2000 Equity Incentive Plan II - HostPro Inc. and Joel Kocher
HOSTPRO, INC.
2000 EQUITY INCENTIVE PLAN II
NOTICE OF GRANT
This Notice of Grant (the "Agreement") is made and entered into as of the
date of grant set forth below (the "Date of Grant") by and between HostPro,
Inc., a Delaware corporation, or any successor corporation (the "Company") and
the participant named below (the "Participant"). Capitalized terms not defined
herein shall have the meaning ascribed to them in the Company's 2000 Equity
Incentive Plan.
Participant: Joel Kocher
---------------------------------------------------
Social Security Number:
---------------------------------------------------
Address: 900 E. Karcher Road
---------------------------------------------------
Nampa, Idaho 83687
---------------------------------------------------
Total Option Shares: 1,800,000
---------------------------------------------------
Exercise Price Per Share: $.56
---------------------------------------------------
Date of Grant: February 23, 2001
---------------------------------------------------
First Vesting Date: December 22, 2001
---------------------------------------------------
Expiration Date: December 21, 2010
---------------------------------------------------
(unless earlier terminated under Section 5.6 of the
Plan)
Type of Stock Option
(Check one): [ ] Incentive Stock Option
[X] Nonqualified Stock Option
1. Grant of Option. The Company hereby grants to Participant an option
---------------
(this "Option") to purchase the total number of shares of Common Stock, .01 par
value, of the Company set forth above as Total Option Shares (the "Shares") at
the Exercise Price Per Share set forth above (the "Exercise Price"), subject to
all of the terms and conditions of this Agreement and the Plan.
2. Exercise Period.
---------------
2.1 Exercise Period of Option. Provided Participant continues to
-------------------------
provide services to the Company as Chief Executive Officer, except as otherwise
provided in this Section 2.1, the Option will become vested and exercisable as
to portions of the Shares as follows: (i) this Option shall not vest nor be
exercisable with respect to any of the Shares until
<PAGE>
the First Vesting Date set forth on the first page of this Agreement (the "First
Vesting Date") (ii) on the First Vesting Date the Option will become vested and
exercisable as to nine hundred thousand (900,000) of the Shares; and (iii)
thereafter on the first day of each of the succeeding thirty six (36) months the
Option will become vested and exercisable as to twenty five thousand (25,000) of
the Shares until the Shares are vested with respect to one hundred percent
(100%) of the Shares. However, in the event of Participant's Resignation for
Good Reason or termination without Cause, in either case prior to December 22,
2001, the Option will vest as follows: nine hundred thousand (900,000) Shares of
the Option shall become immediately vested and exercisable, in lieu of any other
vesting set forth in this Agreement. In the event of Participant's Resignation
for Good Reason or termination without Cause within twelve months following a
Corporate Transaction, one hundred percent (100%) of the Unvested Shares of the
Option will become vested and exercisable. If application of the vesting
percentage causes a fractional share, such share shall be rounded down to the
nearest whole share for each month except for the last month in such vesting
period, at the end of which last month this Option shall become exercisable for
the full remainder of the Shares. Subject to earlier termination of the Option
as provided herein, this Option may not be exercised prior to the earlier of (i)
issue to the public of shares of Common Stock ("IPO") pursuant to a Form S-1
Registration Statement under the Securities Act of 1933, as amended (the "Act"),
(ii) the registration under the Act of any substituted stock underlying the
Option or (iii) five (5) years from the date such Option is granted.
2.2 Vesting of Option. Shares that are vested pursuant to the
-----------------
schedule set forth in Section 2.1 are "Vested Shares." Shares that are not
vested pursuant to the schedule set forth in Section 2.1 are "Unvested Shares."
2.3 Expiration. The Option shall expire on the Expiration Date set
----------
forth above or earlier as provided in Section 3 below or pursuant to Section 5.6
of the Plan.
2.4 Definitions. As used in this Agreement, the following terms
-----------
have the following meanings:
2.4.1. "Resignation for Good Reason" means Participant's
resignation of his employment upon written notice to the Board of Directors
within 120 days following the occurrence of a "Good Reason."
