the Plan to 5,250,000 shares of common stock.
<PAGE>
structure or business and the Committee determines an adjustment is
appropriate under the Plan, the number and kind of shares or other property
(including cash) to be issued upon exercise of an outstanding Option and
the purchase price thereof shall be appropriately adjusted consistent with
such change in such manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or available
for, Participants under this Plan or as otherwise necessary to reflect the
change, and any such adjustment determined by the Committee shall be final,
conclusive and binding on the Company and all Participants and employees
and their respective heirs, executors, administrators, successors and
assigns.
(c) Fractional shares of Common Stock resulting from any adjustment
in Options pursuant to this Section 4 shall be aggregated until, and
eliminated at, the time of exercise by rounding-down for fractions less
than one-half (1/2) and rounding-up for fractions equal to or greater than
one-half (1/2). No cash settlements shall be made with respect to
fractional shares eliminated by rounding. Notice of any adjustment shall
be given by the Committee to each Participant whose Option has been
adjusted and such adjustment (whether or not such notice is given) shall be
effective and binding for all purposes of the Plan.
(d) In the event of a merger or consolidation in which the Company is
not the surviving entity or in the event of any transaction that results in
the acquisition of all or substantially all of the Company's outstanding
Common Stock by a single person or entity or by a group of persons and/or
entities acting in concert, or in the event of the sale or transfer of all
or substantially all of the Company's assets (all of the foregoing being
referred to as "Acquisition Events"), then the Committee may, in its sole
discretion, terminate all outstanding Options of Eligible Employees,
Consultants and non-employee directors, effective as of the date of the
Acquisition Event, by delivering notice of termination to each such
Participant at least twenty (20) days prior to the date of consummation of
the Acquisition Event; provided, that during the period from the date on
which such notice of termination is delivered to the consummation of the
Acquisition Event, each such Participant shall have the right to exercise
in full all of his or her Options that are then outstanding (without regard
to any limitations on exercisability otherwise contained in the Option
Agreement) but contingent on occurrence of the Acquisition Event, and,
provided that, if the Acquisition Event does not take place within a
specified period after giving such notice for any reason whatsoever, the
notice and exercise shall be null and void.
If an Acquisition Event occurs, to the extent the Committee does not
terminate the outstanding Options pursuant to this Section 4.2(d), then the
provisions of Section 4.2(b) shall apply.
ARTICLE V.
ELIGIBILITY
All employees and Consultants of the Company and its Subsidiaries and all
non-employee directors of the Company are eligible to be granted Stock Options
under this Plan. Eligibility under this Plan shall be determined by the
Committee in its sole discretion.
ARTICLE VI.
STOCK OPTION GRANTS
6.1. Options. Each Stock Option granted hereunder shall be one of two
types: (i) an Incentive Stock Option intended to satisfy the requirements of
Section 422 of the Code or (ii) a Non-Qualified Stock Option.
6.2. Grants. The Committee shall have the authority to grant to any
Eligible Employee one or more Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options. The Committee shall have the authority
to grant to any Consultant one or more Non-Qualified Stock Options. The Board
shall have the authority to grant to any non-employee director one or more Non-
Qualified Stock Options. To the extent that any Stock Option does not qualify
as an Incentive Stock Option (whether because of its provisions or the time or
manner
<PAGE>
of its exercise or otherwise), such Stock Option or the portion thereof which
does not qualify, shall constitute a separate Non-Qualified Stock Option.
6.3. Terms of Options. Options granted under this Plan shall be subject
to the following terms and conditions, and shall be in such form and contain
such additional terms and conditions, not inconsistent with the terms of this
Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock
purchasable under an Incentive Stock Option shall be determined by the
Committee at the time of grant but shall not be less than 100% of the Fair
Market Value of the share of Common Stock at the time of grant; provided,
however, if an Incentive Stock Option is granted to a Ten Percent
Shareholder, the purchase price shall be no less than 110% of the Fair
Market Value of the Common Stock. The purchase price of shares of Common
Stock subject to a Non-Qualified Stock Option shall be determined by the
Committee.
