แรงจูงใจใน หุ้น ตัวเลือก การควบรวมกิจการ

compensation experts have put together a checklist of the ten most important questions you should be able to answer about your stock options Use this checklist as you prepare your research for a salary negotiation or at your next performance review, or when you are in line for a promotion Some of these questions are essential to understanding the value of your stock options award, and others simply help explain the implications of certain events or situations. Don t be surprised if you have options now and can t answer some of these questions - they re not all obvious, even to people who have received stock options before. The answers provided here are relevant for people from the United States If you are not from the United States, the tax information and some of the trends discussed may not be relevant to your country. The ten most important questions about your stock options are as follows. What type of options have you been offered. How many options do you get. How many shares in the company are outstanding and how many have been approved. What is your strike price. How liquid are your options, or how liquid will they be. What is the vesting schedule for your shares. Will you get accelerated vesting if your company is acquired or merges with another company. How long must you hold your shares after an IPO, merger, or acquisition. When you exercise your options, do you need to pay with cash, or will the company float you the exercise price. What kinds of statements and forms do you get or do you need to fill out.1 What type of options have you been offered In the United States, there are essentially two types of stock options incentive stock options ISOs and nonqualified stock options NQSOs The primary difference between the two with respect to the option holder is the tax treatment when the option is exercised. When you exercise ISOs, you do not normally have to pay any taxes although there is a chance you may be required to pay an alternative minimum tax if your gain is large enough and or certain other circumstances apply You will eventually have to pay taxes on this gain, but not until you sell the stock, at which time you will pay capital gains taxes the lesser of your marginal rate or 20 percent on the total gain - the difference between the amount you paid to exercise the option and the amount for which you ultimately sold the stock. Remember, though, you must hold the stock for at least a year after you exercise the option to protect this tax break Otherwise your incentive stock option will automatically become a nonqualified stock option and you will have to pay ordinary income tax. When you exercise nonqualified stock options, you are required to pay ordinary income taxes on your gain as of the time you exercise the option This tax is based on your marginal tax rate between 15 and 39 6 percent When you eventually sell the stock, you will have to pay capital gains taxes the lesser of your marginal rate and 20 percent on the gain you realize between the market price on the day you exercise and the market price on the day you sell the stock. Insights Companies offer nonqualified stock options for a few reasons There are a number of restrictions on when and how many incentive stock options a company can grant, as well as the conditions for those options For example, if the company issues stock options with an exercise price below the actual share price, those options cannot be incentive stock options Also, the company receives a tax deduction for nonqualified stock options, but not for incentive stock options The deduction helps reduce the company s tax burden and therefore can help increase the value of the stock.2 How many options do you get The number of stock options you receive is a function of several variables Option grant sizes depend on your job, the frequency of the grants, the industry, the company s pay philosophy, the company s size, the company s maturity, and other factors In a high-tech startup, for example, the grant you receive is generally much larger as a percent of the company s total shares outstanding than a grant you would receive from a more mature, established company But often when a company is awarding a large number of shares, it is because there is more risk associated with them. Insights People often have a hard time comparing option grants from various job offers Don t focus solely on the number of shares you re being granted Try to keep in mind their potential value to you and the likelihood that they ll achieve that value For a startup, your options may have an exercise price of 5 or 1 or even 5 cents per share, but at some point a year or two from now, those shares could be worth 50 or 20 or 10 or even nothing Presumably less risky are options from mature companies that provide more stability but also less chance of a home run In these companies, look at the exercise price of the options and how you think the stock will perform over some period of time And remember, a 10 percent increase in a 50 stock is worth 5, whereas a 10 percent increase in a 20 stock is worth 2.3 How many shares in the company are outstanding and how many have been approved The number of shares outstanding is an important issue if your company is a startup, because it is important to gauge your option shares as a potential ownership percentage of the company For most people, this percent will be very small - often less than half a percent It is also important to know the number of shares approved but not issued. Insights Although this number is most relevant to startups, it is relevant to everyone because approved but unissued shares dilute everyone s ownership If the number is large, it could be an issue Dilution means each share becomes worth less because there are more shares that must make up the