MOLX » Topics » Certain Federal Income Tax Consequences

This excerpt taken from the MOLX DEF 14A filed Sep 12, 2008.
Certain Federal Income Tax Consequences
 
The following is a general description of the U.S. federal income tax consequences to participants and Molex relating to awards. This discussion does not cover all tax consequences relating to the awards, and assumes, with respect to deductibility of compensation by Molex, that to the extent applicable, the requirements of Section 162(m) of the Internal Revenue Code have been satisfied. Also, our ability to obtain a deduction for future payments under the SIP could be limited by the “golden parachute rules” of Section 280G of the Internal Revenue Code, which prevent the deductibility of certain “excess parachute payments” made in connection with a change in control. The


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tax treatment may also vary depending on the participant’s particular situation and may, therefore, be subject to special rules not discussed below.
 
A participant who receives stock options generally will not recognize any income, nor will we be entitled to any tax deduction, in the year of the grant. At the time that a nonqualified stock option is exercised, the participant will recognize ordinary income in an amount equal to the excess of (a) the fair market value of the shares purchased over (b) the exercise price of the stock option. We generally will be entitled to a tax deduction in an amount equal to the amount includible in the income of the participant in the taxable year in which the participant is required to recognize the income.
 
A participant who disposes of shares received upon the exercise of a nonqualified stock option will recognize capital gain (or loss) in an amount equal to the difference between (a) the amount realized on the disposition of the shares, and (b) the fair market value of the shares on the exercise date. The capital gain (or loss) will be considered long-term if the shares received upon exercise are held for more than one year after exercise. We are not entitled to any deduction for federal income tax purposes upon a participant’s disposition of stock received upon the exercise of a non-qualified stock option.
 
A participant will recognize no income for federal income tax purposes upon the grant or the exercise of an incentive stock option, provided that the exercise occurs during employment or within three months after termination, other than in the case of death or disability. If the shares acquired upon the exercise are held for a minimum of both (a) two years from the grant date and (b) one year from the exercise date, then any gain or loss recognized by the participant on the sale of such shares will be treated as a long-term capital gain or loss, and we will not be entitled to any deduction for federal income tax purposes. If the shares acquired are not held for these minimum periods, then the participant will be required to recognize ordinary income in the year of the disposition to the extent that the fair market value of the shares on the exercise date or the sale price, whichever is less, exceeds the exercise price for the shares. We generally will be entitled to a deduction for federal income tax purposes equal to the amount the participant is required to recognize as ordinary income.
 
A participant who receives awards payable in restricted stock or performance shares will not recognize income for federal income tax purposes until the awards vest. At that time, the participant will recognize ordinary income on the excess of (a) the fair market value of the shares on the vesting date over (b) the amount, if any, paid for the shares. We will be entitled to take a tax deduction in an amount equal to the ordinary income recognized by the participant.
 
An employee participant will be subject to withholding for federal and, if applicable, state and local, income taxes at the time the participant recognizes income under the rules described above with respect to shares. As such, we will have the right to make all payments or distributions to a participant net of any taxes required to be paid at such time. We will have the right to withhold from wages or other amounts otherwise payable such withholding taxes as may be required by law, to otherwise require the participant to pay such withholding taxes or to take such other action as may be necessary to satisfy such withholding obligations. Non-employee directors are not subject to withholding by us and must make their own arrangements for satisfying any tax obligations they may have in connection with the grant or exercise of an award under the SIP.
 
Internal Revenue Code Section 409A imposes an additional 20% tax and interest on an individual receiving nonqualified deferred compensation, as defined in Section 409A, under a plan that fails to satisfy certain requirements. Awards made pursuant to the SIP are designed to comply with the requirements of Section 409A to the extent such awards are not exempt from coverage. However, if the SIP fails to comply with Section 409A in operation, a participant could be subject to the additional taxes and interest.
 
This excerpt taken from the MOLX DEF 14A filed Sep 10, 2007.

Certain Federal Income Tax Consequences

Set forth below is a discussion of certain U.S. federal income tax consequences with respect to stock options granted to non-employee directors. The following discussion is a brief summary only, and reference is made to the Internal Revenue Code and related regulations and interpretations for a complete statement of all relevant federal tax consequences. This summary is not intended to be exhaustive and does not describe state, local or foreign tax consequences.

A non-employee director will not be taxed at the time a stock option is granted. In general, a non-employee director exercising a stock option will recognize ordinary income equal to the excess of the fair market value of the Class A Common Stock on the exercise date over the stock option exercise price. Upon subsequent disposition of the underlying stock, the difference between the amount realized and the fair market value of the Class A Common Stock on the exercise date will constitute capital gain or loss. We will not recognize income, gain or loss upon the granting of a stock option, but upon the exercise of a stock option by a non-employee director, we are entitled to an income tax deduction equal to the amount of ordinary income recognized by the non-employee director.

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