NETEGRITY INC
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<DOCUMENT>
<TYPE>EX-10.03
<SEQUENCE>6
<FILENAME>b49028niexv10w03.txt
<DESCRIPTION>1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
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                                                                   Exhibit 10.03
                                NETEGRITY, INC.
                  1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

1. PURPOSE OF THE PLAN.

         The purpose of this 1997 Non-Employee Director Stock Option Plan (the
"Plan") is to promote the interests of Netegrity, Inc. (the "Company") by
providing an inducement to attract and retain the services of qualified persons
who are not employees or officers of the Company to serve as members of its
Board of Directors.

2. SHARES SUBJECT TO THE PLAN.

         The total number of the authorized but unissued shares of common stock,
par value $.01 per share, of the Company (the "Common Stock") for which options
may be granted under this Plan shall not exceed 125,000 shares in the aggregate,
subject to adjustment in accordance with Section 9 hereof.

3. ADMINISTRATION.

         The Plan shall be administered by the Board of Directors (the "Board").
The Board shall, subject to the provisions of this Plan, have the power to
construe this Plan, to determine all questions hereunder, and to adopt and amend
such rules and regulations for the administration of this Plan as it may deem
desirable. No member of the Board shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.

4. ELIGIBILITY; GRANT OF OPTION.

         EXISTING DIRECTOR OPTIONS. Subject to the availability of shares of
Common Stock under this Plan, each of, Eric R. Giler, Michael L. Mark, Milton J.
Pappas, Ralph B. Wagner and Stephen L. Watson who are the current directors of
the Company who are not otherwise employees the Company or any subsidiary shall
be granted initially an option to acquire twelve thousand five hundred (12,500)
shares under this Plan (the "Existing Director Options"). The date of grant for
such options granted to the five (5) current non-employee directors named above
shall be the date of adoption of this Plan by the Board.

         NEW DIRECTOR OPTIONS. Subject to the availability of shares of Common
Stock under this Plan, each person who is first elected as a member of the Board
after the adoption of this Plan and during the term of this Plan and who is not
an employee or officer of the Company on the date of such election may be
granted an option to purchase shares of Common Stock (the "New Director
Options") as determined by the Board.

         The Existing Director Options and the New Director Options
(collectively, the "Options") shall be non-qualified options not intended to
meet the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").

5. OPTION AGREEMENT.

         Each Option granted under this Plan shall be evidenced by an option
agreement (the "Agreement") duly executed on behalf of the Company and by the
director to whom such Option is granted, which Agreement shall (i) comply with
and be subject to the terms and conditions of this Plan and (ii) provided that
the optionee agrees to continue to serve as a director of the Company during the
term for which he was elected.

6. OPTION EXERCISE PRICE.

         EXISTING DIRECTOR OPTIONS. The option exercise price for the Existing
Director Options granted this date shall be $2.19/sh.

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         NEW DIRECTOR OPTIONS. Subject to the provisions of Section 9 hereof,
the option exercise price for New Director Options granted under this Plan shall
be the fair market value of the shares of Common Stock covered by the option on
the date of grant of the option. If such shares are then listed on any national
securities exchange, the fair market value shall be the mean between the high
and low sales prices, if any, on such exchange on the business day immediately
preceding the date of the grant of the option or, if none, shall be determined
by taking a weighted average of the means between the highest and lowest sales
prices on the nearest date before and the nearest date after the date of grant.
If the shares are not then listed on any such exchange, the fair market value of
such shares shall be the mean between the high and low sales prices, if any, as
reported in the National Association of Securities Dealers Automated Quotation
System National Market System ("NASDAQ/NMS") for the business day immediately
preceding the date of the grant of the option, or, if none, shall be determined
by taking a weighted average of the means between the highest and lowest sales
on the nearest date before and the nearest date after the date of grant. If the
shares are not then either listed on any such exchange or quoted in NASDAQ/NMS,
the fair market value shall be the mean between the average of the "Bid" and the
average of the "Ask" prices, if any, as reported in the National Daily Quotation
Service for the business day immediately preceding the date of the grant of the
option, or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales prices on the nearest date before and
the nearest date after the date of grant. If the fair market value cannot be
determined under the preceding three sentences, it shall be determined in good
faith by the Board.

7. VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS.

         (a) VESTING. Options granted under this Plan shall not be exercisable
until they become vested. Options granted under this Plan shall be vested in the
optionee and thus become exercisable, in accordance with the following schedules
provided that the optionee has continuously served as a member of the Board
through such vesting date:

            Existing
            Director Options:
            -----------------

                  Cumulative Number of Shares
                  for which Existing Director
                  Option will be Exercisable     Date of Vesting
                  --------------------------     ---------------
                           5%                    December 31, 1997
                     -----------
                           5%                    End of each subsequent calendar
                     -----------                     quarter over five years

NEW DIRECTOR OPTIONS: Will vest 5% quarterly at the end of each calendar quarter
over five (5) years.

