§1.1504-1 Definitions.

§§1.1504-2—1.1504-3 [Reserved]

§1.1504-4 Treatment of warrants, options, convertible obligations, and other similar interests.

(a) Introduction.

(1) General rule.

(2) Exceptions.

(b) Options not treated as stock or as exercised.

(1) General rule.

(2) Options treated as exercised.

(i) In general.

(ii) Aggregation of options.

(iii) Effect of treating option as exercised.

(A) In general.

(B) Cash settlement options, phantom stock, stock appreciation rights, or similar interests.

(iv) Valuation.

(3) Example.

(c) Definitions.

(1) Issuing corporation.

(2) Related or sequential option.

(3) Related persons.

(4) Measurement date.

(i) General rule.

(ii) Issuances, transfers, or adjustments not treated as measurement dates.

(iii) Transactions increasing likelihood of exercise.

(iv) Measurement date for options issued pursuant to a plan.

(v) Measurement date for related or sequential options.

(vi) Example.

(5) In-the-money.

(d) Options.

(1) Instruments treated as options.

(2) Instruments generally not treated as options.

(i) Options on section 1504(a)(4) stock.

(ii) Certain publicly traded options.

(A) General rule.

(B) Exception.

(iii) Stock purchase agreements.

(iv) Escrow, pledge, or other security agreements.

(v) Compensatory options.

(A) General rule.

(B) Exceptions.

(vi) Options granted in connection with a loan.

(vii) Options created pursuant to a title 11 or similar case.

(viii) Convertible preferred stock.

(ix) Other enumerated instruments.

(e) Elimination of federal income tax liability.

(f) Substantial amount of federal income tax liability.

(g) Reasonable certainty of exercise.

(1) Generally.

(i) Purchase price.

(ii) In-the-money option.

(iii) Not in-the-money option.

(iv) Exercise price.

(v) Time of exercise.

(vi) Related or sequential options.

(vii) Stockholder rights.

(viii) Restrictive covenants.

(ix) Intention to alter value.

(x) Contingencies.

(2) Cash settlement options, phantom stock, stock appreciation rights, or similar interests.

(3) Safe harbors.

(i) Options to acquire stock.

(ii) Options to sell stock.

(iii) Options exercisable at fair market value.

(iv) Exceptions.

(v) Failure to satisfy safe harbor.

(h) Examples.

(i) Effective date.