EXHIBIT NO. 4.1
HOLMES MICROSYSTEMS, INC.
2000 STOCK OPTION/STOCK ISSUANCE PLAN
1. GENERAL PROVISIONS
------------------
A. PURPOSE OF THE PLAN
This 2000 Stock Option/Stock Issuance Plan (the "Plan") is
intended to aid the Corporation (or any Parent or Subsidiary) in
maintaining and developing a management team, attracting qualified
officers and employees capable of assisting in the future success of
the Corporation, and rewarding those individuals who have contributed,
or may contribute in the future, to the success of the Corporation (or
any Parent or Subsidiary). It is designed to aid the Corporation (and
any Parent or Subsidiary) in retaining the services of executives and
Employees and in attracting new personnel when needed for future
operations and growth and to provide such personnel with an incentive
to remain Employees of the Corporation, to use their best efforts to
promote the success of the Corporation's business, and to provide them
with an opportunity to obtain or increase a proprietary interest in
the Corporation. It is further designed to attract and retain the
best available personnel for service as directors of the Corporation
(or any Parent or Subsidiary), whether or not such individuals may
otherwise be Employees. It is also designed to permit the Corporation
to reward those consultants or other independent advisors who are not
Employees but who are perceived by management as having contributed to
the success of the Corporation (or any Parent or Subsidiary) or who
are important to the continued business and operations of the
Corporation (or any Parent or Subsidiary).
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
B. STRUCTURE OF THE PLAN
1. The Plan shall be divided into two (2) separate equity programs:
a. the Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock, and
1
</Page>
<PAGE>
b. the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the
immediate purchase of such shares or as a bonus for services
rendered to the Corporation (or any Parent or Subsidiary) or
as an incentive to perform services for the Corporation (or
any Parent or Subsidiary).
2. The provisions of Sections I and IV shall apply to both equity
programs under the Plan and shall accordingly govern the
interests of all persons under the Plan.
C. ADMINISTRATION OF THE PLAN
1. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may
be delegated to the Committee. Members of the Committee shall
serve for such period of time as the Board may determine and
shall be subject to removal by the Board at any time. The Board
may also at any time terminate the functions of the Committee and
reassume all powers and authority previously delegated to the
Committee.
2. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules
and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under,
and issue such interpretations of, the Plan and any outstanding
options thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any option
thereunder.
D. ELIGIBILITY
1. The Plan Administrator shall have full authority to determine,
(I) with respect to the option grants under the Option Grant
Program, which eligible persons are to receive option grants, the
time or times when such option grants are to be made, the number
of shares to be covered by each such grant, the status of the
granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the
option shares and the maximum term for which the option is to
remain outstanding, and (ii) with respect to stock issuances
under the Stock Issuance Program, which eligible persons are to
receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each
Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid or given by the
Participant for such shares.
2
</Page>
<PAGE>
2. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Option Grant
Program or to effect stock issuances in accordance with the Stock
Issuance Program.
E. STOCK SUBJECT TO THE PLAN
1. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of
shares of Common Stock which may be issued over the term of the
Plan shall not exceed 2,000,000 shares.
2. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent
(I) the options expire or terminate for any reason prior to
exercise in full or (ii) the options are canceled in accordance
with the cancellation-re-grant provisions of Section II(E).
3. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be made
to the maximum number and/or class of securities issuable under
the Plan. The adjustments determined by the Plan Administrator
shall be final, binding and conclusive.
II. OPTION GRANT PROGRAM
--------------------
A. TYPES OF OPTIONS
The Option Grant Program shall be comprised of two types of
options as follows:
1. Incentive Options which are options intended to qualify
under the Code, subject to limiting conditions, for
favorable tax treatment in respect of the recognition of
ordinary income, gain, or loss and withholding requirements
applicable to the exercise of the options and disposition of
the shares of Common Stock acquired upon exercise of
Incentive Options.
2. Non-Statutory Options which are those options that are not
intended to qualify under the Code for favorable tax
treatment in respect of the recognition of ordinary income,
gain, or loss and withholding requirements applicable to the
exercise of options and disposition of shares of Common
Stock acquired pursuant to the exercise of the Non-Statutory
options. The Option grant program intends that the
treatment of such transactions in respect of Non-Statutory
Options will be governed by the taxation rules applicable to
the transfer of property in connection with the performance
of services.
