ZBRA » Topics » Tax Effects

This excerpt taken from the ZBRA DEF 14A filed Apr 21, 2009.

Tax Effects

     Compliance with Section 162(m). The Committee generally intends for all compensation paid to the Named Officers to be tax deductible to the Company pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”). Section 162(m) provides that compensation paid to the Named Officers in excess of $1,000,000 cannot be deducted by the Company for federal income tax purposes unless, in general, such compensation is performance-based, is established by an independent committee of directors, is objective and the plan or agreement providing for such performance-based compensation has been approved in advance by the Company’s stockholders. However, if in the judgment of the Committee, the benefits to the Company of a compensation program that does not satisfy the arbitrary and inflexible conditions of Section 162(m) outweigh the costs to the Company of the failure to satisfy these conditions, the Committee may adopt such a program.

     Stock Options. There generally are no federal income tax consequences to a participant or the Company upon the grant of a non-qualified stock option (an “NSO”). Upon the exercise of an NSO, the executive officer generally will recognize ordinary income in an amount equal to: (i) the fair market value, on the date of exercise, of the acquired shares, less (ii) the exercise price of the NSO. Subject to Section 162(m), in most cases the Company will be entitled to a tax deduction in the same amount.

     Restricted Stock. Except as otherwise provided above (see “Compliance With Section 162(m)” above) and subject to Section 16 of the Exchange Act, there are generally no federal income tax consequences to either the executive officer or the Company upon the grant of restricted stock (including performance-based restricted stock), provided that the stock is subject to a substantial risk of forfeiture. Upon the expiration of the restricted period or the lapsing of the substantial risk of forfeiture, the executive officer will recognize taxable income equal to the then fair market value of the restricted stock. Subject to Section 162(m), in most cases the Company will be entitled to a corresponding deduction. However, the participant may make an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, within thirty days after the date of the grant, to recognize ordinary income on the value of the restricted stock as of the date of grant, in which case the Company will be entitled to a corresponding deduction at that time. If such an election is made, then there is no federal income tax to either the executive officer or the Company upon the expiration of the restricted period or the lapsing of the substantial risk of forfeiture.

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