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SECURITIES PURCHASE AGREEMENT
BETWEEN
DG FASTCHANNEL, INC.
AND
MIDWOOD CAPITAL MANAGEMENT LLC,
MIDWOOD CAPITAL PARTNERS, L.P.,
MIDWOOD CAPITAL PARTNERS QP, L.P.
DECEMBER 22, 2006
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THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is entered
into effective as of December 22, 2006 between DG FastChannel, Inc., a Delaware
corporation (the "Purchaser"), Midwood Capital LLC, a Delaware limited liability
company ("Seller"), Midwood Capital Partners, L.P., a Delaware limited
partnership ("LP") and Midwood Capital Partners QP, L.P., a Delaware limited
partnership ("QP" and together with LP, the "Funds")'
WHEREAS, Seller and the Funds beneficially own 1,108,674 shares (the
"Shares") of common stock, no par value, of POINT.360 ("Point 360"), a
California corporation;
WHEREAS, Seller is the sole general partner of, and manages and
provides investment advice to, each of the Funds;
WHEREAS, Purchaser desires to acquire the Shares, free from all
liens, pledges, encumbrances, proxies, voting agreements or arrangements of any
kind with respect to the Shares, on the terms, representations warranties, and
covenants hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Purchase. Seller shall deliver, convey and transfer, or cause the Funds
to deliver, convey and transfer, the Shares against delivery in same day funds
by wire transfer of $3.25 per Share, for a total purchase price ("Purchase
Price") of $3,603,191, to a brokerage account designated in writing by
Purchaser, by irrevocable written instructions (the "Transfer Instructions") to
the broker(s) engaged by Seller on behalf of the Funds which presently hold or
otherwise have custody of the Shares. Seller shall provide Purchaser with
written wire instructions for delivery of the Purchase Price to an account(s) at
a U.S. financial institution or broker (the "Wire Instructions"), upon which
Purchaser can rely in full payment for the Shares. Against confirmation of
delivery of the Transfer Instructions to such broker(s) which presently hold or
have custody of the Shares, Purchaser shall deliver or cause to be delivered the
Purchaser Price in accordance with the Wire Instructions.
2. Representations, Warranties and Covenants of the Purchaser. Purchaser
hereby represents, warrants and covenants to each of the Seller and the Funds as
follows.
2.1 Due Authorization. Purchaser has all requisite power and
authority to execute, deliver and perform its obligations under this Agreement,
and has taken all necessary corporate action to enter and perform this
Agreement. This Agreement has been duly authorized and validly executed and
delivered by Purchaser and constitutes a legal, valid and binding agreement of
Purchaser enforceable against Purchaser in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
2.2 Non-Contravention. The execution and delivery of this Agreement,
the purchase of the Shares under this Agreement, the fulfillment of the terms of
this Agreement and the consummation of the transactions contemplated hereby will
not (A) conflict with or constitute a violation of, or default (with or without
the giving of notice or the passage of time or both) under,
1
(i) any material bond, debenture, note or other evidence of indebtedness, or
under any material lease, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which Purchaser is a party,
(ii) the charter, by-laws or other organizational documents of Purchaser, as
applicable, or (iii) any law, administrative regulation, ordinance or order of
any court or governmental agency, arbitration panel or authority applicable to
Purchaser or its property, or (B) result in the creation or imposition of any
lien, encumbrance, claim, security interest or restriction whatsoever upon any
of the material properties or assets of Purchaser or an acceleration of
indebtedness pursuant to any obligation, agreement or condition contained in any
material bond, debenture, note or any other evidence of indebtedness or any
material indenture, mortgage, deed of trust or any other agreement or instrument
to which Purchaser is a party or by which any of them is bound or to which any
of the property or assets of Purchaser is subject. No consent, approval,
authorization or other order of, or registration, qualification or filing with,
any regulatory body, administrative agency, self-regulatory organization, stock
exchange or market, or other governmental body in the United States is required
for the execution and delivery of this Agreement and the acquisition of the
Shares by Purchaser, other than with respect to such filings as may be required
by Purchaser under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
2.3 Status. Purchaser acknowledges that may be entering into this
Agreement and acquiring the Shares on the basis of incomplete or inaccurate
information available to it, and that neither Seller nor the Funds, nor any of
their respective affiliates or representatives, have made any statement or
representations with respect to the financial condition, results of operations
or prospects of Point 360. Purchaser hereby waives any claims or causes of
action it may have against Seller, the Funds or any of their respective
affiliates or representatives with respect to the offer to sell and the sale of
the Shares under the securities laws of the Untied States, applicable state
securities or other laws or judicial doctrines, upon delivery of the Shares as
provided under this Agreement.