3
</Page>
<PAGE>
B. OPTION TERMS APPLICABLE TO BOTH INCENTIVE AND NON-STATUTORY OPTIONS
1. Option Agreements.
------------------
Each option shall be evidenced by one or more option
agreements between the Corporation and the Optionee. Option
agreements shall designate the number of shares and the exercise
price of the Option to which it pertains, and shall set forth the
vesting schedule of the Option or state that the Option is vested
immediately. The option agreements shall be in writing, dated as
of the date the option is granted, and shall be executed on
behalf of the Corporation by such officers as the Board shall
authorize. Option agreements shall be in such form and contain
such additional provisions as the Plan Administrator shall
prescribe, but in no event shall they contain provisions
inconsistent with the provisions of this Plan.
2. Exercise Price.
---------------
a. The exercise price per share shall be fixed by the Plan
Administrator for Incentive and Non-Statutory Options
as set forth below.
b. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the
provisions of Section IV(A) and the documents
evidencing the option, be payable in cash or check made
payable to the Corporation. The Plan Administrator, in
its discretion, may also permit the exercise price to
be paid partly in cash and/or as follows:
(1) in shares of Common Stock valued at Fair Market
Value on the Exercise Date, or
(2) to the extent the option is exercised for vested
shares, through a special sale and remittance
procedure pursuant to which the Optionee shall
concurrently provide irrevocable written
instructions (A) to a Corporation-designated
brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out
of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares
plus all applicable Federal, state and local
income and employment taxes required to be
withheld by the Corporation by reason of such
exercise, and (B) to the Corporation to deliver
the certificates for the purchased shares directly
to such brokerage firm in order to complete the
sale.
4
</Page>
<PAGE>
c. Except to the extent such sale and remittance procedure
is utilized, payment of the exercise price for the
purchased shares must be made on the Exercise Date.
3. Exercise and Term of Options.
-----------------------------
Each option shall be exercisable at such time or times,
during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the
documents evidencing the option grant. However, no option shall
have a term in excess of ten (10) years measured from the option
grant date. The terms of Incentive and Non-Qualified Options
shall be fixed by the Plan Administrator within the limits
specified below.
4. Effect of Termination of Service.
---------------------------------
a. The following provisions shall govern the exercise of
any options held by the Optionee at the time of
cessation of Service or death:
(1) Should the Optionee cease to remain in Service for
Misconduct, then the options shall terminate on
the date of cessation of the Service.
(2) Should the Optionee cease to remain in Service for
any reason other than Misconduct, Disability or
death, then the Optionee shall have a period of
three (3) months following the date of such
cessation of Service during which to exercise each
outstanding option held by such Optionee.
(3) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period
of twelve (12) months following the date of such
cessation of Service during which to exercise each
outstanding option held by such Optionee.
5
</Page>
<PAGE>
(4) If the Optionee dies while holding an outstanding
option, then the personal representative of his or
her estate or the person or persons to whom the
option is transferred pursuant to the Optionee's
will or the laws of inheritance shall have a
twelve (12) month period following the date of the
Optionee's death to exercise such option.
(5) Under no circumstances, however, shall any such
option be exercisable after the specified
expiration of the option term.
(6) During the applicable post-Service exercise
period, the option may not be exercised in the
aggregate for more than the number of vested
shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be
outstanding for any vested shares for which the
option has not been exercised. However, the
option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be
outstanding with respect to any and all option
shares for which the option is not otherwise at
the time exercisable or in which the Optionee is
not otherwise at that time vested.
b. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or
at any time while the option remains outstanding, to:
(1) extend the period of time for which the option is
to remain exercisable following Optionee's
cessation of Service or death from the limited
period otherwise in effect for that option to such
greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the
expiration of the option term; and/or
(2) permit the option to be exercised, during the
applicable post-Service exercise period, not only
with respect to the number of vested shares of
Common Stock for which such option is exercisable
at the time of the Optionee's cessation of Service
but also with respect to one or more additional
installments in which the Optionee would have
vested under the option had the Optionee continued
in Service.
6
</Page>
<PAGE>
5. Shareholder Rights. The holder of an option shall have
no shareholder rights with respect to the shares
subject to the option until such person shall have
exercised the option, paid the exercise price, and
become a holder of record of the purchased shares.
