REPURCHASE RIGHT
NO ACCELERATION
RIGHT OF FIRST REFUSAL
DIGITAL STYLE CORPORATION
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this __ day of _________, 19__, by and among
DIGITAL STYLE CORPORATION (the "Corporation"), _____________________, the
holder of a stock option (the "Optionee") under the Corporation's 1995 Stock
Option/Stock Issuance Plan and ______________________, the Optionee's spouse.
I. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases ________ shares
("Purchased Shares") of the Corporation's common stock ("Common Stock")
pursuant to that certain option ("Option") granted Optionee on __________,
19__ ("Grant Date") to purchase up to ________ shares of the Common Stock
("Total Purchasable Shares") under the Corporation's 1995 Stock Option/Stock
Issuance Plan (the "Plan") at an option price of $_______ per share ("Option
Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to
the Corporate Secretary of the Corporation, Optionee shall pay the Option
Price for the Purchased Shares in accordance with the provisions of the
agreement between the Corporation and Optionee evidencing the Option (the
"Option Agreement") and shall deliver whatever additional documents may be
required by the Option Agreement as a condition for exercise, together with a
duly-executed blank Assignment Separate from Certificate (in the form
attached hereto as Exhibit 1) with respect to the Purchased Shares.
1.3 DELIVERY OF CERTIFICATES. The certificates representing the
Purchased Shares hereunder shall be held in escrow by the Corporate Secretary
of the Corporation in accordance with the provisions of Article VII to the
extent such Shares are subject to the Repurchase Right contained in Article V
hereof. Certificates for all other Purchased Shares shall be delivered to
Optionee as soon as reasonably practicable following the date hereof.
1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation
actually exercises its repurchase right, rights of first refusal or special
purchase right under this Agreement, Optionee (or any successor in interest)
shall have all the rights of a shareholder (including voting and dividend
rights) with respect to the Purchased Shares, including the Purchased Shares
held in escrow under Article VII, subject, however, to the transfer
restrictions of Article IV.
II. SECURITIES LAW COMPLIANCE
2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Participant in reliance upon Participant's representation to the Company,
which by Participant's execution of this Agreement Participant hereby
confirms, that the Shares are being acquired for investment for Participant's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Participant has no present
intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Participant further
represents that Participant does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Shares. Participant represents that he has full power and authority to
enter into this Agreement.
2.2 EXEMPTION FROM REGISTRATION. The Purchased Shares have not
been registered under the Securities Act of 1933, as amended (the "1933
Act"), and are accordingly being issued to Optionee in reliance upon the
exemption from such registration provided by Rule 701 of the Securities and
Exchange Commission for stock issuances under compensatory benefit plans such
as the Plan. Optionee hereby acknowledges previous receipt of a copy of the
documentation for such Plan in the form of Exhibit C to the Notice of Grant
of Stock Option (the "Grant Notice") accompanying the Option Agreement.
2.3 RESTRICTED SECURITIES.
A. Optionee hereby confirms that Optionee has been informed that
the Purchased Shares are restricted securities under the 1933 Act and may not
be resold or transferred unless the Purchased Shares are first registered
under the Federal securities laws or unless an exemption from such
registration is available. Accordingly, Optionee hereby acknowledges that
Optionee is prepared to hold the Purchased Shares for an indefinite period
and that Optionee is aware that Rule 144 of the Securities and Exchange
Commission issued under the 1933 Act is not presently available to exempt the
sale of the Purchased Shares from the registration requirements of the 1933
Act.
B. Upon the expiration of the ninety (90)-day period immediately
following the date on which the Corporation first becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Purchased Shares, to the extent vested under
Article V, may be sold (without registration) pursuant to the applicable
requirements of Rule 144. If Optionee is at the time of such sale an
affiliate of the Corporation for purposes of Rule 144 or was such an
affiliate during the preceding three (3) months, then the sale must comply
with all the requirements of Rule 144 (including the volume limitation on the
number of shares sold, the broker/market-maker sale requirement and the
requisite notice to the Securities and Exchange Commission); however, the two
(2)-year holding period requirement of the Rule will not be applicable. If
Optionee is not at the time of the sale an affiliate of the Corporation nor
was such an affiliate during the preceding three (3) months, then none of the
requirements of Rule 144 (other than the broker/market-maker sale requirement
-2-
for Purchased Shares held for less than three (3) years following payment in
cash of the Option Price therefor) will be applicable to the sale.
C. Should the Corporation not become subject to the reporting
requirements of the Exchange Act, then Optionee may, provided he/she is not
at the time an affiliate of the Corporation (nor was such an affiliate during
the preceding three (3) months), sell the Purchased Shares (without
registration) pursuant to paragraph (k) of Rule 144 after the Purchased
Shares have been held for a period of three (3) years following the payment
in cash of the Option Price for such shares.