         CHANGE OF CONTROL: In the event the Company undergoes a change of
control all of the Options granted pursuant to this Plan shall immediately vest
and become fully exercisable upon the change of control. For purposes of the
Plan, a "Change of Control" shall be deemed to have occurred if any of the
following conditions have occurred: (1) the merger or consolidation of the
Company with another entity where the Company is not the surviving entity and
where after the merger or consolidation (i) its stockholders prior to the merger
or consolidation hold less than 50% of the voting stock of the surviving entity
and (ii) its Directors prior to the merger or consolidation are less than a
majority of the Board of the surviving entity; (2) the sale of all or
substantially all of the Company's assets to a third party and subsequent to the
transaction (i) its stockholders hold less than 50% of the stock of said third
party and (ii) its Directors are less than a majority of the Board of said third
party; (3) a transaction or series of related transactions, including a merger
of the Company with another entity where the Company is the surviving entity,
whereby (i) 50% or more of the voting stock of the Company after the
transaction(s) is owned actually or beneficially by parties who held less than
thirty percent (30%) of the voting stock, actually or beneficially, prior to the
transaction(s) and (ii) its Board of Directors after the

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transaction(s) or within 60 days thereof, is comprised of less than a majority
of the Directors serving prior to the transaction(s); or (4) the Continuing
Directors shall not constitute a majority of the Board of Directors of the
Company. The term "Continuing Directors" shall mean a member of the Board of
Directors of the Company who either was a member of the Board of Directors of
the Company on the date this Plan was adopted by the Board of Directors or who
subsequently became a director of the Company and whose initial appointment,
initial election or initial nomination for election by the Company's
shareholders subsequent to such date was approved by a vote of a majority of the
Continuing Directors then on the Board of Directors of the Company.

         (b) EXERCISE. To the extent that the right to exercise an Option has
accrued and is in effect, the Option may be exercised in full at one time or in
part from time to time by giving written notice, signed by the person or persons
exercising the Option, to the Company, stating the number of shares of Common
Stock with respect to which the Option is being exercised, accompanied by
payment in full for such shares, which payment may be in cash or in whole or in
part in shares of Common Stock already owned for a period of at least six (6)
months by the person or persons exercising the Option, valued at fair market
value, as determined under Section 6 hereof, on the date of exercise; provided,
however, that there shall be no such exercise at any one time as to fewer than
two hundred fifty (250) shares or all of the remaining shares then purchasable
by the person or persons exercising the Option, if fewer than two hundred fifty
(250) shares. Upon such exercise, delivery of a certificate for paid-up
non-assessable shares shall be made at the principal office of the Company to
the person or persons exercising the Option at such time, during ordinary
business hours, not more than thirty (30) days from the date of receipt of the
notice by the Company, as shall be designated in such notice, or at such time,
place and manner as may be agreed upon by the Company and the person or persons
exercising the Option.

         (c) LEGEND ON CERTIFICATES. The certificates representing such shares
shall carry such appropriate legend, and such written instructions shall be
given to the Company's transfer agent, as may be deemed necessary or advisable
by counsel to the Company in order to comply with the requirements of the
Securities Act of 1933, as amended, or any state securities laws.

         (d) NON-TRANSFERABILITY. Any Option granted pursuant to this Plan shall
not be assignable or transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order, as defined by
the Code, or Title I of the Employment Retirement Security Income Act, or the
rules thereunder, and shall be exercisable during the optionee's lifetime only
by him or her.

8. TERM OF OPTIONS.

         (a) Each Option shall expire ten (10) years from the date of the
granting thereof, but shall be subject to earlier termination as herein
provided.

         (b) Except as otherwise provided in this Section 8, in the event that
an optionee ceases to be a director of the Company, the Option granted to such
optionee may be exercised by him, but only to the extent that under Section 6
hereof the right to exercise the Option has accrued and is in effect. Such
Option may be exercised at any time within ninety (90) days after the date such
optionee ceases to be a director of the Company, at which time the Option shall
terminate, or prior to the date on which the Option expires by its terms,
whichever is earlier.

         (c) If the optionee ceases to be a director of the Company because the
optionee has become permanently disabled (within the meaning of Section 22(e)(3)
of the Code), the Option granted to such optionee may be exercised by the
optionee, to the extent the optionee was entitled to do so on the date such
optionee ceases to be a director. Such Option may be exercised at any time
within six (6) months after the date the optionee ceases to be a director, at
which time the Option shall terminate, or prior to the date on which the Option
otherwise expires by its terms, whichever is earlier.

