Exhibit 10.7

HUNGARIAN TELEPHONE AND CABLE CORP.

2002 INCENTIVE STOCK OPTION PLAN (AS AMENDED AND RENAMED ON
MAY 22, 2002)

1.        Purpose. The purpose of the 2002 Incentive Stock Option Plan of
Hungarian Telephone and Cable Corp. (the “Corporation”) is to provide incentive
to employees of the Corporation, to encourage employee proprietary interest in
the Corporation, to encourage employees to remain in the employ of the
Corporation, and to attract to the Corporation individuals of experience and
ability to serve as employees, directors and consultants.

2.        Definitions.

(a)       “Board” shall mean the Board of Directors of the Corporation.

(b)       “Code” shall mean the Internal Revenue Code of 1986 as amended from
time to time.

(c)       “Common Stock” shall mean the $.001 par value Common stock of the
Corporation.

(d)       “Committee” shall mean the Committee appointed by the Board in
accordance with Section 4 of the Plan.

(e)       “Corporation” shall mean Hungarian Telephone and Cable Corp., a
Delaware corporation, its parent or any of its subsidiaries.

(f)       “Disability” shall mean the condition of an Employee who is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months.

(g)       “Employee” shall mean an individual (who may be an officer or a
director) employed by the Corporation (within the meaning of the Code section
3401 and the regulations thereunder).

(h)       “Exercise Price” shall mean the price per Share of Common Stock,
determined by the Committee, at which an Option may be exercised.

(i)        “Fair Market Value” of a share of Common Stock on any day shall mean
the average of the daily closing prices for the prior twenty (20) trading days
of a share of the Company’s Common Stock on the American Stock Exchange, or, if
the shares are not listed or admitted to trading on such Exchange, on the
principal United States securities exchange or on the NASDAQ/NMS on which the
shares are listed or admitted to trading, or if the shares are not listed or
admitted to trading on any such exchange or on the NASDAQ/NMS, the mean between
the closing high bid and low asked quotations with respect to a share on such
dates on the National Association of Securities Dealers, Inc. Automated
Quotations System, or any similar system then in use, or if no such quotations
are available, the fair market value on such date of a share as the Committee
shall determine.

(j)        “Incentive Stock Option” shall mean an Option described in Code
section 422(b).

(k)       “Nonstatutory Stock Option” or a “Non-Qualified Stock Option” shall
mean an Option not described in Code sections 422(b) or 423(b).

(l)        “Option” shall mean a stock option granted pursuant to the Plan.

(m)      “Purchase Price” shall mean the Exercise Price times the number of
whole Shares with respect to which an Option is exercised.

(n)       “Optionee” shall mean an Employee to whom an option has been granted.

(o)       “Plan” shall mean this Hungarian Telephone and Cable Corp. 2002
Incentive Stock Option Plan.

 

 

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(p)       “Share” shall mean one Share of Common Stock, adjusted in accordance
with Section 10 of the Plan (if applicable).

(q)       “Subsidiary” shall mean those subsidiaries of the Corporation as
defined in section 424(f) of the code.

3.        Effective Date. This Plan was approved by the Board and Shareholders
effective April 30, 1992 and amended from time to time and renamed on May 22,
2002.

4.        Administration. The Plan shall be administered by the Board of
Directors or by the Stock Option Committee (the ‘Committee”) appointed by the
Board, consisting of not less than two members thereof. The Board may from time
to time remove members from, or add members to, the Committee. Vacancies on the
Committee, however caused, shall be filled by the Board.

The Committee shall hold meetings at such times and places as it may determine.
Acts of a majority of the Committee at which a quorum is present, or acts
reduced to or approved in writing by a majority of the members of the Committee,
shall be the valid acts of the Committee. The Committee shall from time to time
at its discretion make determinations with respect to Employees who shall be
granted Options, the number of Shares to be optioned to each and the designation
of such Options as Incentive Stock Options or Nonstatutory Stock Options.

The interpretation and construction by the Committee of any provisions of the
Plan or of any Option granted thereunder shall be final. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted thereunder.