(b) Option Term. The term of each Stock Option shall be fixed by
the Committee, but no Stock Option shall be exercisable more than ten (10)
years after the date the Option is granted, provided, however, the term of
an Incentive Stock Option granted to a Ten Percent Shareholder may not
exceed five (5) years.
(c) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by
the Committee at grant. If the Committee provides, in its discretion, that
any Stock Option is exercisable subject to certain limitations (including,
without limitation, that it is exercisable only in installments or within
certain time periods), the Committee may waive such limitations on the
exercisability at any time at or after grant in whole or in part
(including, without limitation, that the Committee may waive the
installment exercise provisions or accelerate the time at which Options may
be exercised), based on such factors, if any, as the Committee shall
determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise
and waiting period provisions apply under subsection (c) above, Stock
Options may be exercised in whole or in part at any time during the Option
term, by giving written notice of exercise to the Company specifying the
number of shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price in such form, or such other
arrangement for the satisfaction of the purchase price, as the Committee
may accept. If and to the extent determined by the Committee in its sole
discretion at or after grant, payment in full or in part may also be made
in the form of Common Stock withheld from the shares to be received on the
exercise of a Stock Option hereunder or Common Stock owned by the
Participant (and for which the Participant has good title free and clear of
any liens and encumbrances) based on the Fair Market Value of the Common
Stock on the payment date as determined by the Committee. No shares of
Common Stock shall be issued until payment, as provided herein, therefor
has been made or provided for and the Participant shall have none of the
rights of a holder of shares of Common Stock until such shares of Common
Stock have been issued.
(e) Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the time of grant) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by an Eligible Employee during any calendar year under
the Plan and/or any other stock option plan of the Company or any
Subsidiary or parent corporation (within the meaning of Section 424(e) of
the Code) exceeds $100,000, such Options shall be treated as Options which
are not Incentive Stock Options.
Should the foregoing provision not be necessary in order for the
Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan
accordingly, without the necessity of obtaining the approval of the
shareholders of the Company.
(f) Buy Out and Settlement Provisions. The Committee may at any
time on behalf of the Company offer to buy out an Option previously
granted, based on such terms and conditions as the Committee shall
establish and communicate to the Participant at the time that such offer is
made.
<PAGE>
(g) Form, Modification, Extension and Renewal of Options. Subject
to the terms and conditions and within the limitations of the Plan, an
Option shall be evidenced by such form of agreement or grant as is approved
by the Committee, and the Committee may modify, extend or renew outstanding
Options granted under the Plan (provided that the rights of a Participant
are not reduced without his consent), or accept the surrender of
outstanding Options (up to the extent not theretofore exercised) and
authorize the granting of new Options in substitution therefor (to the
extent not theretofore exercised).
(h) Other Terms and Conditions. Options may contain such other
provisions, which shall not be inconsistent with any of the foregoing terms
of the Plan, as the Committee shall deem appropriate including, without
limitation, permitting "reloads" such that the same number of Options are
granted as the number of Options exercised, shares used to pay for the
exercise price of Options or shares used to pay withholding taxes
("Reloads"). With respect to Reloads, the exercise price of the new Stock
Option shall be the Fair Market Value on the date of the Reload and the
term of the Stock Option shall be the same as the remaining term of the
Options that are exercised, if applicable, or such other exercise price and
term as determined by the Committee.
6.4. Termination of Relationship. The following rules apply with regard
to Options upon the Termination of Relationship of a Participant:
(a) Termination by Reason of Death. If a Participant's Termination
of Relationship is by reason of death, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant or, if
no rights of the Participant's estate are reduced, thereafter, may be
exercised, to the extent exercisable at the Participant's death, by the
legal representative of the estate, at any time within a period of one (1)
year from the date of such death, but in no event beyond the expiration of
the stated term of such Stock Option.