same total value.4 What is your strike price The strike price of an option - also called the exercise price or purchase price - is often the price of a share of stock on the day the option is granted It does not have to be the share price, but it often is This is the price you will eventually pay to exercise your option and buy the stock. If an option is granted above or below the stock price on the day of the grant, it is called a premium option or a discounted option, respectively Discounted options cannot be incentive stock options. Insights Companies that are not publicly traded traded on a stock market or over the counter may still have stock options, which do have a stock value The fair market value of a share of stock in one of these companies is normally determined by a formula, by the board of directors, or by an independent valuation of the company If you are working at one of these companies, you should ask how the share price is determined and how often This will help you understand what your options are worth. When you are negotiating, don t be surprised if the company representative tells you they cannot award you options below the current stock price Although it is legal to do, and many plans allow for it, many companies have the policy of not awarding options below fair market value and they don t want to set a precedent The number of shares you receive and the vesting are typically easier to negotiate than the strike price.5 How liquid are your options, or how liquid will they be Here, liquidity refers to how easy it is to exercise your stock options and to sell the shares The primary issue here is whether your company s stock is publicly traded If so, there are thousands of investors looking to buy or sell those shares on any given day, so the market for those shares is said to be liquid. Certain other companies, including partnerships, closely held companies, and privately held companies, normally have restrictions on whom you can sell your stock to Often it is only to one of the existing shareholders, and it may be at a formula or fixed price. Insights A stock that is illiquid can still be quite valuable Many companies with low valuations and illiquid stocks over the past few years have either been acquired or gone public, greatly increasing the value and or the liquidity for the option holders These types of liquidity events are never guaranteed, but they are always possible.6 What is the vesting schedule for your shares Vesting is the right you earn to the options you have been granted Vesting normally takes place over time, but may also be earned based on certain performance measures The concept is basically the same as vesting in a retirement plan You are awarded a benefit - in this case, stock options Over some period of time, you earn the right to keep them If you leave the company before that time has passed, you forfeit the unvested options The current trend is for options to vest in monthly, quarterly, or annual increments over three to five years For example, your options may vest 20 percent per year over five years, or they may vest 2 78 percent per month for 3 years 36 months. Insights Vesting seems to be trending toward shorter schedules with smaller increments e g monthly over 3 years rather than annually over 5 years Companies try to keep consistent option terms for people at similar levels, but vesting terms for stock options are sometimes negotiable, especially special grants for new hires and special recognition awards Once an option is vested, it s yours regardless of when or why you leave the company So the faster your options vest, the greater your flexibility.7 Will you get accelerated vesting if your company is acquired or merges with another company Sometimes, upon certain changes in control of a company, stock option vesting schedules accelerate partially or fully as a reward to the employees for increasing the value of the company, or as protection against future unknowns Usually these events do not trigger full vesting, because the unvested options are one of the ways the new company has of keeping the employees it needs After all, often the employees are one important reason for the merger or acquisition. Some companies also provide an increase in vesting at the IPO, but that is normally a partial increase rather than full immediate vesting. Insights It is important to know whether you get accelerated vesting so that you fully understand the value of your options But unless you are a senior executive or a person with a very important and hard-to-replace skill, it is difficult to negotiate any acceleration above and beyond the plan s stated terms.8 How long must you hold your shares after an IPO, a merger, or an acquisition If your company merges or is acquired, or if it goes public, you may not be able to sell your shares right away The length of time you must hold your shares after an IPO or merger depends on the SEC Securities and Exchange Commission and individual company restrictions Review your option agreement, plan documents, and any pre-IPO or premerger communications for descriptions of any holding period or lockout period. Insights Although you can t change the lockout period, you can use it to plan how you will use the proceeds from any sale of stock Note that the price of a company s stock sometimes decreases on or after the day a lockout period ends, as employees sell their shares in large numbers If you want to sell after a lockout period, and the price decreases, you might benefit from waiting a little longer until it stabilizes, provided the stock is performing well in other respects.9 When you exercise your options, do you need to pay with cash, or will the company float you the exercise price Depending on the company you work for and the terms of the stock option plan, you may be able to exercise