Document:

2003 Inducement Stock Option Plan

 
Exhibit 4.1

 
2003 INDUCEMENT STOCK OPTION PLAN

 

	1.	 	Purposes of the Plan.    The purposes of this Stock Option Plan are: 

 
to attract and retain the best available personnel for
positions of substantial responsibility, 
 
to
provide additional incentive to newly retained Employees, Directors and Consultants, and 
 
to promote the success of the Company’s business. 
 
Options granted under the Plan shall be Nonstatutory Stock Options. Stock Purchase Rights may also be granted under the Plan.

 

	2.	 	Definitions.    As used herein, the following definitions shall apply: 

 

	 	(a)	 	“Administrator” means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.

 

	 	(b)	 	“Applicable Laws” means the legal requirements relating to the administration of stock option plans under state corporate and securities laws and
the Code. 

 

	 	(c)	 	“Board” means the Board of Directors of the Company. 

 

	 	(d)	 	“Code” means the Internal Revenue Code of 1986, as amended. 

 

	 	(e)	 	“Committee” means a Committee appointed by the Board in accordance with Section 4 of the Plan. 

 

	 	(f)	 	“Common Stock” means the Common Stock of the Company. 

 

	 	(g)	 	“Company” means Tarantella, Inc., a California corporation. 

 

	 	(h)	 	“Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services and who is compensated for
such services, provided that the term “Consultant” shall include Directors who are paid only a director’s fee by the Company or who are not compensated by the Company for their services as Directors. 

 

	 	(i)	 	“Continuous Status as an Employee, Director or Consultant” means that the employment or consulting relationship is not interrupted or terminated by
the Company, any Parent or Subsidiary. Continuous Status as an Employee, Director or Consultant shall not be considered interrupted in the case of: (i) any leave of absence approved by the Company, including sick leave, military leave, or any other
personal leave; or (ii) transfers between locations of the Company or between the Company, its Parent, its Subsidiaries or its successor. 

 

	 	(j)	 	“Director” means a member of the Board. 

 
 

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	 	(k)	 	“Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code. 

 

	 	(l)	 	“Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service
as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company. 

 

	 	(m)	 	“Exchange Act” means the Securities Exchange Act of 1934, as amended. 

 

	 	(n)	 	“Fair Market Value” means, as of any date, the value of Common Stock determined as follows: 

 

	 	(i)	 	If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”) System, the Fair Market Value of a Share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on
such system or exchange (or the exchange with the greatest volume of trading in Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems
reliable; 

 

	 	(ii)	 	If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems reliable; 

 

	 	(iii)	 	In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.

 

	 	(o)	 	“Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option. 

 

	 	(p)	 	“Notice of Grant” means a written notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice
of Grant is part of the Option Agreement. 

 

	 	(q)	 	“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder. 

 

	 	(r)	 	“Option” means a stock option granted pursuant to the Plan. 

 

	 	(s)	 	“Option Agreement” means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan. 

 

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	 	(t)	 	“Option Exchange Program” means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price.

 

	 	(u)	 	“Optioned Stock” means the Common Stock subject to an Option or Stock Purchase Right. 

 

	 	(v)	 	“Optionee” means an Employee or Consultant who holds an outstanding Option or Stock Purchase Right. 

 

	 	(w)	 	“Parent” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

	 	(x)	 	“Plan” means this 2003 Inducement Stock Option Plan. 

 

	 	(y)	 	“Restricted Stock” means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 below.

 

	 	(z)	 	“Restricted Stock Purchase Agreement” means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying
to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. 

 

	 	(aa)	 	“Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

 

	 	(bb)	 	“Share” means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan. 

 

	 	(cc)	 	“Stock Purchase Right” means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

 

	 	(dd)	 	“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

 

	3.	 	Stock Subject to the Plan.    Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 1,000,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. However, should the Company reacquire Shares which were issued pursuant to the exercise of an Option or Stock Purchase
Right, such Shares shall not become available for future grant under the Plan. 

