PROPOSAL 4: APPROVING THE AMENDMENT AND RESTATEMENT OF THE BANK OF AMERICA
CORPORATION 2003 KEY ASSOCIATE STOCK PLAN
BACKGROUND
We currently maintain the Bank of America Corporation 2003 Key Associate Stock
Plan, as amended and restated effective April 28, 2010 (the “KASP”). The KASP
was last approved by stockholders in 2010 with more than 82% of stockholder
votes cast in favor of the plan. Under this plan, we have reserved a number of
shares of our common stock for issuance to key employees as equity-based awards
in the form of stock options, stock appreciation rights (SARs), restricted stock
shares and restricted stock units. The KASP is currently scheduled to expire on
December 31, 2015.
In February 2015, our Board approved the amendment and restatement of the KASP
and renamed it the “Bank of America Corporation Key Employee Equity Plan,” or
KEEP, subject to the approval of our stockholders at the annual meeting. We are
submitting the KEEP to our stockholders for approval to satisfy (1) applicable
listing requirements of the New York Stock Exchange (NYSE) and (2) the
stockholder approval requirement under Section 162(m) of the Internal Revenue
Code (“Section 162(m)”).
PURPOSE
The KEEP is intended to serve a critical role in our pay-for-performance
compensation program. In addition, our Board believes that equity-based awards
aid in our ability to attract, retain and motivate our employees and is the most
direct way to align employee interests with those of stockholders. Because the
shares available for equity-based awards are limited, in order to balance
compensation principles with stockholder interests in limiting dilution, we
generally limit equity-based awards to more senior positions. As a general rule,
the more senior or highly compensated the position, the larger the portion of
the total incentive opportunity that is provided in equity-based awards. For
example, for certain senior positions, up to 50% of total compensation is in the
form of equity-based awards, and for executive officers more than 50% of total
compensation is in the form of equity-based awards.
We last added shares to our stock plan in 2010. Our Board believes that we
currently have an insufficient number of shares available for additional future
stock-settled awards. Accordingly, our Board approved an increase in the shares
available for future awards by approximately 125 million shares, as well as
certain other key changes, the material terms of which are described in this
proposal.
ADDITIONAL SHARES REQUESTED AND OTHER KEY CHANGES
The KEEP and the KASP are substantially similar in design. The KEEP updates the
KASP, however, in four key respects:
 
 
Ù 
 
As discussed above, the number of shares of our common stock available for
awards under the KEEP will be increased by approximately 125 million shares.
Combined with shares currently available for issuance under the KASP, this will
provide for a total of 450 million shares of our common stock to be available
for awards from and after January 1, 2015
 
Ù 
 
All shares available for awards under the KEEP may be granted as “full value”
awards on a one-for-one basis
 
Ù 
 
The KEEP adds performance measures and updates individual award limits in order
to provide the Compensation and Benefits Committee with greater flexibility to
grant awards intended to be fully deductible as “performance-based compensation”
under Section 162(m)
 
Ù 
 
The KEEP extends the plan term through May 5, 2025 (i.e., ten years after the
date of the annual meeting)
 

In recent years, we have granted most of our equity-based awards under the KASP
in the form of cash-settled awards. If the KEEP is approved, we expect the pool
of requested shares to last approximately three to four years assuming we return
to a practice of granting primarily stock-settled awards.
PLAN FEATURES AND GRANT PRACTICES THAT PROTECT STOCKHOLDER INTERESTS
The KEEP and the company’s grant practices continue to include a number of
features intended to protect the interests of stockholders:
 
 
Ù 

 
The Compensation and Benefits Committee reviews the dilutive impact of Bank of
America’s stock program, including by monitoring its “overhang” relative to its
primary competitor group of leading U.S. financial services companies.
“Overhang” measures shares covering outstanding stock-settled awards and shares
available for future grants as a percentage of the common shares outstanding, as
more fully defined on page 58. With the shares requested, our overhang will be
approximately 5.1%. Based on data available as of December 31, 2014, Bank of
America’s overhang was significantly lower than the median of our primary
competitor group
 
Ù 
 
Based on data available as of December 31, 2014, the rate at which Bank of
America is granting equity-based awards relative to its outstanding shares of
common stock (or run rate) represents a reasonable use of our shares
 