3. Representations, Warranties and Covenants of Seller and the Funds. Each
of Seller and the Funds, severally and not joint, hereby represents, warrants
and covenants to Purchaser as follows:
3.1 Title. The Funds are the beneficial owner of the Shares and hold
good and marketable title to the Shares without restriction on sale or transfer,
and upon consummation of the transaction contemplated by this Agreement,
Purchaser will acquire title to the Shares, free and clear of any and all liens,
claims, pledges or encumbrances, proxies or voting agreements or arrangements of
any kind.
3.2 Due Authorization. Each of the Seller and the Funds has all
requisite power and authority to execute, deliver and perform its obligations
under this Agreement, and has taken all necessary company or partnership action,
as applicable, to enter and perform this Agreement. This Agreement has been duly
authorized and validly executed and delivered by each of Seller and the Funds
and constitutes a legal, valid and binding agreement of each of Seller and the
Funds enforceable against Seller and the Funds in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
2
3.3 Non-Contravention. The execution and delivery of this Agreement,
the sale of the Shares under this Agreement, the fulfillment of the terms of
this Agreement and the consummation of the transactions contemplated hereby will
not (A) conflict with or constitute a violation of, or default (with or without
the giving of notice or the passage of time or both) under, (i) any material
bond, debenture, note or other evidence of indebtedness, or under any material
lease, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which Seller or either of the Funds is a party,
(ii) the organizational documents of Seller or the Funds, or (iii) any law,
administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to Seller or either of the
Funds or their respective property, other than with respect to a potential
obligation arising under the Exchange Act, or (B) result in the creation or
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the material properties or assets of Seller or either of
the Funds or an acceleration of indebtedness pursuant to any obligation,
agreement or condition contained in any material bond, debenture, note or any
other evidence of indebtedness or any material indenture, mortgage, deed of
trust or any other agreement or instrument to which Seller or either of the
Funds is a party or by which any of them is bound or to which any of the
property or assets of Seller or either of the Funds is subject. No consent,
approval, authorization or other order of, or registration, qualification or
filing with, any regulatory body, administrative agency, self -regulatory
organization, stock exchange or market, or other governmental body in the United
States is required for the execution and delivery of this Agreement and the sale
of the Shares by Seller and the Funds.
3.4 Share Ownership. Upon fulfillment of their obligations
hereunder, neither Seller nor either of the Funds, will own (beneficially or
otherwise) any equity securities of the Point 360, or any securities convertible
into or exchangeable or exercisable for any equity securities of the Point 360,
or which, upon redemption thereof could result in Seller or either of the funds
receiving any equity securities of Point 360, or options, warrants, contractual
rights or other rights of any kind to acquire or vote any equity securities of
the Point 360.
