This excerpt taken from the MOLX DEF 14A filed Sep 10, 2007.
Certain Federal Income Tax Consequences of Performance Shares
Set forth below is a discussion of certain U.S. federal income tax consequences with respect to Performance Shares. 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 participant who is awarded Performance Shares will not recognize income, and we will not be allowed a deduction, at the time the award is made. When shares of Class A Common Stock are issued pursuant to a Performance Share award, the aggregate fair market value of the shares will be ordinary income to the participant and we will be allowed a deduction for federal income tax purposes.
Our allowable federal income tax deduction for compensation paid to our Chief Executive Officer and our four other most highly compensated executive officers serving as such at the end of the fiscal year is limited to no more than $1,000,000 per year per individual. This limitation on deductibility is subject to certain exemptions, including an exemption relating to performance-based compensation that is payable: (1) solely on account of the achievement of one or more performance goals established by a compensation committee consisting exclusively of two or more outside directors; (2) under a plan the material terms of which are approved by stockholders before payment is made; and (3) solely upon certification by such compensation committee that the performance goals and other material conditions precedent to the payment have been satisfied.
The amended 2000 Plan is structured so that compensation paid will qualify for this performance-based exception to the extent practicable to do so. The Compensation Committee has discretion to eliminate or reduce the size of awards of Performance Shares based on factors it deems appropriate. The Compensation Committee may also grant Performance Shares that are not based on the performance measures specified above, in which case the compensation paid under such awards to the employee may not be deductible.