BACKGROUND INFORMATION On August 30, 2017, Richard and Eric formed New Co. (“NEW CO.”) as a Delaware corporation. On tha

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BACKGROUND INFORMATION
On August 30, 2017, Richard and Eric formed New Co. (“NEW CO.”)
as a Delaware corporation. On that date NEW CO. issued 2,400,000
shares of common stock to Eric and 2,400,000 shares of common stock
to Richard. Eric and Richard each paid $0.0001 per share for their
stock (which equaled the fair market value “FMV” on August 30,
2017). Their stock is subject to a “Repurchase Option” (at the
lower of cost or FMV) in favor of NEW CO. Each Repurchase Option
“lapses” over a 48-month vesting period (which includes a 12-month
“cliff”), provided that Richard and Eric continue to provide
services to NEW CO. That is, for example, if Eric quits NEW CO.
before August 30, 2021, NEW CO. can repurchase Eric’s “unvested
shares” for $0.0001 each (even if the FMV value is much higher on
that date). Specifically, each Restricted Stock Purchase Agreement
includes the following language:
2,400,000 shares of
the Stock (the “Restricted Stock”) are subject to the Repurchase
Option as of the date of this Agreement. On the date 12 months from
August 30, 2017 (the “Vesting Anniversary Date”), 12/48th of the
Restricted Stock shall vest and be released from the Repurchase
Option; thereafter, 1/48th of the Restricted Stock shall vest and
be released from the Repurchase Option on a monthly basis measured
from the Vesting Anniversary Date, until all the Restricted Stock
is released from the Repurchase Option (provided in each case that
Purchaser remains a Service Provider as of the date of such
release).
In 2017, NEW CO.’s total income exceeded its total deductions by
$500,000. NEW CO. has never paid any dividends. Despite NEW CO.’s
success, assume that Eric will resign from NEW CO. on September 7,
2018. Assume further that NEW CO.’s common stock has a FMV value of
$2.0001 per share on both August 30, 2018 and September 7,
2018.
A. $0
E. $1,200,060 (or, 600,000 shares x $2.0001 per share)
B. $60 (or, 600,000 shares x $0.0001 per share)
F. $3,600,180 (or, 1,800,000 shares x $2.0001 per share)
C. $180 (or, 1,800,000 shares x $0.0001 per share)
G. $4,800,240 (or, 2,400,000 shares x $2.0001 per share)
D. $240 (or, 2,400,000 shares x $0.0001 per share)
H. None of the above