your options in one of three ways by paying the exercise price out of your own checking account by borrowing the money in a bridge loan from your company or by completing a cashless transaction that allows you to receive the net number of shares you would end up with had you borrowed the money to exercise the options and sold just enough shares to pay back the borrowed money For the second and third alternatives, you should know whether any taxes you owe can be paid from the loan or cashless exercise. Insights If you must pay the cost of the exercise, you may need a significant amount of cash To preserve the favorable accounting treatment of any incentive stock options you exercise, you will not be able to sell the stock for a full year Well before you exercise your options, you should consider contacting a financial advisor to determine the best approach for given your financial situation.10 What kinds of statements and forms do you get or do you need to fill out Some companies provide a regular statement or even a daily update on your company intranet summarizing your holdings, what s vested and what s not, the value of each based on the current stock price, and perhaps even an indication of the after-tax gain Other companies give only an initial option agreement with no updates until the option term is about to expire or you are about to leave the company. Insights Whether the company provides updates for you or not, be sure you receive, in writing, a dated statement from the company that tells you how many options you have been awarded, the exercise price, the vesting schedule, the expiration date, exercise alternatives, terms for changes of control, and terms for adjusting based on reorganization. This last issue is important because if the company s stock splits or mergers with another company s stock, your stock options should be adjusted accordingly to make sure your financial position is maintained. Be sure to keep all option agreements These are legal contracts, and should there ever be an issue over what you ve been promised, that statement will help protect your rights.- Johanna Schlegel, Editor-in-Chief. The Treatment of Stock Options in the Context of a Merger or Acquisition Transaction. A principal issue in merger and acquisition transactions is whether, and to what extent, outstanding options will survive the completion of the transaction and whether and when the vesting of options will be accelerated It is critical for a properly drafted equity incentive plan to include clear, unambiguous provisions for the treatment of outstanding awards in connection with these types of transactions, which include a company s consolidation with or acquisition by another entity in a merger or consolidation, or a sale of all or substantially all of a company s assets hereinafter referred to as a Corporate Transaction. Whether a change of control of a company should provide for accelerated vesting is a business decision and a separate and distinct issue from the impact the Corporate Transaction will have on the outstanding options Equity incentives have significant implications in the negotiation of a Corporate Transaction, as their treatment can affect the value of the Corporate Transaction and the consideration to be received by stockholders. Corporate Transactions. To avoid unintended consequences and unwelcome constraints in the negotiation of a Corporate Transaction, equity incentive plans should provide the maximum flexibility for a company to equitably adjust awards under its plan and should permit a company s board of directors in its discretion to determine at the time of the Corporate Transaction whether outstanding options should be 1 assumed or substituted by the acquirer, 2 cancelled at the time of the acquisition if not previously exercised, or 3 cashed out in exchange for a cash payment equal to the difference between the exercise price of the option and the price per share of the underlying stock to be received in the Corporate Transaction In a well drafted plan, options do not need to be treated uniformly For example, in a cash transaction it would be most desirable to cancel out of the money options for no consideration and provide for a cash payment for in the money options. Assumption vs Substitution. An acquirer may want to assume the target company s options instead of substituting them to avoid depleting the acquirer s existing equity incentive plan pool and to avoid inadvertent modifications to the awards that would convert an option intended to qualify as an incentive stock option into a nonqualified stock option or cause application of Section 409A of the Internal Revenue Code of 1986 the Internal Revenue Code In addition, if the acquirer is a public company, subject to certain limits and rules, the stock exchanges permit the issuance of shares remaining under the target company s assumed plan pool without additional shareholder approval. In contrast, an acquirer may decide to substitute instead of assume the target company s options because the acquirer wants all of its options to have uniform terms and conditions, assuming this can be done without the optionee s consent and under applicable provisions of the Internal Revenue Code In addition, if the acquirer is a public company, the acquirer will not have to register the shares underlying the substituted options under the securities laws because a registration statement would already be in effect, which is not the case with respect to assumed options. An acquirer may not want to assume the options because their terms or the depth to which the company grants options within its workforce may be inconsistent with its compensation culture If the acquirer is not paying cash for the underlying stock in the Corporate Transaction, it may be unwilling to cash out the stock options