Opinion ID: 479208
Heading Depth: 1
Heading Rank: 1

Heading: The Stock Option Agreement

Text: 2 Appellant Prentice Robinson held an option to purchase stock, at a below market price, in Centronics Data Computer Corp., a Delaware corporation with its principal place of business in New Hampshire. Robinson received the option as part of his employment package when he became a Centronics employee during the spring of 1969. 1 3 The distinguishing feature of the stock option agreement that leads to this dispute is a provision that required Robinson to sell his shares back to Centronics, at his original cost, if he wished to dispose of them in less than one year from the day he exercised the stock option. The effect of this sellback provision was similar to the insider trading rule of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78p(b) (Rule 16b), which requires the insider to disgorge to the corporation any profit made on a short term sale. 4 The option agreement also required that the stock certificate issued to Robinson carry the following legend: 5 The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be sold, offered for sale or otherwise transferred or disposed unless a registration statement under such Act is in effect with respect thereto or unless the company has received an opinion of counsel satisfactory to it, that an exemption from such registration is applicable to said shares. 6 To further protect its interests, Centronics placed a stop transfer order with the corporation's transfer agent. The stop transfer order required the agent to notify Centronics of any request to transfer Robinson's stock to a new owner and prohibited the agent from transferring the shares without Centronics' approval and without an opinion of Centronics' counsel that the transfer did not violate securities laws. 7 On March 4, 1974, Robinson exercised the option. The present appeal requires us to determine when Robinson realized a benefit from the option agreement and when, not whether, he should have paid Federal income taxes on it.