6. Vesting Provisions. The Plan Administrator may not
impose a vesting schedule upon any option grant which
is more restrictive than twenty percent (20%) per year
vesting, with the initial vesting to occur not later
than one (1) year after the option grant date.
7. Limited Transferability of Options. During the
lifetime of the Optionee, the option shall be
exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the
laws of descent and distribution following the
Optionee's death.
8. Withholding. The Corporation's obligation to deliver
shares of Common Stock upon the exercise of any options
granted under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
C. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II(C),
all the provisions of the Plan shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory
Options shall not be subject to the terms of this Section II (C).
1. Eligibility. Incentive Options may only be granted to
Employees.
2. Exercise Price. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market
Value per share of Common Stock on the option grant date.
For options granted to a 10% Shareholder, the exercise price
per share shall not be less than one hundred ten percent
(110%) of the Fair Market Value per share of Common Stock on
the option grant date.
3. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date
or dates of grant) for which one or more options granted to
any Employee under the Plan (or any other option plan of the
Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one
(1) calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee
holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as
Incentive Options shall be applied on the basis of the order
in which such options are granted.
7
</Page>
<PAGE>
4. Option Term for 10% Shareholder. If any Employee to whom an
Incentive Option is granted is a 10% Shareholder, then the
option term shall not exceed five (5) years measured from
the option grant date.
D. NON-STATUTORY OPTIONS
The terms specified below shall be applicable to all Non-
Statutory Options. Except as modified by the provisions of this
Section II(D), all the provisions of the Plan shall be applicable to
Non-Statutory Options.
1. Eligibility. Non-Statutory Options may be granted to the
following persons:
a. Employees,
b. non-employee members of the Board or the non-employee
members of the board of directors of any Parent or
Subsidiary, and
c. consultants and other independent advisors who provide
services to the Corporation (or any Parent or
Subsidiary), provided that such consultants or advisors
are natural persons; that they provide bona fide
services to the Corporation (or the Parent or
Subsidiary); and that the services are not in
connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or
indirectly promote or maintain a market for the
Corporation's securities.
2. Exercise Price. The exercise price per share covered by a
Non-Statutory Option shall not be less than eighty-five
percent (85%) of the Fair Market Value per share of Common
Stock on the option grant date.
8
</Page>
<PAGE>
E. CORPORATE TRANSACTION
1. The Plan and each option outstanding under the Plan at the
time of a Corporate Transaction shall terminate and cease to
be outstanding, but only after each Optionee (or the
successor in interest) has been given, for the period of ten
(10) days ending five (5) days before the effective date of
the Corporate Transaction (or such longer period as the
Board may specify), the right to exercise any unexpired
option in full or in part, but only to the extent that, on
the date of such Corporate Transaction, such Optionee's
right to exercise such option has vested pursuant the terms
of the applicable option agreement and has not previously
been exercised. However, the outstanding options shall not
terminate and cease to be outstanding on such an accelerated
basis if and to the extent such options are assumed by the
successor corporation (or parent thereof) in the Corporate
Transaction.
2. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately
after such Corporate Transaction, to apply to the number and
class of securities which would have been issuable to the
Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such
Corporate Transaction. Appropriate adjustments shall also
be made to (i) the number and class of securities available
for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price
payable per share under each outstanding option, provided
the aggregate exercise price payable for such securities
shall remain the same.
3. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at
any time while the option remains outstanding, to provide
for the automatic acceleration (in whole or in part) of one
or more outstanding options upon the occurrence of a
Corporate Transaction, whether or not those options are to
be assumed or replaced in the Corporate Transaction.
4. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction shall remain
exercisable as an Incentive Option only to the extent the
applicable One Hundred Thousand Dollar ($100,000) limitation
is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax
laws.
9
</Page>
<PAGE>
5. Subject to Section II(F) below, the grant of options under
the Plan shall in no way affect the right of the Corporation
to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of
its business or assets.
F. ADJUSTMENTS
1. If the Corporation shall at any time subdivide its
outstanding shares of Common Stock by recapitalization,
reclassification or split-up thereof, or if the Corporation
shall declare a stock dividend or distribute shares of
Common Stock to its stockholders, the number of shares of
Common Stock purchasable upon exercise of the options
immediately prior to such subdivision shall be
proportionately increased in each instance, and if the
Corporation shall at any time combine the outstanding shares
of Common Stock by recapitalization, reclassification or
combination thereof, the number of shares of Common Stock
purchasable upon exercise of the options immediately prior
to such combination shall be proportionately decreased in
each instance. Any adjustment which is the result of a
stock dividend or distribution shall be effective on the
record date therefor.