3.5 Status. Seller is the sole general partner of the Funds and has
sole investment and voting power with respect to the Shares. Each of Seller and
the Funds acknowledge that they are sophisticated investors in equity securities
and that they trade and invest regularly in equity securities of United States
issuers such as Point 360, that they may be entering into this Agreement and
selling the Shares on the basis of incomplete or inaccurate information
available to them, that neither Purchaser nor any of Purchaser's affiliates or
representatives have disclosed to them any intent to acquire additional shares
of common stock of Point 360 but if Purchaser or any affiliate thereof should
acquire more shares of common stock of Point 360 through any means including
open market, privately negotiated or business combination transactions,
Purchaser or its affiliates may do so at any time at a price or fair market
value greater than $3.25 per share. Each of Seller and the Funds hereby waive
any claims or causes of actions they may have against Purchaser, its affiliates
or representatives with respect to the offer to purchase and the sale of the
Shares under the securities laws of the United States, applicable state
securities or other laws or judicial doctrines, upon payment in full of the
Purchase Price of the Shares as provided under this Agreement.
3.6 U.S. Taxpayer. Each of Seller and the Funds have executed and
delivered to Purchase a Substitute Form W-9, substantially in the form attached
hereto, and represent and warrant to Purchaser that they are not a "foreign
person" within the meaning of Section 1445(b)(2) of the Internal Revenue Code.
3
4. Survival of Representations, Warranties and Agreements. Notwithstanding
any investigation made by any party to this Agreement, all covenants,
agreements, representations and warranties made by Purchaser and Seller and each
of the Funds herein shall survive the execution and delivery of this Agreement,
the delivery to Purchaser of the Shares and the payment of the Purchase Price as
provided herein.
5. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed (A) if within domestic United
States by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, or by facsimile, or (B) if delivered
from outside the United States, by International Federal Express or facsimile,
and shall be deemed given (i) if delivered by first-class registered or
certified mail domestic, three business days after so mailed, (ii) if delivered
by nationally recognized overnight carrier, one business day after so mailed,
(iii) if delivered by International Federal Express, two business days after so
mailed, and (iv) if delivered by facsimile, upon electric confirmation of
receipt and shall be delivered as addressed as follows:
(a) if to the Purchaser, to:
DG FastChannel, Inc.
000 X. Xxxx Xxxxxxxxx Xxxxxxx
Xxxxx 000
Xxxxxx, Xxxxx 7503
Attn: Xxxx X. Xxxxxxxx
Chief Financial Officer
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx LLP
000 Xxxxxxxx Xxxxxx, X.X.
Xxxxx 0000
Xxxxxxxxxx, XX 00000
Attn: Xxxxxxx X. X'Xxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
(b) if to Seller or the Funds, to:
Midwood Capital Management LLC
000 Xxxxxxxx
0xx Xxxxx
Xxxxxx, XX 00000
Attn: Xxxxx Xxxxx
Managing Director
Phone: (000) 000-0000
Fax: (000) 000-0000
4
with a copy to:
Xxxxx Xxxx LLP
000 Xxxxxxx Xxxxxxxxx
Xxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
Copies delivered to counsel shall not constitute notice.
6. Changes. This Agreement may not be modified or amended except pursuant
to an instrument in writing signed by the Purchaser and Seller and the Funds.
7. Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.
8. Severability. In case any provision contained in this Agreement should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
9. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York, without giving
effect to the principles of conflicts of law.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and any and
all other written or oral agreements relating to such subject matter are
expressly cancelled.
11. Finders Fees. Neither Purchaser, nor Seller, nor the Funds nor any
affiliate thereof has incurred any obligation which will result in the
obligation of the other party to pay any finder's fee or commission in
connection with this transaction.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
13. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of Purchaser and Seller
and the Funds.
14. Expenses. Each of the Purchaser and Seller and the Funds shall bear
its own expenses in connection with the preparation and negotiation of the
Agreement and any brokerage fees or commissions in respect of the sale and
delivery of the Shares.
[Signature pages follow.]
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
DG FASTCHANNEL, INC.
By: /s/ Xxxxx Xxxxxxxx
------------------------------
Xxxxx Xxxxxxxx
Chairman and CEO
MIDWOOD CAPITAL MANAGEMENT LLC
By: /s/ Xxxxx Xxxxx
------------------------------
Xxxxx Xxxxx
Managing Director
MIDWOOD CAPITAL PARTNERS, L.P.