Ù 
 
Equity awards are subject to multiple separate and distinct “clawback”
requirements that can result in the awards potentially being canceled or prior
payments recouped. These clawback requirements work together to ensure that
rewards realized over time appropriately reflect the time horizon of the risks
taken and encourage proper conduct. These clawback requirements are discussed in
detail under Compensation Discussion and Analysis on page 25
 
Ù 
 
The KEEP includes a minimum three-year pro rata vesting schedule for most
stock-settled awards intended to vest based solely on the passage of time. This
limit does not apply to a performance-vesting award with a minimum 12-month
performance period
 
Ù 
 
Dividends/dividend equivalents on restricted stock shares/units are accrued with
interest from the grant date and paid only if and when the underlying award
becomes vested
 
Ù 
 
The KEEP does not provide for automatic vesting of awards upon a change in
control (sometimes referred to as “single trigger” vesting). Instead, the KEEP
permits the Compensation and Benefits Committee to provide for vesting only if
the participant’s employment is terminated in connection with a change in
control (i.e., “double trigger” vesting)
 
Ù 
 
The KEEP does not include provisions frequently labeled as “liberal share
counting” (e.g., the ability to re-use shares tendered or surrendered to pay the
exercise cost or tax obligation of grants or the “net counting” of shares for
stock option or SAR exercises). The only share re-use provisions are for awards
that are canceled or forfeited or for awards settled in cash
 
Ù 
 
The KEEP prohibits the use of discounted stock options or SARs, the use of
dividend equivalents on stock options or SARs, or the use of reload options
 
Ù 
 
The KEEP broadly prohibits the re-pricing of stock options or SARs without
stockholder approval, including the repurchase of underwater options or SARs for
cash
 
Ù 
 
The KEEP does not provide for option or equity transferability to third parties
“for consideration.” The transfer of awards, if at all, is limited to immediate
family members without consideration and by the laws of descent and distribution

--------------------------------------------------------------------------------

OVERVIEW OF THE KEEP
The following is a summary of the material terms of the KEEP. It is qualified in
its entirety by reference to the terms of the KEEP. A copy of the KEEP is
attached to this proxy statement as Appendix A. The KEEP will become effective
only if it is approved by our stockholders.
NUMBER OF SHARES
The KEEP provides that the aggregate number of shares of our common stock
available for grants of awards under the plan from and after January 1, 2015
will not exceed the sum of (i) 450 million shares plus (ii) any shares that were
subject to an award as of December 31, 2014 under the KASP, if such award is
canceled, terminates, expires, lapses or is settled in cash for any reason from
and after January 1, 2015. As of December 31, 2014, there were approximately
325 million shares available for future awards under the KASP. The requested
share pool for the KEEP therefore represents an increase of approximately
125 million shares.
Under the KASP, there was a sub-limit on the number of shares available for
awards as restricted stock or restricted stock units (sometimes referred to as
“full value” awards). Any full value awards above this limit under the KASP were
counted as 2.5 shares against the remaining available pool for each share
awarded. This type of share counting rule is sometimes referred to as a
“fungible” share pool. The KEEP eliminates these provisions, so that any award
from the KEEP, whether granted as a stock option, SAR, restricted stock share or
restricted stock unit, counts against the available share pool as one share for
each share awarded.
The share re-use provisions under the KEEP are unchanged and do not include any
“liberal share counting” features. Shares covered by awards will again be
available for awards if and only to the extent (a) the award is canceled or
forfeited or (b) the award is settled in cash. Shares used to cover the exercise
price of stock options or to cover any tax withholding obligations in connection
with awards will not again be available for awards under the KEEP. In addition,
the total number of shares covering stock-settled SARs or net-settled options
will be counted against the pool of available shares, not just the net shares
issued upon exercise.
ADMINISTRATION
The KEEP is primarily administered by the Compensation and Benefits Committee.
To the extent permitted by law, the Compensation and Benefits Committee may
designate an individual or committee (which need not consist of directors) to
act as the appropriate committee under the KEEP for awards to key employees who
are not “officers” under Section 16 of the Exchange Act or “covered employees”
under Section 162(m). Under the KEEP, the Compensation and Benefits Committee
continues to have authority with respect to the following:
 
 
Ù 
 
the selection of the key employees to receive awards from time to time
 
 
 