2.4 DISPOSITION OF SHARES. Optionee hereby agrees that Optionee shall
make no disposition of the Purchased Shares (other than a permitted transfer
under paragraph 4.1) unless and until there is compliance with all of the
following requirements:
(a) Optionee shall have notified the Corporation of the proposed
disposition and provided a written summary of the terms and conditions of
the proposed disposition.
(b) Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.
(c) Optionee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that
(i) the proposed disposition does not require registration of the Purchased
Shares under the 1933 Act or (ii) all appropriate action necessary for
compliance with the registration requirements of the 1933 Act or of any
exemption from registration available under the 1933 Act (including Rule
144) has been taken.
The Corporation shall NOT be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Article II NOR (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee
to whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.5 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with restrictive legends, including one or more of the
following legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be sold
or offered for sale in the absence of (a) an effective registration statement
for the shares under such Act, (b) a `no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (c) satisfactory
assurances to the Corporation that registration under such Act is not
required with respect to such sale or offer."
(ii) "The shares represented by this certificate are
unvested and
-3-
accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated __________, 19__ between the Corporation and the registered holder of
the shares (or the predecessor in interest to the shares). Such agreement
grants certain repurchase rights and rights of first refusal to the
Corporation (or its assignees) upon the sale, assignment, transfer,
encumbrance or other disposition of the Corporation's shares or upon
termination of service with the Corporation. The Corporation will upon
written request furnish a copy of such agreement to the holder hereof without
charge."
III. SPECIAL TAX ELECTION
3.1 SECTION 83(B) ELECTION APPLICABLE TO THE EXERCISE OF A
NON-STATUTORY STOCK OPTION. If the Purchased Shares are unvested and are
acquired hereunder pursuant to the exercise of a NON-STATUTORY STOCK OPTION,
as specified in the Grant Notice, then the Optionee understands that under
Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), the
excess of the fair market value of the Purchased Shares on the date any
forfeiture restrictions applicable to such shares lapse over the Option Price
paid for such shares will be reportable as ordinary income on such lapse
date. For this purpose, the term "forfeiture restrictions" includes the
right of the Corporation to repurchase the Purchased Shares pursuant to the
Repurchase Right provided under Article V of this Agreement. Optionee
understands that he/she may elect under Section 83(b) of the Code to be taxed
at the time the Purchased Shares are acquired hereunder, rather than when and
as such Purchased Shares cease to be subject to such forfeiture restrictions.
Such election must be filed with the Internal Revenue Service within thirty
(30) days after the date of this Agreement. Even if the fair market value of
the Purchased Shares at the date of this Agreement equals the Option Price
paid (and thus no tax is payable), the election must be made to avoid adverse
tax consequences in the future. THE FORM FOR MAKING THIS ELECTION IS
ATTACHED AS EXHIBIT II HERETO, OPTIONEE UNDERSTANDS THAT FAILURE TO MAKE THIS
FILING WITHIN THE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF
ORDINARY INCOME BY THE OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
3.2 CONDITIONAL SECTION 83(b) ELECTION APPLICABLE TO THE EXERCISE
OF AN INCENTIVE STOCK OPTION. If the Purchased Shares are unvested and are
acquired hereunder pursuant to the exercise of an INCENTIVE STOCK OPTION
under the Federal tax laws, as specified in the Grant Notice, then the
following tax principles shall be applicable to the Purchased Shares:
A. For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
B. The excess of (i) the fair market value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (ii)
the Option Price paid for the Purchased Shares will be includible in the
Optionee's taxable income for alternative minimum tax purposes.
-4-
C. If the Optionee makes a disqualifying disposition of the
Purchased Shares, then the Optionee will recognize ordinary income in the
year of such disposition equal in amount to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised or
(if later) on the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (ii) the Option Price paid for the Purchased
Shares. Any additional gain recognized upon the disqualifying disposition
will be either short-term or long-term capital gain depending upon the
period for which the Purchased Shares are held prior to the disposition.
D. For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right provided under Article V
of this Agreement. The term "disqualifying disposition" means any sale or
other disposition (1) of the Purchased Shares within two (2) years after
the Grant Date or within one (1) year after the execution date of this
Agreement.
E. In the absence of final Treasury Regulations relating to
incentive stock options, it is not certain whether the Optionee may, in
connection with the exercise of the Option for any Purchased Shares at the
time subject to forfeiture restrictions, file a protective election under
Section 83(b) of the Code which would limit (I) the Optionee's alternative
minimum taxable income upon exercise and (II) the Optionee's ordinary
income upon a disqualifying disposition, to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised
over (ii) the Option Price paid for the Purchased Shares. THE APPROPRIATE
FORM FOR MAKING SUCH A PROTECTIVE ELECTION IS ATTACHED AS EXHIBIT II TO
THIS AGREEMENT AND MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN
THIRTY (30) DAYS AFTER THE DATE OF THIS AGREEMENT. HOWEVER, SUCH ELECTION
IF PROPERLY FILED WILL ONLY BE ALLOWED TO THE EXTENT THE FINAL TREASURY
REGULATIONS PERMIT SUCH A PROTECTIVE ELECTION.
