TripAdvisor 2012 Annual Report Download - page 153

(if any) of the fair market value of the shares of common stock at exercise (or, if less, the amount realized on a
sale of such shares of common stock) over the option price thereof, and (ii) we will be entitled to deduct such
amount. Special rules will apply where all or a portion of the exercise price of the incentive option is paid by
tendering shares of common stock.
If an incentive option is exercised at a time when it no longer qualifies for the tax treatment described
above, the option is treated as a non-qualified option. Generally, an incentive option will not be eligible for the
tax treatment described above if it is exercised more than three months following termination of employment (or
one year in the case of termination of employment by reason of disability). In the case of termination of
employment by reason of death, the three-month rule does not apply.
Non-Qualified Options. No income is realized by the optionee at the time the option is granted. Generally
(i) at exercise, ordinary income is realized by the optionee in an amount equal to the difference between the
option price and the fair market value of the shares of common stock on the date of exercise, and we receive a tax
deduction for the same amount, and (ii) at disposition, appreciation or depreciation after the date of exercise is
treated as either short-term or long-term capital gain or loss depending on how long the shares of common stock
have been held. Special rules will apply where all or a portion of the exercise price of the non-qualified option is
paid by tendering shares of common stock. Upon exercise, the optionee will also be subject to Social Security
taxes on the excess of the fair market value over the exercise price of the option.
Other Awards. The Company generally will be entitled to a tax deduction in connection with an award
under the 2011 Plan in an amount equal to the ordinary income realized by the participant at the time the
participant recognizes such income. Participants typically are subject to income tax and recognize such tax at the
time that an award is exercised, vests or becomes non-forfeitable, unless the award provides for a further deferral.
Parachute Payments. The vesting of any portion of an option or other award that is accelerated due to the
occurrence of a change in control may cause a portion of the payments with respect to such accelerated awards to
be treated as “parachute payments” as defined in the Code. Any such parachute payments may be non-deductible
to the Company, in whole or in part, and may subject the recipient to a non-deductible 20% federal excise tax on
all or a portion of such payment (in addition to other taxes ordinarily payable).
Limitation on Deductions. Under Section 162(m) of the Code, the Company’s deduction for certain
awards under the 2011 Plan may be limited to the extent that the Chief Executive Officer or other executive
officer whose compensation is required to be reported in the summary compensation table (other than the
Principal Financial Officer) receives compensation in excess of $1 million a year (other than performance-based
compensation that otherwise meets the requirements of Section 162(m) of the Code). The 2011 Plan is structured
to allow certain awards to qualify as performance-based compensation.
Required Vote
At the Annual Meeting, TripAdvisor will ask its stockholders to approve the 2011 Plan. This proposal
requires the affirmative vote of a majority of the voting power of the shares of TripAdvisor capital stock, present
in person or represented by proxy, and entitled to vote thereon, voting together as a single class.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE
APPROVAL OF THE 2011 STOCK AND ANNUAL INCENTIVE PLAN, AS AMENDED.
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