Therefore, the plan must provide the flexibility to terminate options in order for the target company to satisfy the acquirer s position as how to best compensate the target company s employees going forward, which may or may not include the use of options In a cancellation, the optionees are provided the opportunity to exercise their vested options up until the time of the Corporate Transaction In addition, in recent years as underwater stock options have become more prevalent, the ability to cancel underwater options unilaterally and avoid post-closing dilution and compensation income expense to the acquirer has allowed the target company to reallocate, among its stockholders and employees, the cost of these options in a Corporate Transaction in a more productive manner. Cashing out options provides similar benefits to an acquirer as terminating options does, including no post-closing administration, compensation expense, or increased potential dilution It provides a simple way for employees to receive cash for their equity without having to first go out-of-pocket to fund the exercise price It simplifies the administrative and tax reporting process of the option exercise, as the optionee will receive a cash payment and the company does not have to go through the stock issuance procedure Private company option holders favor cashing out because it finally provides optionees with liquidity without having to make an investment. Acceleration of Vesting upon a Change of Control. A separate issue that must be assessed, at either the time of the option grant or at the time of the Corporate Transaction, is whether the vesting of any options should be accelerated if the Corporate Transaction also constitutes or results in a change of control of the company Acceleration provisions may be set forth in the equity incentive plan or other agreements outside of the plan, such as the agreement evidencing the award, employment agreements, or severance and retention agreements Generally, change of control acceleration is in the form of either a single trigger or a double trigger Some plans and arrangements contain a hybrid of the single and double trigger approach, such as providing for the partial vesting of awards upon a change of control event, with additional vesting if a second triggering event occurs or vesting that depends upon the treatment of the options in the Corporate Transaction, such as providing for accelerated vesting only in the event that awards are not assumed by the acquirer, since the optionee will no longer have the opportunity post-transaction to continue to earn the option through vesting, even if he or she remains employed. Single Trigger. Under a single trigger provision, the vesting of options is accelerated and awards become exercisable immediately prior to a change of control. Aligns the interests of option holders and stockholders by allowing the option holders to share in the value they have created. Provides for equitable treatment of all employees, regardless of their length of employment assuming all options are fully accelerated. Provides for a built-in retention award, allowing the target company to deliver an intact management team to the acquirer, which can eliminate the need for a cash retention arrangement through the date of a Corporate Transaction. No affect on earnings as vested equity awards are treated as an expense of the target company. Beneficial when acquirer is going to terminate the existing equity plan or will not be assuming or substituting the unvested options. Can be viewed as a windfall for option holders who will be terminated by the acquirer or who were recently employed by the target company. No retention or motivational value after the change of control. Will require the acquirer to issue its own equity post-transaction to newly incentivize employees of the target company. The payment in respect of the acceleration will be taken from the consideration that would otherwise go to the stockholders of the target company. The acquirer must deal with the fact that its acquired workforce has fully vested equity awards, while its pre-existing employees do not, which may present integration issues. Viewed negatively by stockholders and investors, and specifically by governance groups, as a problematic pay practice. Double Trigger. Under a double trigger provision, the vesting of awards accelerates only if two events occur First, a change of control must occur Second, the option holder s employment must be terminated by the acquirer without cause or the optionee leaves the acquirer for good reason within a specified period of time following the change of control. Aligns option holder and stockholder interests more fully. Provides a key retention tool for senior executives who are instrumental to the integration process. Alleviates the need for additional retention incentives by the acquirer in the form of cash or additional equity. Provides protection for the option holder in the event of termination of employment due to a change of control. Viewed by corporate governance and stockholder advisory groups as the preferred approach to acceleration of vesting. Option holders, unlike stockholders, may not immediately share in any tangible increase in value of the company s stock or the acquirer s stock. Loss of value if the unvested options are not assumed or substituted by the acquirer, since a double trigger is useless if awards are terminated at closing. If the acceleration provides a substantial payment, it provides a disincentive for employees to be retained by the acquirer and a motivation for those who continue to be employed to be asked to leave the acquirer. Steps to Consider. In preparation for the negotiation of a Corporate Transaction, companies should consider taking the following steps.1 Review the company s existing