Section 3. Settlement Terms for

Participating Parties

a. For the Executive and the Related Person, except as provided in Section 3(c)(1), the terms of the closing agreement entered into pursuant to this announcement must include the following —

1. Compensation Income. The Executive must recognize total compensation income equal to the fair market value of the stock covered by the stock option measured at the exercise date (or vesting date for restricted stock), less any amounts paid for (i) the stock on exercise of the option (the exercise price) by the Related Person, and (ii) the option by the Executive. The Executive must recognize the compensation income in the taxable year that the Related Person disposed of the stock or, if not yet disposed of, in the taxable year that includes December 31, 2004. However, if in an earlier taxable year the Executive received payments on the deferred payment obligation, or received payments of cash or property other than a deferred payment obligation as consideration for the option, the Executive must recognize the payments (other than amounts recognized under Sections 3(a)(3) and 3(a)(4)), as compensation in the taxable year(s) the payments are received.

2. Gain Recognition. The Executive must recognize gain if the amount paid by

Executive Stock Options Settlement Initiative

Announcement 2005–19