-8- Petitioner, pursuant to broad-based plans (i.e., plans that offer ESOs to 20 percent or more of a company’s employees), offered three types of stock option compensation: ISOs, NSOs, and ESPP purchase rights. All ISOs and NSOs issued by petitioner were at-the-money. All ESPP purchase rights were issued with an exercise price equal to 85 percent of the stock’s market price. Prior to and during the 1997 taxable year, the options were generally subject to a 5-year vesting period. After 1997, petitioner decreased the vesting period from 5 to 4 years. Pursuant to the stock option plan, employees could exercise options by delivering to petitioner’s broker a notice of exercise with irrevocable instructions and consideration equal to the exercise price. The broker would then deliver the instructions and consideration to petitioner. Employees could elect to exercise their options in either a “same-day-sale” or “buy-and- hold” transaction. In a same-day-sale, the employee does not make a payment for the stock relating to the option. Instead, simultaneous execution of the option and sale of the stock results in the excess of the stock’s market price on the grant date over the exercise price going to the employee and the amount of the exercise price going to petitioner. In a buy-and-hold transaction, the employee pays the exercise price by presenting a check or other form of consideration to petitioner’s broker and in exchange receives the shares of stock.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011