 
If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall
not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, and the original purchaser of such Shares
did not receive any benefits of ownership of such Shares, such Shares shall become available for future 
 

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grant under
the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 
 
Notwithstanding the foregoing, at any such time as the offer and sale of securities pursuant to the Plan is subject to compliance with
Section 260.140.45 of Title 10 of the California Code of Regulations (“Section 260.140.45”), the total number of shares of Common Stock issuable upon the exercise of all outstanding Options or Stock Purchase Rights (together with
options or stock purchase rights outstanding under any other stock option plan of the Company) and the total number of shares provided for under any stock bonus or similar plan of the Company shall not exceed thirty percent (30%) (or such other
higher percentage limitation as may be approved by the shareholders of the Company pursuant to Section 260.140.45) of the then outstanding shares of the Company as calculated in accordance with the conditions and exclusions of Section 260.140.45.

 

	4.	 	Administration of the Plan. 

 

	 	(a)	 	Administration.    The Plan shall be administered by the Board, a Committee appointed by the Board or their designees, which Committee and
designees shall be constituted to comply with Applicable Laws. 

 

	 	(b)	 	Powers of the Administrator.    Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee or by either to their designees, the Administrator shall have the authority, in its discretion: 

 

	 	(i)	 	to determine the Fair Market Value of the Common Stock, in accordance with Section 2(n) of the Plan; 

 

	 	(ii)	 	to select the Consultants and Employees to whom Options and Stock Purchase Rights may be granted hereunder; 

 

	 	(iii)	 	to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof, are granted hereunder; 

 

	 	(iv)	 	to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; 

 

	 	(v)	 	to approve forms of agreement for use under the Plan; 

 

	 	(vi)	 	to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; 

 

	 	(vii)	 	to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; 

 

	 	(viii)	 	to prescribe, amend and rescind rules and regulations relating to the Plan; 

 

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	 	(ix)	 	to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan); 

 

	 	(x)	 	to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by
the Administrator; 

 

	 	(xi)	 	to institute an Option Exchange Program; 

 

	 	(xii)	 	to determine the terms and restrictions applicable to Options and Stock Purchase Rights and any Restricted Stock; and 

 

	 	(xiii)	 	to make all other determinations deemed necessary or advisable for administering the Plan. 

 

	 	(c)	 	Effect of Administrator’s Decision.    The Administrator’s decisions, determinations and interpretations shall be final and
binding on all Optionees and any other holders of Options or Stock Purchase Rights. 

 

	5.	 	Eligibility.    Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees, Directors and Consultants.

 

	6.	 	Limitations. 

 

	 	(a)	 	Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee’s employment or
consulting relationship with the Company, nor shall they interfere in any way with the Optionee’s right or the Company’s right to terminate such employment or consulting relationship at any time, with or without cause.

 

	 	(b)	 	The following limitations shall apply to grants of Options and Stock Purchase Rights to Officers: 

 

	 	(i)	 	no Officer shall be granted in any fiscal year of the Company, Options and Stock Purchase Rights to purchase more than the number of shares issuable under the Plan;
and 

 

	 	(ii)	 	over the remaining term of the Plan, no Officer shall be granted Options and Stock Purchase Rights to purchase more than the number of shares issuable under the
Plan. 

 
The foregoing limitations
set forth in this Section 6(c) are intended to satisfy the requirements applicable to Options and Stock Purchase Rights intended to qualify as “performance-based compensation” (within the meaning of Section 162(m) of the Code). In the
event the Administrator determines that such limitations are not required to qualify Options and Stock Purchase Rights as performance-based compensation, the Administrator may modify or eliminate such limitations. 
 

	7.	 	Term of Plan.    The Plan became effective upon its adoption by the Board of Directors on April 2nd, 2003. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 

	

 
 

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	8.	 	Term of Option.    The term of each Option shall be stated in the Notice of Grant; provided, however, that the term of an Option shall be
ten (10) years from the date of grant or such shorter term as may be provided in the Notice of Grant. 

 

	9.	 	Option Exercise Price and Consideration. 

 

	 	(a)	 	Exercise Price.    The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following: 

 

	 	(i)	 	if granted to an Employee, Consultant or Director who, at the time the Nonstatutory Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. 

 

	 	(ii)	 	if granted to any Employee, Consultant or Director, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant.

 

	 	(iii)	 	Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value on the date of grant pursuant to a
merger or other corporate transaction. 

