h NCEO 2001 Global Equity Compensation Forum Global Employee Stock Purchase Plan Issues for New or Future Plans Lorraine E. Cohen, San Francisco November 5, 2001

2 © 2001 Arthur Andersen All rights reserved. Agenda What’s happening in the world today? What should be considered when developing an ESPP? Country specific examples

3 © 2001 Arthur Andersen All rights reserved. What’s Happening in the World Today The number of companies operating some form of global share plan continues to grow

4 © 2001 Arthur Andersen All rights reserved. What’s Happening in the World Today The number of companies operating broad based global share plans is also increasing

5 © 2001 Arthur Andersen All rights reserved. What’s Happening in the World Today The prevalence of discounted share purchase plans:

6 © 2001 Arthur Andersen All rights reserved. Reason companies offer broad based global share plans

7 © 2001 Arthur Andersen All rights reserved. What should be considered when developing an ESPP? Plan Design General Implementation Issues Mobile Employee Considerations The Importance of Internal Consensus Tax Considerations Financial and Accounting Considerations Legal and Regulatory Considerations

8 © 2001 Arthur Andersen All rights reserved. Plan Design One worldwide plan? One U.S. plan and one international plan? Use of subplans

9 © 2001 Arthur Andersen All rights reserved. Plan Design (Continued) Are there any minimum service requirements? What is the accumulation period? What are the relevant grant dates? What is the discount on the purchase? What are the enrollment periods / dates? Are there changes to the elections?

10 © 2001 Arthur Andersen All rights reserved. General Implementation Issues Mechanisms to allow refunds of employee contributions (e.g., if leave, move country)? Pay interest on amounts held prior to stock purchase (may be required by law in some locations)? Exchange rate protect employee?

11 © 2001 Arthur Andersen All rights reserved. General Implementation Issues (Continued) Require stock holding period? –Retention feature (e.g., suspend participation if employee sells prematurely) –Ensure favorable tax treatment (e.g., in France) Paper vs.. electronic enrollment (written signature may be required in some locations)? Local translations in some locations? –May vary by region (e.g., French, Flemish in Belgium)

12 © 2001 Arthur Andersen All rights reserved. Development of tax planning opportunities –Avoidance of double taxation Administration with respect to internationally mobile employees –Recordkeeping is key for compliance with local withholding and reporting obligations Policy for sourcing deductions: –Who do we charge for what? –How do we track it? Mobile Employee Considerations

13 © 2001 Arthur Andersen All rights reserved. The Importance of Internal Consensus All company groups must be involved in the decision making process Establish working group of HR, Treasury, Legal, Tax, Accounting, and Payroll Schedule regular meetings/conference calls to address progress Set up regional geographic champions While making design and implementation decisions, it is essential that senior management approve decisions as they are being made

14 © 2001 Arthur Andersen All rights reserved. Employee taxation –Timing (tax on match may depend on dividend/voting rights) –Types of taxes imposed (crisis taxes, communal taxes, surtaxes) –Evaluation of NET pay impact Employer taxation –Types of tax imposed (fringe benefit taxes, social taxes, payroll taxes) –Deductibility of company match Tax Considerations Caution: Tax rates vary around the world. Example: The employer social tax rates in Sweden are about 33% uncapped!

15 © 2001 Arthur Andersen All rights reserved. Corporate reporting and withholding –Timing of remittances to authorities –Annual reporting specific to stock awards separate from regular compensation? Optimization of tax benefits for employee and employer –Mitigation of social taxes –Deferral of taxation / capital gains tax treatment for employees Tax Considerations (Continued)

16 © 2001 Arthur Andersen All rights reserved. Is it a non-compensatory plan under Generally Accepted Accounting Principles (GAAP)? –General U.S. GAAP allows up to a 15% discount before the Plan is considered compensatory (APB 25) –New accounting standard allow for only a 5% discount (FAS 123) –Since most companies are still able to report under original standards, plans with up to a 15% discount are noncompensatory and do not report compensation expense related to such plans Local country GAAP? Who bears cost for company match? Timing for re-charges for company match? Financial and Accounting Considerations

17 © 2001 Arthur Andersen All rights reserved. Securities Law –Prospectus requirements Company Law –Fundamental legality of plan Legal and Regulatory Considerations Caution: Some issues can have consequences other than financial, depending on the country. Case in point: Failure to file forms reporting option benefits in Singapore is a misdemeanor and the directors may be subject to fines and/or imprisonment.

