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This excerpt taken from the TMO DEF 14A filed Apr 10, 2008. Incentive
Stock Options
A participant will not have income upon the grant or exercise of
an incentive stock option. A participant will have income upon
the sale of the stock acquired under an incentive stock option
at a profit (if sales proceeds exceed the exercise price). The
type of income will depend on when the participant sells the
stock. If a participant sells the stock more than two years
after the option was granted and more than one year after the
option was exercised, then all of the profit will be long-term
capital gain. If a participant sells the stock prior to
satisfying these waiting periods, then the participant will have
engaged in a disqualifying disposition and a portion of the
profit will be ordinary income and a portion may be capital
gain. This capital gain will be long-term if the participant has
held the stock for more than one year and otherwise will be
short-term. If a
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participant sells the stock at a loss (sales proceeds are less
than the exercise price), then the loss will be a capital loss.
This capital loss will be long-term if the participant held the
stock for more than one year and otherwise will be short-term.
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