 

	 	(b)	 	Waiting Period and Exercise Dates.    At the time an Option is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. In so doing, the Administrator may specify that an Option may not be exercised until the completion of a service period. Notwithstanding the
foregoing, with the exception of an Option granted to an Officer, a Director or a Consultant, no Option shall become exercisable at a rate less than twenty percent (20%) per year over a period of five (5) years from the effective date of grant of
such Option, subject to the Optionee’s continued employment or service. 

 

	 	(c)	 	Form of Consideration.    The Administrator shall determine the acceptable form of consideration for exercising an Option, including the
method of payment. Such consideration may consist entirely of: 

 

	 	(i)	 	cash; 

 

	 	(ii)	 	check; 

 

	 	(iii)	 	promissory note; 

 

	 	(iv)	 	surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the
date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares; or 

 

	 	(v)	 	delivery of Optionee’s promissory note (the “Note”) in a form acceptable to the Company, in the amount of the aggregate Exercise Price of the
Exercised Shares together with the execution and delivery by the Optionee 

 

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	 	  	 	of a Security Agreement in a form acceptable to the Company The Note shall bear interest at a rate no less than the “applicable federal rate” prescribed
under the Code and its regulations at time of purchase, and shall be secured by a pledge of the Shares purchased by the Note pursuant to the Security Agreement; 

 

	 	(vi)	 	consideration to be received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; 

 

	 	(iv)	 	any combination of the foregoing methods of payment; or 

 

	 	(v)	 	such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 

 

	10.	 	Exercise of Option. 

 

	 	(a)	 	Procedure for Exercise; Rights as a Shareholder.    Any Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. 

 
An Option may not be exercised for a fraction of a Share. 
 
An Option shall be deemed exercised when the Company receives: (i) written notice of exercise (in accordance
with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the
stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder
shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 13 of the Plan. 
 
Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the Option is exercised. 
 

	 	(b)	 	Termination of Employment or Consulting Relationship.    In the event that an Optionee’s Continuous Status as an Employee, Director
or Consultant terminates, other than upon the Optionee’s death or Disability, the Optionee may exercise his or her Option, for at least thirty (30) days from the date of termination (or such longer period of time as is determined by the
Administrator) and only to the extent that the Optionee was entitled to exercise it at the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant). If, at the date of
termination, the Optionee is not entitled to 

 
 

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exercise his
or her entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan. 
 

	 	(c)	 	Disability of Optionee.    Notwithstanding the provisions of Section 10(b) above, in the event of termination of an Optionee’s
Continuous Status as an Employee, Director or Consultant as a result of his Disability, Optionee may, but only within such period of time as is determined by the Administrator, of at least six (6) months from the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. 

 

	 	(d)	 	Death of Optionee.    In the event of the death of an Optionee: 

 

	 	(i)	 	during the term of the Option who is at the time of his or her death an Employee, Director or Consultant of the Company and who shall have been in Continuous Status
as an Employee, Director or Consultant since the date of grant of the Option, the Option may be exercised by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance until the term of the
option, or such shorter period as is set forth in the option agreement, expires, and the Option shall be treated for exercise purposes as if the Optionee had continued living and had remained in Continuous Status as an Employee, Director or
Consultant for six (6) months after the date of death; or 

 

	 	(ii)	 	after the termination of an Optionee’s Continuous Status as an Employee, Director or Consultant, the Option may be exercised by the Optionee’s estate or by
a person who acquired the right to exercise the Option by bequest or inheritance until the term of the option, or such shorter period as is set forth in the option agreement, expires, and the Option shall be treated for exercise purposes as if the
Optionee had continued living and had remained in Continuous Status as an Employee, Director or Consultant through the date of Optionee’s death; and 

 

	 	(iii)	 	if an Option is not exercised within the time specified herein, the Option shall terminate. 

 

	 	(e)	 	Buyout Provisions.    The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 

 

	11.	 	Stock Purchase Rights. 

 

	 	(a)	 	Rights to Purchase.    Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing, by means of a Notice of Grant, of the terms, conditions and
restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, 

 
 

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the price to be paid, and the time within which the offeree must accept such offer, which
shall in no event exceed six (6) months from the date upon which the Administrator made the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by
the Administrator. 
 

