1 Global Stock Plans Legal, Tax, Design and Regulatory Issues Bob Grayson, Senior Solicitor, Linklaters, London Carine Schneider, Partner, PricewaterhouseCoopers LLP, San Francisco

2 Key Topics Key plan features Terminology Securities Laws Communications Exchange Controls Data Protection Labour Laws Banking and Broking Bob Grayson, Linklaters and Carine Schneider, PwC

3 ‘Power of Ownership’ What you always look for from your employees is mental ownership, and that has to go way beyond the ownership that people feel when it comes to stock. The way people feel about the intangibles, the nonquantifiables, is much more important than the way they feel about the tangibles and quantifiable.” Herb Kelleher President, Chairman and CEO Southwest Airlines Co. Bob Grayson, Linklaters and Carine Schneider, PwC

4 Key Success Factors First: A clear vision of what’s to be accomplished –“Why are we doing this?” –Objective-driven design and implementation Communication and Administration –If they don’t understand it, they can’t appreciate it –If it seems hard to operate it, it doesn’t work –If it’s global, it needs to “feel” local –Need to work out details in advance Of course, a little stock market luck doesn’t hurt either! Bob Grayson, Linklaters and Carine Schneider, PwC

5 Types of plans Stock or Share Options Share Grant Matching or free shares Performance Share Purchase Plan or SIPs Phantom or SAR plans Stock Bonus Plan ESOP Bob Grayson, Linklaters and Carine Schneider, PwC

6 Stock Option Plans Definition The right to buy a share of stock at a fixed price for a specified period of time –If stock price rises above exercise price (or strike price), the holder can exercise the option and realize a gain (difference between exercise price and fair market value) –If stock price is stagnant, or drops below the exercise price, the holder gains nothing and loses nothing Bob Grayson, Linklaters and Carine Schneider, PwC

7 Stock Option Plans Key Terms GrantThe number of options awarded to an individual. Exercise PriceThe price an option holder must pay to buy a share of stock. Fair Market ValueThe market price of a share of stock at any given point in time. Grant ValueThe number of options granted times the exercise price at grant (for options granted at FMV). TermThe length of time from the grant date over which the optionee can exercise the option. VestingRight earned to exercise options. Present ValueProjected current cash equivalent value of a grant as determined by an option pricing model (e.g., Black-Scholes) Bob Grayson, Linklaters and Carine Schneider, PwC

8 Stock Option Plans Design Considerations EligibilityExempt/non -exempt, union/nonunion, part- time/full-time, domestic/global Grant FrequencyOne-time/special event, occasional, annual/recurring Grant LevelFixed percentage of pay, variable based on co. performance, variable based on individual performance/potential, by level, one size fits all ExercisabilityNon-compete, clawback TermPeriod of years, attainment of goal VestingRatable, cliff, performance-accelerated Special ProvisionsTermination, death, disability, retirement, change in control Bob Grayson, Linklaters and Carine Schneider, PwC

9 Stock Grant Plans Definition Plan where an employer offers an outright stock grant to a defined group of employees –Much like providing a compensation payment, but doing it in the form of stock instead of cash –May contain provisions that ultimate payoffs only occur if certain measures are attained Bob Grayson, Linklaters and Carine Schneider, PwC

10 Stock Grant Plans Design Considerations EligibilityEmployee groups (exempt, nonexempt, union nonunion, etc.), employee locations (domestic,global, etc.) Grant FrequencyOne-time, or repeat Grant SizeHow many shares, differences by employee group PayoutOutright grant, performance attainment VestingImmediate, performance attainment Bob Grayson, Linklaters and Carine Schneider, PwC

11 Employee Stock Purchase Plans or SIP (Saving Investment Plan) Definition A plan providing employees with the opportunity to purchase company stock through payroll deduction –Contribution is generally made from after-tax compensation –The employee buys directly from the company-- no brokerage expense –May offer a discount on share price –Payment is made from payroll contributions (where permissible) Bob Grayson, Linklaters and Carine Schneider, PwC