equity incentive plans to determine and understand what ability or lack of ability the company has to determine the treatment of its stock options and other awards in connection with a Corporate Transaction, and consider whether the plan or agreement can be amended to fix problem grants.2 Confirm that the company s existing equity incentive plans expressly and unambiguously permit without the optionee s consent the assumption, termination, and cash out of options, including the cancellation of underwater options without consideration.3 Review any and all agreements containing change of control provisions to ensure that the provision governing the treatment of the award in a Corporate Transaction and change of control protection if any are consistent.4 Periodically review the equity incentive plans and forms of agreement in light of continuing changes in the law and market practices in compensation arrangements and corporate transactions. If you have any questions about this alert, please contact the authors or your Mintz Levin attorney. Incentive Stock Option Agreement. Granted Under 2010 Stock Incentive Plan.1 Grant of Option. This agreement evidences the grant by Zipcar, Inc a Delaware corporation the Company , on 20 the Grant Date to an employee of the Company the Participant , of an option to purchase, in whole or in part, on the terms provided herein and in the Company s 2010 Stock Incentive Plan the Plan , a total of shares the Shares of common stock, 001 par value per share, of the Company Common Stock at per Share, which is the Fair Market Value of a share of common stock on the Grant Date The term of the Shares shall be ten years after the Grant Date the Final Exercise Date , subject to earlier termination in the event of Participant s termination as specified in Section 3 below Acceptance of this option signifies acceptance of the terms of this agreement and the Plan, a copy of which has been provided to the Participant. It is intended that the option evidenced by this agreement shall be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder the Code Except as otherwise indicated by the context, the term Participant, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.2 Vesting Schedule. This option will become exercisable vest as to 25 of the original number of Shares on the first anniversary of the Vesting Commencement Date and as to an additional 2 0833 of the original number of Shares at the end of each successive month following the first anniversary of the Vesting Commencement Date until the fourth anniversary of the Vesting Commencement Date, provided the Participant is still employed by the Company For purposes of this Agreement, Vesting Commencement Date shall mean 20.Except as may be specifically stated herein, the Participant must be employed on a vesting date for vesting to occur There shall be no proportionate or partial vesting in the period prior to each vesting date and all vesting shall occur only on the appropriate vesting date. The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan.3 Exercise of Option. a Form of Exercise Each election to exercise this option shall be accompanied by a completed Notice of Stock Option Exercise in the form attached hereto as Exhibit A signed by the Participant, and received by the Company at its principal office, accompanied by this. agreement, and payment in full in the manner provided in the Plan The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share or for fewer than ten whole shares. b Continuous Relationship with the Company Required Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or officer of, or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424 e or f of the Code an Eligible Participant. c Termination of Relationship with the Company If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs d and e below, the right to exercise this option shall terminate three months after such cessation but in no event after the Final Exercise Date , provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon such violation. d Exercise Period Upon Death or Disability If the Participant dies or becomes disabled within the meaning of Section 22 e 3 of the Code prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for cause as specified in paragraph e below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant or in the case of death by an authorized transferee , provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date. e Termination for Cause If, prior to the Final Exercise Date, the Participant s employment is terminated by the Company for Cause as defined below , the right to exercise this option shall terminate immediately upon the effective date of such termination of employment If the Participant is party to an employment or severance agreement with the Company that contains a definition of cause for termination of employment, Cause shall have the meaning ascribed to such term in such agreement Otherwise, Cause shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company , as determined by the Company, which determination shall be conclusive The Participant shall be considered to have been discharged for Cause if the Company determines, within 30 days after the Participant s resignation, that discharge for cause was warranted.4 Company Right of First Refusal. a Notice of Proposed Transfer If the Participant proposes to sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise collectively, transfer any Shares acquired upon exercise of this option, then the Participant shall first give written notice of the proposed transfer the Transfer Notice to the Company The Transfer Notice shall name the proposed transferee and state the number of such Shares the Participant proposes to transfer the Offered Shares , the price per share and all other material terms and conditions of the