QUESTION 5

1. On January 1, 2020, Heather and Logan will form New Venture Inc. (NV) as a Delaware corporation. When forming NV, Heather and Logan will each purchase 2,400,000 shares of common stock for $0.001 a share. That is, Heather will pay $2,400 in total for her 2,400,000 shares of NV common stock and Logan will also pay $2,400 for his 2,400,000 shares. The shares will be subject to restricted stock purchase agreements that contain Repurchase Options like the repurchase option we discussed in class. Thus, each Repurchase Option will allow NV to repurchase a founders unvested shares, at the lower of the cost or the fair market value, if and when the founder quits NV (and each Repurchase Option will lapse over a four year period). Despite NVs anticipated success, assume that Heather may resign from NV on January 1, 2023 (just one day after her TWO year anniversary). Assume that on January 1, 2023, NV's common stock will have a fair market value of $10.00 per share and that 1,200,000 of Heathers shares will still be subject to NVs Repurchase Option.

   Assume that Heather does resign on January 1, 2023 and that NV exercises its Repurchase Option to the maximum extent possible. How much will NV pay Heather upon such exercise and what is the fair market value of those shares?

   		NV will pay Heather $12,000,000 since the fair market value of the shares will equal $12,000,000
   		NV will pay Heather $12,000,000 even though the fair market value of the shares will equal $1,200
   		NV will pay Heather $1,200 even though the fair market value of the shares will equal $12,000,000
   		NV will pay Heather $1,200 since the fair market value of the shares will equal $1,200