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its terms may not be exercisable more than 10 years after the
date the option is granted. Sec. 422(b)(3). Fourth, the option
price must not be less than the fair market value of the stock at
the time the option is granted. Sec. 422(b)(4). Fifth, the
option by its terms may not be transferable except by will or
laws of descent and distribution and must be exercisable during
the optionee’s lifetime only by the optionee. Sec. 422(b)(5).
Sixth, when the option is granted, the optionee cannot own stock
possessing more than 10 percent of the total combined voting
power of all classes of stock of the employer (or its parent or
subsidiary).
We agree with respondent that all of the section 422(b)
requirements were not met as to the options as originally issued.
To this end, we are unable to conclude that the options met the
requirements of section 422(b)(1) through (4). We are unable to
find on the basis of the credible evidence in the record that the
options were issued pursuant to a specific plan, that CTI’s
shareholders approved such a plan, or the date on which a plan
was adopted or approved. Nor are we able to find that the option
price was at or above the fair market value of the related stock
at the time of the options’ issuance. We also note that the
consulting agreement allowed petitioner to exercise her options
within 90 days after the consulting agreement expired, a date
that could have been more than 10 years after the grant date.
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