78 STAT. ]
PUBLIC LAW 88-272-FEB. 26, 1964
assuming a stock option in a transaction to which section 425(a) Post, applies. " (b) QUALIFIED STOCK O I T I O N. — For purposes of this part, the term 'qualified stock option' means an option granted to an individual after December 31, 1963 (other than a restricted stock option granted pursuant to a contract described in section 424(c)(3)(A)), for any Post, reason connected with his employment by a corporation, if granted by the employer corporation or its parent or subsidiary corporation, to purchase stock of any of such corporations, but only if— "(1) the option is granted pursuant to a plan which includes the aggregate number of shares which may oe issued under options, and the employees (or class of employees) eligible to receive options, and which is approved by the stockholders of the granting corporation within 12 months before or after the date such plan is adopted; " (2) such option is granted within 10 years from the date such plan is adopted, or the date such plan is approved by the stockholders, whichever is earlier; "(3) such option by its terms is not exercisable after the expiration of 5 years from the date such option is granted; "(4) except as provided in subsection (c)(1), the option price is not less than the fair market value of the stock at the time such option is granted; "(5) such option by its terms is not exercisable while there is outstanding (within the meaning of subsection (c)(2)) any qualified stock option (or restricted stock option) which was granted, before the granting of such option, to such individual to purchase stock in his employer corporation or in a corporation which (at the time of the granting of such option) is a parent or subsidiary corporation of the employer corporation, or in a predecessor corporation of any of such corporations; "(6) such option by its terms is not transferable by such individual otherwise than by will or the laws of descent and distribution, and is exercisable, during his lifetime, only by him; and " (7) such individual, immediately after such option is granted, does not own stock possessing more tluin 5 percent of the total combined voting power or value of all classes of stock of the employer corporation or of its parent or subsidiary corporation; except that if the equity capital of such corporation or corporations (determined at the time the opti(m is granted) is less than $2,000,000, then, for purposes of applying the limitation of this paragraph, there shall be added to such 5 percent the percentage (not higher than 5 percent) which bears the same ratio to 5 percent as the difference between such equity capital and $2,000,000 bears to $1,000,000. " (c) SPFAIAL RULES.— " (1) ExER(^isE OP o r r i o x WIIEX PRICE IS LESS TJFAX VALUE OF
STO(^K.—If a share of stock is transferred pursuant to the exercise by an individual of an option which fails to qualify as a (|ualified stock ()ption under subsection (b) because there was a failure in an attempt, made in good faith, to meet the requirement of subsection (b)(4), the requirement of subsection (b)(4) shall be considered to have been met, but there shall be included as compensation (and not as gain upon the sale or exchange of a capital asset) in his gross income for the taxable year in which such option is exercised, an amount equal to the lesser of— " (A) 1.50 percent of the difference between the option price and the fair market value of the share at the time the option was granted, or
65 p. 71.
p. 69.
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