By: Midwood Capital Management LLC
General Partner
By: /s/ Xxxxx Xxxxx
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Xxxxx Xxxxx
Managing Director
MIDWOOD CAPITAL PARTNERS QP, L.P.
By: Midwood Capital Management LLC
General Partner
By: /s/ Xxxxx Xxxxx
------------------------------
Xxxxx Xxxxx
Managing Director
Attachment: Substitute Form W-9
Substitute W-9 REQUEST FOR TAXPAYER GIVE FORM TO THE
Form IDENTIFICATION NUMBER AND CERTIFICATION REQUESTER. DO NOT
(Rev. February 2005) SEND TO THE IRS.
PLEASE PRINT OR TYPE
See SPECIFIC INSTRUCTIONS on page 2.
--------------------------------------------------------------------------------
Name (as shown on your income tax return)
--------------------------------------------------------------------------------
Business name, if different from above
MIDWOOD CAPITAL PARTNERS, L.P.
--------------------------------------------------------------------------------
Check [ ] Individual/Sole [ ] Corporation [X] Partnership [ ] Other _________ [X] Exempt from
appropriate Proprietor backup withholding
box:
[ ] LLC filing as Sole [ ] LLC filing as [ ] LLC filing as Partnership
Proprietor Corporation
----------------------------------------------------------------------------------------------------------------------
Address (number, street, and apt. or suite no.) Requester's name and address (optional)
000 XXXXXXXX XXXXXX, 0XX FLOOR
-------------------------------------------------------------------------------
City, state, and ZIP code
XXXXXX, XX 00000
----------------------------------------------------------------------------------------------------------------------
List account number(s) here (optional)
----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART I TAXPAYER IDENTIFICATION/NUMBER (TIN)
--------------------------------------------------------------------------------
Enter your TIN in the appropriate box. The TIN provided must match the name
given on Line 1 to avoid backup withholding. For individuals, this is your
social security number (SSN). However, for a resident alien, sole proprietor, or
disregarded entity, see the Part I instructions on page 3. For other entities,
it is your employer identification number (EIN). If you do not have a number,
see How to get a TIN on page 3.
NOTE: If the account is in more than one name, see the chart on page 3 for
guidelines on whose number to enter.
------------------------------
SOCIAL SECURITY NUMBER
------------------------------
OR
------------------------------
EMPLOYER IDENTIFICATION NUMBER
000000000
------------------------------
--------------------------------------------------------------------------------
PART II CERTIFICATION
--------------------------------------------------------------------------------
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding, and
3. I am a U.S. person (including a U.S. resident alien).
CERTIFICATION INSTRUCTIONS. You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
you have failed to report all interest and dividends on your tax return. For
real estate transactions, item 2 does not apply.
For mortgage interest paid, acquisition or abandonment of secured property,
cancellation of debt, contributions to an individual retirement arrangement
(XXX), and generally, payments other than interest and dividends, you are not
required to sign the Certification, but you must provide your correct TIN. (See
the instructions on page 3.)
--------------------------------------------------------------------------------
SIGN HERE SIGNATURE OF
U.S. PERSON > /s/ Xxxxx X. Xxxxx DATE > 12/22/06
--------------------------------------------------------------------------------
PURPOSE OF FORM
A person who is required to file an information return with the IRS must obtain
your correct taxpayer identification number (TIN) to report, for example, income
paid to you, real estate transactions, mortgage interest you paid, acquisition
or abandonment of secured property, cancellation of debt, or contributions you
made to an XXX.
U.S. PERSON. Use form W-9 only if you are a U.S. person (including a resident
alien), to provide your correct TIN to the person requesting it (the requester)
and, when applicable, to:
1. Certify the TIN you are giving is correct (or you are waiting for a
number to be issued),
2. Certify you are not subject to backup withholding, or
3. Claim exemption from backup withholding if you are a U.S. exempt
payee.
