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A. Incentive Stock Options
Petitioner began employment with Seagate Software, Inc.
(Seagate), on March 6, 1995. After Veritas Software Corp.
(Veritas) acquired Seagate on May 28, 1999, petitioner stayed on
as a full-time employee of Veritas until April 23, 2001.
As part of his compensation from both companies, petitioner
was granted options to acquire common stock, all of which
qualified as incentive stock options (ISO). Petitioner’s Seagate
ISOs were converted to Veritas ISOs when Veritas took over
Seagate, but the converted ISOs continued to be governed by the
original Seagate stock option grants and retained the Seagate
grant number. Petitioner was granted additional ISOs by Veritas
which were governed by the Veritas 1993 Equity Incentive Stock
Option Plan.
Petitioner was not a dealer or trader in securities. He
exercised Veritas ISOs and acquired 34,948 shares in a series of
transactions beginning November 30, 1999, and ending May 1, 2001.
Petitioner paid $115,954 to exercise the ISOs and acquired the
shares, which had a fair market value (FMV) of $4,476,973 at the
various dates of exercise. Between February 28, 2000, and
December 27, 2002, petitioner sold all of the Veritas shares
acquired by exercising ISOs. In 2000, the market value for
Veritas stock began to fall and continued to decline thereafter.
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