3.3 OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY,
AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS/HER BEHALF. This filing should be made by registered or certified mail,
return receipt requested, and Optionee must retain two (2) copies of the
completed form for filing with his or her State and Federal tax returns for the
current tax year and an additional copy
_____________
(1) GENERALLY, A DISPOSITION OF SHARES PURCHASED UNDER AN INCENTIVE STOCK
OPTION INCLUDES ANY TRANSFER OF LEGAL TITLE, INCLUDING A TRANSFER BY SALE,
EXCHANGE OR GIFT, BUT DOES NOT INCLUDE A TRANSFER TO THE OPTIONEE'S SPOUSE, A
TRANSFER INTO JOINT OWNERSHIP WITH RIGHT OF SURVIVORSHIP IF OPTIONEE REMAINS ONE
OF THE JOINT OWNERS, A PLEDGE, A TRANSFER BY BEQUEST OR INHERITANCE OR CERTAIN
TAX FREE EXCHANGES PERMITTED UNDER THE CODE.
-5-
for his or her records.
IV. TRANSFER RESTRICTIONS
4.1 RESTRICTION ON TRANSFER. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are
subject to the Corporation's Repurchase Right under Article V. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise made the subject of
disposition in contravention of the Corporation's First Refusal Right under
Article VI. Such restrictions on transfer, however, shall NOT be applicable
to (i) a gratuitous transfer of the Purchased Shares made to the Optionee's
spouse or issue, including adopted children, or to a trust for the exclusive
benefit of the Optionee or the Optionee's spouse or issue, PROVIDED AND ONLY
IF the Optionee obtains the Corporation's prior written consent to such
transfer, (ii) a transfer of title to the Purchased Shares effected pursuant
to the Optionee's will or the laws of intestate succession or (iii) a
transfer to the Corporation in pledge as security for any purchase-money
indebtedness incurred by the Optionee in connection with the acquisition of
the Purchased Shares.
4.2 TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of one of
the permitted transfers specified in paragraph 4.1 must, as a condition
precedent to the validity of such transfer, acknowledge in writing to the
Corporation that such person is bound by the provisions of this Agreement and
that the transferred shares are subject to (i) both the Corporation's
Repurchase Right and the Corporation's First Refusal Right granted hereunder
and (ii) the market stand-off provisions of paragraph 4.4, to the same extent
such shares would be so subject if retained by the Optionee.
4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and
VII of this Agreement, the term "Owner" shall include the Optionee and all
subsequent holders of the Purchased Shares who derive their chain of
ownership through a permitted transfer from the Optionee in accordance with
paragraph 4.1.
4.4 MARKET STAND-OFF PROVISIONS.
A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial
public offering, Owner shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise
dispose or transfer for value or otherwise agree to engage in any of the
foregoing transactions with respect to, any Purchased Shares without the prior
written consent of the Corporation or its underwriters. Such limitations
shall be in effect for such period of time from and after the effective date
of such registration statement as may be requested by the Corporation or such
underwriters; PROVIDED, however, that in no event shall such period exceed
one hundred-eighty (180) days. The limitations of this paragraph 4.4 shall
remain in effect for the two-year period immediately following the effective
date of the Corporation's initial public offering and shall thereafter
terminate and cease to have any force or effect.
-6-
B. Owner shall be subject to the market stand-off provisions of this
paragraph 4.4 PROVIDED AND ONLY IF the officers and directors of the Corporation
are also subject to similar arrangements.
C. In the event of any stock dividend, stock split, recapitalization
or other change affecting the Corporation's outstanding Common Stock effected as
a class without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Purchased Shares shall be
immediately subject to the provisions of this paragraph 4.4, to the same extent
the Purchased Shares are at such time covered by such provisions.
D. In order to enforce the limitations of this paragraph 4.4, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
V. REPURCHASE RIGHT
5.1 GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Optionee ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of
this Agreement, to repurchase at the Option Price all or (at the discretion
of the Corporation and with the consent of the Optionee) any portion of the
Purchased Shares in which the Optionee has not acquired a vested interest, if
any, in accordance with the vesting provisions of paragraph 5.3 (such shares
to be hereinafter called the "Unvested Shares").
