1 Developments in Equity Based Strategies in Asia Pacific  Australia 50% CGT relief for options/shares Cancellation of options in Aust subsidiaries Redundancy entitlements under option plans - Canizales v Microsoft Corporation, Microsoft Australia Pty Ltd & Ors (2000) NSWIR Comm118

2 Developments in Equity Based Strategies in Asia Pacific  Indonesia: “Securities, regulation still in limbo”  “Public offerings” require prospectus filings  Public offering if total “value” of shares/options >R$1billion and offered through mass media; or offered to >100 people; or results in purchase of securities by >50 people

3 Developments in Equity Based Strategies in Asia Pacific  Indonesia (cont’d)  Use of “co-operative association” = 1 person  Public offering of foreign ESOP’s may require custodian Bank and listing of Indonesian depository receipts  BAPEAM acknowledge law is inappropriate  Policy change for taxation of foreigners  2001 retrospective law for termination entitlements

4 Developments in Equity Based Strategies in Asia Pacific  Malaysia: “Simplification of Securities Regulation”  After 1 July 2000 Securities Commission approval required to issue any shares or options  Exception for shares/options of foreign incorporated Co.  SC approval is given if: Aggregate number of options >10% issued capital Max number of shares or options per employee <500,000

5 Developments in Equity Based Strategies in Asia Pacific  Malaysia (cont’d) Eligibility & allocation must be equitable amongst categories of employees Exercise price of options in unlisted company can be at a discount to M.V. of share Exercise price of options in listed company must not be < M.V. of share Foreign full-time contract employees can participate subject to limit of 20% exercise of options in any year

6 Developments in Equity Based Strategies in Asia Pacific  Malaysia (cont’d) Plan has a 5 yr time limit - subsequent renewal subject to SC approval  Unlisted company generally not encouraged to seek approval of SC to list within 1 yr of introducing any share/option plan  Existing options in unlisted company must be exercised or cancelled before approval of SC to list.  2001 removal of limit on 2 month bonus per employee  Deductibility under recharge agreements more certain

7 Developments in Equity Based Strategies in Asia Pacific  New Zealand: “Interest free loan plans”  Approval required - strict conditions  Fully paid shares acquired with interest free loan  Shares can be offered at a discount  Employee cannot deal with share for min. 3yrs, max. 5yrs  Limit of NZ$2,340 value of shares per employee in any 3yr period

8 Developments in Equity Based Strategies in Asia Pacific  New Zealand (cont’d)  Advantages: Employer gets deduction for notional 10% interest Employee not assessed on loan or discount Suitable with high turnover of staff No prospectus required  Disadvantages No deferral of taxing point beyond acquisition 8yr restriction required for exemption on discount Prospectus required unless exempted

9 Developments in Equity Based Strategies in Asia Pacific  New Zealand (cont’d)  Political push to tax any benefit provided by an employer to an employee. The present Labour govt plans to introduce a more graduated tax rates  NZ govt is very suspicious of employee share schemes unless they involve all employees

10 Developments in Equity Based Strategies in Asia Pacific  New Zealand (cont’d)  Tax relief for all employee schemes to remain limited as under the existing Income Tax Act  Employee retention, loyalty and effort being maximised by share schemes is recognised but is kept subservient to the income taxation imperative

11 Developments in Equity Based Strategies in Asia Pacific  Singapore: “Entrepreneurial ESOP Scheme”  Options granted on or after 1 June 2000  50% tax exemption on option gains of up to S$10M in 10yr period  Subject to conditions - both 50% tax exemption +5 year deferral on tax payment on balance of 50% gain  Eligible to only Singapore incorporated companies - with M.V. of gross assets <$100M

12 Developments in Equity Based Strategies in Asia Pacific  Singapore (cont’d)  Eligible to employees working at least 30hrs/week and <25% of voting shares Vesting of options restricted: 1 yr from grant if exercise price = share value 2 yrs from grant if exercise price <share value  2001 New Singapore Govt shares  2001 CSOP Scheme

