FMSB » Topics » 2004 Option Grants

This excerpt taken from the FMSB DEF 14A filed Mar 17, 2005.
2004 Option Grants

      The number of options granted under the 2000 Plan that were received by, or allocated to, the CEO, the other named executive officers, all current executive officers as a group, the current Directors of the Company who are not executive officers as a group, and all employees, including all current officers who are not executive officers, as a group for the year ended December 31, 2004 are represented below. No options have been granted under the 2000 Plan in 2005.

                 
Number of Average Per Share
Name and Position Options Granted Exercise Price



John R. Valaas, President and Chief Executive Officer
    12,000     $ 24.20  
James R. Boudreau, Executive Vice President
    6,500       24.20  
Richard J. Collette, Executive Vice President
    8,500       24.20  
Roger A. Mandery, Executive Vice President
    7,000       24.20  
Joseph P. Zavaglia, Executive Vice President
    9,500       24.20  
Executive Group
    61,250       24.20  
Non-Executive Director Group
    0       NA  
Non-Executive Officer Employee Group
    32,300       24.33  

      The future benefits or amounts that would be received under the 2000 Stock Plan by executive officers and other employees are not determinable at this time.

      Federal Income Tax Consequences Relating to the Plan. The federal income tax consequences of participation in the Plan are complex and subject to change. The following discussion is only a summary of the general rules applicable to options and restricted stock. A taxpayer’s particular financial or tax situation may be such that some variation of the general rule is applicable. Accordingly, each participant in the Plan should consult his or her own tax advisor concerning the tax consequences of the grant or exercise of an option, or the disposition of any Shares acquired pursuant to the exercise of an option, and the advisability of making a Code Section 83(b) election.

      Incentive Stock Options. For incentive stock options granted under the Plan, the optionee will generally not recognize any income upon either the grant or the exercise of the option, and the Company will not be allowed a deduction for federal income tax purposes. Upon a sale of the Shares, the tax treatment to the optionee and the Company will depend primarily upon whether the optionee has met certain holding-period requirements at the time he or she sells the Shares. In addition, as discussed below, the exercise of an incentive stock option may subject the optionee to alternative minimum tax liability.

      If an optionee exercises an incentive stock option and does not dispose of the Shares received within two years after the date of grant of such option or within at least one year after the issuance of the Shares to him or her, any gain realized upon disposition will be characterized as long-term capital gain provided the Shares were a capital asset in the hands of the optionee.

      If the optionee disposes of the Shares either within two years after the date the option is granted or within one year after the issuance of the Shares to him or her, such disposition will be treated as a disqualifying disposition, and generally an amount equal to the lesser of (1) the fair market value of the Shares on the date of exercise minus the exercise price or (2) the amount realized on the disposition minus the purchase price, and will be taxed as ordinary income to the optionee in the taxable year in which the disposition occurs. The excess, if any, of the amount realized upon sale of the Shares over the fair market value of the Shares at the time of the exercise of the option will generally be treated as long-term capital gain if the Shares have been held for more than one year following the exercise of the option. In the event of a disqualifying disposition, the Company may withhold income taxes from the optionee’s compensation with respect to the ordinary income realized by the optionee as a result of the disqualifying disposition.

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      The exercise of an incentive stock option may subject an optionee to alternative minimum tax liability because the excess of the fair market value of the Shares at the time an incentive stock option is exercised over the purchase price of the Shares is included in an individual’s income for the purpose of calculating such tax. Consequently, an optionee may be obligated to pay alternative minimum tax in the year he or she exercises an incentive stock option.

      In general, there will be no federal income tax consequences to the Company upon the grant, exercise or termination of an incentive stock option. If, however, an optionee disposes of Shares prior to satisfying the two-year and one-year holding periods described above, the Company will generally be entitled to a deduction for federal income tax purposes in an amount equal to the ordinary income, if any, recognized by the optionee upon disposition of the Shares.

      Nonqualified Stock Options. Nonqualified stock options granted under the Plan do not qualify as “incentive stock options” and will not qualify for any special tax benefits to the optionee. An optionee will generally not recognize any taxable income at the time he or she is granted a nonqualified option. However, upon exercise of a nonqualified option, the optionee will generally recognize ordinary income for federal income tax purposes measured by the excess of the then fair market value of the Shares over the exercise price. Subject to the policy described below, the income realized by the optionee who is an employee will be subject to income tax withholding by the Company out of the current earnings paid to the optionee. If such earnings are insufficient to pay the tax, the optionee will be required to make a direct payment to the Company for the tax liability.

      Upon a sale of any Shares acquired pursuant to the exercise of a nonqualified stock option, the difference between the sale price and the optionee’s basis in the Shares will generally be treated as a capital gain or loss and will be characterized as long-term capital gain or loss if the Shares have been held for more than one year at the date of their sale. The optionee’s basis for determination of gain or loss upon any subsequent disposition of Shares acquired upon the exercise of a nonqualified stock option will be the amount paid for such Shares plus any ordinary income recognized as a result of the exercise of such option.

      In general, there will be no federal income tax consequences to the Company upon the grant or termination of a nonqualified stock option or a sale or disposition of the Shares acquired upon the exercise of a nonqualified stock option. However, upon the exercise of a nonqualified stock option, the Company will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that an optionee is required to recognize as a result of the exercise, provided the Company has satisfied its reporting obligations under the Code for the compensation comprising such income.

      Stock Appreciation Rights. No income will be recognized by an optionee upon the grant of a stock appreciation right (“SAR”). Upon exercise of a SAR, however, the optionee will recognize ordinary income in an amount equal to the amount of any cash received plus the fair market value of any Shares received. The Company will generally be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income recognized by the optionee, provided the Company has satisfied its reporting obligations under the Code for any Shares issued to the optionee.

      Notwithstanding the foregoing, in the event that Shares acquired pursuant to a SAR or a nonqualified stock option are subject to certain conditions of limited duration that create a substantial risk of forfeiture of such Shares by the optionee and any person to whom he or she may have transferred Shares, the optionee may not recognize ordinary income until the Shares are no longer subject to such restrictions (instead of recognizing income on the date of exercise). Under these circumstances, the optionee may avoid the deferral of income by filing an election under Code Section 83(b) to recognize income on the date of exercise.

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      Restricted Stock. The recipient of Shares of stock awarded under the Plan in connection with the performance of services and subject to a risk of forfeiture following receipt will recognize income pursuant to the provisions of Code Section 83. Pursuant to Code Section 83, the recipient recognizes income in the first taxable year in which his or her interest in the stock is transferable or is not subject to a substantial risk of forfeiture. The amount of income that the recipient will recognize in such year is equal to the then fair market value of the stock which becomes transferable or with respect to which the substantial risk of forfeiture has lapsed. Such income will be taxed at the rates applicable to ordinary income. The Bank will be entitled to deduct as compensation paid the amount of income recognized by the recipient of the restricted stock.

      The gain upon any subsequent sale of stock acquired as restricted stock after the lapse of restrictions will be taxed at rates applicable to capital gains. The amount subject to such tax will be the excess of the amount realized upon such sale over the amount included in income upon the lapse of restrictions.

      Pursuant to Code Section 83(b), the recipient of Shares of restricted stock under the Plan may elect to treat the awarded restricted stock as if it were substantially vested at the time of award for purposes of recognizing income under Code Section 83. In the event of such an election, the recipient would recognize income in the taxable year of the award equal to the fair market value of the stock, and such income would be taxed as ordinary income. Any gain upon the subsequent sale of such stock would be taxed at the rates applicable to capital gains.

     

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