5.        Eligibility. Optionees shall be such key Employees (who may be
officers, whether or not they are directors), or directors or consultants of the
Corporation who perform services of special importance to the management,
operation and development of the business of the Corporation as the Committee
shall select, but subject to the terms and conditions set forth below.

(a)       Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designations, to the extent that the aggregate fair market
value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company) exceeds $100,000, such Options shall be
treated as Non-Qualified Stock Options.

(b)       For purposes of Section 5(a), Options shall be taken into account in
the order in which they were granted, and the fair market value of the Shares
shall be determined as of the time the Option with respect to such Shares is
granted.

(c)       Nothing in the Plan or any Option granted hereunder shall confer upon
any Optionee any right with respect to continuation of employment with the
Company, nor shall it interfere in any way with the Optionee’s right or the
Company’s right to terminate the employment relationship at any time, with or
without cause.

6.        Stock. The stock subject to Options granted under the Plan shall be
Shares of the Corporation’s authorized but unissued or reacquired Common Stock.
The aggregate number of Shares which may be issued under Options exercised under
this Plan shall not exceed 1,250,000. The number of Shares subject to Options
outstanding under the Plan at any time may not exceed the number of Shares
remaining available for issuance under the Plan. In the event that any Option
outstanding under the Plan expires for any reason or is terminated, the Shares
allocable to the unexercised portion of such Option may again be subjected to an
Option under the Plan.

The limitations established by this Section 6 shall be subject to adjustment
upon the occurrence of the events specified and in the manner provided in
Section 10 hereof.

7.        Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by written agreements in such form as the Committee shall
from time to time determine, which agreements shall comply with and be subject
to the following terms and conditions:

(a)       Date of Grant. Each option shall specify its effective date (the “date
of grant”), which shall be the date specified by the Board or the Committee, as
the case may be, in its action relating to the grant of the Option.

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(b)       Optionee’s Agreement. Each Optionee shall agree to remain in the
employ of and to render to the Corporation his or her services for a period of
one (1) year from the date of the granting of the Option, but such agreement
shall not impose upon the Corporation any obligation to retain the Optionee in
their employ for any period.

(c)       Number of Shares. Each Option shall state the number of Shares to
which it pertains and shall provide for the adjustment thereof in accordance
with the provisions of Section 10 hereof.

(d)       Exercise Price and Consideration.

(i)       The per Share exercise price under each Option shall be such price as
is determined by the Board, subject to the following:

a)        In the case of an Incentive Stock Option

i)         granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the fair
market value per share on the date of grant.

ii)        granted to any other Employee, the per Share exercise price shall be
no less than 100% of the fair market value per Share on the date of grant.

b)        In the case of a Non-Qualified Stock Option the per Share exercise
price may be less than, equal to, or greater than the fair market value per
Share on the date of grant.

(ii)      The fair market value per Share shall be the average of the daily
closing prices for the prior twenty (20) trading days of a share of the
Company’s Common Stock on the American Stock Exchange, or, if the shares are not
listed or admitted to trading on such Exchange, on the principal United States
securities exchange or on the NASDAQ/NMS on which the shares are listed or
admitted to trading, or if the shares are not listed or admitted to trading on
any such exchange or on the NASDAQ/NMS, the mean between the closing high bid
and low asked quotations with respect to a share on such dates on the National
Association of Securities Dealers, Inc. Automated Quotations System, or any
similar system then in use, or if no such quotations are available, the fair
market value on such date of a share as the Committee shall determine.

(e)       Medium and Time Payment. The Purchase Price shall be payable in full
in United States dollars upon the exercise of the Option; provided, however,
that, with the consent of the Committee, the Purchase Price may be paid by the
surrender of Shares in good form for transfer, owned by the person exercising
the option and having a Fair Market Value on the date of exercise equal to the
Purchase Price or in any combination of cash and Shares, so long as the total of
the cash so paid and the Fair Market Value of the Shares surrendered equals the
Purchase Price. No Share shall be issued until full payment therefore has been
made.

