Document:

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.

 

 

(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.

 2

(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

 3

  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.

4

 

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.

 5Exhibit 10.8

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is made and entered into as of March 17, 2003 by and between Hungarian Telephone and Cable Corp., a corporation organized under the laws of the State of Delaware, United States of America (the “Company”) and Ole Bertram (“Executive”). 

RECITALS:

A.       Executive has been the Company’s President and Chief Executive Officer since January 1, 1999.

B.       The Company and Executive are parties to that certain Employment Agreement dated May 21, 2001 (the “2001 Employment Agreement”), pursuant to which Executive is serving as the Company’s President and Chief Executive Officer. 

C.       The Company and Executive have agreed to enter into this Agreement to replace the 2001 Employment Agreement. 

NOW, THEREFORE, in consideration of the respective covenants and agreements of the parties set forth herein, it is agreed as follows:

1.        Employment and Duties. The Company agrees to employ Executive and Executive accepts the employment, subject to the terms and conditions herein, to continue to serve as President and Chief Executive Officer of the Company. Executive shall report to the Board of Directors of the Company (the “Board”). Executive’s duties and responsibilities shall include the duties and responsibilities as set forth in the Company’s bylaws from time to time in effect and such other duties and responsibilities as the Board may from time to time reasonably assign Executive, in all cases consistent with Executive’s position. Executive shall perform faithfully the executive duties assigned to him to the best of his ability. 

2.        Place of Employment. Executive shall be employed at the Company’s offices located in Budapest, Hungary.

3.        Term. This agreement shall have an indefinite term and shall continue indefinitely unless terminated pursuant to Section 18 hereof (the “Employment Period”).

4.        Annual Salary. Executive is receiving a monthly salary based on an annualized rate of Two Hundred Seventy Thousand Dollars ($270,000) for 2003. The Company shall be entitled to deduct or withhold all taxes and charges which the Company may be required by law to deduct or withhold therefrom. The Compensation - Stock Option Committee of the Board (the “Compensation Committee”) shall annually review (on a calendar year basis) Executive’s base salary in light of the performance of Executive and, if it finds Executive’s performance to be satisfactory, the Compensation Committee shall increase such base salary by an amount it determines to be appropriate.

5.        Option Award. Provided Executive has maintained continuous service with the Company through the first business day of each calendar year, the Company shall annually grant to Executive on the first business day of each calendar year, an option from the Company’s 2002 Incentive Stock Option Plan (the “Plan”) to purchase at least 100,000 shares of the Company’s common stock. The portion of such option to purchase the first 50,000 shares of common stock shall vest on June 30th of the year of grant and the other portion of such option to purchase the remaining 50,000 shares of common stock shall vest on December 31st of the year of grant so that such option shall be fully vested within one year of the grant date. Each vesting date is contingent on the
continuous employment of Executive through the relevant vesting date. If Executive has not maintained continuous service with the Company through the relevant vesting date other than in circumstances which would require the payment of Severance Benefits set forth in Paragraph 18(b) and (c) (wherein the Company terminated this Agreement for “cause” or Executive terminated this Agreement upon six months written notice as set forth in Paragraph 18(a)(iii)), all as yet unvested options shall be forfeited and cancelled. The options shall have a ten-year exercise period. The initial purchase price per share of common stock for the options shall be the fair market value per share of the Company’s common stock (as determined by the Plan) on the date of grant. 

 

 

6.         Annual Performance Bonus. Executive shall be entitled to receive an annual cash bonus if the Company achieves certain pre-determined objectives to be mutually agreed upon by Executive and the Compensation Committee. The Compensation Committee and Executive shall establish such objectives in January of the relevant year and such bonus, if any, shall be payable by April 30th of the year following the year in which the bonus is attributable (the “Bonus Year”) after the completion of the Company’s audited financial statements for the Bonus Year, provided that if the Bonus Year is Executive’s last year of employment, then the bonus, if any, shall be payable by December 31st of the Bonus Year subject to an agreement between Executive and
the Compensation Committee on a final bonus settlement upon the completion of the audited financial statements for the Bonus Year. For any year in which the Company’s performance reaches at least 75% of such year’s objectives, Executive shall be entitled to receive the following bonus:

 

