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Proposal to approve the Texas
Instruments 2009 Director Compensation Plan
The company’s 2003 Director Compensation Plan (the “2003 Plan”) governs
equity compensation of the company’s non-employee directors and provides them
with the opportunity to defer their compensation. This plan was designed to
attract and retain qualified individuals to serve as directors of the company
and to increase the proprietary and vested interest of directors in the growth
and performance of the company. The board believes that the 2003 Plan has been
effective in achieving these objectives and that the company continues to need a
plan of this type.
The 2003 Plan expires in April 2010. As of December 31, 2008, there were
approximately 1.4 million shares of common stock available for grant under the
2003 Plan. The board of directors recommends that stockholders approve the
adoption of the Texas Instruments 2009 Director Compensation Plan (the “2009
Director Plan”). If the 2009 Director Plan is approved, no further awards will
be made under the 2003 Plan. As discussed in more detail below, the 2003 Plan
will continue to govern compensation that was earned and deferred prior to
January 1, 2005. No additional amounts will be able to be deferred into the 2003
Plan. If stockholders do not approve the 2009 Director Plan, it will not be
implemented.
The
full text of the proposed 2009 Director Plan is shown on Exhibit B to this proxy
statement. The principal features of the 2009 Director Plan are summarized
below.
Types of
awards
The 2009 Director Plan
provides for the grant of the same types of awards as the 2003 Plan: (1) stock
options, (2) restricted stock and restricted stock units, (3) performance units
and (4) other awards (including stock appreciation rights) valued in whole or in
part by reference to or otherwise based on common stock of the
company.
Shares available for
awards
Under the 2009 Director Plan,
the number of shares of common stock available for issuance will be 2,000,000,
subject to adjustment by the Administrator (defined below) for stock splits and
other events as set forth in the 2009 Director Plan, plus any shares under
awards granted under the 2009 Director Plan that terminate or are
cancelled.
Material features of the 2009
Director Plan
The 2009 Director Plan
will be administered by the board or a committee of directors appointed by the
board (the “Administrator”). The Administrator will have, among other powers,
the power to interpret and construe any provision of the plan, to adopt rules
and regulations for administering the plan, and to perform other acts relating
to the plan. Decisions of the Administrator are final and binding on all
parties.
The
2009 Director Plan provides that each non-employee director will receive an
annual grant of a non-qualified option to purchase 7,000 shares of TI common
stock and an annual grant of 2,500 restricted stock units. The options will
become exercisable in four equal annual installments commencing on the first
anniversary date of the grant and expire not more than ten years after the date
of grant.
In
addition, each eligible director who is initially elected or appointed after the
effective date of the 2009 Director Plan will receive a one-time grant of 2,000
restricted stock units under the 2009 Director Plan. Each restricted stock unit
will be paid or settled by the issuance of one share of TI common stock as soon
as practicable after the fourth anniversary of the date of grant. It is expected
that all options granted under the Plan will be non-qualified options for U.S.
tax purposes.
If
a dividend or other distribution, recapitalization, stock split, or other
corporate event or transaction (more fully described in Section 5(d) of the 2009
Director Plan) affects the shares in such a way that an adjustment is
appropriate to prevent dilution or enlargement of the benefits, or potential
benefits, intended to be made available under the 2009 Director Plan, then an
equitable adjustment shall be made to: (i) the number and type of shares (or
other securities or property) which may be made the subject of awards, (ii) the
number and type of shares (or other securities or property) subject to
outstanding awards, and (iii) the grant, purchase or exercise price with respect
to any award. The Administrator may not take any other action to reduce the
exercise price of any option as established at the time of
grant.
Awards
will be granted for no cash consideration, or for minimal cash consideration if
required by applicable law. Awards may provide that upon their exercise the
holder will receive cash, stock, other securities, other awards, other property
or any combination thereof, as the Administrator will determine. Any shares of
stock deliverable under the 2009 Director Plan may consist in whole or in part
of authorized and unissued shares or treasury
shares.
The
exercise price of stock under any stock option, the grant price of any stock
appreciation right, and the purchase price of any security that may be purchased
under any other stock-based award will not be less than 100 percent of the fair
market value (as defined in the 2009 Director Plan) of the stock or other
security on the date of the grant of the option, right or
award.