2. Whenever the number of shares of Common Stock purchasable
upon the exercise of any of the options is required to be
adjusted as provided in Section II(F)(1) above, the exercise
price per share shall be adjusted (to the nearest cent) in
each instance by multiplying such exercise price per share
immediately prior to such adjustment by a fraction (x) the
numerator of which shall be the number of shares of Common
Stock purchasable upon the exercise of the options
immediately prior to such adjustment, and (y) the
denominator of which shall be the number of shares of Common
Stock so purchasable immediately thereafter.
3. In case the Corporation shall, at any time prior to the
expiration date of the options, and prior to the exercise
thereof, offer to the holders of its Common Stock any right
to subscribe for additional shares of any class of the
Corporation, then the Corporation shall give written notice
thereof to the registered holders of the options not less
than thirty (30) days prior to the date on which the books
of the Corporation are closed or a record date fixed for
the determination of stockholders entitled to such
subscription rights. Such notice shall specify the date as
to which the books shall be closed or record date be fixed
with respect to such offer or subscription, and the right of
the holders to participate in such offer or subscription
shall terminate if the options shall not be exercised on
before the date of such closing of the books or such record
date.
10
</Page>
<PAGE>
4. If the Corporation shall take any action affecting the
shares of its Common Stock, other than that action described
in this Plan, which, in the opinion of the Plan
Administrator, would materially affect the rights of the
holders of the options or the exercise price per share, the
number of shares of Common Stock purchasable on exercise of
the options shall be adjusted in each instance and at such
time as the Plan Administrator, in good faith, may determine
to be equitable under the circumstances. The adjustments
determined by the Plan Administrator shall be final,
binding, and conclusive.
5. Any changes or adjustments in the number of shares of Common
Stock purchasable upon the exercise of the options or in the
exercise price of options, as required or authorized by this
Section II(F), shall be made with respect to all authorized
options whether or not they have yet been issued or
outstanding at the time of the occurrence of the
circumstance leading to such change or adjustment.
G. CANCELLATION AND RE-GRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option
holders and subject to approval of the shareholders of the
Corporation, the cancellation of any or all outstanding options under
the Plan and to grant in substitution therefor new options covering
the same or different number of shares of Common Stock but with an
exercise price per share based on the Fair Market Value per share of
Common Stock on the new option grant date. The type and amount of
consideration for the substituted options shall be subject to the
approval of the Plan Administrator.
III. STOCK ISSUANCE PROGRAM
----------------------
A. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening
option grants. Each such stock issuance shall be evidenced by a Stock
Issuance Agreement which complies with the terms specified below.
1. Cost of Shares. Grants of shares of Common Stock under the
Stock Issuance Program shall be made at such cost as the Plan
Administrator shall determine and may be issued for no monetary
consideration, subject to applicable state law.
11
</Page>
<PAGE>
2. Vesting Provisions.
a. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be
fully and immediately vested upon issuance or may vest in
one or more installments over the Participant's period of
Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose
a vesting schedule upon any stock issuance effected under
the Stock Issuance Program which is more restrictive than
twenty percent (20%) per year vesting, with initial vesting
to occur not later than one (1) year after the issuance
date.
b. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash
dividend) which the Participant may have the right to
receive with respect to the Participant's unvested shares of
Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares
or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration
shall be issued subject to (i) the same vesting requirements
applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.
c. Unless specified otherwise in the Stock Issuance Agreement,
the Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the
Participant under the Stock Issuance Program, whether or not
the Participant's interest in those shares is vested, and
accordingly, the Participant shall have the right to vote
such shares and to receive any regular cash dividends paid
on such shares.
d. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued
under the Stock Issuance Program or should the performance
objectives not be attained with respect to one or more such
unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further shareholder rights
with respect to those shares. To the extent the surrendered
shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation
shall repay to the Participant the cash consideration paid
for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
12
</Page>
<PAGE>
e. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of
Common Stock (or other assets attributable thereto) which
would otherwise occur upon the non-completion of the vesting
schedule applicable to such shares. Such waiver shall
result in the immediate vesting of the Participant's
interest in the shares of Common Stock as to which the
waiver applies. Such waiver may be effected at any time,
whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the
applicable performance objectives.