	 75
 	 %:
 	 $75,000
 	  
 	 101
 	 %:
 	 101,000
 	  
 
	 76
 	 %:
 	 76,000
 	  
 	 102
 	 %
 	 102,000
 	  
 
	 77
 	 %:
 	 77,000
 	  
 	 103
 	 %:
 	 103,000
 	  
 
	 78
 	 %:
 	 78,000
 	  
 	 104
 	 %:
 	 104,000
 	  
 
	 79
 	 %:
 	 79,000
 	  
 	 105
 	 %:
 	 105,000
 	  
 
	 80
 	 %:
 	 80,000
 	  
 	 106
 	 %:
 	 106,000
 	  
 
	 81
 	 %:
 	 81,000
 	  
 	 107
 	 %:
 	 107,000
 	  
 
	 82
 	 %:
 	 82,000
 	  
 	 108
 	 %
 	 108,000
 	  
 
	 83
 	 %:
 	 83,000
 	  
 	 109
 	 %
 	 109,000
 	  
 
	 84
 	 %:
 	 84,000
 	  
 	 110
 	 %:
 	 110,000
 	  
 
	 85
 	 %:
 	 85,000
 	  
 	 111
 	 %:
 	 111,000
 	  
 
	 86
 	 %:
 	 86,000
 	  
 	 112
 	 %:
 	 112,000
 	  
 
	 87
 	 %:
 	 87,000
 	  
 	 113
 	 %:
 	 113,000
 	  
 
	 88
 	 %:
 	 88,000
 	  
 	 114
 	 %:
 	 114,000
 	  
 
	 89
 	 %:
 	 89,000
 	  
 	 115
 	 %:
 	 115,000
 	  
 
	 90
 	 %:
 	 90,000
 	  
 	 116
 	 %:
 	 116,000
 	  
 
	 91
 	 %
 	 91,000
 	  
 	 117
 	 %:
 	 117,000
 	  
 
	 92
 	 %
 	 92,000
 	  
 	 118
 	 %:
 	 118,000
 	  
 
	 93
 	 %
 	 93,000
 	  
 	 119
 	 %:
 	 119,000
 	  
 
	 94
 	 %
 	 94,000
 	  
 	 120
 	 %:
 	 120,000
 	  
 
	 95
 	 %
 	 95,000
 	  
 	 121
 	 %:
 	 121,000
 	  
 
	 96
 	 %
 	 96,000
 	  
 	 122
 	 %:
 	 122,000
 	  
 
	 97
 	 %
 	 97,000
 	  
 	 123
 	 %:
 	 123,000
 	  
 
	 98
 	 %
 	 98,000
 	  
 	 124
 	 %:
 	 124,000
 	  
 
	 99
 	 %
 	 99,000
 	  
 	 125
 	 % or more:
 	 125,000
 	  
 
	 100
 	 %
 	 100,000
 	  
 	  
 	  
 	  
 	  
 

7.        Annual Housing Allowance. Executive will receive an annual housing allowance (the “Housing Allowance”) of Thirty-Six Thousand Dollars ($36,000), payable in equal monthly installments.

8.        Employee Taxes. Executive shall be solely responsible for any and all of Executive’s (i) income and (ii) social security, medicare or any other miscellaneous taxes applicable to any salary, bonus, option grant, allowance, severance benefit or any other type of compensation or benefit received by Executive pursuant to this Agreement which is subject to taxation and payable by Executive to any governmental taxing authority including, but not limited to, any governmental taxing authority in the Republic of Hungary, the United States of America or Denmark.

9.        Pension Account. The Company is making, and shall continue to make during Executive’s term of employment, a monthly contribution based on an annual rate of $30,000 to the Danish pension account of Executive which account Executive may not withdraw therefrom until the retirement of Executive.

- 2 -

10.      Health and Dental Insurance. The Company shall provide Executive and his spouse with health and dental insurance coverage under a fully comprehensive international scheme. 

11.      Automobile. The Company shall provide Executive with the use of a private Company automobile to be maintained by the Company.

12.      Vacation. Executive will be entitled to thirty (30) business days annual paid vacation.

13.      Work Permits. With the Company’s assistance, Executive shall obtain and keep current any Hungarian work permits, residency permits or other similar licenses as may be required by Hungarian law as a result of Executive’s employment by the Company.

