PNW Chapter GEO Meeting February 15, 2001

1. PNW Chapter GEO MeetingFebruary 15, 2001 Linda Steffen Marlene Zobayan Deloitte & Touche, LLC

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

3. 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?

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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

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

13. 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)

14. 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

15. 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