Texas Instruments 2013 Annual Report Download - page 99

TEXAS INSTRUMENTS 2014 PROXY STATEMENT • 97
PROXY
STATEMENT
U.S. federal tax consequences
The following summary is limited to the U.S. federal tax laws. It does not include the tax laws of any municipality, state or foreign
country in which the participant resides.
The 2014 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code. However, TI does not
undertake to maintain such status throughout the term of the 2014 ESPP.
In accordance with SEC rules, the following description of tax matters relating to the 2014 ESPP is provided. In general, a participant
has no taxable event at the time of grant of an option or at the time of exercise of an option, but will realize taxable income at the time
the participant sells the shares acquired under the 2014 ESPP.
If the participant observes certain holding period requirements, the participant’s gain on sale will generally be taxed at capital gains
rates, except that in certain circumstances a portion of the participant’s gain will be treated as ordinary income. Those circumstances
will generally occur if the exercise price of the shares is established as a percentage less than 100% of the fair market value of the
shares at the beginning of the offering period, or if at the beginning of the period it is unknown what the exercise price will be, for
example, if the exercise price can be determined only on the Exercise Day. The participant’s ordinary income will not be greater than
the excess, if any, of the fair market value of the shares at the time of grant over the exercise price (or, if lower, the actual proceeds
of sale over the actual purchase price of the shares). If the exercise price is a function of the value of the shares on the Exercise Day,
the exercise price will be determined as if the option was exercised at the time of grant for purposes of calculating this limit. If the
participant sells the shares only after satisfying the holding period requirements, the company will not be entitled to a deduction.
If the participant sells the shares before satisfying the holding period requirements, then the participant will realize ordinary
income in an amount equal to the difference between the exercise price and the fair market value of the stock on the Exercise Day. The
company will be entitled to a corresponding deduction. The remainder of the proceeds of sale will be taxed at capital gains rates.
The board of directors recommends a vote “FOR” the TI Employees 2014 Stock Purchase Plan.
PROPOSAL TO REAPPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS
UNDER THE TEXAS INSTRUMENTS 2009 LONG-TERM INCENTIVE PLAN
The board asks stockholders to reapprove the material terms of performance goals that may apply to awards under the Texas
Instruments 2009 Long-Term Incentive Plan (the “2009 Plan”). Reapproval of the material terms of the performance goals is sought with
the intent of satisfying a requirement for tax deductibility under Section 162(m) of the Internal Revenue Code (“Section 162(m)”).
Section 162(m) imposes an annual limit of $1 million on the amount that a public company may deduct for federal income tax
purposes for compensation it has paid to its chief executive officer or to any of its other three most highly compensated executive
officers (other than the chief financial officer). The tax deduction limit does not apply to “qualified performance-based compensation”
under Section 162(m). Restricted stock units and certain other types of awards may be considered qualified performance-based
compensation if, among other things, they are subject to performance goals, the material terms of which have been approved by
stockholders not less than five years before the grant date of such restricted stock units or awards. For purposes of Section 162(m),
the material terms of the performance goals under the 2009 Plan include: (1) the employees eligible to receive compensation; (2) a
description of the business criteria on which the performance goals are based; and (3) the maximum amount of compensation that
could be paid to any employee under the 2009 Plan if the performance goals are satisfied.
Stockholders approved the 2009 Plan, including the material terms of the performance goals under the 2009 Plan, in April 2009.
Because almost five years have passed since that approval, the board is submitting this proposal to stockholders for reapproval of the
material terms of the performance goals set forth in the 2009 Plan for purposes of Section 162(m). This proposal does not seek to
amend or alter the performance goals or any other terms of the 2009 Plan.
If stockholders do not approve this proposal, the company will still be able to make awards under the 2009 Plan, but awards (other
than stock options and stock appreciation rights) will be subject to the tax deduction limit under Section 162(m) even if they have been
granted subject to the achievement of performance goals. (Stock options granted under the 2009 Plan are intended to be qualified
performance-based compensation under Section 162(m) because, among other things, the stock options are granted with an exercise
price of no less than the fair market value of TI’s stock on the grant date. The same would be true for stock appreciation rights, if TI were
to grant them under the 2009 Plan.) In addition, even if this proposal is approved by stockholders, nothing in this proposal precludes the
company from granting awards that are not intended to be qualified performance-based compensation under Section 162(m).
Stockholder approval of the material terms of the performance goals is only one of several requirements to be satisfied if
compensation is to be qualified performance-based compensation under Section 162(m). This proposal should not be viewed as a
guarantee that TI will be able to deduct for federal income tax purposes compensation that is intended to be performance-based
compensation under Section 162(m).
The 2009 Plan is attached as Exhibit B. The description below is qualified in its entirety by reference to the text of the 2009 Plan.