(f)       Term and Exercise of Options; Nontransferability of Options. Each
Option shall state the time or times when it becomes exercisable. No option
shall be exercisable after the expiration of ten (10) years from the date it is
granted. During the lifetime of the Optionee, an Incentive Stock Option shall be
exercisable only by the Optionee and shall not be assignable or transferable. In
the event of the Optionee’s death, no Incentive Stock Option shall be
transferable by the Optionee otherwise than by will or the laws of descent and
distribution. No Non-Qualified Option granted under the Plan shall be
transferable other than by will or the laws of descent or distribution except
pursuant to a domestic relations order as defined by the Internal Revenue Code
or Title I of the Employee Retirement Income Security Act (“ERISA”) or the rules
thereunder and except that, with the consent of the Committee acting in its sole
discretion, an Optionee may transfer (a “Family Member Transfer”) a
Non-Qualified Option to (i) a member of the Optionee’s immediate family (which
for the purposes of the Plan shall have the same meaning as defined in Rule
16a-1 promulgated under the Securities Exchange Act); (ii) a trust (the “Family
Trust”) the beneficiaries of which consist exclusively of members of the
Optionee’s immediate family; and (iii) a partnership, limited partnership or
other limited liability entity (“Family Entity”) the members of which consist
exclusively of members of the Optionee’s immediate family or a Family Trust;
provided that no consideration is paid for the transfer and that each Family
Transferee execute an instrument agreeing to be bound by the provisions of the
Plan and the restrictions as to the transferability of the Non-Qualified Option.
During the lifetime of an Optionee, a Non-Qualified Option

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shall be exercisable only by the Optionee or his or her Family Transferee. A
(“Family Transferee”) is a transferee that is a Family Trust, Family Entity or a
member of the immediate family of an Optionee.

(g)       Termination of Employment Except Death. In the event that an Optionee
shall cease to be employed by the Corporation for any reason other than his or
her death, such Optionee (or permitted Family Transferee in the case of a
Non-Qualified Option) shall have the right, subject to the restrictions of
Subsection (f) hereof, to exercise the Option at any time within the earlier of
(x) the original expiration date of the Option or (y) three (3) months after
such termination of employment in the case of an Incentive Stock Option and
eighteen (18) months after such termination of employment in the case of a
Nonstatutory or Non-Qualified Stock Option, (twelve (12) months if termination
was due to Disability in the case of an Incentive Stock Option), to the extent
that, on the day preceding the date of termination of employment, the Optionee’s
right to exercise such Option had accrued pursuant to the terms of the option
agreement pursuant to which such Option was granted, and had not previously been
exercised.

For this purpose, the employment relationship will be treated as continuing
intact while the Optionee is on military leave, sick leave or other bona fide
leave of absence (to be determined in the sole discretion of the Committee, in
accordance with rules and regulations construing Code section 422(a)(2)).
Notwithstanding the foregoing, in the case of an Incentive Stock Option,
employment shall not be deemed to continue beyond the ninetieth (90th) day after
the Optionee ceased active employment, unless the Optionee’s reemployment rights
are guaranteed by statute or by contract.

(h)       Death of Optionee. If the Optionee shall die while in the employ of
the Corporation and shall not have fully exercised the Option, an Option may be
exercised in full, subject to the restrictions of Subsection (f) hereof, to the
extent it had not previously been exercised, at any time within twelve (12)
months after the Optionee’s death, by the executors or administrators of his or
her estate or by any person or persons who shall have acquired the Option
directly from the Optionee by bequest or inheritance or by a permitted Family
Transferee (in the case of a Non-Qualified Option).

If the Optionee shall die following the termination of his employment with the
Company and such death shall occur prior to the earlier of (x) the original
expiration date of the option or (y) three (3) months following the termination
of employment in the case of an Incentive Stock Option, and (18) months
following the termination of employment in the case of a Nonstatutory or
Non-Qualified Stock Option, and such Option shall not have been fully exercised,
an Option may be exercised (subject to the limitations on exercisability set
forth in Subsection (f) hereof) to the extent that, at the date of termination
of employment, the Optionee’s right to exercise such Option had accrued pursuant
to the terms of the applicable option agreement and had not previously been
exercised, at any time within twelve (12) months after the Optionee’s death, by
the executors or administrators of the Optionee’s estate or by any person or
persons who shall have acquired the Option directly from the Optionee by bequest
or inheritance or by a permitted Family Transferee (in the case of a
Non-Qualified Option).