18 © 2001 Arthur Andersen All rights reserved. Exchange Control Restrictions –Registration of plan with authorities –Limitations on transfer of funds to purchase stock –Implications for corporate recharges Employment Law –Data protection --Acquired rights –Works councils--Legality of payroll deductions –Discrimination issues Legal and Regulatory Considerations (Continued) Caution: In some countries, it is illegal to discriminate against part-time workers Example: In Germany, this discrimination is considered indirect sexual discrimination, as part- time jobs are usually held by women. Therefore, part-time employees must be allowed to participate in the ESPP.

19 © 2001 Arthur Andersen All rights reserved. Summary of issues considered in broad based global share plans

20 © 2001 Arthur Andersen All rights reserved. Country Specific Examples United Kingdom France

21 © 2001 Arthur Andersen All rights reserved. Securities Law –The Companies Act 1985 and the Financial Services Act 1986 (“FSA”) generally permit a company (including a non-UK company) to offer shares to its, or its subsidiaries’, employees –Section 57 FSA prohibits anyone other than an authorized person from issuing an “investment advertisement” (any invitation to acquire or sell shares). However, there is a specific exemption for an investment advertisement issued in connection with an employee share plan Exchange Control –None Tax –Possible to implement tax-favored arrangement: All Employee Share Ownership Plan (AESOP) Savings Related Share Option (SAYE) Plan United Kingdom - Overview

22 © 2001 Arthur Andersen All rights reserved. United Kingdom - Tax-Qualified Plan All-Employee Share Ownership Plan (1) Operates by way of an employee trust Highly tax efficient for employees –Allows employees to contribute on pre-tax basis –If shares held in trust for five years no tax at all when shares given to employees –Tax efficiency extends to company match Highly tax efficient for company –Employer entitled to deduction based on gross salary –No National Insurance (11.9%) on shares held in trust for 5 years However, contribution limits may require “spill over” into non- qualified plan

23 © 2001 Arthur Andersen All rights reserved. United Kingdom - Tax-Qualified Plan All-Employee Share Ownership Plan (2) Main Features –Partnership shares Employees may allocate up to 10% of pre-tax salary up to a maximum of £125 per month (£1,500 per year) to buy partnership shares –Matching shares Employer may provide up to 2 matching shares for each partnership share purchased by the employee –Free shares Employer may provide up to £3,000 per year of free shares to employees Shares must be held in a UK resident trust Employees are entitled to dividends while shares in trust Employees rights to vote on shares in trust can be restricted

24 © 2001 Arthur Andersen All rights reserved. United Kingdom - Tax-Qualified Plan Savings Related Share Option Plan (1) Operates by way of a savings contract with a bank/building society Not possible to replicate company match Tax efficient for employees –No tax at the time of purchase of the shares Tax efficient for company –Employer entitled to deduction for the costs of setting up the plan –No National Insurance payable on shares transferred to employee However, contribution limits may require “spill over” into non- qualified plan

25 © 2001 Arthur Andersen All rights reserved. United Kingdom - Tax-Qualified Plan Savings Related Share Option Plan (2) Main Features –Option is coupled with a savings contract (from grant to exercise) –Options must be offered to all employees on the same terms (although new joiners can be excluded for up to 5 years) –Savings contract can run for 3, 5 or 7 years from grant –Exercise price can be set at a discount of up to 20% of market value of shares at grant –Employees can save between £5 and £250 every month –Interest received on the savings is tax-free –Options normally lapse on leaving employment (other than in compassionate circumstances)

26 © 2001 Arthur Andersen All rights reserved. Securities Law –The public offer of shares by a company to more than 100 participants requires the prior approval of the Commission des Opérations de Bourse (“COB”) –If a Plan d’Epargne d’Entreprise implemented, the bank will conduct the necessary securities filings Exchange Control –None Tax –Possible to implement a tax-favored arrangement (Plan d’Epargne d’Entreprise) –However, contribution limits may require “spill over” into non-qualified plan France - Overview

27 © 2001 Arthur Andersen All rights reserved. France - Tax-Qualified Plan Plan d’Epargne d’Entreprise Main Features –Collective employee savings plan designed to encourage creation of a share portfolio in common with other employees –Plan must be offered to all employees (although minimum service requirement of up to 6 months can be required) –Employees can contribute up to 25% of annual gross salaries on an after- tax basis –Employer can match up to three times (with a ceiling of FF15,000 per annum) the employee’s savings (“abondement”) –Employer match is free of income tax and social security to participants provided not withdrawn within 5 years. However, it is subject to the C.S.G. and the C.R.D.S surtaxes on 95% of the contribution