Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Palo Alto / Paris / Shanghai / fieldfisher.com 1 Incentivising management and employees Key elements to a remuneration package include: – Base salary – Discretionary cash bonus – Employer pension contribution, private medical insurance etc – Equity participation via shares or options Intention is to align employees’ interests with those of shareholders/investors Can be tax efficient in the UK Essential to structure properly from the outset

Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Palo Alto / Paris / Shanghai / fieldfisher.com 2 Key issues to consider What are you trying to achieve by granting options or awarding shares? Typical objectives might be to: – Reward employees for past performance – Encourage future performance – Allow employees to participate in a potential exit of the business – Facilitate wider share ownership and cultural change – Reflect market conditions Determining your objectives will shape the type of plan you adopt But remember it is only one part of the overall remuneration package

Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Palo Alto / Paris / Shanghai / fieldfisher.com 3 Key issues to consider II All employee v discretionary Tax-advantaged v non tax-advantaged Shares v options Direct share ownership v indirect share ownership Financial reward v cultural change – How will employees receive a return if there is no exit? How much equity are you prepared to offer your employees? – Will founders participate in the plan? – Will awards be over newly issued shares or will founders offer some of their own equity? – Will employees be allowed to retain shares if they leave? If so, consider impact on dilution. – Will awards be made annually? What type of share will be offered? – Voting or non-voting? – Full or limited economic rights?

Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Palo Alto / Paris / Shanghai / fieldfisher.com 4 Vesting conditions If a reward for past performance – Immediate vesting? If a future incentive, then: – Vest over time (three or four years is typical, with one year cliff and then monthly vesting); – Subject to company performance; – Individual or team performance; or – Combination If performance based, consider how these will be measured and determined Exit only (most straightforward to structure and often the only time employees will gain from holding shares in the company)

Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Palo Alto / Paris / Shanghai / fieldfisher.com 5 Practical tips Ensure employees actually receive the level of award they have been promised Don’t over-engineer how the plan is structured, but do consider the tax consequences: it is an added incentive if employees pay a low rate of tax on exit (and a disincentive otherwise) Ensure employees appreciate the potential value in the award: communication is key If awards are granted under a UK tax-advantaged plan, try to agree share valuations with HMRC (it’s a service not all tax authorities provide so make use of it) Keep accurate records of awards made under the plan – Assists with preparation of annual returns and due diligence on any exit If an exit is planned, think ahead – Leaving the award of shares or options until just before an exit will not be tax efficient and could distract from the main focus of achieving a successful exit Keep your plan under review: what works now may not work as well in the future

Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Palo Alto / Paris / Shanghai / fieldfisher.com 6 EMI options On grant - No tax charge On exercise - No tax charge (assuming qualifying exercise and no discount at grant) - Note tax relief lost if option exercised more than ten years after grant date On sale - Capital gains tax on difference between sale price and exercise price with entrepreneurs’ relief (10% CGT rate) potentially applying if option held for at least 12 months

Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Palo Alto / Paris / Shanghai / fieldfisher.com 7 Tax comparison EMINon tax-advantaged Aggregate exercise price:£50,000 £50,000 Market value of shares on exercise:£150,000 £150,000 Gain on exercise:£100,000 £100,000 Income tax and NICs on gain:£nil£58,000 (approx.) Annual CGT exemption:£11,100n/a Gains subject to CGT:£88,900n/a 10% (option held >12 months):£8,890n/a Total tax and NICs liability:£8,890£58,000

Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Palo Alto / Paris / Shanghai / fieldfisher.com 8 Main qualifying conditions - Company granting EMI options must be independent - Must not employ more than 250 employees (full time equivalent) - Gross assets less than £30m (at date of grant) - At least one group company must carry out a qualifying trade - Excluded activities - UK permanent establishment requirement if overseas parent - Qualifying subsidiaries - Minimum working time condition - Material interest - Shares under option must be fully paid up, non redeemable, ordinary share capital - Options must be notified to HMRC within 92 days of date of grant

Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Palo Alto / Paris / Shanghai / fieldfisher.com 9 Contact details