Document:

EXHIBIT 10.1

                            LAPIS TECHNOLOGIES, INC.

                             2002 STOCK OPTION PLAN

                            ADOPTED OCTOBER 16, 2002

     1.     PURPOSE OF THE PLAN.  The Lapis Technologies, Inc. 2002 Stock Option
            -------------------
Plan  (the  "Plan")  is  intended to advance the interests of Lapis Technologies
Inc.  (the  "Company")  by  inducing  individuals,  and  eligible  entities  (as
hereinafter  provided)  of  outstanding ability and potential to join and remain
with, or provide consulting or advisory services to, the Company, by encouraging
and  enabling  eligible  employees,  non-employee  Directors,  consultants  and
advisors  to  acquire proprietary interests in the Company, and by providing the
participating  employees,  non-employee Directors, consultants and advisors with
an  additional  incentive  to  promote  the  success  of  the  Company.  This is
accomplished  by  providing  for  the  granting of "Options", which term as used
herein  includes both "Incentive Stock Options" and "Nonstatutory Stock Options"
(as  hereinafter  defined) to employees, non-employee Directors, consultants and
advisors.

2.     ADMINISTRATION.  The Plan shall be administered by the Board of Directors
       --------------
of  the  Company  (the "Board of Directors") or by a committee (the "Committee")
chosen  by  the Board of Directors.  Except as herein specifically provided, the
interpretation  and  construction  by the Board of Directors or the Committee of
any  provision  of the Plan or of any Option granted under it shall be final and
conclusive.  The  receipt  of  Options  by  Directors,  or  any  members  of the
Committee,  shall  not preclude their vote on any matters in connection with the
administration  or  interpretation  of  the  Plan.

3.     SHARES  SUBJECT  TO THE PLAN.  The stock subject to Options granted under
       ----------------------------
the  Plan  shall  be  shares  of the Company's Common Stock, par value $.001 per
share  (the  "Common  Stock"),  whether  authorized  but unissued or held in the
Company's  treasury,  or  shares  purchased  from stockholders expressly for use
under  the  Plan.  The  maximum  number  of  shares of Common Stock which may be
issued  pursuant  to  Options  granted  under  the  Plan shall not exceed in the
aggregate  five  hundred  thousand  (500,000) shares, plus such number of Common
Stock  shares  issuable  upon  the  exercise  of  Reload Options (as hereinafter
defined)  granted  under  the Plan, subject to adjustment in accordance with the
provisions  of Section 13 hereof.  The Company shall at all times while the Plan
is  in force reserve such number of shares of Common Stock as will be sufficient
to  satisfy  the requirements of all outstanding Options granted under the Plan.
In the event any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable  in  whole or in part, the un-purchased shares subject thereto shall
again  be  available  for  Options  under  the  Plan.

     4.     PARTICIPATION.  The  class  of  individual  or  entity that shall be
            -------------
eligible  to  receive  Options  under  the  Plan  shall  be  (a) with respect to
Incentive  Stock Options described in Section 6 hereof, all employees (including
officers)  of  either  the Company or any subsidiary corporation of the Company,

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and  (b)  with  respect  to  Nonstatutory  Stock  Options described in Section 7
hereof,  all  employees  (including  officers) and non-employee Directors of, or
consultants and advisors to, either the Company or any subsidiary corporation of
the  Company;  provided,  however,  that Nonstatutory Stock Options shall not be
granted  to any such consultants and advisors unless (i) bona fide services have
                                                         ---- ----
been  or are to be rendered by such consultant or advisor and (ii) such services
are  not in connection with the offer or sale of securities in a capital raising
transaction.   For purposes of the Plan, for an entity to be an eligible entity,
it  must  be included in the definition of "employee" for purposes of a Form S-8
Registration  Statement  filed under the Securities Act of 1933, as amended (the
"Act").  The  Board  of  Directors or the Committee, in its sole discretion, but
subject  to  the  provisions  of  the  Plan,  shall  determine the employees and
non-employee  Directors of, and the consultants and advisors to, the Company and
its  subsidiary corporations to whom Options shall be granted, and the number of
shares  to  be  covered  by  each  Option, taking into account the nature of the
employment or services rendered by the individuals or entities being considered,
their  annual  compensation,  their  present  and potential contributions to the
success  of the Company, and such other factors as the Board of Directors or the
Committee  may  deem  relevant.

     5.     STOCK OPTION AGREEMENT.  Each Option granted under the Plan shall be
            ----------------------
authorized by the Board of Directors or the Committee, and shall be evidenced by
a  Stock  Option  Agreement  which  shall  be executed by the Company and by the
individual or entity to whom such Option is granted.  The Stock Option Agreement
shall  specify  the  number  of shares of Common Stock as to which any Option is
granted, the period during which the Option is exercisable, the option price per
share  thereof,  and  such other terms and provisions not inconsistent with this
Plan.

6.     INCENTIVE  STOCK  OPTIONS.  The  Board  of Directors or the Committee may
       -------------------------
grant  Options  under  the  Plan,  which  Options  are  intended  to  meet  the
requirements  of  Section  422  of the Internal Revenue Code of 1986, as amended
(the  "Code"),  and  which are subject to the following terms and conditions and
any  other terms and conditions as may at any time be required by Section 422 of
the  Code  (referred  to  herein  as  an  "Incentive  Stock  Option"):

          (a) No Incentive Stock Option shall be granted to individuals other
than  employees  of  the  Company or of a subsidiary corporation of the Company.

          (b)  Each  Incentive Stock Option under the Plan must be granted prior
to the date which is ten (10) years from the date the Plan initially was adopted
by  the  Board  of  Directors  of  the  Company.

          (c)  The  option  price  of  the shares of Common Stock subject to any
Incentive  Stock  Option  shall  not  be  less than the fair market value of the
Common  Stock  at  the  time  such  Incentive Stock Option is granted; provided,
however,  if  an Incentive Stock Option is granted to an individual who owns, at
the  time  the Incentive Stock Option is granted, more than ten percent (10%) of
the  total  combined voting power of all classes of stock of the Company or of a
parent or subsidiary corporation of the Company (a "Principal Stockholder"), the
option  price  of  the  shares subject to the Incentive Stock Option shall be at
least  one  hundred  ten  percent  (110%) of the fair market value of the Common

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Stock  at  the  time  the  Incentive  Stock  Option  is  granted.

          (d) No Incentive Stock Option granted under the Plan shall be
exercisable  after  the expiration of ten (10) years from the date of its grant.
However,  if  an  Incentive  Stock Option is granted to a Principal Stockholder,
such  Incentive  Stock  Option  shall not be exercisable after the expiration of
five  (5) years from the date of its grant. Every Incentive Stock Option granted
under  the Plan shall be subject to earlier termination as expressly provided in
Section  12  hereof.

          (e)  For purposes of determining stock ownership under this Section 6,
the  attribution  rules  of  Section  424(d)  of  the  Code  shall  apply.

          (f) For purposes of the Plan, and except as otherwise provided herein,
fair  market  value  shall  be  determined  by  the  Board  of  Directors or the
Committee.  If  the  Common Stock is listed on a national securities exchange or
traded  on  the  over-the-counter market, fair market value shall be the closing
selling  price or, if not available, the closing bid price or, if not available,
the  high  bid  price  of  the  Common  Stock quoted on such exchange, or on the
over-the-counter  market as reported by The Nasdaq Stock Market ("Nasdaq") or if
the Common Stock is not listed on Nasdaq, then by the National Quotation Bureau,
Incorporated,  as  the  case may be, on the day immediately preceding the day on
which the Option is granted or exercised, as the case may be, or, if there is no
selling  or  bid price on that day, the closing selling price, closing bid price
or  high  bid price on the most recent day which precedes that day and for which
such  prices  are  available.

