-22-
We also agree with respondent that the options as originally
issued were later modified and that the options as modified also
failed the requirements of section 422(b). Section 424(h)(1)
provides that “if the terms of any option to purchase stock are
modified, extended, or renewed, such modification, extension or
renewal shall be considered as the granting of a new option.” In
this context, a “modification” denotes “any change in the terms
of the option which gives the employee additional benefits under
the option,” except that the term does not include a change in
the terms of an option “in the case of an option not immediately
exercisable in full, to accelerate the time at which the option
may be exercised.” Sec. 424(h)(3).
The consulting agreement modified the original options and
caused petitioner to receive a grant of new options pursuant to
section 424(h). In this regard, the consulting agreement set new
vesting dates for petitioner’s options and gave her 90 days from
the date of termination of the agreement to exercise the vested
options. Petitioner benefited from this change in that she was
given the right to exercise her options even if she ceased to be
an employee of CTI for more than 90 days; under the original
option agreements, the options would have expired 3 months or 90
days (depending upon the particular agreement) from the date of
her termination of employment with CTI for any reason other than
death or disability. Stated differently, as a result of the
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