14.      Covenant Not to Compete. Executive hereby agrees that during the term of this Agreement, he will not, either through any kind of ownership (other than ownership of securities of a publicly held corporation of which Executive owns less than five percent (5%) of any class of outstanding securities), or as a director, officer, principal, agent, employee, employer, advisor, consultant, co-partner, or in any individual or representative capacity whatever, either for his own benefit or for the benefit of any other person, firm, or corporation, without the prior written consent of the Company’s Board of Directors, compete with the Company by engaging in any act, including, but not limited to, any of the following:  (a) canvass, solicit, accept, or perform any type of work performed by the Company
for any “customer” (as hereinafter defined) of the Company; (b) develop, design, market any services that may be sold by the Company during the term of this Agreement; (c) request or advise any firm to withdraw, curtail, or cancel its business with the Company; (d) give or attempt to give any person, partnership, or corporation the right to solicit or canvass any customer for the performance of services provided by the Company; and (e) induce or attempt to influence any employee of the Company or any employee of any customer to terminate his employment with the view toward competing with the Company or any customer. As used herein, the term “customer” includes any of the Company customers at any time during the term of this Agreement.

15.      Confidential Information.

(a)       Nondisclosure. Executive expressly covenants and agrees that he will not during the term of this Agreement or at any time after the termination hereof, irrespective of the time, manner, or cause of termination, reveal, divulge, disclose, or communicate to any person, firm, or corporation, other than authorized officers, directors, and employees of the Company, in any manner whatsoever, any “confidential information” (as hereinafter defined) of the Company that would be inconsistent with the position held by Executive or the duties being performed by Executive at the direction of the Company. 

(b)       Return of Confidential Information and Other Property. Upon termination of this Agreement, Executive will surrender to the Company all confidential information including, without limitation, all lists, charts, schedules, reports, financial statements, books and records, and all copies thereof, of the Company and all other property belonging to the Company whatsoever. As used herein, “confidential information” means information disclosed to or known by Executive as a consequence of or through his employment for the Company, not generally known in the business in which the Company is or may become engaged, about the Company, its business, products and processes.

16.      Breach of Covenant Not to Compete and Confidentiality Provision. Executive agrees that a substantial violation on his part of any covenant contained in Paragraphs 14 and 15 above will cause such damage to the Company as will be irreparable and for that reason, Executive further agrees that the Company shall be entitled as a matter of right, to an injunction out of any court of competent jurisdiction, restraining any further violation of said covenants by Executive, his employer, employees, partners, or agents. Such right to injunction shall be cumulative and in addition to whatever other remedies the Company may have, including, specifically, recovery of liquidated and additional damages. Executive expressly acknowledges and agrees that the respective covenants and agreements shall be construed in such
a manner as to be enforceable under applicable laws if a more limited scope of time is determined by a court or competent jurisdiction to be required.

17.      Indemnification.
  The Company agrees that if Executive is made a party, or is threatened to be
  made a party, to any action, suit or proceeding, whether civil, criminal, administrative
  or investigative (a “Proceeding”), by reason of the fact that he is
  or was a director, officer or employee of the Company, Executive shall be indemnified
  and held harmless by the Company to the fullest extent legally permitted or
  authorized by the Company’s certificate of incorporation or bylaws or resolutions
  of the Board or, if greater, by the laws of the State of Delaware, against all
  cost, expense, liability and loss (including, without limitation, attorney’s
  fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or
  to be paid in settlement) reasonably incurred or suffered by Executive in connection
  therewith.

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 The Company agrees
  to continue to maintain a directors’ and officers’ liability insurance
  policy covering Executive to the extent the Company provides such coverage for
  any of its other executive officers.