Ù 
 
the granting of awards in amounts as it determines
 
 
 
 
 
Ù 
 
the imposition of limitations, restrictions and conditions upon awards
 
 
 
 
Ù 
 
the establishment of performance targets and allocation formulas for awards of
restricted stock shares or restricted stock units intended to qualify as
“performance-based compensation” under Section 162(m)
 
Ù 
 
the certification of the attainment of performance goals, if applicable, as
required by Section 162(m)
 
 
Ù 
 
the interpretation of the KEEP and the adoption, amendment and rescission of
administrative guidelines and other rules and regulations relating to the KEEP
 
Ù 
 
the correction of any defect or omission or reconciliation of any inconsistency
in the KEEP or any award granted under the KEEP
 
Ù 
 
the making of all other determinations and taking of all other actions necessary
or advisable for the implementation and administration of the KEEP

ELIGIBILITY
Only “key employees” of Bank of America and its subsidiaries may participate in
the KEEP, as selected by the Compensation and Benefits Committee. Key employees
are those employees of Bank of America and its subsidiaries who occupy
managerial or other important positions and who have made, or are expected to
make, important contributions to our business, as determined by the Compensation
and Benefits Committee, including persons employed outside the United States.
Approximately 45,000 employees are expected to be eligible to participate.
However, as mentioned above, the Compensation and Benefits Committee in its
discretion selects which key employees will receive any awards.
TYPES OF AWARDS
The KEEP permits awards of stock options, SARs, restricted stock shares and
restricted stock units, all of which are described in more detail below.
Awards of Stock Options and SARs. The KEEP provides for the grant of options to
purchase shares of our common stock at option prices which are not less than the
fair market value of a share of our common stock at the close of business on the
date of grant. (The fair market value of a share of our common stock as of
March 11, 2015, was $16.11.) The KEEP also provides for the grant of SARs to key
employees. SARs entitle the holder upon exercise to receive either cash or
shares of our common stock or a combination of the two, as the Compensation and
Benefits Committee in its discretion may determine, with a value equal to the
difference between: (i) the fair market value on the exercise date of the shares
with respect to which a SAR is exercised; and (ii) the fair market value of the
shares on the date of grant.
Awards of options under the KEEP, which may be either incentive stock options
(which qualify for special tax treatment) or nonqualified stock options, are
determined by the Compensation and Benefits Committee. No more than an aggregate
of 450 million shares may be awarded as incentive stock options under the KEEP.
The terms and conditions of each option and SAR are to be determined by the
Compensation and Benefits Committee (or its designees) at the time of grant.
 
Options and SARs granted under the KEEP will expire not more than 10 years from
the date of grant, and the award agreements entered into with each participant
will specify the extent to which options and SARs may be exercised during their
respective terms, including in the event of the participant’s death, disability
or termination of employment.
The KEEP includes two additional limitations on stock option and SAR grants:
 
 
Ù 
 
The KEEP expressly prohibits dividend equivalents with respect to stock options
and SARs
 
 
Ù 
 
The KEEP permits nonqualified stock options and SARs to be transferable if and
to the extent permitted under the applicable award agreement, but prohibits
transfers to be made for consideration