(b) Termination by Reason of Disability. If a Participant's
Termination of Relationship is by reason of Disability, any Stock Option
held by such Participant, unless otherwise determined by the Committee at
grant or, if no rights of the Participant are reduced, thereafter, may be
exercised, to the extent exercisable at the Participant's termination, by
the Participant (or the legal representative of the Participant's estate if
the Participant dies after termination) at any time within a period of one
(1) year from the date of such termination, but in no event beyond the
expiration of the stated term of such Stock Option.
(c) Termination by Reason of Retirement. If a Participant's
Termination of Relationship is by reason of Retirement, any Stock Option
held by such Participant, unless otherwise determined by the Committee at
grant, or, if no rights of the Participant are reduced, thereafter, shall
be fully vested and may thereafter be exercised by the Participant at any
time within a period of one (1) year from the date of such termination, but
in no event beyond the expiration of the stated term of such Stock Option;
provided, however, that, if the Participant dies within such exercise
period, any unexercised Stock Option held by such Participant shall
thereafter be exercisable, to the extent to which it was exercisable at the
time of death, for a period of one (1) year (or such other period as the
Committee may specify at grant or, if no rights of the Participant's estate
are reduced, thereafter) from the date of such death, but in no event
beyond the expiration of the stated term of such Stock Option.
(d) Involuntary Termination Without Cause or Termination for Good
Reason. If a Participant's Termination of Relationship is by involuntary
termination without Cause or for Good Reason, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant or, if
no rights of the Participant are reduced, thereafter, may be exercised, to
the extent exercisable at termination, by the Participant at any time
within a period of ninety (90) days from the date of such termination, but
in no event beyond the expiration of the stated term of such Stock Option.
(e) Termination Without Good Reason. If a Participant's Termination
of Relationship is voluntary but without Good Reason and such Termination
of Relationship occurs prior to, or more than ninety (90) days after, the
occurrence of an event which would be grounds for Termination of
Relationship by the Company for Cause (without regard to any notice or cure
period requirements), any Stock Option held by
<PAGE>
such Participant, unless otherwise determined by the Committee at grant or,
if no rights of the Participant are reduced, thereafter, may be exercised,
to the extent exercisable at termination, by the Participant at any time
within a period of thirty (30) days from the date of such Termination of
Relationship, but in no event beyond the expiration of the stated term of
such Stock Option.
(f) Other Termination. Unless otherwise determined by the Committee
at grant or, if no rights of the Participant are reduced, thereafter, if a
Participant's Termination of Relationship is for any reason other than
death, Disability, Retirement, Good Reason involuntary termination without
Cause or voluntary termination as provided in subsection (e) above, any
Stock Option held by such Participant shall thereupon terminate and expire
as of the date of termination, provided that (unless the Committee
determines a different period upon grant or, if, no rights of the
Participant are reduced, thereafter) in the event such termination is for
Cause or is a voluntary termination without Good Reason or voluntary
resignation within ninety (90) days after occurrence of an event which
would be grounds for Termination of Relationship by the Company for Cause
(without regard to any notice or cure period requirement), any Stock Option
held by the Participant at the time of occurrence of the event which would
be grounds for Termination of Relationship for Cause shall be deemed to
have terminated and expired upon occurrence of the event which would be
grounds for Termination of Relationship by the Company for Cause.
6.5. Termination of Directorship. The following rules apply with regard to
Options upon the Termination of Directorship:
(a) Death, Disability or Otherwise Ceasing to be a Director Other
than for Cause. Except as otherwise determined by the Committee at grant
or, if no rights of the Participant are reduced, thereafter, upon the
Termination of Directorship, on account of Disability, death, Retirement,
resignation, failure to stand for reelection or failure to be reelected or
otherwise other than as set forth in (b) below, all outstanding Options
then exercisable and not exercised by the Participant prior to such
Termination of Directorship shall remain exercisable, to the extent
exercisable at the Termination of Directorship, by the Participant or, in
the case of death, by the Participant's estate or by the person given
authority to exercise such Options by his or her will or by operation of
law, for a one (1) year period commencing on the date of the Termination of
Directorship, provided that such one (1) year period shall not extend
beyond the stated time of such Options.