18.      Termination. 

(a)       Reasons for Termination. The employment of Executive with the Company shall terminate automatically upon Executive’s death and may be terminated: (i) by the Company, with six months notice, upon Executive’s disability which renders him unable to perform his usual and customary duties for a period of 180 consecutive days; (ii) by the Company with “cause” upon at least 30 days written notice or by the Company without “cause” upon six months written notice (“cause” is hereinafter defined); (iii) by Executive upon six months written notice; (iv) by Executive upon one month written notice if he suffers a demotion or a lower status with the Company other than for cause; or (v) by Executive upon one month written notice, in the event of a
“change in control” (as hereinafter defined), whether or not Executive suffers a demotion or a lower status with the Company. For purposes of this Agreement, “cause” shall mean (i) a failure by Executive to substantially perform Executive’s reasonable and legal duties and as defined by goals established by the Board and agreed to by Executive, other than a failure resulting from Executive’s complete or partial incapacity due to physical or mental illness or impairment, (ii) a willful act by Executive that constitutes gross misconduct and that is injurious to the Company, (iii) a willful breach by Executive of a material provision of this Agreement, or (iv) a material and willful violation of a federal or state law or regulation applicable to the business of the Company. No act, or failure to act, by Executive shall be considered “willful” unless committed without good faith and without a reasonable belief that the act or
omission was in the Company’s best interest. For purposes of this Agreement, a “change of control” shall be deemed to have occurred if (1) any “person” (as such term is used in Paragraphs 13(d) and 14(d) of the U.S. Securities and Exchange Act (the “Exchange Act”)), other than (x) Citizens Communications Company and/or any one or more direct or indirect wholly-owned subsidiary of Citizens Communications Company (together, “Citizens”), or (y) Tele Danmark A/S and/or any one or more direct or indirect wholly-owned subsidiary of Tele Danmark A/S (together, Tele Danmark”), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty-five percent (35%) or more of the combined voting power (with respect to the election of directors) of the Company’s then outstanding securities; (2) at any time after the execution of
this Agreement, a majority of the Board shall be replaced, over a two-year period, from the directors who constituted the Board at the beginning of such period, and such replacement shall not have been approved by either two-thirds (2/3) of the Board as constituted at the beginning of such period or Citizens or Tele Danmark; (3) the consummation of a merger or consolidation of the Company with or into any other corporation (other than with Citizens or Tele Danmark), 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 sixty-five percent (65%) of the combined voting power (with respect to the election of directors) of the securities of the Company or of such surviving entity outstanding immediately after
such merger or consolidation; or (4) the consummation of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all of the Company’s business or assets.

(b)       Termination Benefits. If Executive’s employment is terminated pursuant to Paragraph 18(a) of this Agreement for any reason noted above other than by the Company for “cause” or by Executive upon six months notice as set forth in clause (iii) of Paragraph 18(a), Executive will be entitled to receive the following benefits as severance following the  end of his employment (the “Severance Benefits”):

(i)       a lump sum payment equal to six (6) months’ salary and pension payments at Executive’s then-current annual salary and pension level;

(ii)      payment of any salary, expenses, allowances and benefits accrued by Executive up to the date of the termination; and

(iii)     the immediate vesting and release of any unvested unreleased portion of the options granted as of the date of such termination pursuant to this agreement, without restriction. 

(c)       Benefits
  in the Event of Executive’s Death. Except as set
  forth below, if Executive’s employment terminates automatically in the
  event of Executive’s death, Executive’s estate will be entitled to
  receive the Severance Benefits. The Company may, at its option, maintain a life
  insurance policy for Executive in an amount deemed to be appropriate by the
  Board and designating Executive’s estate as the beneficiary.

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  If the Company elects to maintain such life insurance and the policy amount
  equals or exceeds the value of the Severance Benefits (as determined by the
  Board), Executive’s estate shall only be entitled to receive the proceeds
  of the insurance policy. If the policy amount is less than the value of the
  Severance Benefits, the Company shall pay to Executive’s estate an amount
  equal to the difference between the value of the Severance Benefits and the
  amount to which the estate would be entitled to under the insurance policy.
  The Company shall determine the value of the Severance Benefits as soon as practicable
  after Executive’s death but in no event later than thirty (30) days thereafter.

(d)       Date of Termination; Provision of Severance Benefits. The date of termination of Executive’s employment by the Company under this Paragraph 18 shall be six months after receipt by Executive of written notice of termination, provided, however, that if the termination is for cause the date of termination shall be the later of the date specified in the written notice of termination for cause or thirty days following the receipt by Executive of such written notice of termination for cause. The date of termination by Executive under this Paragraph 18 shall be one month after receipt by the Company of written notice of termination except in the case of termination by Executive as set forth in clause (iii) of Paragraph 18(a) pursuant to which Executive is required to give the
Company six month notice. The Severance Benefits to which Executive is entitled under subparagraph (b) hereof shall be provided within thirty (30) days of the end of Executive’s employment. In the case of automatic termination in the event of Executive’s death, the benefits shall be provided no later than thirty (30) days from the date of Executive’s death.