2.4.2. "Cause" means termination by the Company of Participant's
employment because of (i) any willful, material violation by the Participant of
any law or regulation applicable to the business of the Company or a parent or
subsidiary of the Company or any successor, as applicable, the Participant's
conviction for, or guilty plea to, a felony or a crime, or any willful
perpetration by the Participant of a common law fraud, (ii) Participant's
commission of an act of personal dishonesty which involves personal profit in
connection with the Company or any successor, as applicable, or any other entity
having a business relationship with the Company, or any successor, as
applicable, (iii) any breach by Participant of any material provision of any
agreement or understanding between the Company and Participant regarding
2
<PAGE>
Participant's service as an employee, officer, director or consultant to the
Company or any successor, as applicable, which results in loss, damage or injury
to the Company or any successor, including, without limitation, the willful and
continued refusal of Participant to perform the material duties reasonably
required of Participant as an employee, officer, director or consultant of the
Company or any successor, other than as a result of having a Disability, (iv)
Participant's violation of the policies of the Company or any successor, as
applicable, so as to cause loss, damage or injury to the property, reputation or
employees of the Company or any successor, or (v) any willful misconduct or
unauthorized actions by Participant which results in loss, damage or injury to
the Company or any successor.
2.4.3. "Disability" means (i) Participant's incapacity due to
physical or mental illness that causes Participant to be absent from the full-
time or regular performance of Participant's duties with the Company or any
successor, as applicable, for at least 90 consecutive days, and (ii)
Participant's failure to return to full-time or regular performance of
Participant's duties for the Company or any successor, as applicable, within 15
days after receiving written notice of termination of this Agreement due to
Disability. Any question as to the existence of a Disability upon which
Participant and the Company cannot agree shall be determined by a qualified
independent physician selected by the Company and approved by Participant. The
determination of such physician made in writing to the Company and to
Participant shall be final and conclusive for all purposes of determining
Disability under this Agreement.
2.4.4. "Good Reason" means a resignation of Participant's
employment because of one or more of the following reasons: (i) a substantial
adverse change without Participant's consent in Participant's responsibilities
from those in effect or assigned as of the Date of Grant; (ii) Participant's no
longer being the Chief Executive Officer of the Company or, in the case of a
Corporate Transaction, of the surviving entity or acquiror that results from any
Corporate Transaction; Date of Grant; or (iii) a Company-imposed relocation of
Participant's principal place of employment from that of the headquarters
established by the Company after the Date of Grant, without Participant's
consent; provided, however, that any event described in clauses (i) through
(iii) shall not constitute Good Reason unless it is first communicated by
Participant to the Company in writing and such event is not corrected by the
Company in a manner that is reasonably satisfactory to Participant within 10
days of the Company's receipt of such written notice from Participant.
3. Termination.
-----------
3.1 Resignation for Good Reason or Termination Without Cause.
--------------------------------------------------------
Following Participant's resignation for Good Reason or termination by the
Company without Cause, the Participant (or Participant's legal representative)
may exercise the Option only to the extent that such Option are exercisable on
the Termination Date or as otherwise determined by the Committee. Such Option
must be exercised by the Participant, if at all, as to some or all of the Vested
Shares calculated as of the Termination Date for a period of thirty (30) days
from the later of such Termination Date but, in any event, no later than the
expiration of the Option.
3
<PAGE>
3.2 Termination Because of Death or Disability. Following
------------------------------------------
Participant's death or Disability, Participant (or Participant's legal
representative) may exercise the Option only to the extent that such Option are
exercisable on the Termination Date or as otherwise determined by the Committee.
Such Option must be exercised by the Participant, if at all, as to some or all
of the Vested Shares calculated as of the Termination Date for a period of
thirty (30) days from the later of such Termination Date but, in any event, no
later than the expiration date of the Option.
3.3 Termination for Cause. If Participant is terminated by the
---------------------
Company for Cause, then Participant's Option shall expire on such Participant's
Termination Date, or at such later time and on such conditions as are determined
by the Committee.