--------------------------------------------------------------------------------

Awards of Restricted Stock Shares and Restricted Stock Units. Under the KEEP,
the Compensation and Benefits Committee may award key employees restricted
shares of our common stock or restricted stock units which represent the right
to receive shares of our common stock (or cash equal to the fair market value of
those shares). Each award agreement will contain the terms of the award,
including any applicable conditions, which may include continued service of the
participant, the attainment of specified performance goals or any other
conditions deemed appropriate by the Compensation and Benefits Committee.
Restricted stock shares will be held in our custody until the applicable
restrictions have been satisfied. The participant cannot sell, transfer, pledge,
assign or otherwise alienate or hypothecate restricted stock shares until the
applicable restrictions are satisfied. Once the restrictions are satisfied, the
shares will be delivered to the participant’s account, free of restrictions.
During the period of restriction, the participant may exercise full voting
rights with respect to the restricted stock shares. The participant will also be
credited with dividends with respect to restricted stock shares. Dividends may
be payable currently or subject to additional restrictions as determined by the
Compensation and Benefits Committee and reflected in the award agreement. Our
grant practice has been not to pay dividends on restricted stock shares during
the vesting period, but to accrue those dividends with interest from the grant
date to be paid only if and when the underlying award becomes vested.
The award agreement for any restricted stock units will specify whether units
that become earned and payable will be settled in shares of our common stock
(with one share of common stock to be delivered for each earned and payable
restricted stock unit), in cash (equal to the aggregate fair market value of the
restricted stock units that are earned and payable), or in a combination of
shares and cash. Shares of our common stock used to pay earned restricted stock
units may have additional restrictions, as determined by the Compensation and
Benefits Committee. Unpaid restricted stock units may have dividend equivalent
rights, as determined by the Compensation and Benefits Committee and evidenced
in the award agreement. As with restricted stock shares, our grant practice has
been to include dividend equivalent rights for awards of restricted stock units
that accrue with interest from the grant date and are paid only if and when the
underlying award becomes vested. Unpaid restricted stock units have no voting
rights.
MINIMUM VESTING CONDITIONS
For stock-settled awards intended to vest based solely on the passage of time,
the awards will not vest more quickly than ratably over a three-year period
beginning on the first anniversary of the award. Exceptions apply for awards
that become vested upon the achievement of performance goals over a period of at
least one year, for certain terminations of employment, in connection with the
recruitment of new key employees or for the retention of key employees in
connection with in a business combination, or for awards made in lieu of annual
cash incentive compensation.
NEW STOCK PLAN BENEFITS
Because awards under the KEEP are discretionary, awards are generally not
determinable at this time.
 
The table below presents information on equity compensation plans at
December 31, 2014:
 
 
 
 
 
  Plan Category(1)(2)
 
Number of Shares
to be Issued
Under
  Outstanding  
Options and
Rights
 
 
Weighted-
average
Exercise Price of
  Outstanding  
Options(3)
 
 
Number of Shares
Remaining for
Future Issuance
Under Equity
  Compensation  
Plans(4)
Plans approved by stockholders(5)
 
 
103,496,664

 
 
$
47.66

 
 
 
325,450,174

Plans not approved by stockholders
 
 
—

 
 
 
—

 
 
 
—

Total
 
 
103,496,664

 
 
$
47.66

 
 
 
325,450,174

 
(1)
This table does not include outstanding options to purchase 3,573,160 shares of
Bank of America Corporation’s common stock that were assumed by the Corporation
in connection with prior acquisitions, under whose plans the options were
originally granted. The weighted-average exercise price of these assumed options
was $82.50 at December 31, 2014. Also, at December 31, 2014, there were 96,699
vested restricted stock units associated with these plans.
(2)
This table does not include outstanding options to purchase 5,328,026 shares of
the Corporation’s common stock that were assumed by the Corporation in
connection with the Merrill Lynch acquisition, which were originally issued
under certain Merrill Lynch plans. The weighted-average exercise price of these
assumed options was $45.82 at December 31, 2014. Also, at December 31, 2014,
there were 5,481,907 outstanding restricted stock units and 1,073,175 vested
restricted stock units and stock option gain deferrals associated with such
plans. These Merrill Lynch plans were frozen at the time of the acquisition and
no additional awards may be granted under these plans. However, as previously
approved by the Corporation’s stockholders, if any of the outstanding awards
under these frozen plans subsequently are canceled, forfeited or settled in
cash, the shares relating to such awards thereafter will be available for future
awards issued under the Corporation’s Key Associate Stock Plan (KASP).
(3)
Does not reflect restricted stock units included in the first column, which do
not have an exercise price.
 
(4)
Plans approved by stockholders include 325,123,558 shares of common stock
available for future issuance under the KASP (including 29,795,525 shares
originally subject to awards outstanding under frozen Merrill Lynch plans at the
time of the acquisition which subsequently have been canceled, forfeited or
settled in cash and become available for issuance under the KASP, as described
in footnote (2) above) and 326,616 shares of common stock which are available
for future issuance under the Corporation’s Directors’ Stock Plan.
(5)
Includes 24,310,796 outstanding restricted stock units.
 