19.      Miscellaneous.

(a)       Rights Under Plans and Programs. Notwithstanding anything in this Agreement to the contrary no provision of this Agreement is intended, nor shall it be construed, to reduce or in any way restrict any benefit to which Executive may be entitled under any agreement, plan, arrangement, or program providing benefits for Executive.

(b)       Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter of this Agreement.

(c)       Notices. Any notice or request to be given hereunder by any party to the other shall be in writing and shall be deemed to have been duly given on the next business day after the same is sent, if delivered personally or sent by telecopy or overnight delivery, or five calendar days after the same is sent, if sent by registered or certified mail, return receipt requested, postage prepaid, as set forth below, or to such other persons or addresses as may be designated in writing in accordance with the terms hereof by the party to receive such notice.

If to the Company, to:

Hungarian Telephone and Cable Corp.
1201 Third Avenue, Suite 3400
Seattle, WA 98101-3034
Facsimile No.: 206-652-2911
Attn:  General Counsel

If to Executive, to:

the address or facsimile number
for Executive as set forth 
in the Company’s records

with a required copy to:

(to be provided by Executive)

(d)       Governing Law; Forum; Consent to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflict of laws thereof. Each of the parties to this Agreement hereby irrevocably and unconditionally (i) consents to submit to the exclusive jurisdiction of the courts of the State of New York for any proceeding arising in connection with this Agreement (and each such party agrees not to commence any such proceeding, except in such courts), (ii) to the extent such party is not a resident of the State of New York, agrees to 

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appoint an agent in the State of New York as such party’s agent for acceptance of legal process in any such proceeding against such party with the same legal force and validity as if served upon such party personally within the State of New York, and to notify promptly each other party hereto of the name and address of such agent, (iii) waives any objection to the laying of venue of any such proceeding in the courts of the State of New York, and (iv) waives, and agrees not to plead or to make, any claim that any such proceeding brought in any court of the State of New York has been brought in an improper or otherwise inconvenient forum. 

(e)       Counterparts. This Agreement may be executed in one or more counterparts, and each of such counterparts shall for all purposes be deemed to be an original, but all such counterparts together shall constitute but one instrument.

(f)       Executive’s Successors. This Agreement and all rights of Executive hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

(g)       Assignment. Neither this Agreement, nor the rights and obligations hereunder, may be assigned by either party without the prior written consent of the other party.

(h)       Parties in Interest. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

(i)        Prior Employment Agreement. This Agreement terminates and replaces the 2001 Employment Agreement but preserves any options granted pursuant to the 2001 Employment Agreement.

(j)        Amendment. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.

(k)       Extension; Waiver. Either party to this Agreement may (a) extend the time for the performance of any of the obligations or other acts of the other party to this Agreement or (b) waive compliance by the other party with any of the agreements or conditions contained herein or any breach thereof. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.

(l)        Severability. The provisions of this Agreement are severable and, if any provision of this Agreement is determined to be invalid or unenforceable by any court of competent jurisdiction, such provision (in any other jurisdiction) and the other provisions hereof (in any jurisdiction) shall not be rendered otherwise invalid or unenforceable and such provision shall be deemed to be modified to the extent necessary to render it legal, valid and enforceable, and if no such modification shall render it legal, valid and enforceable, then this Agreement shall be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties shall be construed and enforced accordingly.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

 

	 HUNGARIAN TELEPHONE AND CABLE CORP.
 	  
 	  
 
	 By: 
 	  
 	 
 /s/ William E. Starkey
 	  
 	  
 	 
 
 
 
	  
 	  
 	 
 	  
 	  
 	  
 
	  
 	  
 	 William E. Starkey
 Chairman of the Compensation-Stock Option Committee
 	  
 	  
 	  
 

 

	 OLE BERTRAM
 	  
 	  
 
	  
 	  
 	 
 /s/ Ole Bertram
 	  
 	  
 	 
 
 
 
	  
 	  
 	 
 	  
 	  
 	  
 
	  
 	  
 	 Ole Bertram
 	  
 	  
 	  
 

- 7 -

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