I
103D CONGRESS
1ST SESSION
H. R. 2759
To amend the Internal Revenue Code of 1986 to allow corporations to
issue performance stock options to employees, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JULY 27, 1993
Mr. PAYNE of Virginia (for himself and Mrs. JOHNSON of Connecticut) intro-
duced the following bill; which was referred jointly to the Committees on
Ways and Means and Energy and Commerce
A BILL
To amend the Internal Revenue Code of 1986 to allow cor-
porations to issue performance stock options to employ-
ees, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Equity Expansion Act
of 1993’’.
SEC. 2. PERFORMANCE STOCK OPTIONS.
(a) IN GENERAL.—Part II of subchapter D of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
certain stock options) is amended by redesignating section
424 as section 425 and by inserting after section 423 the
following new section:
‘‘SEC. 424. PERFORMANCE STOCK OPTIONS.
‘‘(a) IN GENERAL.—Section 421(a) shall apply with
respect to the transfer of a share of stock to any person
pursuant to the exercise of a performance stock option if
no disposition of such share is made by such person within
1 year after the transfer of such share to such person.
‘‘(b) PERFORMANCE STOCK OPTION.—For purposes
of this part—
‘‘(1) IN
GENERAL.—The term ‘performance
stock option’ means an option granted to any person
for any reason in connection with the performance
of services for an entity described in paragraph (4)
to purchase stock of any corporation described in
paragraph (4).
‘‘(2) ADDITIONAL REQUIREMENTS.—An option
shall not be treated as a performance stock option
unless the following requirements are met:
‘‘(A) NONDISCRIMINATION.—Either—
‘‘(i) the option is granted to an em-
ployee who, at the time of the grant, is not
a highly compensated employee, or
‘‘(ii) immediately after the grant of
the option, employees who are not highly
compensated employees hold performance
share options which permit the acquisition
of at least 50 percent of all shares which
may be acquired pursuant to all perform-
ance stock options outstanding (whether or
not exercisable) as of such time.
For purposes of clause (ii), only that portion of
the options held by persons other than
nonhighly compensated employees which results
in the requirements of clause (ii) not being met
shall be treated as options which are not per-
formance stock options, and such portion shall
be allocated among options held by such per-
sons in such manner as the Secretary may
prescribe.
‘‘(B) SPECIFIC
NUMBER
OF
OPTIONS.—
The option is granted pursuant to a plan that
includes either—
‘‘(i) the aggregate number of shares
that may be issued under options granted
under the plan, or
‘‘(ii) a method by which the aggregate
number of shares that may be issued under
options granted under the plan can be de-
termined (without regard to whether such
aggregate number may change under such
method),
and which is approved by the stockholders of
the granting corporation within 12 months be-
fore or after the date such plan is adopted.
‘‘(C) TIME WHEN OPTION GRANTED.—The
option is granted within 10 years after the date
the plan described in subparagraph (B) is
adopted, or the date such plan is approved by
the stockholders, whichever is earlier.
‘‘(D) TIME
FOR
EXERCISING
OPTION.—
The option by its terms is not exercisable after
the expiration of 10 years from the date such
option is granted.
‘‘(E) OPTION PRICE.—Except as provided
in paragraph (6) of subsection (c), the option
price is not less than the fair market value of
the stock at the time the option is granted.
‘‘(F) TRANSFERABILITY.—The option by
its terms is not transferable by the person hold-
ing the option, other than—
‘‘(i) in the case of an individual, by
will or the laws of descent and distribution,
or pursuant to a qualified domestic rela-