	 	(b)	 	Purchase Price.    The purchase price under each Stock Purchase Right will be established by the Board; provided, however, that (i) that
the purchase price per share shall be at least eighty-five percent (85%) of the Fair Market Value of a share of Common Stock either on the effective date of grant of the Stock Purchase Right or on the date on which the purchase is consummated and
(ii) the purchase price per share under a Stock Purchase Right granted to any person who owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary shall be at least
100% of the Fair Market Value of a share of Common Stock either on the effective date of grant of the Stock Purchase Right or on the date on which the purchase is consummated. 

 

	 	(c)	 	Repurchase Option.    Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s employment with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted
Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator; provided,
however, that with the exception of shares acquired pursuant to a Stock Purchase Right by an Officer, Director, or Consultant, the Company’s repurchase option must lapse at the rate of at least twenty percent (20%) of the shares per year over
the period of five (5) years from the effective date of grant of the Stock Purchase Right (without regard to the date on which Stock Purchase Right was exercised) and the repurchase option must be exercised, if at all, for cash or cancellation of
money indebtedness for the shares within ninety (90) days following termination of employment or service. 

 

	 	(d)	 	Other Provisions.    The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock Purchase Agreements need not be the same with respect to each purchaser. 

 

	 	(e)	 	Rights as a Shareholder.    Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan. 

 

	12.	 	Non-Transferability of Options and Stock Purchase Rights.    An Option or Stock Purchase Right may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 

	

 
 

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	13.	 	Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset Sale or Change of Control. 

 

	 	(a)	 	Changes in Capitalization.    Subject to any required action by the shareholders of the Company, the number of shares of Common Stock
covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock in the event of a stock split, reverse stock split, stock dividend, recapitalization, combination, reclassification or other distribution of the Common Stock without receipt of
consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. 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 of Common Stock subject to an Option or Stock Purchase Right. 

 

	 	(b)	 	Dissolution or Liquidation.    In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option or
Stock Purchase Right has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action. The Board may, in the exercise of its sole discretion in such instances, declare that any Option or Stock
Purchase Right shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option or Stock Purchase Right as to all or any part of the Optioned Stock, including Shares as to which the Option or Stock
Purchase Right would not otherwise be exercisable. 

 

	 	(c)	 	Merger or Asset Sale.    Subject to the provisions of paragraph (d) hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right shall be substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor corporation does not agree to assume the Option or Stock Purchase Right or to substitute an equivalent option or right, the Administrator shall, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option or Stock Purchase Right as to all or a portion of the Optioned Stock, including Shares as to which it would not otherwise be exercisable. If the Administrator makes an
Option or Stock Purchase Right exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option or Stock Purchase Right shall be fully exercisable for a period
of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right will terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to purchase, for each Share of Optioned Stock subject to the Option or Stock 

 
 

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Purchase Right immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right,
to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 
 

	 	(d)	 	Change in Control.    In the event of a “Change in Control” of the Company, as defined in paragraph (e) below, then the
following acceleration and valuation provisions shall apply: 

 

	 	(i)	 	Except as otherwise determined by the Administrator, in its discretion, prior to or after the occurrence of a Change in Control, any Options and Stock Purchase
Rights outstanding on the date such Change in Control is determined to have occurred that are not yet exercisable and vested on such date shall become fully exercisable and vested; 

 

	 	(ii)	 	Except as otherwise determined by the Administrator, in its discretion, prior to or after the occurrence of a Change in Control, all outstanding Options and Stock
Purchase Rights, to the extent they are exercisable and vested (including Options and Stock Purchase Rights that shall become exercisable and vested pursuant to subparagraph (i) above), shall be terminated in exchange for a cash payment equal to the
Change in Control Price, (reduced by the exercise price applicable to such Options or Stock Purchase Rights). These cash proceeds shall be paid to the Optionee or, in the event of death of an Optionee prior to payment, to the estate of the Optionee
or to a person who acquired the right to exercise the Option or Stock Purchase Right by bequest or inheritance. 

 

	 	(e)	 	Definition of “Change in Control”.    For purposes of this Section 13, a “Change in Control” means the happening of
any of the following: 

 

	 	(i)	 	When any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company employee benefit
plan, including any trustee of such plan acting as trustee) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than twenty-five
percent (25%) of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors; or 

 

	 	(ii)	 	A merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders 

 

Page 11 

 

	 	  	 	of the Company approve an agreement for the sale or disposition by the Company of all or substantially all the Company’s assets; or 

 

	 	(iii)	 	A change in the composition of the Board of Directors of the Company occurring within a two-year period, as a result of which fewer than a majority of the directors
are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date the Plan is approved by the stockholders, or (B) are elected, or nominated for election, to the Board of
Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company). 