     7.     NONSTATUTORY STOCK OPTIONS.  The Board of Directors or the Committee
            --------------------------
may grant Options under the Plan which are not intended to meet the requirements
of  Section  422  of the Code, as well as Options which are intended to meet the
requirements of Section 422 of the Code but the terms of which provide that they
will  not  be  treated  as  Incentive  Stock  Options  (referred  to herein as a
"Nonstatutory  Stock  Options").  Nonstatutory  Stock  Options  which  are  not
intended  to meet those requirements shall be subject to the following terms and
conditions:

          (a)  A  Nonstatutory  Stock Option may be granted to any individual or
entity  eligible  to  receive  an Option under the Plan pursuant to Section 4(b)
hereof.

          (b)  The  option  price  of  the  shares  of Common Stock subject to a
Nonstatutory  Stock  Option shall be determined by the Board of Directors or the
Committee,  in its sole discretion, at the time of the grant of the Nonstatutory
Stock  Option; provided, however, the option price shall not be less than 85% of
the  fair  market  value  of  a  share of Common Stock on the date of grant. For
purposes of this Section 7(b), fair market value shall mean, if the Common Stock
is  publicly  traded, the closing trading price on the day preceding the date of
the  grant.

          (c)  A Nonstatutory Stock Option granted under the Plan may be of such
duration  as  shall  be  determined  by  the Board of Directors or the Committee
(subject  to  earlier  termination  as expressly provided in Section 11 hereof).

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     8.     RELOAD  FEATURE.  The  Board of Directors or the Committee may grant
            ---------------
Options  with  a  reload  feature.  A  reload  feature shall only apply when the
option  price  is  paid  by  delivery  of  Common Stock (as set forth in Section
13(b)(ii)).  The  Stock  Option  Agreement for the Options containing the reload
feature  shall  provide  that the Option holder shall receive, contemporaneously
with  the  payment of the option price in shares of Common Stock, a reload stock
option  (the  "Reload Option") to purchase that number of shares of Common Stock
equal  to  the  sum of (i) the number of shares of Common Stock used to exercise
the  Option,  and (ii) with respect to Nonstatutory Stock Options, the number of
shares  of Common Stock used to satisfy any tax withholding requirement incident
to  the  exercise  of  such  Nonstatutory  Stock  Option.  The terms of the Plan
applicable  to  the Option shall be equally applicable to the Reload Option with
the  following  exceptions:  (i)  the  option  price  per  share of Common Stock
deliverable  upon the exercise of the Reload Option, (A) in the case of a Reload
Option  which  is  an  Incentive  Stock  Option  being  granted  to  a Principal
Stockholder, shall be one hundred ten percent (110%) of the fair market value of
a share of Common Stock on the date of grant of the Reload Option and (B) in the
case  of  a  Reload Option which is an Incentive Stock Option being granted to a
person  other  than  a  Principal Stockholder or is a Nonstatutory Stock Option,
shall  be  the fair market value of a share of Common Stock on the date of grant
of  the  Reload Option; and (ii) the term of the Reload Option shall be equal to
the  remaining  option term of the Option (including a Reload Option) which gave
rise  to  the  Reload  Option.  The  Reload  Option  shall  be  evidenced  by an
appropriate  amendment  to  the Stock Option Agreement for the Option which gave
rise  to  the  Reload  Option.  In  the  event  the  exercise price of an Option
containing  a reload feature is paid by check and not in shares of Common Stock,
the  reload  feature  shall  have  no application with respect to such exercise.

     9.     RIGHTS  OF  OPTION  HOLDERS.  The holder of any Option granted under
            ---------------------------
the  Plan  shall  have  none  of the rights of a stockholder with respect to the
stock  covered  by  his Option until such stock shall be transferred to him upon
the  exercise  of  his  Option.

     10.     ALTERNATE  STOCK  APPRECIATION  RIGHTS.
             --------------------------------------

          (a)  Concurrently  with,  or subsequent to, the award of any Option to
purchase  one  or  more  shares  of  Common Stock, the Board of Directors or the
Committee may, in its sole discretion, subject to the provisions of the Plan and
such  other  terms and conditions as the Board of Directors or the Committee may
prescribe,  award  to  the  optionee  with respect to each share of Common Stock
covered  by an Option ("Related Option"), a related alternate stock appreciation
right  ("SAR"),  permitting  the  optionee  to  be  paid the appreciation on the
Related  Option  in  lieu of exercising the Related Option.  An SAR granted with
respect  to  an Incentive Stock Option must be granted together with the Related
Option.  An  SAR  granted  with  respect  to  a Nonstatutory Stock Option may be
granted  together  with,  or  subsequent  to,  the grant of such Related Option.

          (b)  Each  SAR granted under the Plan shall be authorized by the Board
of  Directors or the Committee, and shall be evidenced by an SAR Agreement which
shall  be  executed  by the Company and by the individual or entity to whom such
SAR  is granted. The SAR Agreement shall specify the period during which the SAR

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is  exercisable,  and  such other terms and provisions not inconsistent with the
Plan.

          (c) An SAR may be exercised only if and to the extent that its Related
Option  is  eligible to be exercised on the date of exercise of the SAR.  To the
extent  that  a holder of an SAR has a current right to exercise, the SAR may be
exercised  from time to time by delivery by the holder thereof to the Company at
its principal office (attention: Secretary) of a written notice of the number of
shares  with  respect  to  which  it  is  being exercised.  Such notice shall be
accompanied by the agreements evidencing the SAR and the Related Option.  In the
event the SAR shall not be exercised in full, the Secretary of the Company shall
endorse  or  cause  to  be  endorsed on the SAR Agreement and the Related Option
Agreement  the  number  of  shares  which have been exercised thereunder and the
number  of  shares  that remain exercisable under the SAR and the Related Option
and  return  such  SAR  and  Related  Option  to  the  holder  thereof.

          (d)  The amount of payment to which an optionee shall be entitled upon
the  exercise  of  each  SAR shall be equal to one hundred percent (100%) of the
amount, if any, by which the fair market value of a share of Common Stock on the
exercise  date  exceeds  the  exercise  price  per  share of the Related Option;
provided,  however,  the  Company may, in its sole discretion, withhold from any
such  cash  payment any amount necessary to satisfy the Company's obligation for
withholding  taxes  with  respect  to  such  payment.

          (e)  The amount payable by the Company to an optionee upon exercise of
an  SAR  may,  in  the  sole  determination of the Company, be paid in shares of
Common  Stock, cash or a combination thereof, as set forth in the SAR Agreement.
In  the  case of a payment in shares, the number of shares of Common Stock to be
paid  to an optionee upon such optionee's exercise of an SAR shall be determined
by dividing the amount of payment determined pursuant to Section 10(d) hereof by
the  fair  market  value of a share of Common Stock on the exercise date of such
SAR. For purposes of the Plan, the exercise date of an SAR shall be the date the
Company  receives  written notification from the optionee of the exercise of the
SAR  in  accordance  with  the  provisions  of  Section 10(c) hereof. As soon as
practicable after exercise, the Company shall either deliver to the optionee the
amount  of  cash  due  such  optionee  or a certificate or certificates for such
shares  of  Common  Stock.  All  such shares shall be issued with the rights and
restrictions  specified  herein.

          (f) SARs shall terminate or expire upon the same conditions and in the
same  manner  as  the  Related  Options,  and as set forth in Section 12 hereof.

          (g)  The  exercise  of any SAR shall cancel and terminate the right to
purchase  an  equal  number  of  shares  covered  by  the  Related  Option.

          (h)  Upon  the  exercise or termination of any Related Option, the SAR
with  respect to such Related Option shall terminate to the extent of the number
of  shares  of  Common  Stock  as  to  which the Related Option was exercised or
terminated.