3. Non-transferability. Shares of Common Stock granted under the
Stock Issuance program shall not be transferable until the shares
are vested.
B. CORPORATE TRANSACTION
1. Upon the occurrence of a Corporate Transaction all unvested
shares not assumed by the successor corporation (or parent
thereof) shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further
shareholder rights with respect to those shares. To the extent
the surrendered shares were previously issued to the Participant
for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall
repay to the Participant the cash consideration paid for the
surrendered shares and shall cancel the unpaid principal balance
of any outstanding purchase-money note of the Participant
attributable to such surrendered shares.
2. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or
any time while the Corporation's repurchase rights with respect
to those shares remaining outstanding, to provide that those
rights shall automatically terminate on an accelerated basis, and
the shares of Common Stock subject to those terminated rights
shall immediately vest, in the event of a Corporate Transaction
or in the event that the Participant's Service should
subsequently terminate by reason of an Involuntary Termination
within a period designated by the Plan Administrator following
the effective date of any Corporate Transaction in which those
repurchase rights are assumed by the successor corporation (or
parent thereof).
13
</Page>
<PAGE>
C. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in
such shares vests or may be issued directly to the Participant with
restrictive legends on the certificates evidencing those unvested
shares.
IV MISCELLANEOUS
-------------
A. FINANCING
The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price or the purchase price for shares issued
to such person under the by delivering a full-recourse,
interest-bearing promissory note payable in one or more installments
and secured by the purchased shares. In no event shall the maximum
credit available to the Optionee or Participant exceed the sum of (i)
the aggregate option exercise price or purchase price payable for the
purchased shares plus (ii) any Federal, state and local income and
employment tax liability incurred by the Optionee or the Participant
in connection with the option exercise or share purchase.
B. EFFECTIVE DATE AND TERM OF PLAN
1. The Plan shall become effective when adopted by the Board,
but no option granted under the Plan may be exercised, and
no shares shall be issued under the Plan, until the Plan is
approved by the Corporation's shareholders. If such
shareholder approval is not obtained within twelve (12)
months after the date of the Board's adoption of the Plan,
then all options previously granted under the Plan shall
terminate and cease to be outstanding, and no further
options shall be granted and no shares shall be issued under
the Plan. Subject to such limitation, the Plan
Administrator may grant options and issue shares under the
Plan at any time after the effective date of the Plan and
before the date fixed herein for termination of the Plan.
2. The Plan shall terminate upon the earliest of (i) December
31, 2009, (ii) the date on which all shares available for
issuance under the Plan shall have been issued, or (iii) the
termination of all outstanding options in connection with a
Corporate Transaction. All options and unvested stock
issuances outstanding at that time under the Plan shall
continue to have full force and effect in accordance with
the provisions of the documents evidencing such options or
issuances.
14
</Page>
<PAGE>
C. AMENDMENT OF THE PLAN
1. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all
respects, except as set forth herein. However, no such
amendment or modification shall adversely affect the rights
and obligations with respect to options or unvested stock
issuances at the time outstanding under the Plan unless the
Optionee or the Participant consents to such amendment or
modification. In addition, the Board shall not amend the
Plan, without approval of the shareholders of the
Corporation, in a manner which would:
a. Cause Options which are intended to qualify as
Incentive Options to fail to qualify;
b. increase the number of shares of Common Stock issuable
over the term of the Plan;
c. cause the Plan to fail to meet the requirements of Rule
16b-3; or
d. violate applicable law.
2. Options may be granted under the Option Grant Program and
shares may be issued under the Stock Issuance Program which
are in each instance in excess of the number of shares of
Common Stock then available for issuance under the Plan,
provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained
shareholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance
under the Plan. If such shareholder approval is not
obtained within twelve (12) months after the date the first
such excess issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the
Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and
such shares shall thereupon be automatically canceled and
cease to be outstanding.
D. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general
corporate purposes.
15
</Page>
<PAGE>
E. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any options or upon the vesting of any shares
issued under the Plan shall be subject to the satisfaction of all
applicable Federal, state and local income and employment tax
withholding requirements.
F. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under
the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any option or (ii) under the Stock Issuance Program shall
be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over
the Plan, the options granted under it and the shares of Common Stock
issued pursuant to it.
G. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing
or retaining such person) or of the Optionee or the Participant, which
rights are hereby expressly reserved by each, to terminate such
person's Service at any time for any reason, with or without cause.
H. INDEMNIFICATION
In addition to such other rights as they may have as directors or
as members of the Committee, the members of the Plan Administrator
shall be indemnified by the Corporation against the reasonable
expenses, including attorneys' fees, actually and necessarily incurred
in connection with the defense of any action, suit, or proceeding, and
in connection with any appeal therein, to which they or any of them
may be a party by reason of any action or failure to act under or in
connection with this Plan or any option or stock award granted
hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel
selected by the Corporation) or paid by them in satisfaction of a
judgement in any such action, suit, or proceeding, except in relation
to matters as to which it shall be finally adjudged in such action,
suit, or proceeding that such member of the Plan Administrator is
liable for gross negligence or willful misconduct in the performance
of his duties; provided that within 60 days after institution of any
such action, suit, or proceeding (or within 30 days after service upon
such member of legal process in such case, if later) a member of the
Plan Administrator shall in writing offer the Corporation the
opportunity, at its own expense, to handle and defend the same.
16
</Page>
<PAGE>
I. RULE 16b-3
With respect to Participates subject to Rule 16b-3, transactions
under the Plan are intended to comply with all applicable provisions
of Rule 16b-3. To the extent any provision of the Plan or action by
the Plan Administrator fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Plan
Administrator.
J. RELATIONSHIP TO OTHER PLANS
Nothing in this Plan shall prevent the Corporation (or any Parent
or Subsidiary) from adopting or continuing other or additional
compensation arrangements, including without limitation plans
providing for the granting of restricted stock awards, options, cash,
or Common Stock performance bonuses. Grants under the Plan may form a
part of or otherwise be related to such other or additional
compensation arrangements.
17
</Page>
<PAGE>
APPENDIX
---------
The following definitions shall be in effect under the Plan:
Board shall mean the Corporation's Board of Directors.
Code shall mean the Internal Revenue Code of 1986, as amended.
Committee shall mean a committee of two (2) or more non-employee Board
members appointed by the Board to exercise one or more administrative
functions under the Plan.
Common Stock shall mean the Corporation's common stock.
Corporate Transaction shall mean either of the following shareholder
approved transactions to which the Corporation is a party:
(a) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities
immediately prior to such transaction, or
(b) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution
of the Corporation.
Corporation shall mean Holmes Microsystems, Inc., a Texas corporation.
Disability shall mean the inability of the Optionee or the Participant
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment and shall be determined by the
Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and
the manner and method of performance.
Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(a) If the Common Stock is at the time traded on the NASDAQ
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the NASDAQ National Market or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
A-1
</Page>
<PAGE>
(b) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
(c) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the NASDAQ National Market, then the Fair
Market Value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate.
Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(a) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his
or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and target
bonuses under any corporate performance based bonus or incentive
programs) by more than fifteen percent (15%), or (c) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
without the individual's consent.
The Plan Administrator shall be entitled to revise the definition of
Involuntary Termination and Misconduct with respect to individual
Optionees or Participants under the Plan.
Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or
disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of
the Corporation (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider
as grounds for the dismissal or discharge of any Optionee, Participant or
other person in the Service of the Corporation (or any Parent or
Subsidiary).
A-2
</Page>
<PAGE>
1934 Act shall mean the Securities Exchange Act of 1934, as amended.
Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
Option Grant Program shall mean the option grant program in effect
under the Plan.
Optionee shall mean any person to whom an option is granted under the
Plan.
Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
Plan shall mean the Corporation's 2000 Stock Option/Stock Issuance
Plan, as set forth in this document.
Plan Administrator shall mean either the Board or the Committee acting
in its capacity as administrator of the Plan.
Rule 16b-3 shall mean Rule 16b-3 promulgated under the 1934 Act by the
U.S. Securities and Exchange Commission, as amended, or any successor rule
in effect from time to time.
Service shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided
in the documents evidencing the option grant.
Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
A-3
</Page>
<PAGE>
Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.
Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
10% Shareholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any
Parent or Subsidiary).
A-4
</Page>
