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NOTE 16: LONG-TERM INCENTIVE
PLANS
The Company established the Knight/Trimark Group, Inc. 1998 Long-Term Incentive
Plan and the Knight/Trimark Group, Inc. 1998 Nonemployee Director Stock
Option Plan (together, the “Plans”) to provide long-term incentive
compensation to selected employees and directors of Knight Trading Group
and its subsidiaries. The Plans are administered by the compensation committee
of the Company’s Board of Directors, and allow for the grant of options,
restricted stock and restricted stock units, as defined by the Plans. Including
a stockholder-approved increase in the number of shares reserved under the
Plans by three million in May 2001, the maximum number of shares of Class
A Common Stock reserved for the grant of options under the Plans is 27,819,000,
subject to adjustment. The maximum number of restricted stock and restricted
stock units which may be issued under each of the Plans is 3,000,000, which
includes a two million share increase reserved under the Plans that was
approved by stockholders in May 2001. In addition, the Plans limit the number
of shares which may be granted to a single individual, and the Plans also
limit the number of shares of restricted stock that may be awarded.
It is the Company’s policy to grant options for the purchase of shares
of Class A Common Stock at not less than market value, which the Plans define
as the average of the high and low sales prices on the date prior to the
grant date. Options and awards generally vest over a three or four-year
period and expire on the fifth or tenth anniversary of the grant date, pursuant
to the terms of the agreements. The Company has the right to fully vest
employees in their option grants and awards upon retirement. The following
is a reconciliation of option activity for the Plans for the years ended
December 31, 2001 and 2000, and a summary of options outstanding and exercisable
at December 31, 2001:
The Company granted a total of 72,240 restricted shares of Class A Common
Stock to certain employees of the Company under the 1998 Long-Term Incentive
Plan and recorded compensation expense of $173,599 during 2001 for the fair
value of the shares, which has been included in Compensation and Benefits
in the Consolidated Statements of Income. The unamortized portion of the
restricted shares is recognized as compensation expense over the vesting
period. The restricted stock requires future service as a condition of the
underlying shares of common stock.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations in accounting
for its stock option plans. Accordingly, no compensation expense has been
recognized for the fair values of the options granted to employees. Had
compensation expense for the Company’s options been determined based
on the fair value at the grant dates in accordance with Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation,
the Company’s net income and earnings per share amounts for the years
ended December 31, 2001, 2000 and 1999 would have been as follows:
The fair value of each option granted is estimated as of its respective
grant date using the Black-Scholes option-pricing model with the following
assumptions:
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