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          (i)  An  SAR  granted  pursuant  to the Plan shall be exercisable only
by  the  optionee  hereof  during  the  optionee's  lifetime and, subject to the
provisions  of  Section  10(f)  hereof.

          (j)  An  SAR  granted  pursuant  to  the  Plan  shall not be assigned,
transferred,  pledged or hypothecated in any way (whether by operation of law or
otherwise)  and  shall  not  be  subject  to  execution,  attachment, or similar
process.  Any  attempted  transfer,  assignment, pledge, hypothecation, or other
disposition  of  any  SAR  or  of  any rights granted thereunder contrary to the
foregoing  provisions  of  this  Section 10(j), or the levy of any attachment or
similar  process  upon  an  SAR  or  such  rights,  shall  be  null  and  void.

     11.     TRANSFERABILITY.  No  Option  granted  under  the  Plan  shall  be
             ---------------
transferable  by  the individual or entity to whom it was granted otherwise than
by  will  or  the  laws of descent and distribution, and, during the lifetime of
such  individual, shall not be exercisable by any other person, but only by him.

     12.     TERMINATION  OF  EMPLOYMENT  OR  DEATH.
             --------------------------------------

          (a)  Subject  to  the  terms  of  the  Stock  Option Agreement, if the
employment of an employee by, or the services of a non-employee Director for, or
consultant or advisor to, the Company or a subsidiary corporation of the Company
shall  be  terminated  for  cause  or  voluntarily by the employee, non-employee
Director,  consultant or advisor, then his or its Option shall expire forthwith.
Subject  to  the  terms of the Stock Option Agreement, and except as provided in
subsections (b) and (c) of this Section 12, if such employment or services shall
terminate  for  any  other reason, then such Option may be exercised at any time
within  three  (3)  months  after such termination, subject to the provisions of
subsection  (d)  of this Section 12. For purposes of the Plan, the retirement of
an  individual  either  pursuant  to a pension or retirement plan adopted by the
Company  or  at  the  normal retirement date prescribed from time to time by the
Company  shall be deemed to be termination of such individual's employment other
than  voluntarily  or  for  cause.  For  purposes  of  this  subsection  (a), an
employee,  non-employee Director, consultant or advisor who leaves the employ or
services  of the Company to become an employee or non-employee Director of, or a
consultant  or  advisor  to,  a  subsidiary  corporation  of  the  Company  or a
corporation  (or  subsidiary or parent corporation of the corporation) which has
assumed  the  Option of the Company as a result of a corporate reorganization or
the  like shall not be considered to have terminated his employment or services.

          (b)  Subject to the terms of the Stock Option Agreement, if the holder
of  an  Option  under the Plan dies (i) while employed by, or while serving as a
non-employee  Director  for  or  a  consultant  or  advisor to, the Company or a
subsidiary corporation of the Company, or (ii) within three (3) months after the
termination of his employment or services other than voluntarily by the employee
or  non-employee Director, consultant or advisor, or for cause, then such Option
may,  subject  to  the  provisions  of  subsection  (d)  of  this Section 12, be
exercised  by the estate of the employee or non-employee Director, consultant or
advisor,  or  by  a  person  who  acquired  the right to exercise such Option by
bequest  or  inheritance  or  by  reason  of  the  death  of  such  employee  or
non-employee  Director,  consultant  or  advisor at any time within one (1) year
after  such  death.

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          (c)  Subject to the terms of the Stock Option Agreement, if the holder
of  an  Option under the Plan ceases employment or services because of permanent
and  total disability (within the meaning of Section 22(e)(3) of the Code) while
employed  by,  or  while serving as a non-employee Director for or consultant or
advisor  to,  the  Company or a subsidiary corporation of the Company, then such
Option  may,  subject to the provisions of subsection (d) of this Section 12, be
exercised  at  any time within one (1) year after his termination of employment,
termination  of  Directorship or termination of consulting or advisory services,
as  the  case  may  be,  due  to  the  disability.

          (d)  An Option may not be exercised pursuant to this Section 12 except
to the extent that the holder was entitled to exercise the Option at the time of
termination  of  employment,  termination  of  Directorship,  termination  of
consulting or advisory services, or death, and in any event may not be exercised
after  the  expiration  of  the  Option.

          (e) For purposes of this Section 12, the employment relationship of an
employee  of  the  Company or of a subsidiary corporation of the Company will be
treated as continuing intact while he is on military or sick leave or other bona
fide  leave  of absence (such as temporary employment by the Government) if such
leave  does  not exceed ninety (90) days, or, if longer, so long as his right to
reemployment  is  guaranteed  either  by  statute  or  by  contract.

     13.     EXERCISE  OF  OPTIONS.
             ---------------------

          (a)  Unless  otherwise  provided  in  the  Stock Option Agreement, any
Option  granted  under the Plan shall be exercisable in whole at any time, or in
part  from  time  to  time,  prior  to expiration. The Board of Directors or the
Committee, in its absolute discretion, may provide in any Stock Option Agreement
that  the exercise of any Options granted under the Plan shall be subject (i) to
such  condition or conditions as it may impose, including, but not limited to, a
condition  that  the  holder  thereof  remain  in  the  employ or service of, or
continue  to  provide  consulting  or  advisory  services  to,  the Company or a
subsidiary  corporation  of the Company for such period or periods from the date
of  grant  of  the  Option  as  the  Board of Directors or the Committee, in its
absolute  discretion,  shall  determine;  and (ii) to such limitations as it may
impose,  including,  but  not  limited  to, a limitation that the aggregate fair
market  value  of the Common Stock with respect to which Incentive Stock Options
are  exercisable  for  the  first  time by any employee during any calendar year
(under  all  plans  of  the  Company and its parent and subsidiary corporations)
shall  not  exceed  one hundred thousand dollars ($100,000). In addition, in the
event  that  under any Stock Option Agreement the aggregate fair market value of
the  Common  Stock with respect to which Incentive Stock Options are exercisable
for  the first time by any employee during any calendar year (under all plans of
the  Company  and  its  parent  and subsidiary corporations) exceeds one hundred
thousand  dollars  ($100,000), the Board of Directors or the Committee may, when
shares  are  transferred  upon  exercise of such Options, designate those shares
which shall be treated as transferred upon exercise of an Incentive Stock Option
and  those  shares  which  shall  be  treated  as transferred upon exercise of a
Nonstatutory  Stock  Option.

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          (b)  An  Option  granted  under  the  Plan  shall  be exercised by the
delivery by the holder thereof to the Company at its principal office (attention
of  the  Secretary)  of  written  notice of the number of shares with respect to
which  the  Option  is  being  exercised.  Such  notice shall be accompanied, or
followed within ten (10) days of delivery thereof, by payment of the full option
price  of  such  shares,  and  payment of such option price shall be made by the
holder's  delivery  of  (i)  his check payable to the order of the Company, (ii)
previously  acquired  Common  Stock,  the  fair  market  value of which shall be
determined  as  of  the  date  of  exercise,  (iii)  by "cash-less" exercise, if
cash-less exercise is otherwise permitted by the Stock Option Agreement, or (iv)
by  the  holder's  delivery  of  any  combination of the foregoing (i), (ii) and
(iii).