13 Developments in Equity Based Strategies in Asia Pacific  Japan: “Securities Filing Requirements  On grant depends on: (i) number of employees; and (ii) total value of the securities (eg. exercise price X number of options)  “Securities Registration Statement” (Form 7) required if securities granted to 50 or > employees and value of securities is Yen 100 million or more

14 Developments in Equity Based Strategies in Asia Pacific  Japan (cont’d)  “Securities Notification” (Form 6) required if securities granted to 50 or > employees and value of securities > Yen 10 million but < than Yen 100 million  “Securities Notification” required if securities granted to < 50 employees but total value of securities is Yen 100 million or more.  There are two aggregation rules. These are: number of offerees; and aggregate value of securities

15 Developments in Equity Based Strategies in Asia Pacific  Japan (cont’d)  Aggregation Rules Aggregate no. of employees if: (a)the period for which options must be held b/f they can be exercised is 6 months or less; (b) shares with respect to which options are granted are newly issued shares; and

16 Developments in Equity Based Strategies in Asia Pacific  Japan (cont’d) (c)the issuer has previously issued the same type of shares to any persons residing in Japan during the 6 month period immediately preceding the date on which securities are offered.

17 Developments in Equity Based Strategies in Asia Pacific  Japan (cont’d) If there have been any other public offerings of the relevant shares during the past 2 yrs from the date of the proposed offer date with respect to which no Securities Registration Statement was filed, the aggregate issue or sale price of such securities will be in principle included for purposes of the calculation of the total aggregate issue or sale price

18 Developments in Equity Based Strategies in Asia Pacific  Japan (cont’d) Aggregation rules will not apply where options can not be exercised until a period greater than 6 months after grant date. No securities filing required where participants under plan are not required to make any monetary contributions at any stage.

19 Developments in Equity Based Strategies in Asia Pacific  Japan (cont’d) National tax agency more conscious and interested in profits received by employees of Japanese subsidiaries of foreign corporations upon exercise of stock options. The national tax agency have made specific inspections on those who exercised their options resulting in some cases in additional tax being imposed by way of the reclassification of profits from temporary income to salary income.

20 Developments in Equity Based Strategies in Asia Pacific  Hong Kong Generally offer of securities will require prospectus in compliance with the Companies Ordinance unless specified exceptions apply. If offer is done by way of private placement the offer is not taken to being made to the “public” and securities requirements will not be applicable.

21 Developments in Equity Based Strategies in Asia Pacific  Hong Kong (cont’d) No legal definition of “public” and “private placement”. Argument that offer by company to its employees does not constitute an offer to public where it is confined to small no. of relatively senior employees certain procedures often followed to ensure offer characterized as “private placement”: whether special relationship bet offeror and offeree;

22 Developments in Equity Based Strategies in Asia Pacific  Hong Kong (cont’d) whether offer/invitation is universal or general; whether offer/invitation can be accepted by any person or only by person to whom it is extended; whether any public action is taken in relation to offer or is it a private matter bet, offeror or offeree; no. of offerees;

23 Developments in Equity Based Strategies in Asia Pacific  Hong Kong (cont’d)  Guidelines useful for structuring private placement: issue limited to - 50 or less persons; limit distribution to persons with whom the issuer has an existing relationship; ensure potential investor is genuinely interested before issuing numbered copy of memorandum; state minimum subscription in offering memorandum;

24 Developments in Equity Based Strategies in Asia Pacific  Hong Kong (cont’d) no public advertising or press conference not associated with Stock Exchange listing keep list of potential investors to whom documents have been given do not reissue any documents returned by an offeree offeree to purchase as principal and not nominee for any other person

25 Developments in Equity Based Strategies in Asia Pacific  Hong Kong (cont’d) offeree restricted from passing on offering memorandum and from transferring/reselling shares/options for minimum period (6 months) following allotment  Taxation Implications No tax deferral incentives in Hong Kong; Employee taxed on exercise of options on difference bet price paid to exercise option and market value of share at date of exercise; No additional tax at date of sale.