The RSU Path. Paved with Pitfalls

1. The RSU Path.Paved with Pitfalls?

2. Agenda

3. Implementation Considerations What to Consider? Vendor evaluation Award types Channeling the flow of information Processes between internal departments Procedures with outside organizations Other Company Decisions

4. Implementation and Vendors Vendor Evaluation Will my software help me manage the program Are there importing/exporting capabilities Will it help me monitor vesting and taxes Will it calculate a Fair Value and amortize the expense correctly What reports can I run What are the restrictions

5. Implementation - Award Types RSA � Restricted Stock Award Shares issued at grant Voting rights and dividends begin at grant 83(b) Elections allowed More Complex Recordkeeping RSU � Restricted Stock Unit Shares issued at vesting No 83(b) Election allowed Voting rights and dividends do not begin until vesting

6. Implementation�.Channeling Information Creating a process to channel information between internal departments HR Legal Payroll Finance: Tax and Accounting Communicating to outside organizations/groups Board of Directors Third-party vendor, outsourcer Transfer agent Broker

7. Company needs to make decision on: How many units to issue. Set guideline Withholding methods or mandatory share withholding Timing for notifications on election � Default? Section 16 reporting 10B5-1 Plans to cover sale and/or withholding Implementation Considerations � Other Company Decisions

8. Granting Process What needs to be considered before the award date? Setting up an broker account well in advance of vest date Establish a process to track (report) Pending vesting and release of shares Determine employee�s tax election payment method prior to vest date

9. Granting Process What about an online broker? If you use an online broker, verify: Award setup is turned on at broker web site Plan for additional time period 1-6 weeks for initial online setup Types of documents needed for online program Award Confirmation Letter Notice of RSU Grant Procedures for online Grant Acceptance Is contract is required for additional set up Employee tax election � is it selected at broker site and turned on in software

10. Granting Process�.. What else needs to be considered when a RSU is awarded? As shares vest, calculate Gain for reporting ordinary income and Taxes due for withholding SPA notifies Transfer Agent to release shares to broker account SPA runs a statement for employee confirming shares released and taxes paid

11. Granting Process�. What is included in an Award Agreement? Full name of participant Participant ID (maybe SSN) # of shares awarded Type of award: Restricted Stock or Restricted Stock Unit Date of Award Purchase price (may be $0 or a par value or other price)

12. Granting Process What else is included in a typical Award Agreement? Vesting schedule Termination provisions LOA Other corporate provisions: Insider Trading Policy

13. Working with Internal Business Partners Internal Departments HR Payroll Process flow Procedures Tax deposits Finance: Accounting and Tax Legal

14. Payroll as a Business Partner Establish a process flow between SPA and Payroll Set up defaults for participant tax election Domestic Cash/Check Trade shares (net exercise � withhold) Broker: sell-to-cover/same-day-sale Payroll deduction International Check country tax and filing requirements

15. Payroll as a Business Partner Set up a procedure for IRS Next Day Deposit Rule $100,000 collected in taxes Within any day during a deposit period Must deposit the tax by the next banking day Whether you are a monthly or semi-weekly schedule depositor

16. Accounting and Tax Issues Fair value and Expense Intrinsic value at the date of grant Fair Value = FMV grant date � cost to purchase stock Fact Pattern: FMV date of Grant = $10. Stock purchase price is $0. Weston Smith purchases 100 shares of XYZ stock on March 4, 2006. The vesting schedule lapses 25% a year starting on the anniversary date of the grant. Fair value = $10 - $0 = $10 x 1,000 shares Total expense = $10,000

17. International Issues Issues to consider include: Taxation / Securities Issues Some countries tax at grant; others tax at vest Taxable event can vary by type of award (RSU/RSA) Determine tax/legal requirements for each of your countries Some countries may require filings with a local tax or securities authority before award is granted Tax rates will be different from US rates Company portion of social contributions could be significant Some countries restrict ownership of foreign securities Verify that your software can support international tax codes and calculations

18. Running Reports Verify that your vendor software can run the following types of reports Awards granted, cancelled, exercised Shares subject to Issuance/Release Personnel Summary Total valuation of awards granted Plan Summary reports Expense reports Use the reports to help you develop a tracking process

19. Happy Employees Happy Employees are Informed Employees Explain key terms when different/new compared to stock options Explain when you need to make decisions Emphasize positive differences from options Explain tax basics

20. Corporate HeadquartersStock & Option Solutions, Inc. (SOS)6399 San Ignacio Avenue Suite 100San Jose, CA 95119 USA 408.979.8700 Toll Free 888.SOS.0199 (888.767.0199) Fax 408.979.8707 General email: info@sos-team.com Questions?