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marketing. As part of his compensation package, petitioner
received a monthly salary of $10,000 and a $300,000 yearly bonus
if his target goals were reached. Petitioner was also granted
several stock options pursuant to i2’s Stock Option Agreement
(Agreement), which consisted of ISOs and nonstatutory stock
options (NSOs). To the extent relevant to this case, these
options are set forth in the table below:
Option grant ISO or NSO as of Number of Exercise
date date of option shares granted price per
grant share
12/29/95 ISO 276,000 $0.1475
12/15/97 ISO 78,272 5.10938
12/15/97 NSO 1,728 5.10938
10/21/98 ISO 28,696 3.48438
10/21/98 NSO 91,304 3.48438
The Agreement provided, among other things, that ISOs would
cease to qualify for favorable tax treatment if (and to the
extent) they were exercised more than 3 months after the date the
employee/optionee ceased to be an employee of i2 for any reason
other than death or permanent disability. The Incentive Stock
Option Agreement (ISO Agreement), accompanying the Agreement,
stated that if the ISOs did not qualify as an incentive stock
option, there might be a regular Federal income tax liability
upon the exercise of the option.
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