     14.     ADJUSTMENT  UPON  CHANGE  IN  CAPITALIZATION.
             --------------------------------------------

          (a)  In  the  event  that  the  outstanding  Common Stock is hereafter
changed  by  reason  of reorganization, merger, consolidation, recapitalization,
reclassification,  stock  split-up,  combination of shares, reverse split, stock
dividend  or  the  like, an appropriate adjustment shall be made by the Board of
Directors or the Committee in the aggregate number of shares available under the
Plan,  in the number of shares and option price per share subject to outstanding
Options,  and  in  any  limitation  on  exerciseability  referred  to in Section
13(a)(ii)  hereof  which is set forth in outstanding Incentive Stock Options. If
the  Company  shall  be  reorganized,  consolidated,  or  merged  with  another
corporation,  the  holder  of  an  Option  shall be entitled to receive upon the
exercise  of  his Option the same number and kind of shares of stock or the same
amount of property, cash or securities as he would have been entitled to receive
upon  the  happening  of any such corporate event as if he had been, immediately
prior  to  such event, the holder of the number of shares covered by his Option;
provided,  however,  that  in such event the Board of Directors or the Committee
shall  have  the discretionary power to take any action necessary or appropriate
to  prevent any Incentive Stock Option granted hereunder which is intended to be
an  "incentive  stock  option"  from  being  disqualified as such under the then
existing  provisions  of  the Code or any law amendatory thereof or supplemental
thereto.

          (b) Any adjustment in the number of shares shall apply proportionately
to only the unexercised portion of the Option granted hereunder. If fractions of
a  share  would result from any such adjustment, the adjustment shall be revised
to  the  next  lower  whole  number  of  shares.

     15.     FURTHER  CONDITIONS  OF  EXERCISE.
             ---------------------------------

          (a)  Unless  prior  to  the exercise of the Option the shares issuable
upon  such  exercise  have  been  registered  with  the  Securities and Exchange
Commission pursuant to the Act, the notice of exercise shall be accompanied by a
representation or agreement of the person or estate exercising the Option to the
Company  to  the  effect  that  such  shares  are  being acquired for investment
purposes  and  not  with  a  view  to  the  distribution thereof, and such other
documentation  as  may  be  required  by  the  Company, unless in the opinion of
counsel  to  the  Company such representation, agreement or documentation is not
necessary  to  comply  with  such  Act.

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          (b)  The  Company  shall  not be obligated to deliver any Common Stock
until  it  has  been  listed  on each securities exchange or market on which the
Common  Stock  may then be listed or until there has been qualification under or
compliance  with such federal or state laws, rules or regulations as the Company
may  deem  applicable.  The  Company shall use reasonable efforts to obtain such
listing,  qualification  and  compliance.

     16.     EFFECTIVENESS  OF THE PLAN.  The Plan shall become operative and in
             --------------------------
effect  on  such date as shall be fixed by the Board of Directors of the Company
in  its  sole  discretion  following  approval  by  vote  of  the holders of the
outstanding  voting  common  shares  of  the  Company.

     17.     TERMINATION,  MODIFICATION  AND  AMENDMENT.
             ------------------------------------------

          (a)  The  Plan  (but  not  the Options or SARs granted pursuant to the
Plan)  shall  terminate  on  a  date  within ten (10) years from the date of its
adoption  by  the  Board  of  Directors of the Company, or sooner as hereinafter
provided,  and  no  Option  shall  be  granted  after  termination  of the Plan.

          (b) The Plan may from time to time be terminated, modified, or amended
by  the  affirmative vote of the holders of a majority of the outstanding shares
of  capital  stock  of  the  Company  present  at  a meeting of shareholders and
entitled  to  vote  thereon  (or,  in  the  case of action by written consent, a
majority  of  the outstanding shares of capital stock of the Company entitled to
vote  thereon).

          (c)  The  Board  of  Directors  may  at  any  time,  on  or before the
termination  date  referred  to  in Section 17(a) hereof, terminate the Plan, or
from  time  to  time make such modifications or amendments to the Plan as it may
deem  advisable;  provided,  however,  that  the  Board  of Directors shall not,
without  approval  by  the  affirmative vote of the holders of a majority of the
outstanding  shares  of  capital  stock  of  the Company present at a meeting of
shareholders  and entitled to vote thereon (or, in the case of action by written
consent,  a  majority  of the outstanding shares of capital stock of the Company
entitled  to vote thereon), increase (except as otherwise provided by Section 14
hereof)  the maximum number of shares as to which Incentive Stock Options may be
granted hereunder, change the designation of the employees or class of employees
eligible  to  receive  Incentive  Stock  Options, or make any other change which
would  prevent any Incentive Stock Option granted hereunder which is intended to
be  an  "incentive  stock  option"  from  disqualifying  as  such under the then
existing  provisions  of  the Code or any law amendatory thereof or supplemental
thereto.

          (d)  No  termination,  modification,  or  amendment  of  the Plan may,
without  the  consent  of the individual or entity to whom any Option shall have
been  granted,  adversely  affect  the  rights  conferred  by  such  Option.

     18.     NOT  A CONTRACT OF EMPLOYMENT.  Nothing contained in the Plan or in
             -----------------------------
any  Stock  Option  Agreement executed pursuant hereto shall be deemed to confer
upon  any  individual or entity to whom an Option is or may be granted hereunder
any  right  to  remain  in  the employ or service of the Company or a subsidiary
corporation  of  the  Company  or  any  entitlement to any remuneration or other
benefit  pursuant  to  any  consulting  or  advisory  arrangement.

                                      E-30
<PAGE>
     19.     USE  OF  PROCEEDS. The proceeds from the sale of shares pursuant to
             -----------------
Options  granted  under  the Plan shall constitute general funds of the Company.

     20.     INDEMNIFICATION OF BOARD OF DIRECTORS OR COMMITTEE.  In addition to
             --------------------------------------------------
such other rights of indemnification as they may have, the members of the Board
of Directors or the Committee,  as  the case may be, shall be indemnified by the
Company  to  the  extent  permitted  under  applicable law against all costs and
expenses  reasonably  incurred  by  them in connection with any action, suit, or
proceeding  to  which they or any of them may be a party by reason of any action
taken  or  failure  to  act  under  or in connection with the Plan or any rights
granted thereunder and against all amounts paid by them in settlement thereof or
paid  by  them  in  satisfaction  of  a  judgment  of  any  such action, suit or
proceeding,  except  a  judgment  based  upon  a finding of bad faith.  Upon the
institution  of  any  such action, suit, or proceeding, the member or members of
the  Board  of  Directors or the Committee, as the case may be, shall notify the
Company  in writing, giving the Company an opportunity at its own cost to defend
the  same  before  such member or members undertake to defend the same on his or
their  own  behalf.

     21.     DEFINITIONS.  For  purposes  of the Plan, the terms "parent
             -----------
corporation"  and  "subsidiary corporation" shall have the meanings set forth in
Sections  424(e)  and  424(f) of the Code, respectively, and the masculine shall
include  the  feminine  and  the  neuter  as  the  context  requires.

     22.     GOVERNING  LAW.  The  Plan  shall be governed by, and all questions
             --------------
arising  hereunder shall be determined in accordance with, the laws of the State
of  Delaware.

                                      E-31
<PAGE>COMMON STOCK PURCHASE WARRENT

 EXHIBIT 4.1 
  

 
 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO. 
  
 COMMON STOCK PURCHASE WARRANT 
  

	Original Issue Date: January 7, 2004	 	Number of Shares: **800,000**

  
 AVICI SYSTEMS INC.

  
 1.    Issuance.    This Warrant is issued to Nortel Networks Limited by Avici Systems Inc., a Delaware corporation (hereinafter with its successors called the “Company”).

