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TITLE 26-INTERNAL REVENUE CODE (B) the new option by its terms is not ex- ercisable while there is outstanding (within the meaning of paragraph (2)) any qualified stock option (or restricted stock option) which was granted, before the granting of the new option, to such individual to pur- chase stock in such corporation at a price (determined as of the date of grant of the new option) higher than the option price of the new option. (7) Certain options granted after May 20, 1976 For purposes of subsection (b), an option granted after May 20, 1976, meets the re- quirements of this paragraph- (A) if such option is granted to an individ- ual pursuant to a written plan adopted before May 21, 1976, or (B) if such option is a new option substi- tuted, in a transaction to which section 425(a) applies, for an old option which was granted before May 21, 1976, or which met the requirements of subparagraph (A). An option described in the preceding sentence shall be treated as ceasing to meet the re- quirements of this paragraph if it is not exer- cised before May 21, 1981. (Added Pub. L. 88-272, title II, § 221(a), Feb. 26, 1964, 78 Stat. 64, and amended Pub. L. 94-455, title VI, § 603(a), (b), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1574, 1834.) REFERENCES IN TEXT The Bankruptcy Act, referred to in subsec. (c)(5), is art. July 1. 1898, ch. 541, 30 Stat. 544, as amended, which is classified generally to Title If, Bankruptcy. For complete classification of this Act to the Code, see Tables volume. AMENDMENTS 1976-Subsec. (b). Pub. L. 94-455, §603(a), added "and before May 21, 1976 (or, if it meets the requir- ments of subsection (c)(7), granted to an individual after May 20, 1976)," in the provisions preceding par. (1). Subsec. (c)(3)(A)(i). Pub. L. 94-455, § 1906(b)(13)(A), struck out "or his delegate" following "Secretary". Subsec. (c)(7). Pub. L. 94-455, § 603(b), added subsec. (c)(7). EFFECTIVE DATE OF 1976 AMENDMENT Section 603(d) of Pub. L. 94-455 provided that: "The amendments made by this section [amending subsec. (b) and enacting subsec. (c)(7) of this section and amending section 424(c)(3) of this title] shall apply to taxable years ending after December 31, 1975." EFFECTIVE DATE Section applicable to taxable years ending after Dec. 31, 1963, except in cases of options granted after Dec. 31, 1963, and before Jan. 1, 1965, in which case pars. (1) and (2) of subsec. (b) shall not apply, see section 221(e) of Pub. L. 88-272 set out as an Effective Date of 1964 Amendment note under section 421 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 57, 421, 425, 1023, 6039 of this title. § 423. Employee stock purchase plans (a) General rule Section 421(a) shall apply with respect to the transfer of a share of stock to an individual pursuant to his exercise of an option granted after December 31, 1963 (other than a restrict- ed stock option granted pm suant to a plan de- scribed in section 424(c)(3)(B), under an em- ployee stock purchase plan (as defined in sub- section (b)) if- (1) no disposition of such share is made by him within 2 years after the date of the granting of the option nor within 9 months after the transfer of such share to him; and (2) at all times during the period beginning with the date of the granting of the option and ending on the day 3 months before the date of such exercise, he is an employee of the corporation granting such option, a parent or subsidiary corporation of such cor- poration, or a corporation or a parent or sub- sidiary corporation of such corporation issu- ing or assuming a stock option in a transac- tion to which section 425(a) applies. (b) Employee stock purchase plan For purposes of this part, the term "employee stock purchase plan" means a plan which meets the following requirements: (1) the plan provides that options are to be granted only to employees of the employer corporation or of its parent or subsidiary cor- poration to purchase stock in any such corpo- ration; (2) such plan is approved by the stockhold- ers of the granting corporation within 12 months before or after the date such plan is adopted; (3) under the terms of the plan, no employ- ee can be granted an optoin if such employee, immediately after the option is granted, owns stock possessing 5 perient or more of the total combined voting power or value of all classes of stock of the employer corporation or of Its parent or subsidiary corporation. For purposes of this paragraph, the rules of sec- tion 425(d) shall apply in determining the stock ownership of an individual, and stock which the employee may purchase under out- standing options shall be treated as stock owned by the employee; (4) under the terms of the plan, options are to be granted to all employees of any corpora- tion whose employees are granted any of such options by reason of their employment by such corporation, except that there may be excluded- (A) employees who have been employed less than 2 years, (B) employees whose customary employ- ment is 20 hours or less per week, (C) employees whose customary employ- ment is for not more than 5 months in any calendar year, and (D) officers, persons whose principal duties consist of supervising the work of other employees, or highly compensated employees; (5) under the terms of the plan, all employ- ees granted such options shall have the same rights and privileges, except that the amount of stock which may be purchased by any em- ployee under such option may bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of em- ployees, and the plan may provide that no employee may purchase more than a maxi- mum amount of stock fixed under the plan; § 423 Page 348