 

OVERHANG
The Compensation and Benefits Committee reviews the dilutive effect of our stock
plans on our stockholders (sometimes called “overhang”), and compares this level
of overhang against the level of overhang at its primary competitor group, made
up of five leading United States financial services companies, as further
described under “Competitor Groups” in the Compensation Discussion and Analysis
at page 25. Assuming approval of the KEEP, Bank of America’s total overhang
would be approximately 5.1%. Based on data available as of December 31, 2014,
this level of overhang was significantly lower than the median for our primary
competitor group.
For the purpose of calculating the overhang in the previous paragraph, we use
“fully diluted overhang,” which equals Amount A divided by Amount B, where
Amount A equals the sum of all outstanding stock options, unvested stock-settled
restricted stock units and unvested restricted stock shares plus shares
available for future grants under all plans (including the proposed addition of
approximately 125 million new shares described in this request), and Amount B
equals the sum of total shares of our common stock outstanding plus Amount A
less unvested restricted stock shares. As of December 31, 2014: (i) the number
of outstanding stock options, unvested stock-settled restricted stock units and
unvested restricted stock shares equals approximately 119.1 million; (ii) the
number of shares available for future grants under all plans assuming approval
of the KEEP equals approximately 450.3 million; and (iii) the number of shares
of our common stock outstanding equals approximately 10.5 billion.

--------------------------------------------------------------------------------

RUN RATE
In recent years, we have granted most of our equity-based awards under the KASP
in the form of cash-settled awards. If the KEEP is approved, we expect the pool
of requested shares to last approximately three to four years assuming we return
to a practice of granting primarily stock-settled awards.
The Compensation and Benefits Committee reviews the rate at which we grant
equity awards relative to shares of our common stock outstanding (sometimes
referred to as “run rate”), and compares this run rate to the run rates at our
primary competitor group. Based on data available as of December 31, 2014, our
run rate was significantly below the median run rate for our primary competitor
group. Over the past three calendar years (2012-2014), the annual share usage
has averaged less than 1% of our common shares outstanding.
 
 The run rate figures for the last three years are significantly impacted by our
design decision to grant most equity-based awards as cash-settled restricted
stock units. Had these awards been granted as stock-settled restricted stock
units, our annual share usage would have been approximately 1.9%. Even in this
case, our run rate would have approximated the median run rate for our primary
competitor group, and as such represents a reasonable use of our shares.
PLAN PROVISIONS FOR COMPLIANCE WITH SECTION 162(M)
Background. Under Section 162(m), a public company is limited to a $1 million
deduction for compensation paid to its CEO or any of its three other most highly
compensated executive officers (other than the Chief Financial Officer) who are
employed at year-end. This limitation does not apply to compensation that
qualifies under Section 162(m) as “performance-based compensation.”
The KEEP will allow the Compensation and Benefits Committee to grant options,
SARs, and certain performance-based awards that should qualify as
“performance-based compensation.” A vote in favor of approving the KEEP will be
a vote approving all the material terms and conditions of the plan for purposes
of granting awards pursuant to Section 162(m), including the performance
criteria, eligibility requirements and limits on various stock awards that are
described below in this section. The Compensation and Benefits Committee retains
its discretion to grant awards that are not compliant with Section 162(m). In
addition, given the ambiguities in how the conditions to qualifying as
“performance-based” will be interpreted and administered under the income tax
regulations, there is no certainty that elements of “performance-based”
compensation discussed in this proposal will in fact be deductible in the
future.
Performance Criteria. The KEEP authorizes the Compensation and Benefits
Committee to make awards of restricted stock shares or restricted stock units
that are conditioned on the satisfaction of performance criteria. For those
awards intended to be fully deductible as “performance-based compensation” under
Section 162(m), the Compensation and Benefits Committee must establish the
performance conditions prior to or within a specified period after the start of
the performance period. The Compensation and Benefits Committee may select from
the following performance measures for this purpose:
 
 
Ù 
 
cash flow
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ù 
 
earnings per share
 
 
 
 
 
 
 
 
 
Ù 
 
income or other earnings measures
 
 
 
 
 
Ù 
 
return on equity, capital, assets, revenue or investments
 
 
 
 
Ù 
 
total stockholder return or other stock price performance measures
 
 
 
Ù 
 
stockholder value added
 
 
 
 
 
 
Ù 
 
revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ù 
 
profit margin
 
 
 
 
 
 
 
 
 