3.4 Extension of Time to Exercise Following Spinoff or Corporate
------------------------------------------------------------
Transaction. Notwithstanding anything in the Plan or in this Section 3 to the
-----------
contrary, if (i) a Participant is employed by Micron Electronics, Inc. ("MEI")
or Micron Technology, Inc. immediately preceding a Spinoff or (ii) a
Participant's Option accelerate pursuant to Section 5 hereof, then such Option
may be exercised within one year following the later of (A) such Spinoff or
acceleration or (B) the registration under the Act of the Shares or any
substituted stock underlying such Option.
3.5 No Obligation to Employ. Nothing in the Plan or this Agreement
-----------------------
shall confer on Participant any right to continue in the employ of, or other
relationship with, the Company or any Parent or Subsidiary of the Company, or
limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any time,
with or without Cause.
3.6 Confidentiality. Participant agrees that information regarding
---------------
this Option, including, but not limited to, the issuance of the Option to
Participant and the number of Shares subject to the Option, is Company
confidential information, and is subject to Participant's obligations to
maintain such information in confidence. Participant agrees not to disclose such
information to any third party, except to his or her immediate family members,
accountants, financial advisors and attorneys (each of whom shall be informed of
the confidential nature of the information and agree not to disclose the
information to any third party), or as required by law. Participant agrees that
the Committee may, at its discretion, immediately terminate all or part of this
Option if Participant violates this Section 3.6.
4. Manner of Exercise.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Participant (or in the case of exercise after Participant's death or incapacity,
Participant's executor, administrator, heir or legatee, as the case may be) must
deliver to the Company an executed stock option exercise agreement in such form
as may be approved by the Committee from time to time (the "Exercise
Agreement"), which shall set forth, inter alia, (i) Participant's election to
----- ----
exercise the Option, (ii) the number of Shares being purchased, (iii) any
restrictions imposed on the Shares and (iv) any representations, warranties and
agreements regarding Participant's
4
<PAGE>
investment intent and access to information as may be required by the Company to
comply with applicable securities laws. If someone other than Participant
exercises the Option, then such person must submit documentation reasonably
acceptable to the Company verifying that such person has the legal right to
exercise the Option and such person shall be subject to all of the restrictions
contained herein as if such person were the Participant.
4.2 Limitations on Exercise. The Option may not be exercised unless
-----------------------
such exercise is in compliance with all applicable federal and state securities
laws, as they are in effect on the date of exercise. The Option may not be
exercised as to fewer than one hundred (100) Shares unless it is exercised as to
all Shares as to which the Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by full
-------
payment of the Exercise Price for the shares being purchased in cash (by check),
or where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares of the Company's Common Stock that (i)
either (A) have been owned by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has been fully
paid with respect to such shares); or (B) were obtained by Participant in the
open public market; and (ii) are clear of all liens, claims, encumbrances or
security interests;
(c) by waiver of compensation due or accrued to Participant for
services rendered;
(d) provided that a public market for the Company's stock
exists: (i) through a "same day sale" commitment from Participant and a broker-
dealer that is a member of the National Association of Securities Dealers (an
"NASD Dealer") whereby Participant irrevocably elects to exercise the Option and
to sell a portion of the Shares so purchased sufficient to pay for the total
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the total Exercise Price directly to the Company, or (ii)
through a "margin" commitment from Participant and an NASD Dealer whereby
Participant irrevocably elects to exercise the Option and to pledge the Shares
so purchased to the NASD Dealer in a margin account as security for a loan from
the NASD Dealer in the amount of the total Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to forward the total
Exercise Price directly to the Company; or
(e) any other form of consideration approved by the Committee; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of the Option, Participant must pay or provide for any applicable
federal, state and local withholding
5
<PAGE>
obligations of the Company. If the Committee permits, Participant may provide
for payment of withholding taxes upon exercise of the Option by requesting that
the Company retain the minimum number of Shares with a Fair Market Value equal
to the minimum amount of taxes required to be withheld; but in no event will the
Company withhold Shares if such withholding would result in adverse accounting
consequences to the Company. In such case, the Company shall issue the net
number of Shares to the Participant by deducting the Shares retained from the
Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and
------------------
payment are in form and substance satisfactory to counsel for the Company, the
Company shall issue the Shares registered in the name of Participant,
Participant's authorized assignee, or Participant's legal representative, and
shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. CORPORATE TRANSACTIONS.