(b) Cause. Upon removal, failure to stand for reelection or failure
to be renominated for Cause, or if the Company obtains or discovers
information after Termination of Directorship that such Participant had
engaged in conduct that would have justified a removal for Cause during
such directorship, all outstanding Options of such Participant shall
immediately terminate and shall be null and void.
(c) Cancellation of Options. No Options that were not exercisable
during the period such person serves as a director shall thereafter become
exercisable upon a Termination of Directorship for any reason or no reason
whatsoever, and such Options shall terminate and become null and void upon
a Termination of Directorship.
ARTICLE VII.
NON-TRANSFERABILITY
No Stock Option shall be Transferable by the Participant otherwise than by
will or by the laws of descent and distribution. All Stock Options shall be
exercisable, during the Participant's lifetime, only by the Participant. No
Stock Option shall, except as otherwise specifically provided by law or herein,
be Transferable in any manner, and any attempt to Transfer any such Option shall
be void, and no such Option shall in any manner be liable for or subject to the
debts, contracts, liabilities, engagements or torts of any person who shall be
entitled to such Option, nor shall it be subject to attachment or legal process
for or against such person.
ARTICLE VIII.
<PAGE>
CHANGE IN CONTROL PROVISIONS
8.1. Benefits. In the event of a Change in Control of the Company (as
defined below), except as otherwise provided by the Committee upon the grant of
an Option, the Participant shall be entitled to the following benefits:
(a) Subject to paragraph (b) below, all outstanding Options of
Participants granted prior to the Change in Control shall be fully vested
and immediately exercisable in their entirety. The Committee, in its sole
discretion, may provide for the purchase of any such Stock Options by the
Company for an amount of cash equal to the excess of the Change in Control
price (as defined below) of the shares of Common Stock covered by such
Stock Options, over the aggregate exercise price of such Stock Options. For
purposes of this Section 8.1, Change in Control price shall mean the higher
of (i) the highest price per share of Common Stock paid in any transaction
related to a Change in Control of the Company, or (ii) the highest Fair
Market Value per share of Common Stock at any time during the sixty (60)
day period preceding a Change in Control.
(b) Notwithstanding anything to the contrary herein, unless the
Committee provides otherwise at the time an Option is granted to an
Eligible Employee or Consultant hereunder or thereafter, no acceleration of
exercisability shall occur with respect to such Option if the Committee
reasonably determines in good faith, prior to the occurrence of the Change
in Control, that the Options shall be honored or assumed, or new rights
substituted therefor (each such honored, assumed or substituted option
hereinafter called an "Alternative Option"), by such Participant's employer
(or the parent or a subsidiary of such employer), or in the case of a
Consultant, by the entity (or its parent or subsidiary) which retains the
Consultant, immediately following the Change in Control, provided that any
such Alternative Option must meet the following criteria:
(i) the Alternative Option must be based on stock which is
traded on an established securities market, or which will be so traded
within thirty (30) days of the Change in Control;
(ii) the Alternative Option must provide such Participant with
rights and entitlements substantially equivalent to or better than the
rights, terms and conditions applicable under such Option, including,
but not limited to, an identical or better exercise schedule; and
(iii) the Alternative Option must have economic value
substantially equivalent to the value of such Option (determined at
the time of the Change in Control).
For purposes of Incentive Stock Options, any assumed or substituted Option
shall comply with the requirements of Treasury regulation Section 1.425-1 (and
any amendments thereto).