  
 2.    Purchase Price; Number of
Shares.    Subject to the terms and conditions hereinafter set forth, the registered holder of this Warrant (the “Holder”) is entitled upon surrender of this Warrant with the subscription form annexed hereto
duly executed, at the office of the Company, 101 Billerica Avenue, North Billerica, Massachusetts 01862, or such other office as the Company shall notify the Holder of in writing, to purchase from the Company, at a price per share equal to the
greater of (i) $8.033 or (ii) the “December 31, 2003 Cash Amount” (the “Purchase
Price”), Eight Hundred Thousand (800,000) fully paid and nonassessable shares (the “Warrant Shares”) of Common Stock, $0.0001 par value per share, of the Company (the “Common Stock”). Until such time as
this Warrant is exercised in full, expires or otherwise terminates, the Purchase Price and the Common Stock issuable upon exercise of this Warrant are subject to adjustment as hereinafter provided. The “December 31, 2003 Cash Amount” shall
equal (x) the sum of cash and cash equivalents, marketable securities and long-term marketable securities divided by (y) the number of shares of Common Stock outstanding, in each case as of December 31, 2003 and as reflected in Avici’s audited
balance sheet as of December 31, 2003; provided that the December 31, 2003 Cash Amount shall not exceed $8.05. The Company shall provide written notice to the original Holder of the Purchase Price following publication of the Company’s audited
balance sheet as of December 31, 2003. 
  
 3.    Exercise Date.    Except as otherwise provided in this Section 3 or Section 10, this Warrant may only be exercised during the period commencing on January 7, 2011 (the “Exercise
Date”) and ending on the Expiration Date (as defined in Section 7). If any Milestone (each as defined and determined in the Schedule of Milestones attached hereto as Exhibit A) is achieved on or prior to its applicable Milestone Date
(as set forth on Exhibit A), the exercisability of this Warrant shall accelerate with respect to the number of Warrant Shares set forth in the Schedule of Milestones opposite such Milestone under the heading “Number of Warrant
Shares” and this 

 Warrant shall be exercisable for such number of Warrant Shares from and after the determination date of achievement of
such Milestone and until the Expiration Date. The achievement or non-achievement of any Milestone shall be determined as provided in the OEM Purchase and Sale Agreement dated as of January 7, 2004, between the Company and Nortel Networks Limited, as
the same may be amended from time to time (the “OEM Agreement”). If one or more Milestones is not achieved in accordance with the OEM Agreement and the Schedule of Milestones, the exercisability of this Warrant shall not accelerate with
respect to the number of Warrant Shares associated with such Milestone or Milestones. 
  
 4.    Payment of Purchase Price.    The Purchase Price may be paid by check or by wire transfer of immediately available funds. 
  
 5.    Partial
Exercise.    This Warrant may be exercised in part, in which event the Holder shall be entitled to receive a new warrant, which shall have the same terms and shall be dated as of the date of this Warrant, covering the number
of Warrant Shares in respect of which this Warrant shall not have been exercised. 
  
 6.    Issuance Date.    The person or persons in whose name or names any certificate representing shares of Common Stock is issued hereunder shall be deemed to have
become the holder of record of the shares represented thereby as at the close of business on the date this Warrant is exercised with respect to such shares, whether or not the transfer books of the Company shall be closed. 
  
 7.    Expiration
Date.    Unless earlier terminated as provided in Section 10, this Warrant shall expire on the close of business on February 6, 2011 (the “Expiration Date”), and shall be void thereafter. 
  
 8.    Reserved Shares; Valid
Issuance.    The Company covenants that it will at all times from and after the date hereof reserve and keep available such number of its authorized shares of Common Stock, free from all preemptive or similar rights therein,
as will be sufficient to permit the exercise of this Warrant in full. The Company further covenants that such shares as may be issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the issuance thereof. 
  
 9.    Adjustment.    Each of the Purchase Price and the number of shares issuable on the exercise of this Warrant shall be subject to adjustment from time to time upon
the occurrence of the following events, after the Original Issue Date. 
  
 (a)    Stock Splits, Stock Dividends, Combinations.    In the event that the Company shall after the Original Issue Date (i) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock, or (iii) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase
Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase 
  

 2 

 Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior
to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive event or events described herein in this subsection 9(a). The holder of this Warrant shall thereafter, on the exercise hereof, be entitled to receive that number of shares
of Common Stock determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this section 9(a)) be issuable on such exercise by a fraction of which (i) the numerator is the Purchase Price which
would otherwise (but for the provisions of this section 9(a)) be in effect, and (ii) the denominator is the Purchase Price in effect on the date of such exercise. 
  
 (b)    Extraordinary Dividends.    In the event the Company shall, after the
Original Issue Date, make a dividend or other distribution to all holders of Common Stock of cash (excluding cash dividends paid out of current or retained earnings), indebtedness or other assets having an aggregate value per share of Common Stock
that, combined together with all other such distributions made to holders of Common Stock within the last twelve (12) months preceding the date of payment of such dividend or other distribution, exceeds 10% of the then-current Cash Value per share
of Common Stock, then the Purchase Price shall, immediately after the close of business on the date fixed for the determination of stockholders entitled to receive such distribution, be adjusted by subtracting from the then Purchase Price the then
fair market value (as determined in the reasonable good faith of the Board of Directors of the Company, whose determination shall be conclusive) of the cash, indebtedness or other assets so distributed applicable to one share of Common Stock, such
adjustment to become effective immediately prior to the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such distribution; provided that in no event shall the Purchase Price be less
than the par value per share of the Common Stock. 
  
 10.    Change of Control of the Company.    Upon any Change of Control (as defined below) of the Company after the Original Issue Date, the Company, at its sole option, may take any one or more
of the following actions with respect to this Warrant: 
  
 (i)    provide that this Warrant shall be assumed, or a substantially equivalent Warrant shall be substituted, by the acquiring or succeeding corporation; 
  
 (ii)    upon at least 30 days prior written notice to the Holder, provide that the
Warrant (to the extent then unexercised) will become exercisable in full (whether or not then exercisable pursuant to Section 3) as of a specified date (the “Acceleration Date”) at least twenty (20) days prior to the consummation of
such Change of Control (which acceleration may be conditional upon the consummation of the Change of Control transaction) and that this Warrant will terminate immediately prior to the consummation of such Change of Control, except as exercised by
the Holder between the Acceleration Date and the consummation of such Change of Control; or 
  

 3 

 (iii)    provide that this Warrant shall terminate upon consummation
of such Change of Control and that the Holder shall receive, in exchange therefor, a cash payment equal to the product of (a) the amount (if any) by which (I) the Cash Value per share of the Common Stock in such Change of Control transaction exceeds
(II) the Purchase Price multiplied by (b) the number of unexercised Warrant Shares (whether or not then exercisable pursuant to Section 3). “Cash Value” means, with respect to each share of Common Stock as of any date of
determination, the closing price per share of the Common Stock on the Nasdaq National Market on the trading day immediately preceding such date (or, if the Common Stock is not then so quoted, the fair market value of one share of Common Stock as
determined by a third party appraiser chosen by the mutual agreement of the Holder and the Company). 
  
 The Company will give the Holder at least 30 days’ prior written notice, at the address set forth in Section 20 hereof, of any Change of Control, the action or actions the Company has determined to take with
respect to this Warrant in connection with such Change of Control and such other information reasonably necessary in connection therewith. If this Warrant is terminated pursuant to Section 10(ii) or Section 10(iii), the registration rights set forth
in Exhibit B hereto shall also terminate and be of no further force and effect upon the date of such termination of this Warrant. A “Change of Control” means any (A) merger or consolidation of the Company with or into another
corporation or other entity, or any other business combination (except for a merger, consolidation or other combination in which the holders of capital stock of the Company immediately prior to such merger, consolidation or combination continue to
hold at least a majority of the outstanding voting power of such surviving corporation or other entity immediately following such merger, consolidation or combination); (B) sale, conveyance or transfer of all or substantially all of the assets of
the Company except for a sale, conveyance or transfer to an entity in which the holders of capital stock of the Company immediately prior to such transaction hold at least a majority of the outstanding voting power of such entity immediately
following such transaction; or (C) purchase of shares of capital stock of the Company (either through a negotiated stock purchase or a tender offer or exchange offer for such shares) by, or issuance of shares of capital stock of the Company to, any
party or group (within the meaning of Rule 13d-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), through one transaction or a series of related transactions, which party or group did not beneficially
own a majority of the voting power of the outstanding shares of capital stock of the Company immediately prior to such purchase or issuance, the effect of which purchase or issuance is that such party or group beneficially owns at least a majority
of such voting power immediately after such purchase or issuance. 
  
