Minimizing the Administrative Nightmare of Global Equity Plans Karen Needham – E*TRADE Financial Business Solutions Group Joty Paparello – AOL Time Warner Summary This session will outline and explain the steps that should be taken when implementing an employee stock option plan (US based) or an employee stock purchase plan (ESPP) to a non-US site. This is an interactive workshop where questions from the attendees are encouraged. A dialogue will be provided that encourages questions and provide answers to many of the problems facing stock plan administrators in the global market. The issues covered in the session include: how management should be engaged; what legal, accounting, and tax issues are encountered; how do you handle funds disbursement; and how to handle employee education and notification of plans. Biographies Karen Needham – E*TRADE Financial Business Solutions Group Karen is a Certified Equity Professional (CEP) and has over 25 years of expertise in Employee Stock Option and Stock Purchase Plan administration. Karen is a senior member of the Industry Education and Product Training department with E*TRADE Business Solutions Group. In this position she coordinates and presents the product training for all Equity Edge modules for clients, as well as the Industry Education seminars that are offered to all. Karen interfaces with all departments within E*TRADE providing advice and assistance in all areas of equity compensation planning and design. Her vast experience as the administrator for multi-national plans is of value both to the company and our clients. Prior to joining E*TRADE Financial, Karen served as senior staff member for Shareholder Relations at one of the top 5 global biotechnology companies. Karen began her career in equity compensation at Wang Laboratories, Inc., a New England-based computer manufacturer, where she administered both the stock option and stock purchase plans on a worldwide basis for over 40,000 employees. She was a founding member of the Equity Edge Client Advisory Board, and is a frequent speaker at Equity Edge User Group meetings, and NASPP regional meetings and is a presenter at the Global Equity Organization 2002 conference. Karen is a member of NASPP, the Global Equity Organization (GEO), and the National Center for Employee Ownership (NCEO) and serves on two sub-committees for the Certified Equity Professional Institute of Santa Clara University. Joty Paparello – AOL Time Warner Joty is the Manager of International Stock Plan Administration for AOL Time Warner. Joty joined AOL in May, 1999 as a Stock Analyst. Since the merger with Time Warner, they have taken on the administration for all of AOL Time Warner, which is approximately 90,000 optionees in 51 different countries. She is a member of the Share Data Advisory Board, Global Equity Organization, and NASPP. Contact Info: Email Address: Paparelloj@aol.com Phone #: 703-265-1403 Fax#: 703-265-2401 Address: 22110 Pacific Boulevard, Dulles, VA 20166 Latin & South America Administration Concerns Securities Law Company Law Employment Law Exchange Controls Day-to-Day Administration Securities Law Usually requires some form of registration and/or reporting Are there securities law restrictions? If so, what are they? Company Law Are there restrictions on assisting employees in purchasing shares in employer or foreign parent company? Are there special reporting requirements for company executives? Is recharge in the best interest of the local entity? Employment Law Taxation of Employee? Income tax withholding & reporting required? Social insurance? Taxation How do you determine withholding rates? What method should be used for collection? withhold at a flat rate, send total proceeds to foreign payroll for withholding, require foreign payroll to collect from employee, proration over future payroll periods, etc How do you collect taxes on ESPP? What to ask, When to ask Prior to Granting Options Can we grant options? Ask before granting!! What are the restrictions? Are the restrictions on vesting? Pricing? Exercise? Holding requirements? Are payroll deductions allowed? Can we take contributions for ESPP plans? Are there restrictions on the percentages? Currency Conversion (especially for ESPP) when will it occur? each payroll period or at purchase date ASK Early! Before the Options are Granted Taxation – Employer/Employee Income tax withholding & reporting Employee? Employer? Will the employee be subject to additional taxes? Grant ? Exercise? Sale? Social Insurance - what are the limits? Can you require employees to pay the company portion? Employee? Employer? ASK Early! Before the Options are Granted Securities Law Are there limits on shares that can be issued? By company? By employee? Aggregation (with other options or ESPP)? Can employees hold foreign securities? Exchange Controls Can funds be sent into U.S.? Can employees receive funds from U.S.? Are there limitations on funds entering/leaving country? Entitlement (Acquired Rights) Many South American countries have strict rules and regulations surrounding Entitlements. This is the right to continue receiving options and awards on a regular basis. This could include calculation of earnings upon retirement and/or termination! CHECK WITH YOUR LEGAL COUNCIL TO AVOID MISTAKES. Many problems can be avoided with proper language in the employment contracts. Data Privacy It is strongly recommended that the company obtain written consent from the employees for the collection, use, and transfer of data abroad before implementing the plan Exchange Controls Mexico and Brazil have very strict laws and controls governing currency movement Argentina, due to recent events, has tightened exchange controls Please check with your legal and accounting advisors to ensure that you are complying with the latest rules and regulations Last But Not Least Documents should be translated into local languages!!! Some countries require it! All Countries want it! Employees need it! Translations should be done by a licensed, certified agency in the country where the translation is used. !