transfer. b Company Right to Purchase For 30 days following its receipt of such Transfer Notice, the Company shall have the option to purchase all or part of the Offered Shares at the price and upon the terms set forth in the Transfer Notice In the event the Company elects to purchase all or part of the Offered Shares, it shall give written notice of such election to the Participant within such 30-day period Within 10 days after his or her receipt of such notice, the Participant shall tender to the Company at its principal offices the certificate or certificates representing the Offered Shares to be purchased by the Company, duly endorsed in blank by the Participant or with duly endorsed stock powers attached thereto, all in a form suitable for transfer of the Offered Shares to the Company Promptly following receipt of such certificate or certificates, the Company shall deliver or mail to the Participant a check in payment of the purchase price for such Offered Shares provided that if the terms of payment set forth in the Transfer Notice were other than cash against delivery, the Company may pay for the Offered Shares on the same terms and conditions as were set forth in the Transfer Notice and provided further that any delay in making such payment shall not invalidate the Company s exercise of its option to purchase the Offered Shares. c Shares Not Purchased By Company If the Company does not elect to acquire all of the Offered Shares, the Participant may, within the 30-day period following the expiration of the option granted to the Company under subsection b above, transfer the Offered Shares which the Company has not elected to acquire to the proposed transferee, provided that such transfer shall not be on terms and conditions more favorable to the transferee than those contained in the Transfer Notice Notwithstanding any of the above, all Offered Shares transferred pursuant to this Section 4 shall remain subject to the right of first refusal set forth in this Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4. d Consequences of Non-Delivery After the time at which the Offered Shares are required to be delivered to the Company for transfer to the Company pursuant to subsection b above, the Company shall not pay any dividend to the Participant on account of such Offered Shares or permit the Participant to exercise any of the privileges or rights of a stockholder with respect to such Offered Shares, but shall, insofar as permitted by law, treat the Company as the owner of such Offered Shares. e Exempt Transactions The following transactions shall be exempt from the provisions of this Section 4. 1 any transfer of Shares to or for the benefit of any spouse, child or grandchild of the Participant, or to a trust for their benefit. 2 any transfer pursuant to an effective registration statement filed by the Company under the Securities Act of 1933, as amended the Securities Act and. 3 the sale of all or substantially all of the outstanding shares of capital stock of the Company including pursuant to a merger or consolidation. provided however that in the case of a transfer pursuant to clause 1 above, such Shares shall remain subject to the right of first refusal set forth in this Section 4 and such transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Section 4. f Assignment of Company Right The Company may assign its rights to purchase Offered Shares in any particular transaction under this Section 4 to one or more persons or entities. g Termination The provisions of this Section 4 shall terminate upon the earlier of the following events. 1 the closing of the sale of shares of Common Stock in an underwritten public offering pursuant to an effective registration statement filed by the Company under the Securities Act or. 2 the sale of all or substantially all of the outstanding shares of capital stock, assets or business of the Company, by merger, consolidation, sale of assets or otherwise other than a merger or consolidation in which all or substantially all of the individuals and entities who were beneficial owners of the Company s voting securities immediately prior to such transaction beneficially own, directly or indirectly, more than 75 determined on an as-converted basis of the outstanding securities entitled to vote generally in the election of directors of the resulting, surviving or acquiring corporation in such transaction. h No Obligation to Recognize Invalid Transfer The Company shall not be required 1 to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Section 4, or 2 to treat as owner of such Shares or to pay dividends to any transferee to whom any such Shares shall have been so sold or transferred. 1 At a minimum, the certificate representing Shares shall bear a legend substantially in the following form. The shares represented by this certificate are subject to a right of first refusal in favor of the Company, as provided in a certain stock option agreement with the Company. 