12 Other Plans There are a number of other possible ways to help employees to “feel” ownership: –Employee Stock Ownership Plan –Stock Bonus Plan –Phantom Stock Plan –Matching or free shares –Performance plans Bob Grayson, Linklaters and Carine Schneider, PwC

13 Phantom Stock Plans Definition: Plans where change in stock price is tracked, and an ultimate cash payout is made based on that change. Most common plan for non-Chinese companies operating plans in China. Bob Grayson, Linklaters and Carine Schneider, PwC

14 Securities Laws Are local nationals allowed to own foreign shares? –Does the plan constitute a public offer? –Is there a prospectus or filing requirement? –Can you obtain an exemption from a prospectus or filing requirement? Is there a notification requirement? Are there any ongoing filing requirements? Bob Grayson, Linklaters and Carine Schneider, PwC

15 Securities Laws Avoiding any prospectus requirement Estonia - better but still not very good Less than 50 people Up to €40,000 Bob Grayson, Linklaters and Carine Schneider, PwC

16 Securities Laws Avoiding any prospectus requirement Finland - good news Offer to present or former employees Bob Grayson, Linklaters and Carine Schneider, PwC

17 Securities Laws Avoiding any prospectus requirement Kenya - getting worse Less than 100 people “Sufficiently knowledgeable to understand risks” Bob Grayson, Linklaters and Carine Schneider, PwC

18 Securities Laws China Existing shares - not regulated New issue shares - no guidance Result? avoid China offshore transactions cash plans Bob Grayson, Linklaters and Carine Schneider, PwC

19 Communications Chosen language? Chosen medium? Chosen style and content? Argentina - new digital signature law China - no special legislation Bob Grayson, Linklaters and Carine Schneider, PwC

20 Exchange Controls Can local nationals freely transfer currency or receive currency from abroad? Can local nationals hold foreign shares? If not, what are the limitations? Is a cashless exercise feasible? –Cashless for cash –Cashless for stock Bob Grayson, Linklaters and Carine Schneider, PwC

21 Exchange Controls Prohibitions Consent Notifications Free flow Bob Grayson, Linklaters and Carine Schneider, PwC

22 Exchange Controls China - very restrictive Argentina - crisis response Romania - prohibition notification Slovakia - consent free flow Bob Grayson, Linklaters and Carine Schneider, PwC

23 Data Protection Does this country have data protection laws? Is employee consent required? –For collection of data –For transfer of data Is approval of data protection agency required? Impact on third party administrators Alternatives for dealing with data protection requirements? EU Safe Harbor Bob Grayson, Linklaters and Carine Schneider, PwC

24 Data Protection Consent Informed Consent Licensing/Registration Prohibition unless “adequate protection” China Thailand Bob Grayson, Linklaters and Carine Schneider, PwC

25 Labour Laws Is permission or notification of works council or union needed? –E.g., the Netherlands, Germany, Argentina, Mexico Is there a possibility the benefit may become an acquired right? –E.g., Denmark Are the proceeds counted for severance payments; other statutory benefits, e.g.; –Spain - severance payments in cases of wrongful dismissal –France - daily illness indemnities Bob Grayson, Linklaters and Carine Schneider, PwC

26 Labour Laws Impact on employment contract - “acquired rights” Termination rights Spain “salary in cash” Pension rights Works Councils Bob Grayson, Linklaters and Carine Schneider, PwC

27 Banking and Broking Global providers Who is responsible? Salary deductions Bob Grayson, Linklaters and Carine Schneider, PwC

28 Conclusion Traditional Problems –securities laws) –foreign exchange)Improvement New Issues –data protection) –labour laws)Increased difficulties –global service provision) Bob Grayson, Linklaters and Carine Schneider, PwC

29 Thank You Carine Schneider - Bob Grayson - Bob Grayson, Linklaters and Carine Schneider, PwC