 

	 	(f)	 	Change in Control Price.    For purposes of this Section 13, “Change in Control Price” shall be, as determined by the Board, (i)
the highest Fair Market Value of a Share within the 60 day period immediately preceding the date of determination of the Change in Control Price by the Board (the “60-Day Period”), or (ii) the highest price paid or offered per Share, as
determined by the Board, in any bona fide transaction or bona fide offer related to the Change in Control of the Company, at any time within the 60-Day Period, or (iii) some lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share. 

 

	14.	 	Date of Grant.    The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator
makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such
grant. 

 

	15.	 	Amendment and Termination of the Plan. 

 

	 	(a)	 	Amendment and Termination.    The Board may at any time amend, alter, suspend or terminate the Plan. 

 

	 	(b)	 	Effect of Amendment or Termination.    No amendment, alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 

 

	16.	 	Conditions Upon Issuance of Shares. 

 

	 	(a)	 	Legal Compliance.    Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, Applicable Laws, and the requirements of any stock exchange or quotation system upon which the Shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such
compliance. 

	

 
 

Page 12 

 

	 	(b)	 	Investment Representations.    As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion
of counsel for the Company, such a representation is required. 

 

	17.	 	Liability of Company. 

 

	 	(a)	 	Inability to Obtain Authority.    The inability of the Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained. 

 

	 	(b)	 	Grants Exceeding Allotted Shares.    If the Optioned Stock covered by an Option or Stock Purchase Right exceeds, as of the date of grant,
the number of Shares which may be issued under the Plan without additional shareholder approval, such Option or Stock Purchase Right shall be void with respect to such excess Optioned Stock, unless shareholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely obtained in accordance with Section 15(b) of the Plan. 

 

	18.	 	Reservation of Shares.    The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. 

 

	19.	 	Provision of Information.    At least annually, copies of the Company’s balance sheet and income statement for the just completed
fiscal year shall be made available to each Optionee and purchaser of shares of Common Stock upon the exercise of an Option or Stock Purchase Right. The Company shall not be required to provide such information to key employees whose duties in
connection with the Company assure them access to equivalent information. 

 

Page 13SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
                 -----------------------------------------------

     THIS  SECOND  AMENDMENT  TO  LOAN  AND  SECURITY  AGREEMENT  (this  "SECOND
                                                                          ------
AMENDMENT"),  effective  as  of  the  11th  day  of April, 2003, is by and among
---------
MEASUREMENT  SPECIALTIES,  INC.,  a  New Jersey corporation ("MSI"), IC SENSORS,
                                                              ---
INC.,  a  California  corporation  ("IC,"  together  with  MSI, are collectively
                                     --
referred  to  herein  as  the "BORROWERS" and individually as a "BORROWER"), and
                               ---------                         --------
FLEET  CAPITAL  CORPORATION,  a  Rhode  Island  corporation  ("LENDER").
                                                               ------

                              W I T N E S S E T H:

     WHEREAS, Borrowers and Lender are parties to that certain Loan and Security
Agreement  dated  as  of  January  31,  2003  (as  amended by that certain First
Amendment  to  Loan and Security Agreement dated as of March 28, 2003, the "LOAN
                                                                            ----
AGREEMENT")  (unless otherwise defined herein, all capitalized terms used herein
----------
which  are defined in the Loan Agreement shall have the meaning given such terms
in  the  Loan  Agreement);

     WHEREAS,  Borrowers  desire  to  enter  into  a  Second Amendment to Senior
Secured  Note  and Warrant Purchase Agreement (the "CASTLETOP AMENDMENT," a true
                                                    -------------------
and  correct  copy  of which is attached hereto as Exhibit A) with Castletop and
                                                   ---------
pursuant  to  which  Castletop will loan to MSI an additional $3,000,000 and MSI
will  execute  an  allonge  to  its  note  in  favor  of Castletop such that the
principal amount of the Subordinate Debt owing to Castletop shall be $5,000,000;
and

     WHEREAS,  Borrowers have requested that Lender (a) consent to the execution
of  the  Castletop  Amendment  and  (b)  amend  certain  provisions  of the Loan
Agreement  in  connection  with  the  Castletop  Amendment.

