PNW Chapter GEO MeetingFebruary 15, 2001

Linda SteffenMarlene ZobayanDeloitte & 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 employeesAlign employee and shareholder interestsUnite and motivate the global workforceMaintain important part of company cultureSave cash and receive favorable financial reportingMaintain fairness - we give them to our US employeesAny others?

International Granting Issues

Employee paid taxesEmployer paid taxes Securities registration Labor lawsExchange controlsSubsidiary deductionsAdministrationCommunicationUnintended impact

Timing of Employee Paid Taxes

Employee could be taxed atGrant Vesting ExerciseSale

ExamplesBelgium, Switzerland – at grantDenmark - depends on if shares will be newly issued or treasury stockIreland - at sale or 7 years from exercise

Employer Paid Taxes

Social taxes on gain paid by employer

Most have reasonable capsSome 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 plansLegislation is always changingMaximum grant levels are often lowFormal application may be requiredChanges to plan document may be required

• Longer vesting – France• Exercise periods - UK

Subsidiary DeductionUS companies get a corporate tax deduction with the costs associated with most stock option exercises made by US employeesUS companies, generally, cannot get a tax deduction for employees of subsidiariesParent may charge gains to the subsidiary to get a local deductionCompliance, 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 consultedGains may be included for severance or retirementLapse conditions and vesting requirements

Exchange Controls

Exchange controls limiting remittance:

From employee to pay exercise priceFrom the sub to pay the charge backBeware of using intercompany offsets

Administration

Data privacy USA deemed “unsafe” for data transferRisk limited by written waiver

Requirements to withhold for taxesCurrency exchange risk

Administration

Administering from the US may be difficultTime 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 populationMay have a huge educational challengeWritten materials may require approval of local authorities or labor councilMay be advisable/required to produce in local languageMust 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