GLOBAL EQUITY ORGANISATION Approved Share Options – where to next? Rosaleen Boyle, PricewaterhouseCoopers 7 January 2003 Pwc

Outline of Talk Overview of FA2001- Approved Share Option Rules Difficulties in application Challenges for the Future Other recent developments in employee share plans Global Equity Organisation PricewaterhouseCoopers

Overview of Finance Act 2001 Share Option Rules Overview of Finance Act 2001 Pwc

Approved Share Option Schemes Options for all employees on similar terms 3 year holding requirement from grant to sale No discount on option price Favourable tax treatment Group scheme/individual company scheme Other features: 30% key employee rule; new hires Global Equity Organisation PricewaterhouseCoopers

Tax Treatment Income Tax No tax at either Grant or Exercise Capital Gains Tax [CGT] On Sales Proceeds less Exercise Price Indexation from date of exercise 20% tax rate Corporate Tax Set up costs deductible PricewaterhouseCoopers Global Equity Organisation

Difficulties in Application Pwc

Lobby Group Unified Approach IPSA/ISA  IBEC Survey of Members Extensive Consultation Meetings/Discussions with Finance/Revenue Global Equity Organisation PricewaterhouseCoopers

Primary Issues Identified Similar Terms – what is included Eligibility – who is included Housekeeping Issues – practical application Global Equity Organisation PricewaterhouseCoopers

Similar Terms APSS Approach Remuneration ‘basic’ or ‘total’ ? Grading, promotion, role value ? Perfomance related ? Same day/same price Global Equity Organisation PricewaterhouseCoopers

Eligibility APSS Approach Temporary/contract workers ? Participation rather than eligibility Discretion problematic Global Equity Organisation PricewaterhouseCoopers

Housekeeping Issues Grants on anniversary of hire ? Application of discretion Need for Audit certificates Uncertainty of approval process and cost Global Equity Organisation PricewaterhouseCoopers

Trends Multi-Nationals in Ireland stepped vesting grants to “All Employees” Irish/UK Companies cliff vesting typically after 3 years subject to performance conditions aimed at key employees Private companies ? Global Equity Organisation PricewaterhouseCoopers

Facts Only 15 schemes approved to date Most companies with existing schemes fail to meet the rigid requirements Not commercially attractive to companies Global Equity Organisation PricewaterhouseCoopers

Output ‘Educational’ Process Draft Guidelines prepared and put forward Housekeeping issues identified and proposals made Detailed legislative proposals presented Willingness to resolve issues Global Equity Organisation PricewaterhouseCoopers

Result No changes in Finance Act 2002 Hugely Disappointing to IPSA to companies involved for the team No announcements in Budget 2002. Finance Bill? Global Equity Organisation PricewaterhouseCoopers

Challenges For the Future Pwc

Next steps Minister of Finance willing to review fresh proposals No guarantees Lobby groups preparing new proposals – IPSA, ICT Ireland - “clean sheet” approach - international comparisons - draft model Global Equity Organisation PricewaterhouseCoopers

Working with existing legislation Pre 1992 Options - History Retrospective Approval – No longer possible Approval only impacts on future grants Will SAYE meet your all-employee needs? Do you have an APSS? Is policy determined locally or at corporate level ? Global Equity Organisation PricewaterhouseCoopers

What can companies do? Green field Approach - tail wagging the dog ? ‘Carve out’ from existing scheme - need to ‘disapply’ certain provisions - include other provisions Approved/Unapproved Need Approval in Advance Push the Envelope Global Equity Organisation PricewaterhouseCoopers

Existing Share Option Schemes Rule changes will be required Does existing scheme make provision ? Board approval ? Revenue approval Global Equity Organisation PricewaterhouseCoopers

New Share Option Schemes Approval at general meeting IAIM guidelines Revenue approval Global Equity Organisation PricewaterhouseCoopers

Other Tax and Legal Issues Pwc

Finance Act 2002 No changes to Finance Act 2001 Filing date for Form SO2 now 31 March - For 2001, SO2 due by 30 June 2002 - For 2002, SO2 due by 31 March 2003, etc. SO2 reporting requirement extended to Irish branches/agencies - previously, applied only to employees of resident company Global Equity Organisation PricewaterhouseCoopers

Unapproved Share Option Schemes - Deferral of Income Tax Tax still applies to year of exercise Only defer collection until earlier of 7 Years or Sale timely election essential Identification of shares is an issue Benefit flows through for preliminary tax Global Equity Organisation PricewaterhouseCoopers

Restricted Share Schemes Restrictions on sale reduce taxable value and thus overall tax bill Range from 10% reduction for 1 year restriction to 50% reduction for 5 years, and 55% reduction for restriction of over 5 years Limits on early release provisions Agreement of Inspector required Improvements needed Global Equity Organisation PricewaterhouseCoopers

APSS & Salary Foregone New Revenue Guidelines - Dec 2001 Cannot straddle tax years in collection Salary foregone in 2001 can be used towards 2002 purchases Affects appropriations from 1 Jan 2003 NB for co’s with awards in Jan-Mar Action required now Global Equity Organisation PricewaterhouseCoopers

APSS & Salary Foregone If your company is affected, 4 choices Move appropriation date to later in 2003 Suggest that employees plan now for all s/f to come from Jan/Feb 2003 payroll Do nothing Revenue ‘solution’ Jan/Feb -award employer element Feb-Nov: forego salary & appropriate that element only in Nov/Dec 2003 Global Equity Organisation PricewaterhouseCoopers

UK Share Scheme Issues Profit Sharing Schemes abolished in UK on 31 Dec 2002 (replaced by SIP) Statutory corporate tax deduction in UK proposed for options Global Equity Organisation PricewaterhouseCoopers

Recent Developments Part Time workers EU prospectus provisions Data Protection Part Time workers EU prospectus provisions Global Equity Organisation PricewaterhouseCoopers

Recent Developments Data Protection EC data protection regulations came into force on 1 April 2002 Will allow transfer of data outside the EEA only where adequate data protection is deemed to exist Global Equity Organisation PricewaterhouseCoopers

Recent Developments Part Time Work Act 2001 New Irish legislation 20 December 2001 Any grading or allocation system could be viewed as discriminatory Global Equity Organisation PricewaterhouseCoopers

Recent Developments EU Prospectus Provisions Companies Act 1963 - general requirement Exemption for Irish companies in respect of employee share plans Less clear for foreign companies EU draft directive in circulation - Wholesale exemption for employee share plans rejected Current climate seeks openness – Enron etc Global Equity Organisation PricewaterhouseCoopers

Q & A Pwc