----------------------
(a) Assumption or Replacement of Option by Successor. In the event of
------------------------------------------------
(i) a dissolution or liquidation of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the Option granted under the Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on
Participant), (iii) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, or (iv) the sale of
substantially all of the assets of the Company (each, a "Corporate
Transaction"); this Option may be assumed, converted or replaced by the
successor or acquiring corporation (if any), which assumption, conversion or
replacement will be binding on all Participant. Notwithstanding the foregoing,
a transaction that results in MEI stockholders owning more than 50% of the
resulting entity will not constitute a Corporate Transaction. In the
alternative, the successor or acquiring corporation may substitute equivalent
Option or provide substantially similar consideration to Participant as was
provided to shareholders (after taking into account the existing provisions of
the Option). The successor or acquiring corporation may also issue, in place of
outstanding unvested Shares of the Company held by the Participant,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Participant. Notwithstanding anything in
this Section 5(a) to the contrary, in the event that Participant's employment is
terminated by the Company without Cause or Participant resigns for Good Reason,
in either case within one (1) year following the date of a Corporate
Transaction, then the vesting of the unvested portion of the Option will
accelerate as to 100% of the unvested Shares held by Participant upon the
occurrence of such event.
6
<PAGE>
In the event such successor or acquiring corporation (if any) refuses
to assume or substitute Option, as provided above, pursuant to a Corporate
Transaction described in this Subsection 5(a), then notwithstanding any other
provision in the Plan or Notice of Grant to the contrary, the vesting of such
Option will accelerate and the Option will become exercisable in full prior to
the consummation of such event at such times and on such conditions as the
Committee determines, and if such Option are not exercised prior to the
consummation of the Corporate Transaction, they shall terminate in accordance
with the provisions of the Plan. Notwithstanding anything in the Plan or the
Notice of Grant to the contrary, the Committee may, in its sole discretion,
provide that the vesting of any or all Option granted pursuant to the Plan will
accelerate upon a Corporate Transaction described in this Section 5. If the
Committee exercises such discretion with respect to Option, such Option will
become exercisable in full prior to the consummation of such event at such time
and on such conditions as the Committee determines, and if such Option are not
exercised prior to the consummation of the Corporate Transaction, they shall
terminate at such time as determined by the Committee.
(b) Other Treatment of Option. Subject to any greater rights granted
-------------------------
to Participants under the foregoing provisions of this Section 5, in the event
of the occurrence of any transaction described in Section 5(a) hereof, any
outstanding Option will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation or sale of assets.
(c) Assumption of Option by the Company. The Company, from time to
-----------------------------------
time, also may substitute or assume outstanding options granted by another
company, whether in connection with a Corporate Transaction, acquisition of such
other company or otherwise, by either (i) granting an option under this Plan in
substitution of such other company's option or (ii) assuming such option as if
it had been granted under this Plan if the terms of such assumed option could be
applied to an option granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed option would
have been eligible to be granted an option under this Plan if the other company
had applied the rules of this Plan to such grant. In the event the Company
assumes an option granted by another company, the terms and conditions of such
option will remain unchanged (except that the exercise price and the number and
nature of shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new option rather than assuming an existing option, such new
option may be granted with a similarly adjusted Exercise Price.
6. Company's Right of First Refusal. Before any Vested Shares held by
--------------------------------
Participant or any transferee of such Vested Shares may be sold or otherwise
transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its assignee(s) shall have an assignable right of first
refusal to purchase the Vested Shares to be sold or transferred on the terms and
conditions set forth in the Exercise Agreement (the "Right of First Refusal").
The Company's Right of First Refusal will terminate when the Company's
securities become publicly traded.
7
<PAGE>
7. Notice of Disqualifying Disposition of ISO Shares. If the Option is
-------------------------------------------------
an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (i) the date two (2)
years after the Date of Grant, and (ii) the date one (1) year after transfer of
such Shares to Participant upon exercise of the Option, Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.
