Employee Stock Option Plan

7TH LEVEL, INC.


AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN


The following constitute the provisions of the 7th Level, Inc. Employee Stock Purchase Plan.


1. Purpose. The purpose of the Plan is to provide employees of the
------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code (as defined herein). The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.


2. Definitions.
-----------


(a) "Board" shall mean the Board of Directors of the Company.
-----


(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----


(c) "Committee" shall mean the Committee appointed by the Board to
--------- administer the Plan, which committee shall be constituted so as to permit the Plan to comply with Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, as currently in effect or as hereinafter modified or amended ("Rule 16b-3"), or, if no committee is appointed, the Board.


(d) "Common Stock" shall mean the Common Stock, $.01 par value per
------------ share, of the Company.


(e) "Company" shall mean 7th Level, Inc., a Delaware corporation.
-------


(f) "Compensation" shall mean all gross earnings and commissions,
------------ inclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses or other compensation.


(g) "Continuous Status as an Employee" shall mean the absence of any
-------------------------------- interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute.


(h) "Designated Subsidiaries" shall mean the Subsidiaries which have
----------------------- been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan.


(i) "Employee" shall mean any person, including an officer, who is
-------- customarily employed for at least twenty (20) hours per week and for more than five (5) months in the calendar year by the Company or one of its Designated Subsidiaries.


(j) "Enrollment Date" shall mean the first day of each Offering Period.
---------------


(k) "Exercise Date" shall mean the first paydate coincident with or
------------- immediately following May 15 and the first paydate coincident with or immediately following November 15 of each year within an Offering Period.


(l) "Exercise Period" shall mean, with respect to the first Exercise
--------------- Period contained in the first Offering Period commencing in accordance with the Plan following the adoption of the Plan by the Board, the period commencing on the first Enrollment Date and ending on the first Exercise Date; and with respect to all other Exercise


Periods, the term "Exercise Period" shall mean the six month period commencing one (1) day after one Exercise Date and ending with the next Exercise Date.


(m) "Offering Period" shall mean a period of twenty four (24) months
--------------- (or shorter period for the first Offering Period) during which an option granted pursuant to the Plan may be exercised, as provided in paragraph 4.


(n) "Plan" shall mean the 7th Level, Inc. Amended and Restated Employee
---- Stock Purchase Plan.


(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
---------- which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.


3. Eligibility.
-----------


(a) General Rule. Any Employee, who shall be employed by the Company
------------ or Designated Subsidiary on a given Enrollment Date shall be eligible to participate in the Plan, subject to the requirements of paragraph 5(a) and the limitations imposed by Section 423(b) of the Code.


(b) Exceptions. Any provisions of the Plan to the contrary
---------- notwithstanding, no Employee shall be granted an option under the Plan if:


(i) Immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary, or


(ii) Such option would permit such Employee's right to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.


4. Offering Periods. The Plan shall be implemented by Offering Periods,
---------------- with the first Offering Period beginning on the day of the closing of the initial public offering of the Company's Common Stock pursuant to a Registration Statement on Form S-1 filed with the Securities and Exchange Commission and continuing until the fourth Exercise Date following this initial Enrollment Date. The Board shall have the power to change the duration of the Offering Periods with respect to future offerings without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. Absent action by the Board, each subsequent Offering Period shall be for a period of approximately twenty-four (24) months (ending on the fourth Exercise Date following the commencement of the Offering Period) and shall commence one (1) day after the first paydate coincident with or immediately following May 15 and November 15 of each year. Notwithstanding anything to the contrary contained herein, no Offering Period shall have a duration that is longer than is permitted under Section 423(b)(7)(B) of the Code.


5. Participation.
-------------


(a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions, in a form substantially similar to Exhibit A attached to the Plan, and filing it with the Company's payroll office prior to the applicable Enrollment Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given Offering Period.


2


(b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in paragraph 10.


6. Payroll Deductions.
------------------


(a) At the time a participant files his or her subscription agreement, such participant shall elect to have payroll deductions made on each paydate during the Offering Period at the rate not to exceed ten percent (10%) of the Compensation which he or she receives on each paydate during the Offering Period, provided that the aggregate amount of such payroll deductions during the Offering Period shall not exceed ten percent (10%) of the participant's aggregate Compensation during said Offering Period. An eligible Employee may participate in only one Offering Period at a time. The Committee or its designee shall determine whether the amount to be deducted from each paycheck is to be designated as a specific dollar amount, or as a percentage of eligible Compensation being paid on such day, or as either.


(b) All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account.


(c) A participant may discontinue his or her payroll deductions during the Offering Period by completing and filing with the Company a new subscription agreement authorizing a change in the rate of payroll deductions. The change in rate shall be effective no later than fifteen (15) days following the Company's receipt of the new authorization.


7. Grant of Option.
---------------


(a) On the Enrollment Date of each Offering Period, each participant in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period up to a number of whole shares of the Company's Common Stock determined by dividing the participant's payroll deductions accumulated during each respective Exercise Period during such Offering Period and prior to such Exercise Date by the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Enrollment Date or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Exercise Date, provided that the number of shares subject to such option shall be reduced, if necessary, to a number of shares which would not exceed the limitations described in Section 3(b) or Section 12 ...