8.2. Change in Control. A "Change in Control" shall be deemed to have
occurred:
(a) upon any "person" as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan of the
Company, any company owned, directly or indirectly, by the shareholders of
the Company in substantially the same proportions as their ownership of
Common Stock of the Company), becoming the owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities (including, without
limitation, securities owned at the time of any increase in ownership);
(b) during any period of two consecutive years, a change in the
composition of the Board of Directors of the Company such that the
individuals who, as of the date hereof, comprise the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; provided, however, for purposes of this subsection that any
individual who becomes a member of an Incumbent Board subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved in advance or contemporaneously with such
election by a vote of at least a majority of those individuals who are
members of the Incumbent Board (or deemed to be such pursuant to this
proviso) shall
<PAGE>
be considered as though such individual were a member of the Incumbent
Board; but, provided further, that any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board of Directors of the Company or actual or threatened tender offer
for shares of the Company or similar transaction or other contest for
corporate control (other than a tender offer by the Company) shall not be
so considered as a member of the Incumbent Board;
(c) upon the merger or consolidation of the Company with any other
corporation (other than a parent or subsidiary corporation within the
meaning of Section 424(e) or 424(f) of the Code, respectively), other than
a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(d) upon the shareholders' of the Company approval of a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets other than the sale of all or substantially all of the assets of the
Company to a person or persons who beneficially own, directly or
indirectly, at least fifty percent (50%) or more of the combined voting
power of the outstanding voting securities of the Company at the time of
the sale.
ARTICLE IX.
TERMINATION OR AMENDMENT OF THE PLAN
9.1. Termination or Amendment. Notwithstanding any other provision of
this Plan, the Board may at any time, and from time to time, amend, in whole or
in part, any or all of the provisions of the Plan, or suspend or terminate it
entirely, retroactively or otherwise; provided, however, that, unless otherwise
required by law or specifically provided herein, the rights of a Participant
with respect to Options granted prior to such amendment, suspension or
termination, may not be impaired without the consent of such Participant and,
provided further, without the approval of the shareholders of the Company, if
and to the extent required by the applicable provisions of Rule 16b-3 or under
the applicable provisions of Section 162(m) of the Code or, with regard to
Incentive Stock Options, Section 422 of the Code, no amendment may be made which
would (i) increase the maximum individual Participant limitations under Section
4.1(b); (ii) change the classification of employees eligible to receive Options
under this Plan; (iii) extend the maximum option period under Section 6.3; or
(iv) require shareholder approval in order for the Plan to continue to comply
with the applicable provisions, if any, of Section 162(m) of the Code or, with
regard to Incentive Stock Options, Section 422 of the Code. In no event may the
Plan be amended without the approval of the shareholders of the Company in
accordance with the applicable laws or other requirements to increase the
aggregate number of shares of Common Stock that may be issued under the Plan or
to make any other amendment that would require shareholder approval under the
rules of any exchange or system on which the Company's securities are listed or
traded at the request of the Company.
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but, subject to Article IV above or as otherwise
specifically provided herein, no such amendment or other action by the Committee
shall impair the rights of any holder without the holder's consent.
ARTICLE X.
UNFUNDED PLAN
10.1. Unfunded Status of Plan. This Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments as to
which a Participant has a fixed and vested interest but which are
<PAGE>
not yet made to a Participant by the Company, nothing contained herein shall
give any such Participant any rights that are greater than those of a general
creditor of the Company.
ARTICLE XI.
GENERAL PROVISIONS
11.1. Legend. The Committee may require each person receiving shares of
Common Stock pursuant to the exercise of a Stock Option under the Plan to
represent to and agree with the Company in writing that the Participant is
acquiring the shares without a view to distribution thereof. In addition to any
legend required by this Plan, the certificates for such shares may include any
legend which the Committee deems appropriate to reflect any restrictions on
Transfer.
All certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed or any national securities association system upon whose
system the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
11.2. Other Plans. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
11.3. No Right to Employment/Consultancy/Directorship. Neither this Plan
nor the grant of any Option hereunder shall give any Participant or other
individual any right with respect to continuance of employment or consultancy by
the Company or any Subsidiary, nor shall there be a limitation in any way on the
right of the Company or any Subsidiary by which an employee is employed or if a
consultant, retained, to terminate his employment or consultancy at any time.
Neither this Plan nor the grant of any Option hereunder shall impose any
obligation on the Company to retain any Participant as a director, nor shall it
impose on the part of any Participant any obligation to remain as a director of
the Company.