8. Compliance with Laws and Regulations. The exercise of the Option and
------------------------------------
the issuance and transfer of Shares shall be subject to compliance by the
Company and Participant with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Participant understands that the Company is under no obligation to
register or qualify the Shares with the SEC, any state securities commission or
any stock exchange to effect such compliance.
9. Nontransferability of Option.
----------------------------
9.1 Nontransferability of Option. The Option may not be transferred
----------------------------
in any manner other than by will or by the laws of descent and distribution or
as determined by the Committee. The terms of the Option shall be binding upon
the executors, administrators, successors and assigns of Participant.
9.2 All Option other than NQSO's. All Option other than NQSO's shall
-----------------------------
be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees.
9.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO
-----
shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by the
Participant during the Participant's lifetime of an interest in such NQSO but
only such transfers which are by gift or domestic relations order. A permitted
transfer does not include any transfer for value and neither of the following
are transfers for value: (a) a transfer of under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which
more than fifty percent of the voting interests are owned by Family Members or
the Participant in exchange for an interest in that entity.
10. Section 280G Excise Tax. In the event that any Payment to Participant
-----------------------
set forth in this Agreement is subject to the federal excise tax (the "Excise
Tax") on the type of payment defined under Section 280G(b) of the Internal
Revenue Code of 1986, as amended (the "Code"),
8
<PAGE>
as determined pursuant to Section 10 of this Agreement, the Company shall pay to
Participant a tax restoration payment (the "Gross-Up Payment") equal to: (a) the
Excise Tax on the Payment, plus (b) the Excise Tax on the Gross-Up Payment, plus
(c) federal, state and local income taxes on the Gross-Up Payment, assuming that
such taxes are imposed at their highest marginal rate. All determinations with
respect to any Gross-Up Payment shall be made in accordance with Sections 10.1
through 10.5 below. For purposes of this Agreement, (i) "Accounting Firm" means
PricewaterhouseCoopers LLP or, if such firm is unable or unwilling to perform
the services contemplated by this Agreement, such other national accounting firm
as the Company and Participant shall designate by mutual agreement and (ii)
"Payment" means any payment that is described in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended, and any successor provision thereto,
which is received by Participant hereunder whether with this Agreement or
otherwise. All Payments shall be made less applicable federal, state and local
tax withholding and payroll deductions.
10.1 Upon prior written notice from the Participant, the Company
shall within 15 days following the consummation of a Corporate Transaction, or
the date of termination of Participant's employment, cause the Accounting Firm
to (i) make a determination whether any Payment received by Participant is
subject to the Excise Tax, and (ii) provide supporting calculations and an
analysis to Participant and the Company with respect to such a determination.
In the event that the Accounting Firm determines that any Payment received by
Participant is subject to the Excise Tax, the Company shall cause the Accounting
Firm to determine the amount of the applicable Gross-Up Payment owed to
Participant in accordance with Section 10, and the Company shall thereafter
provide such Gross-Up Payment in accordance with Section 10.2. In the event
that the Accounting Firm determines that any Payment received by Participant is
not subject to the Excise Tax, then the Company shall cause the Accounting Firm
to provide the Company, which shall furnish Participant with a copy, with a
written opinion that the Company has substantial authority under the Code, and
the proposed, temporary and promulgated regulations under Section 280G of the
Code or any successor provision thereto, not to withhold such an Excise Tax or
report such an Excise Tax on Participant's W-2. Any determination or opinion by
the Accounting Firm shall be binding upon Participant and the Company with
respect to whether the Company is required to provide any Gross-Up Payment to
Participant under this Section 10.1. The Company shall pay all of the fees and
expenses of the Accounting Firm relating to any determination or opinion
required under this Section 10.1. Notwithstanding the Accounting Firm's
determination or opinion, if a claim or notice of possible claim ultimately is
asserted by the Internal Revenue Service (the "Claim") that, if made and
successful, would subject any Payment to the Excise Tax, then Participant shall
be entitled to indemnification and the other rights and obligations as set forth
in Section 10 of this Agreement.
10.2 In the event that the Accounting Firm determines a Gross-Up
Payment is owed to Participant under Section 10.1, the Company shall pay to
Participant the amount of the Gross-Up Payment determined by the Accounting Firm
within 10 days of the Company's receipt of such determination, subject to the
rights and obligations as set forth in Section 10 of this Agreement.