Unless
otherwise determined by the Administrator, no award granted under the 2009
Director Plan may be transferred or otherwise encumbered by the individual to
whom it is granted, other than by will, by designation of a beneficiary, or by
the laws of descent and distribution. During the individual’s lifetime, each
award will be exercisable only by the individual or by the individual’s guardian
or legal representative.
[ 88 ] TEXAS INSTRUMENTS 2009 PROXY STATEMENT
The
board of directors may amend, alter, discontinue or terminate the 2009 Director
Plan or any portion of the plan any time. However, stockholder approval must be
obtained for any plan adjustment that would increase the number of shares
available for awards or any other material amendment of the 2009 Director
Plan.
No awards
may be granted under the 2009 Director Plan after the tenth anniversary of the
effective date of the 2009 Director Plan.
Each
director will be able to elect, with respect to any year, that all or any
portion of his or her eligible cash compensation and restricted stock unit grant
be deferred in accordance with the terms of the 2009 Director Plan. Each
director will be able to elect that his or her deferred compensation for any
year be credited to a cash account, a stock unit account or any combination
thereof.
New plan benefits
| Texas Instruments 2009 Director Compensation Plan | ||
| Participant | Number of Shares Subject to Options | Restricted Stock Units |
| Non-Employee Director Group(1) | 70,000(2) | 25,000(3) |
| (1) | As a result of deferral elections made for 2008: seven non-employee directors deferred a total of $400,733 of their cash compensation (equivalent to 17,382 restricted stock units) into stock unit accounts under the 2003 Plan; five directors deferred receipt of their restricted stock units granted in 2008; one director deferred $2,966 in interest on her cash account; and cash dividends and dividend equivalents on restricted stock units in the amount of $67,402 were paid into non-employee director stock unit accounts during 2008. |
| (2) | Each non-employee director would have received an option to purchase 7,000 shares of TI common stock had the Plan been in effect in 2008. |
| (3) | Each non-employee director would have received a grant of 2,500 restricted stock units had the plan been in effect in 2008. The 2009 Director Plan also provides for additional benefits in the form of other stock-based awards. To date, these types of awards have not been utilized and the non-employee directors would not have been eligible for automatic grant of any such awards. In addition, as set forth in note (1), 17,382 restricted stock units were credited to Directors’ deferred compensation accounts in 2008. Therefore, the related benefits the non-employee directors may have received or will in the future receive under these terms of the 2009 Director Plan are not determinable. |
Tax matters
Counsel for the company has advised that a participant
who receives a grant of an option or a restricted stock unit will not be in
receipt of taxable income under the Internal Revenue Code upon the making of the
grant. A participant who receives an option under the 2009 Director Plan will
generally recognize ordinary income at the time of exercise in the amount of the
excess, if any, of the fair market value of the stock on the date of exercise
over the option price. Upon payment or settlement of a restricted stock unit
award in cash or stock, the participant will recognize ordinary income equal to
the value of any cash or shares received.
Counsel for the company has also advised
that the company will not be allowed any deduction for federal income tax
purposes upon the grant of options or restricted stock units. The company will
be entitled to a deduction for federal income tax purposes in an amount equal to
the ordinary income, if any, realized by a participant who exercises an option.
Also, the company will be entitled to a deduction for federal income tax
purposes at the same time as, and in an amount equal to, the recognition of
ordinary income by a participant in respect of restricted stock unit awards
under the 2009 Director Plan and the settlement thereof.
Counsel for the company has
further advised that a participant will not be deemed to have received any
taxable income under the Internal Revenue Code as a result of a deferral
election until the participant receives a distribution. When a distribution is
made from a cash account or stock unit account, the participant will recognize
ordinary income equal to the value of any cash and shares received. The company
will be entitled to a deduction for federal income tax purposes at the time a
distribution is made from a cash account or stock unit account in an amount
equal to the income recognized by the
participant.
The board of directors recommends a vote “FOR” the Texas Instruments 2009
Director Compensation Plan.
TEXAS INSTRUMENTS 2009 PROXY STATEMENT [ 89 ]
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