5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to the Owner of the Unvested
Shares prior to the expiration of the applicable sixty (60)-day period
specified in paragraph 5.1. The notice shall indicate the number of Unvested
Shares to be repurchased and the date on which the repurchase is to be
effected, such date to be not more than thirty (30) days after the date of
notice. To the extent one or more certificates representing Unvested Shares
may have been previously delivered out of escrow to the Owner, then Owner
shall, prior to the dose of business on the date specified for the
repurchase, deliver to the Secretary of the Corporation the certificates
representing the Unvested Shares to be repurchased, each certificate, to be
properly endorsed for transfer. The Corporation shall, concurrently with the
receipt of such stock certificates (either from escrow in accordance with
paragraph 7.3 or from Owner as herein provided), pay to Owner in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness),
an amount equal to the Option Price previously paid for the Unvested Shares
which are to be repurchased.
5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not
timely exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all
previously Unvested Shares in which the Optionee becomes vested in accordance
with the vesting schedule specified in the
-7-
Grant Notice. All Purchased Shares as to which the Repurchase Right lapses
shall, however, continue to be subject to (i) the First Refusal Right of the
Corporation and its assignees under Article VI, (ii) the market stand-off
provisions of paragraph 4.4 and (iii) the Special Purchase Right under
Article VIII.
5.4 AGGREGATE VESTING LIMITATION. If the Option is exercised in more
than one increment so that the Optionee is a party to one or more other Stock
Purchase Agreements ("Prior Purchase Agreements") which are executed prior to
the date of this Agreement, then the total number of Purchased Shares as to
which the Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which the Optionee would otherwise at the time
be vested, in accordance with the vesting provisions of paragraph 5.3, had all
the Purchased Shares been acquired exclusively under this Agreement.
5.5 FRACTIONAL SHARES. No fractional shares shall be repurchased
by the Corporation. Accordingly, should the Repurchase Right extend to a
fractional share (in accordance with the vesting provisions of paragraph 5.3)
at the time the Optionee ceases Service, then such fractional share shall be
added to any fractional share in which the Optionee is at such time vested in
order to make one whole vested share no longer subject to the Repurchase
Right.
5.6 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to the Repurchase Right but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Purchased Shares and Total Purchasable Shares hereunder
and to the price per share to be paid upon the exercise of the Repurchase Right
in order to reflect the effect of any such transaction upon the Corporation's
capital structure; PROVIDED, however, that the aggregate purchase price shall
remain the same.
5.7 CORPORATE TRANSACTION.
A. Immediately prior to the consummation of any of the following
shareholder-approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by
-8-
the Corporation for cash) in or by means of which one or more persons
acting in concert acquire, in the aggregate, more than 50% of the
outstanding shares of the stock of the Corporation,
the Repurchase Right shall automatically lapse in its entirety
except to the extent the Repurchase Right is to be assigned to the successor
corporation (or its parent company) in connection with such Corporate
Transaction.
B. To the extent the Repurchase Right remains in effect following
such Corporate Transaction, such right shall apply to the new capital stock or
other property (including cash) received in exchange for the Purchased Shares in
consummation of the Corporate Transaction, but only to the extent the Purchased
Shares are at the time covered by such right. Appropriate adjustments shall be
made to the price per share payable upon exercise of the Repurchase Right to
reflect the effect of the Corporate Transaction upon the Corporation's capital
structure; PROVIDED, however, that the aggregate purchase price shall remain
the same.
C. Any Repurchase Rights which remain in effect following such
Corporate Transaction, shall automatically cease to be exercisable
immediately prior to Optionee's termination of Service should Optionee's
Service subsequently terminate by reason of an Involuntary Termination within
twelve (12) months following the effective date of such Corporate
Transaction. Involuntary Termination shall mean the termination of the
Service of any individual which occurs by reason of such individual's
involuntary dismissal or discharge by the Corporation for reasons other than
Misconduct, or such individual's voluntary resignation following a reduction
in his or her level of compensation (including base salary, fringe benefits)
by more than fifteen percent (15%) or 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 by the Corporation without the
individual's consent. 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).
D. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in
its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
VI. RIGHT OF FIRST REFUSAL
6.1 GRANT. The Corporation is hereby granted rights of first
refusal (the "First Refusal Right"), exercisable in connection with any
proposed transfer of the
-9-
Purchased Shares in which the Optionee has vested in accordance with the
vesting provisions of Article V. For purposes of this Article VI, the term
"transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased Shares intended to be made by the
Owner, but shall not include any of the permitted transfers under paragraph
4.1.
6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called
the "Target Shares"), Owner shall promptly (i) deliver to the Corporate
Secretary of the Corporation written notice (the "Disposition Notice") of the
terms and conditions of the offer, including the purchase price and the
identity of the third-party offeror, and (ii) provide satisfactory proof that
the disposition of the Target Shares to such third-party offeror would not be
in contravention of the provisions set forth in Articles II and IV of this
Agreement.
