US Cellular 2008 Annual Report Download - page 32

election has not been made and prior to the time the restrictions on the shares lapse will recognize
compensation taxable as ordinary income (subject to income tax withholding), rather than dividend
income, in an amount equal to the dividends paid, and U.S. Cellular will be entitled to a corresponding
corporate income tax deduction, except to the extent the limit of Section 162(m) of the Code applies.
Restricted Stock Units. An award recipient will not recognize taxable income at the time of grant of
an RSU, and U.S. Cellular will not be entitled to a corporate income tax deduction at such time. An
award recipient will recognize compensation taxable as ordinary income (subject to income tax
withholding) at the time the restrictions on the award lapse in an amount equal to the fair market value of
any shares delivered and any cash paid by U.S. Cellular, and U.S. Cellular will be entitled to a
corresponding corporate income tax deduction, except to the extent the limit of Section 162(m) of the
Code applies.
Performance Awards. An award recipient will not recognize taxable income at the time of grant of a
performance award, and U.S. Cellular will not be entitled to a corporate income tax deduction at such
time. Upon the settlement of a performance award in the form of unrestricted Common Shares, cash or a
combination of both, the award recipient will recognize compensation taxable as ordinary income
(subject to income tax withholding) in an amount equal to the fair market value of any shares delivered
and the amount of any cash paid by U.S. Cellular, and U.S. Cellular will be entitled to a corresponding
corporate income tax deduction, except to the extent the limit of Section 162(m) of the Code applies.
Upon the settlement of a performance award in the form of restricted stock, the federal income tax
consequences associated with such restricted stock shall be determined in accordance with the above
section titled ‘‘Restricted Stock.’’
Deferral of Annual Bonus Amount and Company Match Award. An award recipient will not recognize
taxable income:
• at the time of deferral of any annual bonus amount which he or she properly elects not to receive
currently by deferring such amount into a deferred compensation account; or
• upon the grant of a company match award,
and U.S. Cellular will not be entitled to a corporate income tax deduction at such time.
At the time the award recipient receives a distribution from his or her deferred compensation
account, the award recipient will recognize the distributed amount as compensation taxable as ordinary
income (subject to income tax withholding), and U.S. Cellular will be entitled to a corresponding
corporate income tax deduction, except to the extent the limit of Section 162(m) of the Code applies.
Section 162(m) of the Internal Revenue Code. Section 162(m) of the Code generally limits to
$1 million the amount that a publicly held corporation is allowed each year to deduct for the
compensation paid to each of the corporation’s Chief Executive Officer and the corporation’s three most
highly compensated executive officers other than the Chief Executive Officer and Chief Financial Officer.
However, certain types of compensation paid to such executives are not subject to the $1 million
deduction limit. One such type is ‘‘qualified performance based compensation.’’ Qualified performance
based compensation must satisfy all of the following requirements:
• the compensation must be payable solely on account of the attainment of pre-established
objective performance measures;
• the performance measures must be determined by a committee consisting solely of two or more
‘‘outside directors;’’
• the material terms under which the compensation is to be paid, including the performance
measures, must be approved by a majority of the corporation’s stockholders; and
• the committee administering the plan must certify that the applicable performance measures were
satisfied before payment of any performance based compensation is made.
Compensation payable with respect to stock options and SARs will be considered qualified performance
based compensation, however, if such awards (i) have a purchase or base price at least equal to the fair
market value of the underlying Common Shares on the date of grant; (ii) are granted by a committee
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