PNW Chapter GEO Meeting February 15, 2001 Linda Steffen Marlene Zobayan Deloitte & Touche, LLC

Today’s Discussion Reasons to go global with equity compensation Review common issues Ideas for future meetings

Why Offer Stock Options Globally? Attract and retain employees Align employee and shareholder interests Unite and motivate the global workforce Maintain important part of company culture Save cash and receive favorable financial reporting Maintain fairness - we give them to our US employees Any others?

International Granting Issues Employee paid taxes Employer paid taxes Securities registration Labor laws Exchange controls Subsidiary deductions Administration Communication Unintended impact

Timing of Employee Paid Taxes Employee could be taxed at Grant Vesting Exercise Sale Examples Belgium, Switzerland – at grant Denmark - depends on if shares will be newly issued or treasury stock Ireland - at sale or 7 years from exercise

Employer Paid Taxes Social taxes on gain paid by employer Most have reasonable caps Some have no caps France 40% UK 12.5% Unpredictable cash liability

Qualified Plans (like ISOs) Qualified plans differ greatly from country to country Not all countries have qualified plans Legislation is always changing Maximum grant levels are often low Formal application may be required Changes to plan document may be required Longer vesting – France Exercise periods - UK

Subsidiary Deduction US companies get a corporate tax deduction with the costs associated with most stock option exercises made by US employees US companies, generally, cannot get a tax deduction for employees of subsidiaries Parent may charge gains to the subsidiary to get a local deduction Compliance, tax, foreign exchange and administration issues

Securities Registration Filing requirements to allow offer of stock to local employees Viewed as an offering of securities and therefore requires registration (like SEC rules) Often dependent upon number of employees offered stock or the face value of the offering Japan - If >50 EE or 100MM yen France – If >100 EE May require translations to local language or local GAAP

Labor Laws “Acquired rights” Entitled to an annual grant due to past practices Discriminatory grant practices Excluding part-timers (sex discrimination) Work councils need to be informed and consulted Gains may be included for severance or retirement Lapse conditions and vesting requirements

Exchange Controls Exchange controls limiting remittance: From employee to pay exercise price From the sub to pay the charge back Beware of using intercompany offsets

Administration Data privacy USA deemed “unsafe” for data transfer Risk limited by written waiver Requirements to withhold for taxes Currency exchange risk

Administration Administering from the US may be difficult Time difference and language Selection of stock plan administrator and captive broker becomes very important Customer support becomes an issue Qualified plans may create an administrative nightmare Tracking stock for five years (France)

Communication US Prospectus and communications are usually unsuitable for non-US population May have a huge educational challenge Written materials may require approval of local authorities or labor council May be advisable/required to produce in local language Must be prepared to explain why the plan may differ from the US or other countries

Unintended Impact On Employees Little perceived value to employee Surprised by tax consequences Inability to affect the stock price May be too large in some cases – India