6.3 EXERCISE OF RIGHT. The Corporation shall, for a period of
forty-five (45) days following receipt of the Disposition Notice, have the
right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon the same terms and conditions specified therein or
upon terms and conditions which do not materially vary from those specified
therein. Such right shall be exercisable by delivery of written notice (the
"Exercise Notice") to Owner prior to the expiration of the forty-five (45)-day
exercise period. If such right is exercised with respect to all the Target
Shares specified in the Disposition Notice, then the Corporation (or its
assignees) shall effect the repurchase of the Target Shares, including
payment of the purchase price, not more than ten (10) business days after
delivery of the Exercise Notice; and at such time Owner shall deliver to the
Corporation the certificates representing the Target Shares to be
repurchased, each certificate to be properly endorsed for transfer. To the
extent any of the Target Shares are at the time held in escrow under Article
VII, the certificates for such shares shall automatically be released from
escrow and delivered to the Corporation for purchase. Should the purchase
price specified in the Disposition Notice be payable in property other than
cash or evidences of indebtedness, the Corporation (or its assignees) shall
have the right to pay the purchase price in the form of cash equal in amount
to the value of such property. If the Owner and the Corporation (or its
assignees) cannot agree on such cash value within ten (10) days after the
Corporation's receipt of the Disposition Notice, the valuation shall be made
by an appraiser of recognized standing selected by the Owner and the
Corporation (or its assignees) or, if they cannot agree on an appraiser
within twenty (20) days after the Corporation's receipt of the Disposition
Notice, each shall select an appraiser of recognized standing and the two
appraisers shall designate a third appraiser of recognized standing, whose
appraisal shall be determinative of such value. The cost of such appraisal
shall be shared equally by the Owner and the Corporation. The closing shall
then be held on the LATER of (i) the tenth business day following delivery of
the Exercise Notice or (ii) the tenth business day after such cash valuation
shall have been made.
6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within forty-five (45) days following the date of the
Corporation's receipt
-10-
of the Disposition Notice, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms and
conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; PROVIDED,
however, that any such sale or disposition must not be effected in
contravention of the provisions of Article II of this Agreement. To the
extent any of the Target Shares are at the time held in escrow under Article
VII, the certificates for such shares shall automatically be released from
escrow and surrendered to the Owner. The third-party offeror shall acquire
the Target Shares free and clear of the Corporation's Repurchase Right under
Article V and the Corporation's First Refusal Right hereunder, but the
acquired shares shall remain subject to (i) the securities law restrictions
of Article II and (ii) the market stand-off provisions of paragraph 4.4. In
the event Owner does not effect such sale or disposition of the Target Shares
within the specified thirty (30)-day period, the Corporation's First Refusal
Right shall continue to be applicable to any subsequent disposition of the
Target Shares by Owner until such right lapses in accordance with paragraph
6.7.
6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or
its assignees) makes a timely exercise of the First Refusal Right with
respect to a portion, but not all, of the Target Shares specified in the
Disposition Notice, Owner shall have the option, exercisable by written
notice to the Corporation delivered within thirty (30) days after the date of
the Disposition Notice, to effect the sale of the Target Shares pursuant to
one of the following alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of paragraph 6.4, as if the Corporation
did not exercise the First Refusal Right hereunder, or
(ii) sale to the Corporation (or its assignees) of the portion
of the Target Shares which the Corporation (or its assignees) has elected
to purchase, such sale to be effected in substantial conformity with the
provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.
6.6 Recapitalization/Merger.
(a) In the event of any stock dividend, stock split, recapitalization
or other transaction affecting the Corporation's outstanding Common Stock as a
class effected without receipt of consideration, then any new, substituted or
additional securities or other property which is by reason of such transaction
distributed with respect to the Purchased Shares shall be immediately subject to
the Corporation's First Refusal Right hereunder, but only to the extent the
Purchased Shares are at the time covered by such right.
-11-
(b) In the event of any of the following transactions:
(i) a merger or consolidation in which the Corporation
is not the surviving entity,
(ii) a sale, transfer or other deposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to person or persons
other than those who held such securities immediately prior to the
merger, or
(iv) any transaction effected primarily to change the
State in which the Corporation is incorporated, or to create a holding
company structure,
the Corporation's First Refusal Right shall remain in full force
and effect and shall apply to the new capital stock or other property received
in exchange for the Purchased Shares in consummation of the transaction but only
to the extent the Purchased Shares are at the time covered by such right.
6.7 LAPSE. The First Refusal Right under this Article VI shall lapse
and cease to have effect upon the EARLIEST to occur of (i) the first date on
which shares of the Corporation's Common Stock are held of record by more than
five hundred (500) persons, (ii) a determination is made by the Corporation's
Board of Directors that a public market exists for the outstanding shares of the
Corporation's Common Stock, or (iii) a firm commitment underwritten public
offering pursuant to an effective registration statement under the 1933 Act,
covering the offer and sale of the Corporation's Common Stock in the aggregate
amount of at least $5,000,000. However, the market stand-off provisions of
paragraph 4.4 shall continue to remain in full force and effect following the
lapse of the First Refusal Right hereunder.