     NOW  THEREFORE,  for  and  in  consideration  of  the  mutual covenants and
agreements  herein  contained  and  other  good  and valuable consideration, the
receipt  and  sufficiency  of  which  are  hereby  acknowledged  and  confessed,
Borrowers  and  Lender  hereby  agree  as  follows:

     SECTION  1     AMENDED  DEFINITION.  In  reliance  on  the representations,
                    -------------------
warranties,  covenants  and  agreements  contained in this Second Amendment, and
subject  to  the satisfaction of each condition precedent set forth in Section 3
                                                                       ---------
hereof,  the  definition  of  "SUBORDINATED DEBT" contained in Appendix A of the
                               -----------------
Loan  Agreement  shall  be  amended  and  restated  in  full to read as follows:

          SUBORDINATED  DEBT Indebtedness of Borrower(s) that is subordinated to
          ------------------
the  Obligations  in  a  manner  satisfactory to Lender in its sole and absolute
discretion,  including  principal  of  up  to  $5,000,000 owing to Castletop and
covered  by  the  Castletop  Subordination  Agreement.

     SECTION  2     LIMITED  CONSENT.  In  reliance  on  the  representation,
                    ----------------
warranties,  covenants  and  agreements  contained in this Second Amendment, and
subject  to  the  limitations  set  forth  herein  and  the satisfaction of each
condition  precedent  contained  in  Section  3 of this Second Amendment, Lender
                                     ----------
hereby  consents  to the Castletop Amendment.  Borrowers hereby acknowledge

                                        1
<PAGE>
that  the  consent  herein  contained  is  a limited one-time event, and nothing
contained  herein  shall  obligate  Lender  to  grant  any  additional or future
consent.

     SECTION  3     CONDITIONS PRECEDENT. The effectiveness of the amendments to
                    --------------------
the  Loan  Agreement  contained in Section 1 hereof and the consent contained in
                                   ---------
Section  2  hereof  is  subject  to  the  satisfaction  of each of the following
----------
conditions  precedent:

          3.1     CASTLETOP  AMENDMENTS.  Borrowers  shall have (a) executed and
                  ---------------------
delivered  to  Lender  a  fully executed copy of the Castletop Amendment and (b)
executed  and  delivered  to  Lender a fully executed amendment to the Castletop
Subordination  Agreement  in  the  form  attached  hereto  as  Exhibit  B.
                                                               ----------

          3.2     ABSENCE  OF  DEFAULTS.  No Default or Event of Default exists.
                  ---------------------

          3.3     REPRESENTATIONS  AND  WARRANTIES.  Each  representation  and
                  --------------------------------
warranty  contained  in  Section  4  hereof  is true and correct in all material
                         ----------
respects.

     SECTION 4     REPRESENTATIONS AND WARRANTIES.  In order to induce Lender to
                   ------------------------------
enter  into  this  Second  Amendment, each Borrower hereby jointly and severally
represents  and  warrants  to  Lender  that:

          4.1     ACCURACY  OF  REPRESENTATIONS  AND  WARRANTIES.  Each
                  ----------------------------------------------
representation  and warranty of such Borrower contained in the Loan Documents is
true  and  correct in all material respects as of the date hereof (except to the
extent  that  such  representations  and  warranties  are expressly made as of a
particular  date,  in  which event such representations and warranties were true
and  correct  as  of  such  date).

          4.2     DUEAUTHORIZATION,  NO  CONFLICTS.  The execution, delivery and
                  --------------------------------
performance  by  Borrowers  of  this  Second  Amendment  are  within  Borrowers'
corporate  powers,  have  been  duly  authorized by necessary action, require no
action  by  or  in  respect of, or filing with, any governmental body, agency or
official  and  do  not  violate  or  constitute a default under any provision of
applicable  law  or  any  material agreement binding upon any Borrower or any of
their Subsidiaries, or result in the creation or imposition of any Lien upon any
of  the assets of any Borrower or any of their Subsidiaries except for Permitted
Liens.

          4.3     VALIDITY  AND  BINDING  EFFECT.  This  Second  Amendment
                  ------------------------------
constitutes  the  valid  and  binding  obligations  of  Borrowers enforceable in
accordance  with  its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditor's rights generally,
and  the  availability  of  equitable  remedies  may  be  limited  by  equitable
principles  of  general  application.

