Allstate 2013 Annual Report Download - page 81

such as estate and gift taxes, foreign taxes, and state and date, the difference between the exercise price of such
local taxes. shares and the lesser of (i) the fair market value of the
shares on the date of exercise or (ii) the sale price will
Nonqualified Stock Options constitute compensation taxable to the employee as
ordinary income. We are generally allowed a
Generally an employee will not have any taxable income, corresponding tax deduction equal to the amount of the
and we are not entitled to any deduction on the grant of compensation taxable to the employee. If the sale price of
a nonqualified stock option. Upon the exercise of a common stock exceeds the fair market value on the
nonqualified stock option (or, generally, upon the exercise exercise date, the excess will be taxable to the employee
of an incentive stock option followed by a disqualifying as capital gain. We are not allowed a deduction with
disposition, described below), the employee recognizes respect to any such capital gain recognized by the
ordinary income equal to the excess of the fair market employee.
value of the shares acquired over the option exercise
price, if any, on the date of exercise. We are generally Use of Common Stock to Pay Option Exercise Price of
entitled to a deduction equal to the compensation taxable Nonqualified Option
to the employee as ordinary income, except to the extent
such deduction is limited by applicable provisions of the If an employee delivers previously acquired common stock
Internal Revenue Code. Any such income is also in payment of all or part of the option exercise price of a
considered wages and, as such, is subject to income, nonqualified stock option, there will be no recognition of
Social Security, and Medicare taxes. If an employee taxable income or loss of any appreciation or depreciation
disposes of shares of our common stock acquired upon in value of the tendered common stock. The employee’s
exercise of a nonqualified stock option in a taxable tax basis in, and capital gain holding period for, the
transaction, the employee will recognize capital gain or tendered stock carries over to an equal number of the
loss in an amount equal to the difference between the option shares received. The fair market value of the
employee’s basis in the shares sold and the total amount shares received in excess of the tendered shares
realized upon disposition. constitutes compensation taxable to the employee as
ordinary income. We may be entitled to a tax deduction
Incentive Stock Options equal to the compensation income recognized by the
employee.
Generally an employee does not recognize taxable income
on the grant or exercise of an incentive stock option, and Use of Common Stock to Pay Option Exercise Price of
no federal income, Social Security, or Medicare taxes will Incentive Stock Option
be withheld upon such grant or exercise. However, the
excess of the fair market value on the exercise date over If an employee delivers previously acquired common stock
the option exercise price is included in alternative in payment of all or part of the incentive stock option
minimum taxable income and thus may trigger alternative exercise price (other than stock acquired on exercise and
minimum tax. not held for the required holding periods), the employee
will not recognize as taxable income or loss any
Upon the disposition of shares of common stock acquired appreciation or depreciation in the value of the tendered
on exercise of an incentive stock option more than one stock after its acquisition date. The employee’s tax basis
year after the exercise date, and more than two years in, and capital gain holding period for, the tendered stock
after the grant date, the employee will normally recognize carries over to an equal number of the option shares
a capital gain or loss, as the case may be. This gain or received. Shares received in excess of the tendered shares
loss is measured by the difference between the common have a tax basis equal to the amount paid, if any, in
stock’s sale price and the exercise price. We will not be excess of the tendered shares, and such shares’ holding
entitled to a tax deduction on the grant or exercise of an period will begin on the date of exercise.
incentive stock option or on the disposition of common
stock acquired upon the exercise of an incentive stock If an employee delivers previously acquired common stock
option. that was acquired upon the exercise of an incentive stock
option that was not held for the required holding periods,
If, however, an employee disposes of the shares of ordinary income will be recognized by the employee, and
common stock acquired upon the exercise of an incentive we will generally be entitled to a corresponding
stock option either before the one year period after compensation deduction. The employee’s basis in the
exercise, or before the two year period after the grant shares received in exchange for the tendered shares will
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Proposal 3 — Approve Equity Plan
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