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Main Section Title [H1]
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Subsection Title [H2]
AFLAC INCORPORATED
2017 PROXY STATEMENT
71
Proposal 5: Proposal to Approve the Aflac Incorporated Long-Term Incentiv Plan
The chart on page 59 may also have information that is relevant to consideration of this Proposal 5.
FEDERAL INCOME TAX INFORMATION
The following is a discussion of certain federal income tax effects currently applicable to stock options to be
granted under the 2017 LTIP. The discussion is a summary only, and the applicable law is subject to change.
Reference is made to the IRC and the guidance thereunder for a complete statement of all relevant federal tax
provisions.
NONQUALIFIED STOCK OPTIONS (“NSOs”)
An optionee generally will not recognize taxable income upon the grant of an NSO. Rather, at the time of exercise
of the NSO, the optionee will recognize ordinary income for income tax purposes in an amount equal to the excess
of the fair market value of the shares purchased over the exercise price. The Company will generally be entitled to
a tax deduction at such time and in the same amount that the optionee recognizes ordinary income.
If shares acquired upon exercise of an NSO are later sold or exchanged, then the difference between the amount
received upon the sale, exchange or disposition and the fair market value of the stock on the date of exercise will
generally be taxable as long-term or short-term capital gain or loss (if the stock is a capital asset of the optionee)
depending upon the length of time the shares were held by the optionee.
INCENTIVE STOCK OPTIONS (“ISOs”)
An optionee will not recognize any ordinary income (and the Company will not be permitted any deduction) upon
the grant or timely exercise of an ISO. However, the amount by which the fair market value of Common Stock
on the exercise date of an ISO exceeds the purchase price generally will constitute an item which increases the
optionee’s “alternative minimum taxable income.”
Exercise of an ISO will be timely if made during its term and if the optionee remains an employee of the Company
or a subsidiary at all times during the period beginning on the date of grant of the ISO and ending on the date
three months before the date of exercise (or one year before the date of exercise in the case of a disabled
optionee, and without limit in the case of death). The tax consequences of an untimely exercise of an ISO will be
determined in accordance with the rules applicable to NSOs, discussed above.
If stock acquired pursuant to the timely exercise of an ISO is later disposed of, and if the stock is a capital asset
of the optionee, the optionee generally will recognize short-term or long-term capital gain or loss (depending upon
the length of time the shares were held by the optionee) equal to the difference between the amount realized upon
the sale and the exercise price. The Company, under these circumstances, will not be entitled to any income tax
deduction in connection with either the exercise of the ISO or the sale of the stock by the optionee.
If, however, stock acquired pursuant to the exercise of an ISO is disposed of by the optionee prior to the expiration
of two years from the date of grant of the ISO or within one year from the date the stock is transferred to him or her
upon exercise (a “disqualifying disposition”), any gain realized by the optionee generally will be taxable at the time
of the disqualifying disposition as follows: (i) at ordinary income rates to the extent of the difference between the
exercise price and the lesser of the fair market value of the stock on the date the ISO is exercised or the amount
realized on the disqualifying disposition, and (ii) if the stock is a capital asset of the optionee, as short-term or long-
term capital gain (depending upon the length of time the shares were held by the optionee) to the extent of any
excess of the amount realized on the disqualifying disposition over the sum of the exercise price and any ordinary
income recognized by the optionee. In such case, the Company may claim an income tax deduction at the time of
the disqualifying disposition for the amount taxable to the optionee as ordinary income.
The Board of Directors recommends unanimously a vote
“for”
approval
of the Aflac Incorporated Long-Term Incentive Plan (as amended and
restated February 14, 2017).
FOR