VII. ESCROW
7.1 DEPOSIT. Upon issuance, the certificates for any Unvested
Shares purchased hereunder shall be deposited in escrow with the Corporate
Secretary of the Corporation to be held in accordance with the provisions of
this Article VII. Each deposited certificate shall be accompanied by a
duly-executed Assignment Separate from Certificate in the form of Exhibit I.
The deposited certificates, together with any other assets or securities from
time to time deposited with the Corporate Secretary pursuant to the
requirements of this Agreement, shall remain in escrow until such time or
times as the certificates (or other assets and securities) are to be released
or otherwise surrendered for cancellation in accordance with paragraph 7.3.
Upon delivery of the certificates (or other assets and securities) to the
Corporate Secretary of the Corporation, the Owner shall be issued an
instrument of deposit acknowledging the number of Unvested Shares (or other
assets and securities) delivered in escrow.
-12-
7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction; any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Unvested Shares shall be
immediately delivered to the Corporate Secretary to be held in escrow under
this Article VII, but only to the extent the Unvested Shares are at the time
subject to the escrow requirements of paragraph 7.1.
7.3 RELEASE/SURRENDER. The Unvested Shares, together with any
other assets or securities held in escrow hereunder, shall be subject to the
following terms and conditions relating to their release from escrow or their
surrender to the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any Unvested
Shares, then the escrowed certificates for such Unvested Shares (together
with any other assets or securities issued with respect thereto) shall be
delivered to the Corporation concurrently with the payment to the Owner, in
cash or cash equivalent (including the cancellation of any purchase-money
indebtedness), of an amount equal to the aggregate Option Price for such
Unvested Shares, and the Owner shall cease to have any further rights or
claims with respect to such Unvested Shares (or other assets or securities
attributable to such Unvested Shares).
(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to any
vested Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall, concurrently with the
payment of the paragraph 6.3 purchase price for such Target Shares to the
Owner, be surrendered to the Corporation, and the Owner shall cease to have
any further rights or claims with respect to such Target Shares (or other
assets or securities).
(iii) Should the Corporation (or its assignees) elect NOT to
exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares
(or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
vested
-13-
securities attributable thereto) shall, concurrently with the payment of
the paragraph 6.3 purchase price for such Target Shares to the Owner, be
surrendered to the Corporation, and the Owner shall cease to have any
further rights or claims with respect to such Target Shares (or other
assets or securities).
(iii) Should the Corporation (or its assignees) elect NOT to
exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares
(or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
vested shares (as well as all other vested assets and securities) shall be
released from escrow and delivered to the Owner in accordance with the
following schedule:
A. The initial release of vested shares (or other
vested assets and securities) from escrow shall be effected within
thirty (30) days following the expiration of the initial twelve
(12)-month period measured from the Grant Date.
B. Subsequent releases of vested shares (or other
vested assets and securities) from escrow shall be effected at
semi-annual intervals thereafter, with the first such semi-annual
release to occur eighteen (18) months after the Grant Date.
C. Upon the Optionee's cessation of Service, any
escrowed Purchased Shares (or other assets or securities) in which the
Optionee is at the time vested shall be promptly released from escrow.
D. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article V, any Purchased Shares (or other assets or securities) at the
time held in escrow hereunder shall promptly be released to the Owner
as fully-vested shares or other property.
(v) All Purchased Shares (or other assets or securities)
released from escrow in accordance with the provisions of subparagraph (iv)
above shall nevertheless remain subject to (I) the Corporation's First
Refusal Right under Article VI until such right lapses pursuant to
-14-
paragraph 6.7, (II) the market stand-off provisions of paragraph 4.4 until
such provisions terminate in accordance therewith and (III) the Special
Purchase Right under Article VIII.
VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION
8.1 GRANT. In connection with the dissolution of the Optionee's
marriage or the legal separation of the Optionee and the Optionee's spouse,
the Corporation shall have the right (the "Special Purchase Right"),
exercisable at any time during the thirty (30)-day period following the
Corporation's receipt of the required Dissolution Notice under paragraph 8.2,
to purchase from the Optionee's spouse, in accordance with the provisions of
paragraph 8.3, all or any portion of the Purchased Shares which would
otherwise be awarded to such spouse in settlement of any community property
or other marital property rights such spouse may have in such shares.