          4.4     ABSENCE  OF  DEFAULTS.  Neither  a  Default  nor  an  Event of
                  ---------------------
Default  has  occurred  which  is  continuing.

          4.5     NODEFENSE.  Borrowers  have  no  defenses  to  payment,
                  ---------
counterclaims  or  rights of set-off with respect to the Obligations on the date
hereof.

                                        2
<PAGE>
          4.6     REVIEWAND  CONSTRUCTION  OF DOCUMENTS.  Each Borrower  has had
                  -------------------------------------
the  opportunity  to  consult  with legal counsel of its own choice and has been
afforded  an opportunity to review this Second Amendment with its legal counsel,
has reviewed this Second Amendment and fully understands the effects thereof and
all  terms  and  provisions  contained  herein,  and  has  executed  this Second
Amendment  of  its  own  free  will  and  volition.  Furthermore,  each Borrower
acknowledges  that  (i)  this  Second Amendment shall be construed as if jointly
drafted  by Borrowers and Lender, and (ii) the recitals contained in this Second
Amendment shall be construed to be part of the operative terms and provisions of
this  Second  Amendment.

     SECTION  5     MISCELLANEOUS.
                    -------------

          5.1     LOAN  DOCUMENT.  This  Second Amendment is a Loan Document for
                  --------------
all  purposes  of  the  Loan  Agreement  and  the  other  Loan  Documents.

          5.2     REAFFIRMATION  OF LOAN DOCUMENTS; EXTENSION OF LIENS.  Any and
                  ----------------------------------------------------
all  of  the  terms  and  provisions  of  the  Loan Agreement and the other Loan
Documents shall, except as amended and modified hereby, remain in full force and
effect.  Borrowers  hereby reaffirm the Liens securing the Obligations until the
Obligations  have  been  paid  in  full,  and  agree  that  the  amendments  and
modifications  herein  contained  shall  in  no  manner  affect  or  impair  the
Obligations  or  the  Liens  securing  payment  and  performance  thereof.

          5.3     PARTIES  IN INTEREST.  All of the terms and provisions of this
                  --------------------
Second  Amendment  shall bind and inure to the benefit of the parties hereto and
their  respective  successors  and  assigns.

          5.4     LEGAL  EXPENSES.  Borrowers  hereby agree to pay on demand all
                  ---------------
reasonable  fees  and  expenses  of  counsel  to  Lender  incurred  by Lender in
connection  with  the  preparation,  negotiation  and  execution  of this Second
Amendment  and  all  related  documents.

          5.5     COUNTERPARTS.  This  Second  Amendment  may  be  executed  in
                  ------------
counterparts, and all parties need not execute the same counterpart; however, no
party  shall  be  bound by this Second Amendment until this Second Amendment has
been  executed by Borrowers and Lender at which time this Second Amendment shall
be  binding  on,  enforceable  against and inure to the benefit of Borrowers and
Lender.  Facsimiles  shall  be  effective  as  originals.

          5.6     COMPLETE AGREEMENT.  THIS SECOND AMENDMENT, THE LOAN AGREEMENT
                  ------------------
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS
OF  THE  PARTIES.  THERE  ARE  NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

          5.7     HEADINGS.  The  headings,  captions  and  arrangements used in
                  --------
this  Second Amendment are, unless specified otherwise, for convenience only and
shall  not  be  deemed  to  limit,  amplify  or  modify the terms of this Second
Amendment,  nor  affect  the  meaning  thereof.

                                        3
<PAGE>
          5.8     NO IMPLIED WAIVERS.  No failure or delay on the part of Lender
                  ------------------
in  exercising,  and  no  course of dealing with respect to, any right, power or
privilege  under  this  Second  Amendment,  the Loan Agreement or any other Loan
Document  shall  operate  as  a  waiver thereof, nor shall any single or partial
exercise  of any right, power or privilege under this Second Amendment, the Loan
Agreement  or  any  other  Loan  Document preclude any other or further exercise
thereof  or  the  exercise  of  any  other  right,  power  or  privilege.

          5.9     ARMS-LENGTH/GOOD  FAITH.  This  Second  Amendment  has  been
                  -----------------------
negotiated  at  arms-length  and  in  good  faith  by  the  parties  hereto.

