This excerpt taken from the GSIC DEF 14A filed Apr 25, 2008.
Federal Income Tax Consequences
The following provides only a general description of the application of federal income tax laws to awards under the Bonus Plan. This discussion is intended for the information of stockholders considering how to vote at the Annual Meeting and not as tax guidance to participants in the Bonus Plan, as the consequences may vary with the types of awards made, the identity of the participants and the method of payment. The summary does not address the effects of other federal taxes (including possible golden parachute excise taxes) or taxes imposed under state, local or foreign tax laws.
From the participants standpoint, as a general rule, the granting of an award will not result in taxable income to the participant. The participant will generally recognize ordinary income upon payment of the award, provided, however, that grants subject to additional vesting or performance requirements will not generally be taxable until earned. Assuming as expected that compensation paid under the Bonus Plan is qualified performance-based compensation under section 162(m) of the Code, GSI will be entitled to a tax deduction that corresponds in time and amount to the ordinary income recognized by the participant.
Section 162(m) of the Code generally disallows a publicly-held corporations tax deduction for compensation paid to its chief executive officer or any of its four other most highly compensated officers in excess of $1,000,000 in any year. Compensation that qualifies as performance-based compensation is excluded from the $1,000,000 deductibility cap, and therefore remains fully deductible by the corporation that pays it. GSI intends that incentive awards granted under the Bonus Plan will qualify as performance-based compensation and the Administrator will condition such grants on the achievement of specific performance goals in accordance with the requirements of section 162(m) of the Code.
While it is intended that the incentive awards will not be subject to section 409A of the Code, a participants award may be subject to a 20% excise tax in addition to ordinary income tax inclusion at the time the award becomes vested, plus interest, if the award constitutes deferred compensation under section 409A of the Code and the requirements of section 409A of the Code are not satisfied. To the extent a participants award is paid in cash or Common Stock, such cash amounts or Common Stock will not be subject to section 409A of the Code. However, if a participants award is paid in restricted stock units or options granted at other than a fair market value excise price, such amounts will be subject to section 409A of the Code. Accordingly, all grants of stock units will be intended to comply with the requirements of section 409A of the Code. Because the rules under section 409A of the Code are substantially uncertain at this time, the Bonus Plan and award agreements permit the Administrator to amend the Bonus Plan and award agreements to effect compliance with all the requirements of section 409A of the Code.
GSI may deduct from a participants award any and all federal, state and local taxes or other amounts required by law to be withheld.