11.4. Withholding of Taxes. The Company shall have the right, if
necessary or desirable (as determined by the Company), to deduct from any
payment to be made to a Participant, or to otherwise require, prior to the
issuance or delivery of any shares of Common Stock or the payment of any cash
hereunder, payment by the Participant of, any Federal, state or local taxes
required by law to be withheld.
The Committee may permit any such withholding obligation with regard to any
Participant to be satisfied by reducing the number of shares of Common Stock
otherwise deliverable or by delivering shares of Common Stock already owned.
Any fraction of a share of Common Stock required to satisfy such tax obligations
shall be disregarded and the amount due shall be paid instead in cash by the
Participant.
11.5. Listing and Other Conditions.
(a) As long as the Common Stock is listed on a national
securities exchange or system sponsored by a national securities
association, the issue of any shares of Common Stock pursuant to the
exercise of an Option shall be conditioned upon such shares being listed on
such exchange or system. The Company shall have no obligation to issue such
shares unless and until such shares are so listed, and the right to
exercise any Option with respect to such shares shall be suspended until
such listing has been effected.
(b) If at any time counsel to the Company shall be of the opinion
that any sale or delivery of shares of Common Stock pursuant to the
exercise of an Option is or may in the circumstances be unlawful or result
in the imposition of excise taxes on the Company under the statutes, rules
or regulations of any applicable jurisdiction, the Company shall have no
obligation to make such sale or delivery, or to make any application or to
effect or to maintain any qualification or registration under the
Securities Act of 1933, as
<PAGE>
amended, or otherwise with respect to shares of Common Stock, and the right
to exercise any Option shall be suspended until, in the opinion of said
counsel, such sale or delivery shall be lawful or will not result in the
imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under this
Section 11.5, any Option affected by such suspension which shall not then
have expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension
shall extend the term of any Option.
11.6. Governing Law. This Plan shall be governed and construed in
accordance with the laws of the State of New York (regardless of the law that
might otherwise govern under applicable New York principles of conflict of
laws).
11.7. Construction. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
11.8. Other Benefits. No Stock Option granted under this Plan shall be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or its Subsidiaries nor affect any benefits under any other
benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation.
11.9. Costs. The Company shall bear all expenses included in
administering this Plan, including expenses of issuing Common Stock pursuant to
the exercise of any Options hereunder.
11.10. No Right to Same Benefits. The provisions of Options need not be
the same with respect to each Participant, and such Options to individual
Participants need not be the same in subsequent years.
11.11. Death/Disability. The Committee may in its discretion require the
transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Option. The
Committee may also require that the agreement of the transferee to be bound by
all of the terms and conditions of the Plan.
11.12. Section 16(b) of the Exchange Act. All elections and transactions
under the Plan by persons subject to Section 16 of the Exchange Act involving
shares of Common Stock are intended to comply with any applicable exemptive
condition under Rule 16b-3. To the extent applicable, the Committee may
establish and adopt written administrative guidelines, designed to facilitate
compliance with Section 16(b) of the Exchange Act, as it may deem necessary or
proper for the administration and operation of the Plan and the transaction of
business thereunder. For purposes of this paragraph, the Company shall be
deemed publicly held when and if the Company has a class of common equity
securities registered under Section 12 of the Exchange Act.
11.13. Severability of Provisions. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.
11.14. Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
ARTICLE XII.
EFFECTIVE DATE OF PLAN
<PAGE>
The Plan shall take effect upon adoption by the Board, but the Plan (and
any grants of Options made prior to the shareholder approval mentioned herein)
shall be subject to the requisite approval of the shareholders of the Company.
In the absence of such approval, such Options shall be null and void.
ARTICLE XIII.
TERM OF PLAN
No Stock Option shall be granted pursuant to the Plan on or after the tenth
anniversary of the earlier of the date the Plan is adopted or the date of
shareholder approval, but Options granted prior to such tenth anniversary may
extend beyond that date.
ARTICLE XIV.
NAME OF PLAN
This Plan shall be known as the Level 8 Systems, Inc. 1997 Stock Option
Plan, as Amended and Restated.
