Common use of Option Exchange Clause in Contracts

Option Exchange. We believe it is unlikely that you will be subject to tax as a result of the exchange of an existing option for the right to receive a New Option, although this result is not completely certain. GRANT OF NEW OPTION Under current law, you should not realize taxable income upon the grant to you of a New Option. EXERCISE OF NEW OPTION Due to legal restrictions in China, you will only be able to exercise your New Option using the cashless sell-all or cashless sell-to-cover method of exercise. Under the cashless sell-all method of exercise, options are exercised without any cash and all of your shares are sold immediately following exercise. You will receive the proceeds of the sale, minus the exercise price, broker's fees and any withholding taxes. Under the cashless sell-to-cover method of exercise, options are exercised without any cash and a number of the shares are sold to cover the exercise price, broker's fees and withholding taxes. The remaining shares will be provided to you. When you exercise the new option, you will be subject to income tax on the difference (or spread) between the fair market value of the shares on the date of exercise and the exercise price. The spread for tax purposes will be treated as additional salary or wages from your employer.