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Global Stock Plan Design and Redesign: Issues Relating to Broad-Based Plans 2001 Global Equity Global Stock Plan Design and Redesign: Issues Relating to Broad-Based Plans 2001 Global Equity Compensation Forum San Francisco, California November 5, 2001 Edward D. Burmeister Baker & Mc. Kenzie Two Embarcadero Center, Suite 2400 San Francisco, California 94111 (415) 576 -3029 edward. d. [email protected] com

TYPES OF BROAD-BASED PLANS/AWARDS Long-Term Incentive Plan or Omnibus Stock Plan • Stock Options TYPES OF BROAD-BASED PLANS/AWARDS Long-Term Incentive Plan or Omnibus Stock Plan • Stock Options (Always) – ISOs – Non-Qualified Options • Restricted Stock – Typical for Executives • Other Awards – SARs – Stock Bonuses – Restricted Stock Units

BROAD-BASED AWARDS Hire Grants (Silicon Valley Model) • All-Employee, “One”-Time Grant • Ongoing Broad-Based BROAD-BASED AWARDS Hire Grants (Silicon Valley Model) • All-Employee, “One”-Time Grant • Ongoing Broad-Based Grants

STOCK PURCHASE PLANS • 423 Design • Non-423 Design – Open Market – No STOCK PURCHASE PLANS • 423 Design • Non-423 Design – Open Market – No Discount Plans – Other

OBJECTIVES FOR BROAD-BASED PLANS One-Time Grant Programs • Recognition Event • Global “Branding” to OBJECTIVES FOR BROAD-BASED PLANS One-Time Grant Programs • Recognition Event • Global “Branding” to Employees • Communication Vehicle for Corporate Values, Identify With Creating Shareholder Value • Not Typically Designed As Compensation

HIRE GRANTS AND ONGOING GRANT PROGRAMS • Recruitment and Retention • Competitive Practice • HIRE GRANTS AND ONGOING GRANT PROGRAMS • Recruitment and Retention • Competitive Practice • Incentive for Performance • Intended As Compensation

EMPLOYEE STOCK PURCHASE PLANS • Competitive Practice • Recruitment • Encouragement for Share Ownership EMPLOYEE STOCK PURCHASE PLANS • Competitive Practice • Recruitment • Encouragement for Share Ownership by Employees • Build an Ownership Culture

STOCK OPTIONS VERSUS STOCK PURCHASE Stock Option Advantages Stock Purchase Advantages Ease of Administration/ STOCK OPTIONS VERSUS STOCK PURCHASE Stock Option Advantages Stock Purchase Advantages Ease of Administration/ Flexibility Employee Makes Investment Virtually Universal and Well Recognized No ISS Concerns Participation Can Be Up 100% Less Dilution Vesting for Retention More Share Ownership Likely Automatic “Repricing”

STOCK OPTIONS VERSUS STOCK PURCHASE Stock Option Drawbacks Stock Purchase Drawbacks Dilution 423 Design STOCK OPTIONS VERSUS STOCK PURCHASE Stock Option Drawbacks Stock Purchase Drawbacks Dilution 423 Design Inflexible ISS Resistance More Difficult Administration Underwater Options a Disincentive Lower Participation Little Employee Share Ownership Withholding Issues Outside U. S.

STOCK OPTION PLAN DESIGN • Global One Size Fits All Design • Global Design STOCK OPTION PLAN DESIGN • Global One Size Fits All Design • Global Design With Limited Local Variations • Global Plan With Significant Local Customization

ONE SIZE FITS ALL DESIGN • Pros: – Simplicity – Transfers Easier to Accommodate ONE SIZE FITS ALL DESIGN • Pros: – Simplicity – Transfers Easier to Accommodate – Equity of Design • Cons: – Unfortunate Employee Tax Results • France • Italy • Netherlands • Switzerland • Belgium

ONE SIZE FITS ALL DESIGN (Con’t) • Cons: – Unfortunate Company Social Taxes • ONE SIZE FITS ALL DESIGN (Con’t) • Cons: – Unfortunate Company Social Taxes • • • France U. K. Italy Sweden Norway – Failure to Take Advantage of Local Tax Advantages • • • U. K. Ireland Israel Austria Singapore Italy

TOTAL CUSTOMIZATION • Pros: – Maximizes Employee Tax Results – Locally Competitive – Can TOTAL CUSTOMIZATION • Pros: – Maximizes Employee Tax Results – Locally Competitive – Can Reduce Employer Social Costs • Cons: – More Difficult to Administer – Potential Inequities Within Company – Loss of Central Control

RECOMMENDATIONS • Draft Plan to Permit Local Customization – Sub-Plan Authorization in Option Plans RECOMMENDATIONS • Draft Plan to Permit Local Customization – Sub-Plan Authorization in Option Plans – Non-423 Component in ESPP • Decide Process and Parameters for Local Customization – Retain Ultimate Central Control – Do Customize Agreements/Enrollment Forms

OTHER DESIGN RECOMMENDATIONS • Avoid Beneficiary Forms (at Least in ESPPs) • Avoid Transferability OTHER DESIGN RECOMMENDATIONS • Avoid Beneficiary Forms (at Least in ESPPs) • Avoid Transferability Outside U. S. • Avoid Stock-for-Stock or Attestation Exercise Methods Outside U. S.