8.2 NOTICE OF DECREE OR AGREEMENT. The Optionee shall promptly
provide the Secretary of the Corporation with written notice (the
"Dissolution Notice") of (i) the entry of any judicial decree or order
resolving the property rights of the Optionee and the Optionee's spouse in
connection with their marital dissolution or legal separation or (ii) the
execution of any contact or agreement relating to the distribution or
division of such property rights. The Dissolution Notice shall be
accompanied by a copy of the actual decree of dissolution or settlement
agreement between the Optionee and the Optionee's spouse which provides for
the award to the spouse of one or more Purchased Shares in settlement of any
community property or other marital property rights such spouse may have in
such shares.
8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase Right
shall be exercisable by delivery of written notice (the "Purchase Notice") to
the Optionee and the Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date
such purchase is to be effected (such date to be not less than five (5)
business days, nor more than ten (10) business days, after the date of the
Purchase Notice), and the fair market value to be paid for such Purchased
Shares. The Optionee (or the Optionee's spouse, to the extent such spouse
has physical possession of the Purchased Shares) shall, prior to the close of
business on the date specified for the purchase, deliver to the Corporate
Secretary of the Corporation the certificates representing the shares to be
purchased, each certificate to be properly endorsed for transfer. To the
extent any of the shares to be purchased by the Corporation are at the time
held in escrow under Article VII, the certificates for such shares shall be
promptly delivered out of escrow to the Corporation. The Corporation shall,
concurrently with the receipt of the stock certificates, pay to the
Optionee's spouse (in cash or cash equivalents) an amount equal to the fair
market value specified for such shams in the Purchase Notice.
If the Optionee's spouse does not agree with the fair market value
specified for the shares in the Purchase Notice, then the spouse shall
promptly notify the Corporation in writing of such disagreement and the fair
market value of such
-15-
shares shall thereupon be determined by an appraiser of recognized standing
selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two appraisers
shall designate a third appraiser of recognized standing whose appraisal
shall be determinative of such value. The cost of the appraisal shall be
shared equally by the Corporation and the Optionee's spouse. The closing
shall then be held on the fifth business day following the completion of such
appraisal; PROVIDED, however, that if the appraised value is more than
fifteen percent (15%) greater than the fair market value specified for the
shares in the Purchase Notice, the Corporation shall have the right,
exercisable prior to the expiration of such five (5)-business-day period, to
rescind the exercise of the Special Purchase Right and thereby revoke its
election to purchase the shares awarded to the spouse.
8.4 LAPSE. The Special Purchase Right under this Article VIII
shall lapse and cease to have effect upon the EARLIER to occur of (i) the
first date on which the First Refusal Right under Article VI lapses or (ii)
the expiration of the thirty (30)-day exercise period specified in paragraph
8.3, to the extent the Special Purchase Right is not timely exercised in
accordance with such paragraph.
IX. GENERAL PROVISIONS
9.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V, its First Refusal Right under Article VI and/or its Special
Purchase Right under Article VIII to any person or entity selected by the
Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation.
If the assignee of the Repurchase Right is other than a one hundred
percent (100%) owned subsidiary corporation of the Corporation or the parent
corporation owning one hundred percent (100%) of the Corporation, then such
assignee must make a cash payment to the Corporation, upon the assignment of
the Repurchase Right, in an amount equal to the excess (if any) of (i) the
fair market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Unvested Shares thereunder.
9.2 DEFINITIONS. Except as otherwise provided herein, capitalized
terms shall have the meanings assigned to them in the Plan.
9.3 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon the Optionee any right to continue in the
Service of the Corporation (or any parent or subsidiary corporation of the
Corporation employing or retaining Optionee) 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 corporation of the Corporation
employing or retaining Optionee) or the Optionee, which rights are hereby
expressly reserved by each, to terminate the Optionee's Service at any time
for any reason whatsoever, with or without cause.
9.4 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the Special Purchase Right or the First Refusal Right or
(ii) the disposition of any
-16-
Purchased Shares covered thereby shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the United States mail,
registered or certified, postage prepaid and addressed to the party entitled to
such notice at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by ten (10) days
advance written notice under this paragraph 9.4 to all other parties to this
Agreement.
9.5 NO WAIVER. The failure of the Corporation (or its assignees)
in any instance to exercise the Repurchase Right granted under Article V, or
the failure of the Corporation (or its assignees) in any instance to exercise
the First Refusal Right granted under Article VI, or the failure of the
Corporation (or its assignees) in any instance to exercise the Special
Purchase Right granted under Article VIII shall not constitute a waiver of
any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other
agreement between the Corporation and the Optionee or the Optionee's spouse.
No waiver of any breach or condition of this Agreement shall be deemed to be
a waiver of any other or subsequent breach or condition, whether of like or
different nature.
