Learn the best ways to properly develop equity incentives for your employees, consultants and advisers. This Lunch & Learn will teach you how to: Use equity incentives to reduce your cash burn Create performance incentives by rewarding employees, consultants and advisers with equity Avoid some nasty labor and tax issues Equity incentives that will be highlighted include: direct stock grants (both restricted and unrestricted), grants of stock options (both qualified and non-qualified) and share appreciation rights, also known as phantom stock plans. -- About the Lunch & Learn series at the Cove @ UCI: Every 1st and 3rd Friday of the month, UCI Applied Innovation hosts a Lunch & Learn series at the Cove where subject matter experts present on a particular topic within or relevant to innovation and entrepreneurship.Topics range in breadth from branding and marketing to pitching mistakes to avoid to working with investors. These events are free and open to the public. Check-in begins at 11:30 a.m. About UCI Applied Innovation: UCI Applied Innovation brings campus-based inventions and entrepreneurship together with Orange County's vibrant business community to support job creation and economic growth. About the Cove @ UCI: To accelerate collaboration by better connecting innovation partners in Orange County, UCI Applied Innovation created the Cove, 46,000 square feet of state-of-the-art technological facilities and office space. Follow us on social media: Facebook: @UCICove Twitter: @UCICove Instagram: @UCICove LinkedIn: @UCIAppliedInnovation For more information: cove@uci.edu http://innovation.uci.edu/

1. How to Get Stock Awards to Your Team
Lunch & Learn
UCI Applied Innovation
December 7, 2018
Presented by Bart Greenberg
Pivotal Law Firm, Inc.

2. Types of Plans
 Direct Stock Purchases
 Stock Options
 Phantom Stock and Share Appreciation Rights

3. Direct Stock Purchases

4. Type of Grant
 Unrestricted
 Not subject to forfeiture
 Restricted
 Subject to forfeiture

5. Tax Treatment
 Unrestricted
 Ordinary income to the extent FMV exceeds purchase
price
 The Company has a reciprocal compensation deduction
 Any profit at sale will be afforded capital gains
treatment

6. Tax Treatment (cont.)
 Restricted
 Recognition of ordinary income as and when
restrictions lapse
 If, however, Section 83(b) election is made, see
“Unrestricted”

7. Vesting
 Passage of Time
 Performance Based
 Individual Performance
 Company Performance
 Combination of Time and Performance Vesting
 Acceleration of Vesting
 Determination of Triggers
 Accounting Considerations

8. Stock Options

9. Type of Options
 Incentive stock options
 Grantee must be an employee
 Exercise price must be > FMV
 Other statutory requirements
 Nonqualified stock options
 Any option other than an incentive stock option

10. Tax Treatment
 Incentive stock options
 No tax deduction for the Company at grant or exercise
 Capital gains treatment to optionee upon sale of stock
 Potential AMT liability to optionee at time of exercise
 In the event of a disqualifying event, see Nonqualified
stock options

11. Tax Treatment (cont.)
 Nonqualified stock options
 Tax deduction at exercise in amount equal to
“spread”
 Ordinary income to optionee in amount of spread at
exercise
 Potential ordinary income at grant if negligible
exercise price

12. Tax Treatment (cont.)
 [Potentially] subject to deferred compensation taxation
(accelerated taxation, interest charge and 20% excise
tax) if exercise price < FMV

13. Exercise Price
 Incentive stock option
 Must be FMV at time of grant (110% if 10% shareholder)
 Nonqualified stock option
 For tax purposes, no restriction (however, may be subject
to deferred compensation taxation under Section 409A if
< FMV)

14. Vesting
 Passage of Time
 Performance Based
 Individual Performance
 Company Performance

15. Vesting (cont.)
 Combination of Time and Performance Vesting
 Acceleration of Vesting
 Definition of Triggers
 Accounting Considerations

16. Phantom Stock and
Share Appreciation Rights

17. Tax Treatment
 Company has tax deduction on date of payment in
amount equal to appreciation
 Ordinary income to employee at time of payment
 Deferred compensation taxation (accelerated taxation,
interest charge and 20% excise tax) may apply

18. Questions?

19. Thank you!
Bart Greenberg
Pivotal Law Firm, Inc.
(949) 287-8060
bart@pivotallawfirm.com
www.pivotallawfirm.com