 
 
 
Ù 
 
efficiency ratios
 
 
 
 
 
 
 
 
 
 
Ù 
 
customer satisfaction
 
 
 
 
 
 
 
Ù 
 
productivity
 
 
 
 
 
 
 
 
 
 
 
Ù 
 
expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ù 
 
balance sheet metrics, including capital ratios, liquidity measures and book
value;
 
 
Ù 
 
credit quality
 
 
 
 
 
 
 
 
 
 
 
 
 
Ù 
 
strategic initiatives
 
 
 
 
 
 
 
 
Ù 
 
implementation, completion or attainment of measurable objectives with respect
to recruitment or retention of personnel or employee satisfaction

The performance criteria listed above may include any derivations of such
criteria (e.g., income includes pre-tax income, net income, operating income,
etc.).
The performance conditions will be stated in the form of an objective,
nondiscretionary formula, and the Compensation and Benefits Committee will
certify in writing the attainment of those performance conditions prior to any
payment or distributions with respect to awards. Performance goals may be
established on a company-wide basis, or with respect to one or more business
units, divisions, subsidiaries or business segments, as applicable. Performance
goals may be absolute or relative to the performance of one or more comparable
companies or indices, or to year-over-year growth. The Compensation and Benefits
Committee may determine at the time that the performance goals are established
the extent to which measurement of performance goals may exclude the impact of
charges for restructuring, discontinued operations, extraordinary items, other
unusual non-recurring items, and the cumulative effects of tax or accounting
changes (each as defined by generally accepted accounting principles and as
identified in our financial statements or other SEC filings). The Compensation
and Benefits Committee in its discretion may adjust downward any award.
Options and SARS. In addition, compensation from the exercise of stock options
and SARs is intended to be deductible as “performance-based compensation” under
Section 162(m).
Individual Award Limits. In order to comply with Section 162(m), a participant
may not be granted in any calendar year: (i) stock options or SARs for more than
4,000,000 shares, or (ii) performance-based restricted stock shares/units for
more than 4,000,000 shares (assuming maximum performance).
WITHHOLDING FOR PAYMENT OF TAXES
The KEEP provides for the withholding and payment by a participant of any
payroll or withholding taxes required by applicable law. The KEEP permits a
participant to satisfy this requirement, with the approval of the Compensation
and Benefits Committee and subject to the terms of the KEEP, by withholding from
the participant a number of shares of our common stock otherwise issuable under
the award having a fair market value equal to the amount of applicable payroll
and withholding taxes.

--------------------------------------------------------------------------------

ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
In the event of any change in the number of our outstanding shares of common
stock by reason of any stock dividend, split, spin-off, recapitalization,
merger, consolidation, combination, exchange of shares or otherwise, the
aggregate number of shares of our common stock with respect to which awards may
be made under the KEEP, the annual limit on individual awards, the limits on
incentive stock options, restricted stock and restricted stock units and the
terms, types of shares and number of shares of any outstanding awards under the
KEEP will be equitably adjusted by the Compensation and Benefits Committee in
its discretion to preserve the benefit of the award for us and the participant.
NO SINGLE TRIGGER VESTING UPON A CHANGE IN CONTROL
The KEEP permits the Compensation and Benefits Committee to provide for vesting
of awards in connection with a change in control of Bank of America if there is
also a termination of employment in connection with the change in control. This
is often referred to as “double trigger” vesting. For these purposes, a
termination is considered to be in connection with a change of control if it
occurs upon or within two years after the change in control and is for one of
the following two reasons: (i) an involuntary termination by the company without
“cause” or (ii) a termination by the participant for “good reason.” “Cause” and
“good reason” will be as defined in the applicable award agreements. In
addition, the Committee may provide for the assumption or substitution of awards
by a surviving corporation.
AMENDMENT AND TERMINATION OF THE PLAN
Our Board has the power to amend, modify or terminate the KEEP on a prospective
basis. Stockholder approval will be obtained for any change to the material
terms of the KEEP to the extent required by NYSE listing requirements,
Section 162(m), or other applicable law. The KEEP automatically terminates at
the close of business on May 5, 2025, following which no awards may be made
under the KEEP.
OPTION AND SARS REPRICING PROHIBITED
The KEEP specifically prohibits the re-pricing of stock options or SARs without
stockholder approval. For this purpose, a “repricing” means any of the following
(or any other action that has the same effect as any of the following):
(A) changing the terms of a stock option or SAR to lower its exercise price;
(B) any other action that is treated as a “repricing” under generally accepted
accounting principles; and (C) repurchasing for cash or canceling a stock option
or SAR at a time when its exercise price is greater than the fair market value
of the underlying stock in exchange for another award, unless the cancellation
and exchange occurs in connection with change in capitalization or similar
change. Such cancellation and exchange would be considered a “repricing”
regardless of whether it is treated as a “repricing” under generally accepted
accounting principles and regardless of whether it is voluntary on the part of
the key employee.
 
