Shutterfly 2011 Annual Report Download - page 99

8.1 Exercise of Incentive Stock Option .
If the Option qualifies as an ISO, there will be no regular U.S. Federal
income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price will be treated as a tax preference item for U.S. Federal alternative minimum tax purposes and may subject Purchaser to
the alternative minimum tax in the year of exercise.
8.2 Exercise of Nonqualified Stock Option .
If the Option does not qualify as an ISO, there may be a regular U.S.
Federal income tax liability upon the exercise of the Option. Purchaser will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If
Purchaser is or was an employee of the Company, the Company may be required to withhold from Purchaser's compensation or collect from
Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
8.3 Disposition of Shares . The following tax consequences may apply upon disposition of the Shares.
(a) Incentive Stock Options
. If the Shares are held for more than twelve (12) months after the date of the
transfer of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on
disposition of the Shares will be treated as long term capital gain for federal income tax purposes. If Shares purchased under an ISO are
disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over
the Exercise Price.
(b) Nonqualified Stock Options
. If the Shares are held for more than twelve (12) months after the date of the
transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long-
term capital
gain.
(c) Withholding . The Company may be required to withhold from the Purchaser’
s compensation or collect
from the Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income.
9. COMPLIANCE WITH LAWS AND REGULATIONS .
The issuance and transfer of the Shares will be subject to and
conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable
requirements of any stock exchange or automated quotation system on which the Company's Common Stock may be listed or quoted at the time
of such issuance or transfer.
10. SUCCESSORS AND ASSIGNS .
The Company may assign any of its rights under this Exercise Agreement. No other
party to this Exercise Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Exercise
Agreement, except with the prior written consent of the Company. This Exercise Agreement shall be binding upon and inure to the benefit of
the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Agreement will be binding upon
Purchaser and Purchaser's heirs, executors, administrators, legal representatives, successors and assigns.
11. GOVERNING LAW .
This Exercise Agreement shall be governed by and construed in accordance with the laws of the
State of California, without giving effect to that body of laws pertaining to conflict of laws.
12. NOTICES .
Any and all notices required or permitted to be given to a party pursuant to the provisions of this Exercise
Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Exercise Agreement on the
earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) one (1) business day after deposit with an express
overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof
of delivery from the courier requested; or (iii) three (3) business days after deposit in the United States mail by certified mail (return receipt
requested) for United States deliveries. All notices for delivery outside the United States will be sent by express courier. All notices not
delivered personally will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set
forth below the signature lines of this Exercise Agreement, or at such other address as such other party may designate by one of the indicated
means of notice herein to the other parties hereto. Notices to the Company will be marked "Attention: Stock Plan Administration".