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sec. 240.16b-6(a) and (b) (2006), which apply specifically to
derivative securities. Read together, these regulations provide
that (1) the establishment of a call equivalent position (grant
of a stock option) shall be deemed a purchase of the underlying
security for purposes of section 16(b) of the Exchange Act, (2)
the acquisition of underlying securities at a fixed price upon
the exercise of a call equivalent position shall be exempt from
the operation of section 16(b) of the Exchange Act, and (3) if 6
months elapse between the acquisition of a derivative security
and the disposition of the derivative security or its underlying
equity security, the transaction is exempt from the operation of
section 16(b) of the Exchange Act. Inasmuch as petitioner did
not sell any MGC shares within 6 months of March 1999--the last
date MGC granted petitioner an ISO--we conclude petitioner
qualified for the exemption set forth in SEC rule 16b-3(d)(3).
Consequently, we hold petitioner was not subject to a suit under
section 16(b) of the Exchange Act during 2000.
We would reach the same conclusion even if some technical
impediment precluded petitioner’s ISOs from qualifying for
exemption under SEC rule 16b. That rule merely provides
exemptions or a “safe-harbor” from the applicability of section
16(b) of the Exchange Act--it does not impose affirmative
liability. As previously discussed, because petitioner’s ISOs
were granted between April 1996 and March 1999, the 6-month
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