Amendment to Stock Option Agreement between Citadel Security Software Inc. and Option Holder

Summary

This amendment, dated November 2006, is between Citadel Security Software Inc. and a named option holder. It modifies a previous stock option agreement to allow the option holder's options, even if not under Citadel's 2002 Stock Incentive Plan, to be included in a cash-out plan related to Citadel's asset sale to McAfee, Inc. Under this plan, option holders will receive cash payments if the liquidating distribution to shareholders exceeds the option exercise price. All other terms of the original agreement remain unchanged.

EX-10.7 8 ex10_7.txt EXHIBIT 10.7 Exhibit 10.7 AMENDMENT TO OPTION AGREEMENT This agreement of amendment (this "Amendment") is made as of November __, --------- 2006, by and between Citadel Security Software Inc., a Delaware corporation ("Citadel"), and the undersigned option holder (the "Optionee"). ------- -------- WHEREAS, Citadel and Optionee have entered into that certain Stock Option Agreement, dated as of ___________, providing for the issuance of up to ______ shares of the common stock of Citadel (the "Stock Option Agreement"); ------------------------ WHEREAS, Citadel, and certain of its subsidiaries, have entered into an Asset Purchase Agreement, dated as of October 2, 2006, with McAfee, Inc. and McAfee Security LLC (the "Asset Purchase Agreement"); -------------------------- WHEREAS, conditioned upon the closing of the transactions contemplated by the Asset Purchase Agreement, Citadel has implemented a "cash-out plan" to cash-out options subject to its 2002 Stock Incentive Plan pursuant to the resolution of its board of directors (such that any holder of stock options outstanding at the closing of a change of control may receive a payment equal to the difference between the price received by stockholders in the change of control and the exercise price of such holder's stock option(the "Cash-Out -------- Plan"). Citadel intends to implement the Cash-Out Plan in connection with the - ---- closing of the Asset Purchase Agreement and the subsequent distributions to its stockholders. As a result, holders of options that remain unexercised on the record date of our initial anticipated liquidating distribution, will receive from Citadel, at the same time liquidating distributions are made to holders of its common stock, cash payments equal to the product of the total number of shares that were subject to such option immediately prior to the closing of the asset sale, and the amount per share then being distributed in respect of its common stock. However, these cash payments will be paid only to the extent, if any, per share liquidating distributions in respect of its common stock exceed the per share exercise price of such option; and WHEREAS, each of Citadel and the Optionee now desire to amend the Stock Option Agreement to permit the options that may be granted pursuant to the Stock Option Agreement (the "Options"), although not subject to Citadel's 2002 Stock ------- Incentive Plan, to be included within the Cash-Out Plan; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Citadel and the Optionee hereby agree as follows: 1. Amendment of the Stock Option Agreement. The Stock Option Agreement is --------------------------------------- hereby amended to provide that the Options may be included in the Cash-Out Plan. 2. No Other Changes. Except as amended by this Amendment, the Stock ---------------- Option Agreement shall remain in full force and effect in accordance with is terms. [SIGNATURE PAGE FOLLOWS] 1 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above. COMPANY CITADEL SECURITY SOFTWARE, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- OPTIONEE - --------------------------------------- Name: ---------------------------------- Schedule of Persons and Number of Options Name Options subject to amendment Carl Banzhof 225,000 Richard Connelly 375,000 Chris A. Economou 62,500 John A. Leide 62,500 2