FEDERAL INCOME TAX TREATMENT
The following discussion summarizes certain U.S. federal income tax consequences
of awards under the KEEP based on the law as in effect on the date of this
document. The following discussion does not purport to cover federal employment
taxes or other federal tax consequences that may be employed with awards, nor
does it cover state, local or non-U.S. taxes.
Nonqualified Stock Options. A participant generally will not recognize taxable
income upon the grant or vesting of a nonqualified stock option with an exercise
price at least equal to the fair market value of our common stock on the date of
grant and no additional deferral feature. Upon the exercise of a nonqualified
stock option, a participant generally will recognize compensation taxable as
ordinary income in an amount equal to the difference between the fair market
value of the shares underlying the stock option on the date of exercise and the
exercise price of the stock option. When a participant sells the shares, the
participant will have short-term or long-term capital gain or loss, as the case
may be, equal to the difference between the amount the participant received from
the sale and the tax basis of the shares sold. The tax basis of the shares
generally will be equal to the fair market value of the shares on the exercise
date.
Incentive Stock Options. A participant generally will not recognize taxable
income upon the grant of an incentive stock option. If a participant exercises
an incentive stock option during employment or within three months after
employment ends (12 months in the case of permanent and total disability), the
participant will not recognize taxable income at the time of exercise for
regular U.S. federal income tax purposes (although the participant generally
will have taxable income for alternative minimum tax purposes at that time as if
the stock option were a nonqualified stock option). If a participant sells or
otherwise disposes of the shares acquired upon exercise of an incentive stock
option after the later of (a) one year from the date the participant exercised
the option and (b) two years from the grant date of the stock option, the
participant generally will recognize long-term capital gain or loss equal to the
difference between the amount the participant received in the disposition and
the exercise price of the stock option. If a participant sells or otherwise
disposes of shares acquired upon exercise of an incentive stock option before
these holding period requirements are satisfied, the disposition will constitute
a “disqualifying disposition,” and the participant generally will recognize
taxable ordinary income in the year of disposition equal to the excess of the
fair market value of the shares on the date of exercise over the exercise price
of the stock option (or, if less, the excess of the amount realized on the
disposition of the shares over the exercise price of the stock option). The
balance of the participant’s gain on a disqualifying disposition, if any, will
be taxed as short-term or long-term capital gain, as the case may be.
With respect to both nonqualified stock options and incentive stock options,
special rules apply if a participant uses shares of common stock already held by
the participant to pay the exercise price or if the shares received upon
exercise of the stock option are subject to a substantial risk of forfeiture by
the participant.
Stock Appreciation Rights. A participant generally will not recognize taxable
income upon the grant or vesting of a SAR with a grant price at least equal to
the fair market value of our common stock on the date of grant and no additional
deferral feature. Upon the exercise of a SAR, a participant generally will
recognize compensation taxable as ordinary income in an amount equal to the
difference between the fair market value of the shares underlying the SAR on the
date of exercise and the grant price of the SAR.
Restricted Stock Shares and Restricted Stock Units. A participant generally will
not have taxable income upon the grant of restricted stock or restricted stock
units. Instead, the participant will recognize ordinary income at the time of
vesting or payout equal to the fair market value (on the vesting or payout date)
of the shares or cash received minus any amount paid. For restricted stock only,
a participant may instead elect to be taxed at the time of grant.
Tax Consequences to Bank of America. In the foregoing cases, we generally will
be entitled to a deduction at the same time, and in the same amount, as a
participant recognizes ordinary income, subject to certain limitations imposed
under the Internal Revenue Code.