 11.    Fractional Shares.    In no event shall any fractional share of Common Stock be issued upon any exercise of this Warrant. If, upon exercise of this Warrant as an entirety, the Holder
would, except as provided in this Section 11, be entitled to receive a fractional share of Common Stock, then, in lieu thereof, the Company shall pay cash to the Holder equal to such fraction multiplied by the closing price per share of the Common
Stock on the Nasdaq National Market on the trading day period preceding the date of such exercise (or, if the Common Stock is not then so quoted, by the fair market value of one share of Common Stock as determined by the Company). 
  

 4 

 12.    Amendment.    The terms of this Warrant may be
amended, modified or waived only with the written consent of the Company and the Holder, except that Exhibit B may be amended, modified or waived only with the written consent of the Company and the holders of a majority of the Warrant Shares
issued or issuable upon exercise of the Warrants and entitled to registration rights under Exhibit B. 
  
 13.    Warrant Register; Transfers, Tax Information, Etc.  
  
 (a)    The Company will maintain a register containing
the name and address of the registered Holder of this Warrant. The Holder may change its address as shown on the warrant register by written notice to the Company requesting such change. 
  
 (b)    This Warrant is not transferable or assignable by the Holder, except, subject to applicable
federal and state securities laws, to, and only for such period as such entity remains, a Subsidiary of Nortel Networks Corporation (“NNC”). For purposes of this Warrant, “Subsidiary” means, with respect to NNC, any entity
which NNC owns or controls, directly or indirectly, more than fifty percent (50%) of the outstanding voting securities of such entity or more than fifty percent (50%) of the total equity interest of such entity; or which NNC controls in any manner
the election of a majority of directors of such entity; or which NNC has the power, directly or indirectly, to exercise a controlling influence with respect to the management or policies of such entity.  
  
 (c)    The Company covenants and agrees to use
commercially reasonable efforts to provide the Holder with all information reasonably requested by the Holder to allow the Holder to comply with all United States and Canadian tax reporting requirements in connection with or as a result of its
investment in the Company as set out herein. 
  
 (d)    In case this Warrant shall be mutilated, lost, stolen or destroyed, the Company shall issue a new warrant of like tenor and denomination and deliver the same (i) in exchange and substitution for and upon surrender
and cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost, stolen or destroyed, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft or destruction of such Warrant (including a reasonably detailed
affidavit with respect to the circumstances of any loss, theft or destruction) and of indemnity reasonably satisfactory to the Company. 
  
 14.    Representations and Covenants of the Holder. 
  
 This Warrant has been entered into by the Company in reliance upon the following representations and covenants of the
Holder: 
  
 (a)    Investment
Purpose.    This Warrant and the shares of Common Stock issuable upon exercise of this Warrant are being and will be acquired for investment and not with a view to or in connection with any distribution thereof, and the
Holder has no present intention of selling or engaging in any public distribution of the same except in accordance with the 
  

 5 

 registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to an
exemption from such registration requirements. 
  
 (b)    Private Issue.    The Holder understands (i) that the shares of Common Stock issuable upon exercise of this Warrant are not registered under the Securities Act or qualified under
applicable state securities laws on the ground that the issuance contemplated by this Warrant will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on
the representations set forth in this Section 14. 
  
 (c)    Disposition of Holder’s Rights.    In no event will the Holder make a disposition of any of the shares of Common Stock issuable upon exercise of this Warrant except (i) pursuant to
a registration under the Securities Act, (ii) in compliance with Rule 144 under, or in compliance with another exemption from the registration requirements of, the Securities Act or (iii) in connection with a Change of Control. In connection with
any disposition of any shares in compliance with Rule 144 or any other exemption from the registration requirements of the Securities Act, the Holder shall furnish the Company with representation letters and an opinion of counsel, each reasonably
satisfactory in form and substance to the Company and its counsel, to the effect that such exemption from the registration requirements of the Securities Act is available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any the shares of Common Stock issuable upon the exercise of this Warrant do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and
shall terminate as to any particular share of Common Stock when (1) such securities shall have been effectively registered under the Securities Act and sold by the holder thereof in accordance with such registration or (2) such securities shall have
been sold without registration in compliance with Rule 144 under, or another exemption from the registration requirements of, the Securities Act. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the holder of a
share of Common Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for such shares of Common Stock not bearing any
restrictive legend. 
  
 (d)    Financial
Risk.    The Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

  
 (e)    Risk of No
Registration.    The Holder understands that if the Company does not register with the Securities and Exchange Commission (the “Commission”) pursuant to Section 12 of the Exchange Act, or file reports
pursuant to Section 15(d) of the Exchange Act, or if a registration statement covering the Common Stock issuable upon the exercise of this Warrant under the Securities Act is not in effect when it desires to sell the Common Stock issuable upon
exercise of this Warrant, it may be required to hold such securities for an indefinite period. The Holder also understands that any sale of the shares of Common Stock issuable upon exercise of this Warrant which might be made by it in reliance upon
Rule 144 under the Securities Act may be made only in accordance with the terms and conditions of that Rule. 
  

 6 

 (f)    Accredited Investor.    The Holder is an
“accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act. 
  
 15.    Legends. 
  
 Each certificate representing shares of Common Stock issued upon exercise of this Warrant shall bear a legend substantially in the following form:

  
 “The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, or any applicable state securities laws, and may not be offered, sold, transferred, pledged or hypothecated unless and until such shares are registered under such Act and all such
applicable laws, or an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required.” 
  
 16.    Governing Law.    The provisions and terms of this Warrant shall be governed by and construed in
accordance with the internal laws of the State of Delaware. 
  
 17.    Successors and Assigns.    This Warrant shall be binding upon the Company’s successors and assigns and shall inure to the benefit of the Holder’s successors and permitted
assigns. 
  
 18.    Business
Days.    If the last or appointed day for the taking of any action required or the expiration of any right granted herein shall be a Saturday or Sunday or a legal holiday in the Commonwealth of Massachusetts, then such action
may be taken or right may be exercised on the next succeeding day which is not a Saturday or Sunday or such a legal holiday. 
  
 19.    Registration Rights.    The Holder of this Warrant is entitled to registration rights (the
“Registration Rights”) with respect to the shares of Common Stock issuable upon exercise of this Warrant as set forth on Exhibit B hereto. Notwithstanding anything to the contrary set forth in this Warrant or Exhibit
B, the Registration Rights are subordinate to the terms on which Investors (as defined in the Fifth Amended and Restated Investor Rights Agreement of the Company dated as of April 24, 2000, as amended to date (the “Prior
Agreement”)) may include their shares in any and all registrations, and are qualified in their entirety thereby. The Registration Rights shall survive any exercise of this Warrant in accordance with Exhibit B. 
  