(i)        Rights as a Stockholder. An Optionee or a permitted transferee of an
Optionee shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 10.

(j)        Modification, Extension and Renewal of Options. Subject to the terms
and conditions and within the limitations of the Plan, the Committee may modify,
extend or renew outstanding Options granted under the Plan, or accept the
exchange of outstanding Options (to the extent not theretofore exercised and
subject to the provisions of paragraph 7(d) above) for the granting of new
Options in substitution therefor. Notwithstanding the foregoing, however, no
modification of an Option shall, without the consent of the optionee, alter or
impair any rights or obligations under any Option theretofore granted under the
Plan.

(k)       Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions not inconsistent with the terms of the Plan,
including, without limitation, restrictions upon the exercise of the Option, as
the Committee shall deem advisable.

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8.        Limitation on Annual Awards.

General Rule. Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designations, to the extent that the aggregate fair market
value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company) exceeds $100,000, such Options shall be
treated as Non-Qualified Stock Options.

9.        Term of Plan. Options may be granted pursuant to the Plan until the
termination of the Plan on April 30, 2008.

10.      Recapitalization. Subject to any required action by the stockholders,
the number of Shares covered by this Plan as provided in Section 6, the number
of Shares covered by each outstanding Option, and the Exercise Price thereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a subdivision or consolidation of Shares, stock
split, or the payment of a stock dividend.

Subject to any required action by the stockholders, if the Corporation shall be
the surviving corporation in any merger or consolidation, each outstanding
Option shall pertain and apply to the securities to which a holder of the number
of Shares subject to the Option would have been entitled. A dissolution or
liquidation of the Corporation or a merger or consolidation in which the
Corporation is not the surviving corporation shall cause each outstanding Option
to terminate, unless the agreement of merger or consolidation shall otherwise
provide, provided that each Optionee shall in such event, if a period of one (1)
year from the date of the grant of the Option shall have elapsed, have the right
immediately prior to such dissolution or liquidation, or merger or consolidation
in which the Corporation is not the surviving corporation, to exercise the
Option in whole or in part, subject to limitations on exercisability under
Section 7(k) hereof.

In the event of a change in the Common Stock as presently constituted, which is
limited to a change of all of its authorized shares with par value into the same
number of shares with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Common Stock within the
meaning of the Plan.

To the extent that the foregoing adjustments related to stock or securities of
the Corporation, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive.

Except as hereinbefore expressly provided in this Section 10, the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class, stock split, or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by reason
of any dissolution, liquidation, merger, or consolidation or spin-off of assets
or stock of another corporation, and any issue by the Corporation of shares of
stock of any class or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of Shares subject to the Option.

The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Corporation to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.

11.      Securities Law Requirements. No Shares shall be issued upon the
exercise of any Option unless and until the Corporation has determined that: (i)
it and the Optionee have taken all actions required to register the Shares under
the Securities Act of 1933 or perfect an exemption from the registration
requirements thereof; (ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and (iii) any
other applicable provision of state or Federal Law has been satisfied.

12.      Amendment of the Plan. The Board may, insofar as permitted by law, from
time to time, with respect to any Shares at the time not subject to Options,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever
except that, without approval of the stockholders, no such revision or amendment
shall:

(a)       Increase the number of Shares issuable pursuant to the Plan; or

(b)       Change the requirements as to eligibility for participation in the
Plan.

(c)       Materially increase benefits accruing to participants under the Plan.

13.      Application of Funds. The proceeds received by the Corporation from the
sale of Common Stock pursuant to the exercise of an Option will be used for
general corporate purposes.

14.      No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Optionee to exercise such Option.

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