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This excerpt taken from the AN DEF 14A filed Mar 27, 2008. Certain
Federal Income Tax Consequences
The following discussion of certain relevant federal income tax
effects applicable to stock options and other stock-based awards
granted under the 2008 Plan is a summary only, and reference is
made to the Code for a complete statement of all relevant
federal tax provisions. Tax consequences for any particular
individual may be different. This discussion only addresses the
federal income tax effects applicable to stock options and other
stock-based awards granted under the 2008 Plan, and does not
address in any detail the effects of other federal taxes or
taxes imposed under state, local or foreign tax laws.
Options
With respect to non-qualified stock options (“NSOs”),
the grantee will recognize no income upon grant of the option,
and, upon exercise, will recognize ordinary income to the extent
of the excess of the fair market value of the shares on the date
of option exercise over the amount paid by the grantee for the
shares. Upon a subsequent disposition of the shares received
under the option, the grantee generally will recognize capital
gain or loss to the extent of the difference between the fair
market value of the shares at the time of exercise and the
amount realized on the disposition.
In general, no taxable income is realized by a grantee upon the
grant of an incentive stock option (“ISO”). If shares
of common stock are issued to a grantee (“option
shares”) pursuant to the exercise of an ISO granted under
the 2008 Plan and the grantee does not dispose of the option
shares within the two-year period after the date of grant or
within one year after the receipt of such option shares by the
grantee (a “disqualifying disposition”), then,
generally (i) the grantee will not realize ordinary income
upon exercise and (ii) upon sale of such option shares, any
amount realized in excess of the exercise price paid for the
option shares will be taxed to such grantee as long term capital
gain (or loss). The amount by which the fair market value of the
common stock on the exercise date of an ISO exceeds the purchase
price generally will constitute an item which increases the
grantee’s “alternative minimum taxable income.”
If option shares acquired upon the exercise of an ISO are
disposed of in a disqualifying disposition, the grantee
generally would include in ordinary income in the year of
disposition an amount equal to the excess of the fair market
value of the option shares at the time of exercise (or, if less,
the amount realized on the disposition of the option shares),
over the exercise price paid for the option shares.
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Subject to certain exceptions, an option generally will not be
treated as an ISO if it is exercised more than three months
following termination of employment. If an ISO is exercised at a
time when it no longer qualifies as an ISO, such option will be
treated as an NSO as discussed above.
In general, the Company will receive an income tax deduction at
the same time and in the same amount as the grantee recognizes
ordinary income.
Transferred
Options
If incentive stock options or non-qualified stock options are
held until death, federal estate and inheritance taxes would be
imposed on the fair market value of the options at the time of
death. If, however, the holder makes a lifetime gift of
non-qualified stock options to permitted family members, trusts
for their benefit, or other entities, federal gift taxes would
be imposed on the fair market value of the non-qualified stock
options at the time of the completed gift (generally, the time
at which all service conditions to exercisability have been
satisfied).
Stock
Appreciation Rights
With respect to stock based stock appreciation rights
(“SARs”), a grantee will not realize taxable income
and the Company will not be entitled to a deduction with respect
to such grant on the date of such grant. Upon the exercise of an
SAR, the grantee will realize ordinary income equal to the fair
market value of any shares received at the time of exercise. In
general, the Company will receive an income tax deduction at the
same time and in the same amount as the grantee recognizes
ordinary income.
Restricted
Stock
A grantee who receives a grant of restricted stock will not
recognize any taxable income at the time of the award, provided
the shares are subject to restrictions (that is, they are
nontransferable and subject to a substantial risk of
forfeiture). A grantee’s rights in restricted stock awarded
under the 2008 Plan are subject to a substantial risk of
forfeiture if the rights to full enjoyment of the shares are
conditioned, directly or indirectly, upon the future performance
of substantial services by the grantee. However, the grantee may
elect under Section 83(b) of the Code to recognize
compensation income in the year of the award in an amount equal
to the fair market value of the shares on the date of the award,
determined without regard to the restrictions. If the grantee
does not make a Section 83(b) election within 30 days
of receipt of the restricted shares, the fair market value of
the shares on the date the restrictions lapse, less any amount
paid by the grantee for such shares, will be treated as
compensation income to the grantee and will be taxable in the
year the restrictions lapse. The Company generally will be
entitled to a compensation deduction for the amount of
compensation income the grantee recognizes.
Restricted
Stock Units
A grantee will not have taxable income upon grant of restricted
stock units. Instead, the grantee will recognize ordinary income
equal to (i) the amount of cash paid
and/or
(ii) the fair market value of the shares of common stock or
other property on their respective payment dates when such cash,
shares of common stock,
and/or other
property are delivered or paid to the grantee in accordance with
the terms of the restricted stock unit award. The grantee will
also recognize ordinary income to the extent he or she receives
current payments of dividend equivalents in respect of his or
her restricted stock unit award. In general, the Company will
receive an income tax deduction at the same time and in the same
amount as the grantee recognizes ordinary income.
Other
Types of Awards
Other types of awards under the 2008 Plan generally would result
in taxable ordinary income to the grantee, the amount and timing
of which would depend upon the terms and conditions of the
particular award. In general, the Company will receive an income
tax deduction at the same time and in the same amount as the
grantee recognizes ordinary income.
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Tax
Consequences of Change in Control
The accelerated vesting of awards under the 2008 Plan in
connection with a Change in Control could cause award holders to
be subject to the federal excise tax on “excess parachute
payments” and cause a corresponding loss of deduction on
the part of the Company. In addition, options that otherwise
qualified as ISOs could be treated as NSOs as a result of such
accelerated vesting.
Your Board of Directors unanimously recommends a vote FOR
approval of the
AutoNation, Inc. 2008 Employee Equity and Incentive Plan. Proxies solicited by your Board will be so voted unless stockholders specify a different choice.
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