 20.    Notice.    (a) All
notices and other communications under this Warrant shall (i) be in writing (which shall include communications by telecopy), (ii) be (A) sent by registered or certified mail, postage prepaid, return receipt requested, or by a nationally recognized
overnight courier service, (B) sent by telecopier with receipt confirmed, or (C) delivered by hand, (iii) be given at the following respective addresses and telecopier numbers and to the attention of the following persons: 
  
 (i)    if to the Company, to it at: 
  

 7 

 Avici Systems Inc. 
 101 Billerica Avenue 
 North Billerica, MA 01862 
 Attention: Paul F. Brauneis, 
 Chief Financial Officer 
 Telephone No.: (978) 964-2000 
 Telecopier No.: (978) 964-2299 
  
 with a copy to: 
  
 Testa, Hurwitz & Thibeault, LLP 
 125 High Street 
 Boston, MA 02110 
 Attention: John A. Meltaus,
Esq. 
 Telephone No.: (617) 248-7000 
 Telecopier No.: (617) 248-7100 
  
 (ii)    if to the
Holder, to it at: 
  
 Nortel Networks Limited 
 8200 Dixie Road, Suite 100 
 Brampton, Ontario
L6T 5P6 
 Canada 
 Attention:
Secretary 
 Telecopier No.: (905) 863-8386 
  
 with a copy to: 
  
 Cleary, Gottlieb, Steen & Hamilton 
 One Liberty Plaza 
 New York, NY 10006 
 Attention: Paul J.
Shim, Esq. 
 Telecopier No.: (212) 225-3999 
  
 or at such other address or telecopier number or to the attention of such other person as the party to whom such information pertains may hereafter specify for the
purpose in a notice to the other, and (iv) be effective or deemed delivered or furnished (A) if given by mail, on the fifth business day after such communication is deposited in the mail, addressed as above provided, (B) if given by telecopier, when
such communication is transmitted to the appropriate number determined as above provided in this Section 20 and the appropriate answer back is received or receipt is confirmed or otherwise acknowledged, and (C) if given by hand delivery or by a
nationally recognized overnight courier service, when left at the address of the addressee addressed as above provided. 
  
 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 
  

 8 

	 Dated: January 7, 2004
  
 (Corporate Seal)
  
 Attest:
	 	 AVICI SYSTEMS INC.
  
 By:    /s/    Paul F. Brauneis
  
 Title: Chief Financial Officer, Treasurer and Senior Vice President of Finance and Administration

  

	

  

	

	

	

	

	

	

	

  

 9 

 Subscription 
  

	To:	Avici Systems Inc. 

 101 Billerica Avenue 
 North Billerica, MA 01862 
 Attention: Chief
Financial Officer 
  
 Date:_______________________________             
  
 The undersigned hereby subscribes for                  shares of
Common Stock covered by this Warrant. The certificate(s) for such shares shall be issued in the name of the undersigned or as otherwise indicated below: 
  
 [HOLDER] 
  
 By: 
 Name: 
 Title: 
  
 _________________________________________________ 
  
 _________________________________________________ 
 Name for Registration 
  
 _________________________________________________ 
 Mailing Address 
  
  

 10 

 Exhibit A 
  

Schedule of Milestones 
  

	 Milestone

	  	Milestone Date

	  	Number of
Warrant Shares

	 Upon achievement of the December 31, 2004 Global Cumulative Baseline Purchases
(as defined in the OEM Agreement) on or before
December 31, 2004.
	  	December 31, 2004	  	266,667
	 Upon achievement of the December 31, 2005 Global Cumulative Baseline Purchases
(as defined in the OEM Agreement) on or before
December 31, 2005.
	  	December 31, 2005	  	266,667
	 Upon achievement of the December 31, 2006 Global Cumulative Baseline Purchases
(as defined in the OEM Agreement) on or before
December 31, 2006.
	  	December 31, 2006	  	266,666

  

 Exhibit B 
  

Registration Rights 
  
 B.1.    Demand Registration. 
  
 (a)    On one occasion at any time after the three year anniversary of the Original Issue Date and if the Company is then eligible to
file a registration statement on Form S-3 (or any successor form), the Holder may request, in writing, that the Company effect the registration on Form S-3 (or any successor form) of Warrant Shares then held by the Holder (“Registrable
Shares”) having a minimum aggregate offering price of at least $2,500,000 (based on the then-current Cash Value per share) or constituting all Warrant Shares then held by the Holder; provided, however, that Registrable Shares
shall not include any Warrant Shares previously sold by the Holder pursuant to a registration statement or sold or eligible for sale on the date demand is made under Rule 144 of the Securities Act. Notwithstanding the foregoing, in the event that
the Company is not eligible to use Form S-3 (or any successor form) due to the Company’s failure to use commercially reasonable efforts to comply with the periodic reporting requirements entitling the Company to use Form S-3 (or any successor
form), then such demand registration may be on Form S-1 (or any successor form). Thereupon, the Company shall, as expeditiously as possible, use its commercially reasonable efforts to effect within sixty (60) days of receipt of such request the
registration on Form S-3 (or any successor form) of all Registrable Shares which the Company has been requested to so register by the Holder. The Company shall not be required to effect any registration within ninety (90) days after the effective
date of any other registration statement involving, or the closing date of an underwritten offering of the Company. In addition to the foregoing, if at the time of the request to register Registrable Shares pursuant to this Section B.1, the Company
is engaged or has plans to engage within one hundred twenty (120) days of the time of the request in a registered public offering of securities for its own account or is engaged in any other activity which, in the good faith determination of the
Company’s Board of Directors, would be adversely affected by the requested registration to the material detriment of the Company, or is otherwise in possession of material non-public information, the disclosure of which would not be in the best
interests of the Company in the good faith determination of the Company’s Board of Directors, then the Company may at its option direct that such request be delayed for a period not in excess of one hundred twenty (120) days from the effective
date of such offering or the date of commencement of such other material activity, as the case may be, but in no event shall such delay exceed one hundred fifty (150) days from the time of any such request, and such right to delay a request shall
not be exercised by the Company more than once in any 12-month period. Such registration may not be underwritten without the prior written consent of the Company and the holders of a majority of the Registrable Shares, which consent shall not be
unreasonably withheld; provided, that, without such consent, the plan of distribution of such registration may include purchases by a broker or dealer as principal and sales arranged by a broker or dealer as agent (where such brokers or dealers may
be deemed to be “underwriters” within the meaning of the Securities Act), so long as the Company is not required to incur, and is 

 not exposed to any obligation or liability to such brokers or dealers or otherwise in connection with such distribution
(other than under applicable law or as explicitly set forth in Section B.3). 
  
 (b)    If the Company is required by the provisions of this Section B.1 to use its commercially reasonable efforts to effect the registration of any Registrable Shares under the Securities Act, the
Company shall: 
  
 (i)    File with the
Commission a registration statement with respect to such Registrable Shares and use its commercially reasonable efforts to cause that registration statement to become and remain effective; 
  
 (ii)    As expeditiously as possible prepare and file
with the Commission any amendments and supplements to the registration statement and the prospectus included in the registration statement as may be necessary to keep the registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of the Registrable Shares covered by such registration statement, until the earlier of the sale of all Registrable Shares covered thereby or one hundred eighty (180) days after the effective date
thereof; 
  
 (iii)    As expeditiously as
possible furnish to the Holder such reasonable numbers of copies of the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as the Holder may reasonably request in order
to facilitate the public sale or other disposition of the Registrable Shares covered by the registration statement; 
  
 (iv)    As expeditiously as possible use its commercially reasonable efforts to register or qualify the Registrable Shares covered by
the registration statement under the securities or Blue Sky laws of such states as the Holder shall reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the Holder to consummate the public sale or
other disposition in such states of the Registrable Shares owned by the Holder; provided, however, that the Company shall not be required in connection with this paragraph (iv) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction; 
  
 (v)    Notify the Holder at any time when a prospectus relating to Registrable Shares covered by a registration statement is required to be delivered under the Securities Act or the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing. If the Company has so notified the Holder, the Holder shall immediately cease making offers of Registrable Shares until the Company has further notified the Holder that the Holder may
resume making offers of Registrable Shares using such prospectus and/or the prospectus is amended to comply with the requirements of the Securities Act and the Company has provided the Holder with such amended prospectuses and, following receipt of
the amended prospectuses, the Holder shall be free to resume making offers of the Registrable Shares. 
  