NOTE: If a requester gives you a form other than Form W-9 to request your TIN,
you must use the requester's form if it is substantially similar to this Form
W-9.
For federal tax purposes you are considered a person if you are:
- An individual who is a citizen or resident of the United States,
- A partnership, corporation, company, or association created or
organized in the United States or under the laws of the United
States, or
- Any estate (other than a foreign estate) or trust. See Regulations
sections 301.7701-6(a) and 7(a) for additional information.
FOREIGN PERSON. If you are a foreign person, do not use for W-9. Instead use the
appropriate Form W-8 (see Publication 515, Withholding of Tax on Nonresident
Aliens and Foreign Entities).
NONRESIDENT ALIEN WHO BECOMES A RESIDENT ALIEN. Generally, only a nonresident
alien individual may use the terms of a tax treaty to reduce or eliminate U.S.
tax on certain types of income. However, most tax treaties contain a provision
known as a "saving clause." Exceptions specified in the saving clause may permit
an exemption from tax to continue for certain types of income even after the
recipient has otherwise become a U.S. resident alien for tax purposes.
If you are a U.S. resident alien who is relying on a exception contained
in the saving clause of a tax treaty to claim an exemption from U.S. tax on
certain types of income, you must attach a statement to Form W-9 that specifies
the following five items:
1. The treaty country. Generally, this must be the same treaty under
which you claimed exemption from tax as a nonresident alien.
2. The treaty article addressing the income.
3. The article number (or location) in the tax treaty that contains the
saving clause and its exceptions.
4. The type and amount of income that qualifies for the exemption from
tax.
5. Sufficient facts to justify the exemption from tax under the terms
of the treaty article.
EXAMPLE. Article 20 of the U.S.-China income tax treaty allows an exemption from
tax for scholarship income received by a Chinese student temporarily present in
the United States. Under U.S. law, this student will become a resident alien for
tax purposes if his or her stay in the United States exceeds 5 calendar years.
However, paragraph 2 of the first Protocol to the U.S.-China treaty (dated April
30, 1984) allows the provisions of Article 20 to continue to apply even after
the Chinese student becomes a resident alien of the United States. A Chinese
Substitute Form W-9 (Rev. 02-2005)
Substitute W-9 REQUEST FOR TAXPAYER GIVE FORM TO THE
Form IDENTIFICATION NUMBER AND CERTIFICATION REQUESTER. DO NOT
(Rev. February 2005) SEND TO THE IRS.
PLEASE PRINT OR TYPE
See SPECIFIC INSTRUCTIONS on page 2.
--------------------------------------------------------------------------------
Name (as shown on your income tax return)
--------------------------------------------------------------------------------
Business name, if different from above
MIDWOOD CAPITAL PARTNERS QP, L.P.
--------------------------------------------------------------------------------
Check [ ] Individual/Sole [ ] Corporation [X] Partnership [ ] Other _________ [X] Exempt from
appropriate Proprietor backup withholding
box:
[ ] LLC filing as Sole [ ] LLC filing as [ ] LLC filing as Partnership
Proprietor Corporation
----------------------------------------------------------------------------------------------------------------------
Address (number, street, and apt. or suite no.) Requester's name and address (optional)
000 XXXXXXXX XXXXXX, 0XX FLOOR
-------------------------------------------------------------------------------
City, state, and ZIP code
XXXXXX, XX 00000
----------------------------------------------------------------------------------------------------------------------
List account number(s) here (optional)
----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART I TAXPAYER IDENTIFICATION/NUMBER (TIN)
--------------------------------------------------------------------------------
Enter your TIN in the appropriate box. The TIN provided must match the name
given on Line 1 to avoid backup withholding. For individuals, this is your
social security number (SSN). However, for a resident alien, sole proprietor, or
disregarded entity, see the Part I instructions on page 3. For other entities,
it is your employer identification number (EIN). If you do not have a number,
see How to get a TIN on page 3.