          5.10     INTERPRETATION.  Wherever  the  context  hereof  shall  so
                   --------------
require,  the  singular  shall  include  the  plural, the masculine gender shall
include  the  feminine  gender  and  the  neuter  and vice versa.  The headings,
captions and arrangements used in this Second Amendment are for convenience only
and  shall  not  affect  the  interpretation  of  this  Second  Amendment.

          5.11     SEVERABILITY.  In  case  any  one  or  more of the provisions
                   ------------
contained  in  this Second Amendment shall for any reason be held to be invalid,
illegal  or  unenforceable  in  any  respect,  such  invalidity,  illegality, or
unenforceability  shall  not  affect any other provision hereof, and this Second
Amendment  shall  be  construed  as  if  such invalid, illegal, or unenforceable
provision  had  never  been  contained  herein.

          5.12     FURTHER  ASSURANCES.  Each  Borrower  agrees  to  execute,
                   -------------------
acknowledge, deliver, file and record such further certificates, instruments and
documents, and to do all other acts and things, as may be requested by Lender as
necessary  or  advisable  to  carry  out the intents and purposes of this Second
Amendment.

          5.13     WAIVERS  BY BORROWERS.  BORROWERS JOINTLY AND SEVERALLY WAIVE
                   ---------------------
THE  RIGHT  TO  TRIAL  BY  JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF
THE  LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL;  PRESENTMENT, DEMAND AND
PROTEST  AND  NOTICE  OF  PRESENTMENT,  PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE,  COMPROMISE,  SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL
PAPER,  ACCOUNTS,  CONTRACT  RIGHTS,  DOCUMENTS,  INSTRUMENTS, CHATTEL PAPER AND
GUARANTIES  AT  ANY  TIME  HELD  BY  LENDER ON WHICH BORROWERS MAY IN ANY WAY BE
LIABLE  AND  HEREBY  RATIFY  AND  CONFIRM WHATEVER LENDER MAY DO IN THIS REGARD;
NOTICE  PRIOR  TO  TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR
SECURITY  WHICH  MIGHT  BE  REQUIRED  BY  ANY  COURT PRIOR TO ALLOWING LENDER TO
EXERCISE  ANY  OF LENDER'S REMEDIES;  THE BENEFIT OF ALL VALUATION, APPRAISEMENT
AND  EXEMPTION  LAWS;  NOTICE OF ACCEPTANCE HEREOF; AND  EXCEPT AS PROHIBITED BY
LAW,  ANY  RIGHT  TO  CLAIM  OR  RECOVER  ANY  SPECIAL,  EXEMPLARY  OR PUNITIVE.
BORROWERS  ACKNOWLEDGE  THAT  THE FOREGOING

                                        4
<PAGE>
WAIVERS  ARE  A  MATERIAL  INDUCEMENT  TO  LENDER'S  ENTERING  INTO  THIS SECOND
AMENDMENT  AND  THAT  LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS  WITH  BORROWERS. BORROWERS JOINTLY AND SEVERALLY WARRANT AND REPRESENT
THAT  THEY HAVE REVIEWED THE FOREGOING WAIVERS WITH THEIR LEGAL COUNSEL AND HAVE
KNOWINGLY  AND VOLUNTARILY WAIVED THEIR JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH  LEGAL  COUNSEL.  IN  THE EVENT OF LITIGATION, THIS SECOND AMENDMENT MAY BE
FILED  AS  A  WRITTEN  CONSENT  TO  A  TRIAL  BY  THE  COURT.

                            [Signature Page Follows]

                                        5
<PAGE>
     IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be  duly  executed  by their respective authorized officers on the date and year
first  above  written.

BORROWERS:

MEASUREMENT  SPECIALTIES,  INC.

By:     /s/  John  Hopkins
        ---------------------------
          John  Hopkins
          Chief  Financial  Officer

IC  SENSORS,  INC.

By:     /s/  John  Hopkins
        ---------------------------
          John  Hopkins
          Chief  Financial  Officer

LENDER:

FLEET  CAPITAL  CORPORATION

By:     /s/  H.  Michael  Wills
        ---------------------------
          H.  Michael  Wills
          Senior  Vice  President

                                        6
<PAGE>

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