OTHER DESIGN RECOMMENDATIONS (Con’t) • Avoid U. S. Centric Inflexible Provisions – – – OTHER DESIGN RECOMMENDATIONS (Con’t) • Avoid U. S. Centric Inflexible Provisions – – – 10 -year Term One-Year Post-Death Exercise Compensation Definition in ESPP Definition of “Subsidiary” in Option Plan Methods of Exercise Locked In • Disavow Maintaining “Qualified” Status • Tailor Labor Law Language

WHAT IS END RESULT? • Option Plan – Flexible And General Plan Language • WHAT IS END RESULT? • Option Plan – Flexible And General Plan Language • Authorization for Sub-plans and Country. Specific Modifications – Much Discretion in Committee

WHAT IS END RESULT? (Con’t) • Option Plan – Country-Specific Design Modifications • U. WHAT IS END RESULT? (Con’t) • Option Plan – Country-Specific Design Modifications • U. K. : Approved Plan and NIC Pass-Through • France: - Qualified Plan – 4 -Year Requirement Mandatory - Closed Period Avoidance • Italy: Prior Month’s Average Price as Minimum Grant Price

WHAT IS END RESULT? (Con’t) • Option Plan – Country-Specific Design Modifications • Netherlands: WHAT IS END RESULT? (Con’t) • Option Plan – Country-Specific Design Modifications • Netherlands: Election to Defer Tax: “Pre-Acceptance” or Mandatory Cashless Exercise • Belgium: Special Offer Letter and Undertaking Consideration of Bank Products To Minimize Employee Tax Problem

WHAT IS END RESULT? (Con’t) • Option Plan – Country-Specific Design Modifications • Switzerland: WHAT IS END RESULT? (Con’t) • Option Plan – Country-Specific Design Modifications • Switzerland: Cantonal Tax Rulings on 10 -year, 6 -month Term or Mandatory Cashless • Singapore: Use of CSOP Scheme • Ireland: Consider Approved Plan • Austria Consider Tax-Advantaged Plan

WHAT IS END RESULT? (Con’t) • Option Plan – Country-Specific Design Modifications • Israel: WHAT IS END RESULT? (Con’t) • Option Plan – Country-Specific Design Modifications • Israel: Consider 102 Plan – Mandatory Cashless Exercise • Azerbaijan • Brazil • Bulgaria • China • Croatia • Indonesia • Morocco • Nigeria • Romania • South Africa • Thailand • Uzbekistan • Yugoslavia

STOCK PURCHASE PLANS • Plan Redesign – – 423 Plan Component Non-423 Plan Component STOCK PURCHASE PLANS • Plan Redesign – – 423 Plan Component Non-423 Plan Component Coverage of “Affiliates” Rather Than Subsidiaries Sub-Plans Authorized

STOCK PURCHASE PLAN (Con’t) • Country Modifications – No Payroll Deductions (Alternatives: Direct Deposit, STOCK PURCHASE PLAN (Con’t) • Country Modifications – No Payroll Deductions (Alternatives: Direct Deposit, Checks) • Hong Kong, Argentina, Mexico (Documentation May be Structured to Permit) – Separate Accounts • Australia • Japan (if held by local sub) • Korea

STOCK PURCHASE PLAN (Con’t) • Country Modifications – Immediate Transfer of Payroll Deductions – STOCK PURCHASE PLAN (Con’t) • Country Modifications – Immediate Transfer of Payroll Deductions – Coverage of Part-Time Employees – EU Countries

COUNTRY-SPECIFIC OPTION AGREEMENTS • Tax Clauses • Labor Law Language/Acknowledgement – Not Part of COUNTRY-SPECIFIC OPTION AGREEMENTS • Tax Clauses • Labor Law Language/Acknowledgement – Not Part of Severance – Discretionary • Data Privacy Consent • Special Clauses – France, U. K. , Italy, Other

STOCK PURCHASE PLAN • Tailor Enrollment Form: – Taxes, Labor Laws, Data Privacy – STOCK PURCHASE PLAN • Tailor Enrollment Form: – Taxes, Labor Laws, Data Privacy – Specific Clauses for United Kingdom (Deemed Loan) • Qualified Arrangements – U. K. : • SAYE • AESOP

STOCK PURCHASE PLAN (Con’t) • Qualified Arrangements – Ireland: • SAYE – France • STOCK PURCHASE PLAN (Con’t) • Qualified Arrangements – Ireland: • SAYE – France • P. E. E. – Japan • Employee Association • Company Structure Issues – Check-The-Box Issues – Branch Issues