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On July 23, 1999, InsWeb had an initial public offering of
its stock.
On August 26, 1999, petitioner signed a promissory note and
a security agreement for a $250,000 loan from Comerica Bank-
California (Comerica) to exercise his stock options, pledging the
shares of InsWeb common stock he would receive as collateral.
The security agreement provided that, if petitioner was found to
be in default, Comerica could sell the collateral and apply the
proceeds to the outstanding balance on the indebtedness. The
security agreement also stated that after such sale the “Debtor
shall remain liable for any deficiency, which it shall pay to
Bank immediately upon demand”. During 1999 and 2000, petitioner
had a checking account with Comerica. At all times relevant to
this case, Comerica and InsWeb were separate corporate entities.
On September 7, 1999, petitioner partially exercised one of
his nonstatutory stock options, option No. 106, to purchase
20,000 shares of InsWeb common stock. The fair market value of
the stock petitioner received was $572,500. Petitioner paid an
exercise price to InsWeb of $26,000.
Petitioner exercised option No. 106 again on December 30,
1999, to purchase 11,250 shares of InsWeb common stock. The fair
market value of the stock petitioner received was $285,469. The
exercise price petitioner paid to InsWeb was $14,625.
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