NOTE: If the account is in more than one name, see the chart on page 3 for
guidelines on whose number to enter.
------------------------------
SOCIAL SECURITY NUMBER
------------------------------
OR
------------------------------
EMPLOYER IDENTIFICATION NUMBER
000000000
------------------------------
--------------------------------------------------------------------------------
PART II CERTIFICATION
--------------------------------------------------------------------------------
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding, and
3. I am a U.S. person (including a U.S. resident alien).
CERTIFICATION INSTRUCTIONS. You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
you have failed to report all interest and dividends on your tax return. For
real estate transactions, item 2 does not apply.
For mortgage interest paid, acquisition or abandonment of secured property,
cancellation of debt, contributions to an individual retirement arrangement
(XXX), and generally, payments other than interest and dividends, you are not
required to sign the Certification, but you must provide your correct TIN. (See
the instructions on page 3.)
--------------------------------------------------------------------------------
SIGN HERE SIGNATURE OF
U.S. PERSON > /s/ Xxxxx X. Xxxxx DATE > 12/22/06
--------------------------------------------------------------------------------
PURPOSE OF FORM
A person who is required to file an information return with the IRS must obtain
your correct taxpayer identification number (TIN) to report, for example, income
paid to you, real estate transactions, mortgage interest you paid, acquisition
or abandonment of secured property, cancellation of debt, or contributions you
made to an XXX.
U.S. PERSON. Use form W-9 only if you are a U.S. person (including a resident
alien), to provide your correct TIN to the person requesting it (the requester)
and, when applicable, to:
1. Certify the TIN you are giving is correct (or you are waiting for a
number to be issued),
2. Certify you are not subject to backup withholding, or
3. Claim exemption from backup withholding if you are a U.S. exempt
payee.
NOTE: If a requester gives you a form other than Form W-9 to request your TIN,
you must use the requester's form if it is substantially similar to this Form
W-9.
For federal tax purposes you are considered a person if you are:
- An individual who is a citizen or resident of the United States,
- A partnership, corporation, company, or association created or
organized in the United States or under the laws of the United
States, or
- Any estate (other than a foreign estate) or trust. See Regulations
sections 301.7701-6(a) and 7(a) for additional information.
FOREIGN PERSON. If you are a foreign person, do not use for W-9. Instead use the
appropriate Form W-8 (see Publication 515, Withholding of Tax on Nonresident
Aliens and Foreign Entities).
NONRESIDENT ALIEN WHO BECOMES A RESIDENT ALIEN. Generally, only a nonresident
alien individual may use the terms of a tax treaty to reduce or eliminate U.S.
tax on certain types of income. However, most tax treaties contain a provision
known as a "saving clause." Exceptions specified in the saving clause may permit
an exemption from tax to continue for certain types of income even after the
recipient has otherwise become a U.S. resident alien for tax purposes.
If you are a U.S. resident alien who is relying on a exception contained
in the saving clause of a tax treaty to claim an exemption from U.S. tax on
certain types of income, you must attach a statement to Form W-9 that specifies
the following five items:
1. The treaty country. Generally, this must be the same treaty under
which you claimed exemption from tax as a nonresident alien.
2. The treaty article addressing the income.
3. The article number (or location) in the tax treaty that contains the
saving clause and its exceptions.
4. The type and amount of income that qualifies for the exemption from
tax.
5. Sufficient facts to justify the exemption from tax under the terms
of the treaty article.
EXAMPLE. Article 20 of the U.S.-China income tax treaty allows an exemption from
tax for scholarship income received by a Chinese student temporarily present in
the United States. Under U.S. law, this student will become a resident alien for
tax purposes if his or her stay in the United States exceeds 5 calendar years.
However, paragraph 2 of the first Protocol to the U.S.-China treaty (dated April
30, 1984) allows the provisions of Article 20 to continue to apply even after
the Chinese student becomes a resident alien of the United States. A Chinese
Substitute Form W-9 (Rev. 02-2005)