9.6 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in the amount and form
provided in this Agreement, the consideration for the Purchased Shares to be
repurchased in accordance with the provisions of this Agreement, then from
and after such time, the person from whom such shares are to be repurchased
shall no longer have any rights as a holder of such shares (other than the
right to receive payment of such consideration in accordance with this
Agreement), and such shares shall be deemed purchased in accordance with the
applicable provisions hereof and the Corporation (or its assignees) shall be
deemed the owner and holder of such shares, whether or not the certificates
therefor have been delivered as required by this Agreement.
X. MISCELLANEOUS PROVISIONS
10.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation
may in its judgment deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on either the
Optionee or the Purchased Shares pursuant to the express provisions of this
Agreement.
10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and
shall in all respects be construed in conformity with the express terms and
provisions of the Plan.
10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such
laws are applied to contracts entered into and performed in such State
without resort to that State's conflict-of-laws rules.
-17-
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
10.6 POWER OF ATTORNEY. Optionee's spouse hereby appoints
Optionee his or her true and lawful attorney in fact, for him or her and in his
or her name, place and ▇▇▇▇▇, and for his or her use and benefit, to agree to
any amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Optionee's spouse further gives and
grants unto Optionee as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercise of any
of the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby ratifying and
confirming all that Optionee shall lawfully do and cause to be done by virtue of
this power of attorney.
[Remainder of This Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
DIGITAL STYLE CORPORATION OPTIONEE
By: _________________________________ ________________________________________
Title: ______________________________ Address: _______________________________
________________________________________
_______________
(1) I HAVE EXECUTED THE SECTION 83(b) ELECTION THAT WAS ATTACHED HERETO AS AN
EXHIBIT. AS SET FORTH IN ARTICLE III, I UNDERSTAND THAT I, AND NOT THE
CORPORATION, WILL BE RESPONSIBLE FOR COMPLETING THE FORM AND FILING THE ELECTION
WITH THE APPROPRIATE OFFICE OF THE FEDERAL AND STATE TAX AUTHORITIES AND THAT IF
SUCH FILING IS NOT COMPLETED WITHIN THIRTY (30) DAYS AFTER THE DATE OF THIS
AGREEMENT, I WILL NOT BE ENTITLED TO THE TAX BENEFITS PROVIDED BY SECTION 83(b).
-18-
The undersigned spouse of Optionee has read and hereby approves the foregoing
Stock Purchase Agreement. In consideration of the Corporation's granting the
Optionee the right to acquire the Purchased Shares in accordance with the terms
of such Agreement, the undersigned hereby agrees to be irrevocably bound by all
the terms and provisions of such Agreement, including (specifically) the right
of the Corporation (or its assignees) to purchase any and all interest or right
the undersigned may otherwise have in such shares pursuant to community property
laws or other marital property rights.
________________________________________
Optionee's Spouse
Address: ________________________________________
________________________________________
-19-
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________________ hereby sell(s), assign(s) and
transfer(s) unto DIGITAL STYLE CORPORATION (the "Corporation"), _______________
(_______) shares of the Common Stock of the Corporation standing in his\her name
on the books of the Corporation represented by Certificate No. __________ and do
hereby irrevocably constitute and appoint _________________ as Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: ______________________________
Signature ______________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Optionee.
Exhibit I-1
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name: ________________________________________________________________
Address: _____________________________________________________________
Taxpayer Ident. No: __________________________________________________
(2) The property with respect to which the election is being made is _____
shares of the common stock of DIGITAL STYLE CORPORATION
(3) The property was issued on________________, 19__.
(4) The taxable year in which the election is being made is the calendar
year 19__.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of
annual and monthly installments over a four (4) year period ending on
________________________________________.
(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms
will never lapse) is $_____ per share.
(7) The amount paid for such property is $_____ per share.
(8) A copy of this statement was furnished to DIGITAL STYLE CORPORATION
for whom taxpayer rendered the service underlying the transfer of
property.
(9) This statement is executed as of: __________________, 19__.
_____________________________________ ________________________________________
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Restricted Stock Issuance
Agreement.
Exhibit II-1
SPECIAL PROTECTIVE ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL
REVENUE CODE WITH RESPECT TO PROPERTY ACQUIRED UPON EXERCISE OF AN
INCENTIVE STOCK OPTION
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive
stock option under Section 422 of the Code. Accordingly, it is the intent of
the Taxpayer to utilize this election to achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to
the Taxpayer exceeds the purchase price paid for the shares. In the absence
of this election, such alternative minimum taxable income would be measured
by the spread between the fair market value of the purchased shares and the
purchase price which exists on the various lapse dates in effect for the
forfeiture restrictions applicable to such shares. The election is to be
effective to the full extent permitted under the Internal Revenue Code.
2. Section 421 (a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421 (b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421 (a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.
This form should be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.
NOTE: PAGE 2 SHOULD BE ATTACHED ONLY IF YOU ARE EXERCISING AN INCENTIVE
STOCK OPTION.