9
<PAGE>
10.3 If the initial Gross-Up Payment provided under Section 10.2 is
insufficient to cover the amount of the Excise Tax that is ultimately determined
pursuant to a Claim to be owed by Participant with respect to any Payment (an
"Underpayment"), the Company, after exhausting its remedies under Section 10.4,
shall promptly pay to Participant an additional Gross-Up Payment in respect of
the Underpayment. If the initial Gross-Up Payment provided under Section 10.2
is in excess of the amount necessary to cover the Excise Tax that is ultimately
determined pursuant to a Claim to be owed by Participant with respect to any
Payment (an "Overpayment"), the Participant shall promptly repay to the Company
an amount equal to the Overpayment within 10 business days of the Company's
request for such repayment.
10.4 The following procedures shall apply to the Parties with respect
to their respective rights and obligations under Section 10 of this Agreement in
the event of any Claim (as defined in Section 10.1):
10.4.1 Participant shall notify the Company of any Claim,
irrespective of whether any Gross-Up Payment previously has been provided by the
Company to Participant. Such notice shall be given within 10 days after
Participant knows of such Claim, and shall apprise the Company of the nature of
the Claim and the date on which the Claim is requested to be paid, and shall
include complete copies of all notices or communications received by the
Participant from the Internal Revenue Service or its representatives with
respect to the Claim. Participant agrees not to pay the Claim until the
expiration of the 30-day period following the date on which Participant notifies
the Company, or such shorter period ending on the date the Taxes with respect to
such Claim are due (the "Notice Period"). Participant's failure to timely
notify the Company of any claim as required by this Section 10.4.1 shall result
in a waiver of Participant's rights under this Section 10.
10.4.2 If the Company notifies Participant prior to the
expiration of the Notice Period that it desires to contest the Claim,
Participant shall: (a) provide the Company with any information reasonably
requested by the Company relating to the Claim; (b) take such action in
connection with the Claim as the Company may reasonably request, including,
without limitation, accepting legal representation with respect to such Claim by
attorneys selected by the Company; (c) cooperate with the Company in good faith
in contesting the Claim; and (d) permit the Company to participate in any
proceedings relating to the Claim.
10.4.3 If the Company does not notify Participant prior to the
end of the Notice Period of the Company's desire to contest the Claim, and if
the Company previously has not provided Participant with an initial Gross-Up
Payment under Section 10.2, the Company shall pay to Participant a Gross-Up
Payment or an additional Gross-Up Payment, as the case may be, in respect of any
Payment that is subject of the Claim; provided, however, that Participant shall
immediately pay the amount of the Excise Tax that is the subject of the Claim to
the applicable taxing authority in accordance with applicable law, and
Participant shall release, indemnify and hold the Company harmless from any
costs, expenses, penalties, fines, interest or other liabilities with respect to
Participant's failure to pay such Excise Tax as required under this Section
10.4.3.
10
<PAGE>
10.4.4 If the Company notifies Participant of the Company's
desire to contest the Claim, and if thereafter requested by the Company,
Participant shall either pay the federal, state and local income taxes to which
he is subject at the time of determination, calculated on the basis of the
highest marginal rates then in effect, plus any additional payroll or
withholding taxes to which Participant is then subject (the "Taxes") claimed in
respect of the Excise Tax and timely sue for a refund, or timely contest the
Claim in any permissible manner and prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction, and in
one or more appellate courts as the Company shall determine in its sole
discretion; provided, however, that if the Company directs Participant to pay
such Claim and pursue a refund, the Company shall advance the amount of such
payment to Participant on an after-tax and interest-free basis (the "Advance"),
subject to the rights and obligations under Section 10.5.
10.4.5 Participant shall permit the Company to control all
proceedings related to the Claim and, at the Company's option, permit the
Company to pursue or forgo any and all administrative appeals, proceedings,
hearings, and conferences with the taxing authority in respect of such Claim.