         (d) In the event of the death of an optionee, the Option granted to
such optionee may be exercised, to the extent the optionee was entitled to do so
on the date of such optionee's death, by the estate of such optionee or by any
person or persons who acquired the right to exercise such Option by bequest or
inheritance or otherwise by reason of the death of such optionee. Such Option
may be exercised at any time within one (1) year after the date of death of such
optionee, at which time the Option shall terminate, or prior to the date on
which the Option otherwise expires by its terms, whichever is earlier.

9. ADJUSTMENTS.

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         Subject to the right to acceleration upon a change of control, as set
forth in Section 7(a) hereof, upon the occurrence of any of the following
events, an optionee's rights with respect to Options granted to him hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:

         (a) STOCK DIVIDENDS AND STOCK SPLITS. If, the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.

         (b) RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company pursuant to which securities
of the Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, an optionee upon exercising an Option shall
be entitled to receive for the purchase price paid upon such exercise the
securities he would have received if he had exercised his Option prior to such
recapitalization or reorganization.

         (c) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.

         (d) ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.

         (e) FRACTIONAL SHARES. No fractional shares shall be issued under this
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.

         (f) ADJUSTMENTS. Upon the happening of any of the events described in
subparagraphs (a) or (b) above, the class and aggregate number of shares set
forth in Section 2 hereof that are subject to Options which previously have been
or subsequently may be granted under this Plan shall also be appropriately
adjusted to reflect the events described in such subparagraphs. The Board shall
determine the specific adjustments to be made under this paragraph 9 and,
subject to Section 3, its determination shall be conclusive.

10. RESTRICTIONS ON ISSUE OF SHARES.

         Notwithstanding the provisions of Section 7 hereof, the Company may
delay the issuance of shares of Common Stock covered by the exercise of any
Option and the delivery of a certificate for such shares until one of the
following conditions shall be satisfied:

         (i) the shares with respect to which an Option has been exercised are
at the time of the issue of such shares effectively registered under applicable
Federal and state securities acts now in force or hereafter amended; or

         (ii) counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such shares are exempt
from registration under applicable Federal and state securities acts now in
force or hereafter amended. It is intended that all exercises of Options shall
be effective. Accordingly, the Company shall use its best efforts to bring about
compliance with the above conditions within a reasonable time, except that the
Company shall be under no obligation to cause a registration statement or a
post-effective amendment to any registration statement to be prepared at its
expense solely for the purpose of covering the issue of shares in respect of
which any Option may be exercised, except as otherwise agreed to by the Company
in writing.

11. RIGHTS OF HOLDER ON PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION.

         Unless the shares of Common Stock to be issued upon exercise of an
Option granted under this Plan have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended, the Company shall
be under no obligation to issue any shares covered by any Option unless the
person who exercises such Option, in whole or in part, shall give a written
representation

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and undertaking to the Company which is satisfactory in form and scope to
counsel to the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he is acquiring the shares issued to him
pursuant to such exercise of the Option for his own account as an investment and
not with a view to, or for sale in connection with, the distribution of any such
shares, and that he will make no transfer of the same except in compliance with
any rules and regulations in force at the time of such transfer under the
Securities Act of 1933, as amended, or any other applicable law, and that if
shares are issued without such registration a legend to this effect may be
endorsed upon the securities so issued. In the event that the Company shall,
nevertheless, deem it necessary or desirable to register under the Securities
Act of 1933, as amended, or other applicable statutes any shares with respect to
which an Option shall have been exercised, or to qualify any such shares for
exemption from the Securities Act of 1933, as amended, or other applicable
statutes, then the Company shall take such action at its own expense and may
require from each optionee such information in writing for use in any
registration statement, prospectus, preliminary prospectus or offering circular
as is reasonably necessary for such purpose and may require reasonable indemnity
to the Company and its officers and directors from such holder against all
losses, claims, damages and liabilities arising from such use of the information
so furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made.

12. LOANS PROHIBITED.

         The Company shall not, directly or indirectly, lend money to an
optionee or to any person or persons entitled to exercise an Option by reason of
the death of an optionee for the purpose of assisting him or them in the
acquisition of shares covered by an Option granted under this Plan.

13. TERMINATION AND AMENDMENT OF PLAN.

         Unless sooner terminated as herein provided, this Plan shall terminate
ten (10) years from the date upon which this Plan was duly approved by the
Board. The Board may at any time terminate this Plan or make such modification
or amendment thereof as it deems advisable.

14. LIMITATION OF RIGHTS IN THE OPTION SHARES.

         An optionee shall not be deemed for any purpose to be a shareholder of
the Company with respect to any of the Options except to the extent that the
Option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.

15. NOTICES.

         Any communication or notice required or permitted to be given under
this Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.

         Approved by Board of Directors: September 10, 1997

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