2 Furthermore, all certificates for Shares delivered hereunder shall be subject to such stop transfer orders and other restrictions as the Company may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Company s common stock is then listed or any national securities exchange system upon whose system the Company s common stock is then quoted, or any applicable Federal, state or other securities law or other applicable corporate law, and the Company may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.5 Agreement in Connection with Initial Public Offering The Participant agrees, in connection with the initial underwritten public offering of the Common Stock pursuant to a registration statement under the Securities Act, i not to a offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any other securities of the Company or b enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of shares of Common Stock or other securities of the Company, whether any transaction described in clause a or b is to be settled by delivery of securities, in cash or otherwise, during the period beginning on the date of the filing of such registration statement with the Securities and Exchange Commission and ending 180 days after the date of the final prospectus relating to the offering plus up to an additional 34 days to the extent requested by the managing underwriters for such offering in order to address Rule 2711 f of the National Association of Securities Dealers, Inc or any similar successor provision , and ii to execute any agreement reflecting clause i above as may be requested by the Company or the managing underwriters at the time of such offering The Company may impose stop-transfer instructions with respect to the shares of Common Stock or other securities subject to the foregoing restriction until the end of the lock-up period. a Section 422 Requirement The Shares granted hereby are intended to qualify as incentive stock options under Section 422 of the Code Notwithstanding the foregoing, the Shares will not qualify as incentive stock options, if, among other events, a the Participant disposes of the Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option b except in the event of the Participant s death or disability as described in Section 3 d above , the Participant is not employed by the Company, a parent or a subsidiary at all times during the period beginning on Grant Date and ending on the day that is three 3 months before the date of exercise of any Shares or c to the extent the aggregate fair market value of the Shares subject to incentive stock options held by the Participant which become exercisable for the first time in any calendar year under all plans of the Company, a parent or a subsidiary exceeds 100,000 For purposes of clause this paragraph, the fair market value of the Shares shall be determined as of the Grant Date in accordance with the terms of the Plan. b Disqualifying Disposition To the extent that any share does not qualify as an incentive stock option, it shall not affect the validity of such Shares and shall constitute a separate non-qualified stock option In the event that the Participant disposes of the Shares acquired upon. exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option, the Participant must deliver to the Company, within seven 7 days following such disposition, a written notice specifying the date on which such shares were disposed of, the number of shares so disposed, and, if such disposition was by a sale or exchange, the amount of consideration received. c Withholding No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.7 Nontransferability of Option Except as otherwise provided herein, this option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.8 No Rights as a Shareholder The Participant shall have no rights as a shareholder of the Company with respect to any common stock covered by the Shares unless and until the Participant has become the holder of record of such common stock and no adjustment shall be made for dividends or other property, distributions or other rights in respect of any such common stock, except as otherwise specifically provided for in the Plan.9 No Obligation to Continue Employment This agreement is not an agreement of employment This agreement does not guarantee that the Company will employ the Participant for any specific time period, nor does it modify in any respect the Company s right to terminate or modify the Participant s employment or compensation.10 Governing Law All questions concerning the construction, validity and interpretation of this agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the choice of law principles thereof.11 Section 409A The intent of the parties is that benefits under this agreement be exempt from the provisions of Section 409A of the Code and, accordingly, to the maximum extent permitted, this agreement shall be interpreted to be limited, construed and interpreted in accordance with such intent In no event whatsoever shall the Company be liable for any additional tax, interest or penalties that may be imposed on Participant by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code hereunder or otherwise.12 Provisions of the Plan This option is subject to the provisions of the Plan including the provisions relating to amendments to the Plan , a copy of which is furnished to the Participant with this option. IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer This option shall take effect as a sealed instrument. Social Security Number of Holder s. I represent, warrant and covenant as follows.1 I am purchasing the Shares for my own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Securities Act of 1933 the Securities Act , or any rule or regulation under the Securities Act. I have had such opportunity as I have deemed adequate to obtain from representatives of the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company. I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase. I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period. I understand that i the Shares have not been registered under the Securities Act and are restricted securities within the meaning of Rule 144 under the Securities Act, ii the Shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available iii in any event, the exemption from registration under Rule 144 will not be available for at least one year and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with and iv there is now no registration statement on file with the Securities and Exchange Commission with respect to any stock of the Company and the Company has no obligation or current intention to register the Shares under the Securities Act. Very truly yours.