The Company's control of the contest and proceedings related to the Claim shall
be limited to the issues related to the Excise Taxes and Gross-Up Payments, and
Participant shall be entitled to settle or contest, as the case may be, any
other unrelated issues raised by the Internal Revenue Service or other taxing
authority.
10.5 If, after receipt by Participant of an Advance under Section
10.4.4 of this Agreement, Participant becomes entitled to a refund with respect
to the Claim to which such Advance relates, Participant shall pay to the Company
the amount of the refund (together with any interest paid or credited thereon
after Taxes applicable thereto). However, if after receipt by Participant of an
Advance, a determination is made that Participant shall not be entitled to any
refund with respect to the Claim and the Company does not promptly notify
Participant of its intent to contest the denial of refund, then the amount of
the Advance shall not be required to be repaid by Participant and the amount
thereof shall offset the amount of any additional Gross-Up Payment then owing to
Participant.
10.6 The Company shall indemnify Participant and hold Participant
harmless, on an after-tax basis, from any costs, expenses, penalties, fines,
interest or other liabilities (the "Losses") incurred by Participant with
respect to the exercise by the Company of any of its rights under this Section
10, including, without limitation, any Losses related to the Company's decision
to contest a Claim or any imputed income to Participant resulting from any
Advance or action taken on Participant's behalf by the Company pursuant to this
Section 10. The Company shall pay all reasonable legal fees and expenses
incurred by the Company under this Section 10, and shall promptly reimburse
Participant for the reasonable expenses incurred by Participant in connection
with any actions taken by the Company or required to be taken pursuant to this
Section 10.
11. Privileges of Stock Ownership. Participant shall not have any of
-----------------------------
the rights of a stockholder with respect to any Shares until the Shares are
issued to Participant.
11
<PAGE>
12. Tax Consequences. Set forth below is a brief summary as of the
----------------
Effective Date of the Plan of some of the federal and California tax
consequences of exercise of the Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE
OPTION OR DISPOSING OF THE SHARES.
12.1 Exercise of Nonqualified Stock Option. There may be a regular
-------------------------------------
federal and California income tax liability upon the exercise of the Option.
Participant will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If Participant
is a current or former employee of the Company, the Company may be required to
withhold from Participant's compensation or collect from Participant and pay to
the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
12.2 Disposition of Shares. The following tax consequences may apply
---------------------
upon disposition of the Shares.
(a) Nonqualified Stock Option. If the Shares are held for more
-------------------------
than twelve (12) months after the date of purchase of the Shares pursuant to the
exercise of an NQSO, any gain realized on disposition of the Shares will be
treated as long term capital gain.
(c) Withholding. The Company may be required to withhold from
-----------
the Participant's compensation or collect from the Participant and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
13. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
14. Entire Agreement. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof, including but not limited to the continued vesting provisions in
Section 3 of the Employment and Non-Compete Agreement between Participant and
the Company dated January 15, 1998.
15. Notices. Any notice required to be given or delivered to the Company
-------
under the terms of this Agreement shall be in writing and addressed to the
Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: (i) personal
delivery; (ii) three (3) days after deposit in the United States mail by
certified or registered mail (return receipt
12
<PAGE>
requested); (iii) one (1) business day after deposit with any return receipt
express courier (prepaid); or (iv) one (1) business day after transmission by
facsimile, rapifax or telecopier.
16. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement or the Exercise Agreement. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Company.
Subject to the restrictions on transfer set forth herein, this Agreement shall
be binding upon Participant and Participant's heirs, executors, administrators,
legal representatives, successors and assigns.
17. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware as such laws are applied to
agreements between Delaware residents entered into and to be performed entirely
within Delaware. If any provision of this Agreement is determined by a court of
law to be illegal or unenforceable, then such provision will be enforced to the
maximum extent possible and the other provisions will remain fully effective and
enforceable.
18. Acceptance. Participant hereby acknowledges receipt of a copy of the
----------
Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of the Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
triplicate by its duly authorized representative and Participant has executed
this Agreement effective as of the Date of Grant.
HOSTPRO, INC. PARTICIPANT
By: /s/ By: /s/
Name: James R. Stewart
Title: Senior Vice President & CFO
Date: March 21, 2001
13