FRZ » Topics » Stock Options

This excerpt taken from the FRZ DEF 14A filed Apr 16, 2009.

Stock Options

        In general, the grant of an option will not be a taxable event to the recipient and it will not result in a deduction to the Company. The tax consequences associated with the exercise of an option and the subsequent disposition of shares of common stock acquired on the exercise of such option depend on whether the option is a nonqualified stock option or an ISO.

        Upon the exercise of a nonqualified stock option, the participant will recognize ordinary taxable income equal to the excess of the fair market value of the shares of common stock received upon exercise over the exercise price. The Company will generally be able to claim a deduction in an equivalent amount. Any gain or loss upon a subsequent sale or exchange of the shares of common stock will be capital gain or loss, long-term or short-term, depending on the holding period for the shares of common stock. If the optionholder is an employee, ordinary income recognized on exercise generally is subject to withholding of income and employment taxes.

        Generally, a participant will not recognize ordinary taxable income at the time of exercise of an ISO and no deduction will be available to the Company. If shares of common stock acquired upon exercise of an ISO are sold or exchanged more than one year after the date of exercise and more than two years after the date of grant of the option, any gain or loss will be long-term capital gain or loss. However, if shares of common stock acquired upon exercise of an ISO are sold or exchanged within one year after the date of exercise or within than two years after the date of grant of the option this will be deemed to be a "Disqualifying Disposition." Upon a Disqualifying Disposition, the participant will generally recognize ordinary income at the time of disposition in an amount equal to the excess of the fair market value of the shares of common stock at the date of exercise over the exercise price on the date of grant. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the optionholder upon the Disqualifying Disposition generally will result in a deduction by the Company for federal income tax purposes.

        Although the exercise of an ISO as described above would not produce ordinary taxable income to the participant, it would result in an increase in the participant's alternative minimum taxable income and may result in an alternative minimum tax liability.

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