 B-2 

 (vi)    Cause all such Registrable Shares registered hereunder to be listed on each
securities exchange on which similar securities issued by the Company are then listed; and 
  
 (vii)    Provide a transfer agent and registrar for all Registrable Shares registered hereunder and a CUSIP number for all such Registrable Shares, in each case not later than the effective date of
such registration. 
  
 B.2.    Piggy-back
Registration Rights.    If, at any time, the Company undertakes to register any of its Common Stock under the Securities Act (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form
for a similar limited purpose, or any registration statement covering only securities issued or proposed to be issued in exchange for securities or assets of another corporation or business or any other form for which the registration of Registrable
Shares is not available), it will give written notice (in no event later than thirty (30) days prior to the proposed filing of such registration statement with the SEC) to the Holder of its intention to effect such registration. The Company will
include in such registration all Registrable Shares with respect to which the Company has received a written request for inclusion within fifteen (15) days after the delivery of such notice to the Holder. Notwithstanding the foregoing provisions of
this Section B.2, if the Company is advised in good faith by the managing underwriter in connection with any offering that the number of Registrable Shares requested to be sold by the Holder is greater than the number of shares of Common Stock which
can be sold in such offering without materially adversely affecting such offering, the Registrable Shares to be included in such offering shall be reduced to the extent requested by such managing underwriter, on a pro rata basis with any shares of
Common Stock held by other persons who requested to be included in such registration pursuant to similar piggy-back registration rights; provided, that the Holder’s rights hereunder shall be subject to the senior registration
rights granted in the Prior Agreement; and provided, further, that no reduction need be made in the number of shares to be sold by the Company. The Company may withdraw or postpone any proposed registration hereunder without liability
to the Holder. 
  
 B.3.    Indemnification
and Contribution. 
  
 (a)    In the event
of any registration of any of the Registrable Shares under the Securities Act pursuant to this agreement, the Company will indemnify and hold harmless each seller of such Registrable Shares, each underwriter (if any) of such Registrable Shares, and
each other person (if any) who controls such seller or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages or liabilities (“Losses”), joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the
registration statement, or any amendment or supplement to such 
  

 B-3 

 registration statement, (ii) the omission or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will reimburse such seller, underwriter and each such controlling person for any legal or any other expenses reasonably incurred (the “Reimbursable Expenses”) by such seller, underwriter or
controlling person in connection with investigating or defending any such Loss or action; provided, however, that the Company will not be liable in any such case to the extent that any such Loss arises out of or is based upon any
untrue statement or omission made in such registration statement, preliminary prospectus or final prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use in the preparation thereof; provided, further, however, that the Company will not be liable in any such case if either the Relationship Prime(s) or
the Executive Sponsor (as such terms are defined in the OEM Agreement) had actual knowledge of any matter described in subparagraphs (i), (ii) or (iii) above, and provided further, however, that if, in connection with any action
relating to such Losses, it is finally adjudicated that there was no untrue statement, omission or violation as described in subparagraphs (i), (ii) or (iii) above, the Company shall reimburse such seller, underwriter and each such controlling
person for fifty percent (50%) (as opposed to one hundred percent (100%)) of the Reimbursable Expenses incurred in connection with investigating or defending any such Losses or action. 
  
 (b)    In the event of any registration of any of the Registrable Shares under the Securities Act
pursuant to this agreement, each seller of Registrable Shares, severally and not jointly, will indemnify and hold harmless the Company, each of its directors, officers and each underwriter (if any) and each person (if any) who controls the Company
or any such underwriter within the meaning of the Securities Act or the Exchange Act, against any Losses, joint or several, to which the Company, such directors, officers, underwriters or controlling persons may become subject under the Securities
Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final Prospectus contained in the Registration Statement, or any amendment or supplement to the registration
statement, or (ii) the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with
information relating to such seller furnished in writing to the Company by or on behalf of such seller specifically for use in connection with the preparation of such registration statement, prospectus, amendment or supplement; provided,
however, that the obligations of such sellers of Registrable Shares hereunder shall be limited to an amount equal to the net proceeds to such seller from the Registrable Shares sold in connection with such registration. 
  
 (c)    Each party entitled to indemnification under this
Section B.3 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has received notice of the 
  

 B-4 

 commencement of any action for any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld); and, provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section B.3 except
to the extent that the Indemnifying Party is adversely affected by such failure. The Indemnified Party may participate in such defense at such party’s expense; provided, however, that the Indemnifying Party shall pay such expense
if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such
proceeding. The Indemnifying Party also shall be responsible for the expenses of such defense if the Indemnifying Party does not elect to assume such defense. No Indemnifying Party, in the defense of any such claim or litigation shall, except with
the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably
withheld. The Company’s obligation to reimburse an Indemnified Party is subject to the limitation described in the last proviso of paragraph B.3.(a) above. 
  

(d)    In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this
Section B.3 is due in accordance with its terms but for any reason is held to be unavailable to an Indemnified Party in respect of any Losses referred to herein, then the Indemnifying Party shall, in lieu of indemnifying such Indemnified Party,
contribute to the amount paid or payable by such Indemnified Party as a result of such Losses to which such party may be subject in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the
Indemnifying Party on the other in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of material fact related to information supplied by the Company or the seller of Registrable Shares and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section B.3 were determined by pro rata allocation or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of this paragraph of Section B.3, (i) in no case shall any seller of Registrable Shares be liable or responsible for any amount in excess of the net proceeds received by such
seller from the offering of Registrable Shares and (ii) the Company shall be liable and responsible for any amount in excess of such proceeds; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 
  

 B-5 

 B.4.    General. 
  
 (a)    The Holder shall bear a portion of all Company registration costs and expenses relating to a
registration statement filed pursuant to a Holder request under Section B.1 equal to (i) 50% of such registration costs and expenses, multiplied by (ii) a fraction, the numerator of which is the number of Registrable Shares included in such
registration by the Holder and the denominator of which is the total number of shares included in such registration by all selling stockholders (including the Holder). 
  
 (b)    The Holder shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Exhibit B. 
  
 (c)    The Holder, if requested by the Company, shall
agree not to sell publicly or otherwise transfer or dispose of any shares of Common Stock or other equity securities of the Company held by the Holder for a specified period of time (not to exceed ninety (90) days) following the effective date of
any registration statement filed by the Company. The Company shall agree, if requested by the Holder, not to effect any underwritten public sale, pursuant to a registration statement on Form S-1, S-2 or S-3 (or any successor form) of any
shares of Common Stock or other equity securities of the Company for a specified period of time (not to exceed ninety (90) days) following the effective date of any registration statement filed by the Company in accordance with Section
B.1(a). 
  
 (d)    The Company agrees
to furnish to the Holder upon request (i) a written statement by the Company as to its compliance with the requirements of Rule 144(c) under the Securities Act, and the reporting requirements of the Securities Act and the Exchange Act, and (ii) such
other reports and documents of the Company as such Holder may reasonably request to avail itself of any rule or regulation of the Commission allowing it to sell any such securities without registration or to comply with any tax reporting
requirements to which the Holder is subject. 
  
 (e)    The registration rights set forth in this Exhibit B shall terminate and be of no further force and effect upon the earlier of the one year anniversary of the Expiration Date or one year following the date
that the Warrant has been exercised (through one or more exercises) for the full number of Warrant Shares. 
  
 (f)    The provisions of this Exhibit B may be amended, modified or waived with the written consent of the Company and the
holders of a majority of the Registrable Shares issued or issuable upon exercise of the Warrant (and any like Warrants issued in substitution, on transfer or otherwise therefor). 
  

 B-6

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