GLOBAL EQUITY PROGRAMS
Susan P. Serota – Pillsbury Winthrop Shaw Pittman, LLP
Pillsbury Winthrop Shaw Pittman LLP
GLOBAL EQUITY PLANS
 Domestic and Foreign multi-national employers sponsor
Global Stock Plans
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Foreign issues must consider US securities and tax laws
Domestic issuers must consider US and foreign securities, tax,
exchange control and employment laws
1 | GLOBAL EQUITY PROGRAMS
SEC ISSUES
 Securities may not be offered or sold to US citizens
unless the securities are:
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Registered under the Securities Act of 1933 (e.g., through
prescribed filings with the SEC and issuance to potential
purchasers of an offering prospectus that meets elaborate SEC
content requirements), or
Exempt from such requirements
2 | GLOBAL EQUITY PROGRAMS
SEC ISSUES
 Rule 701 provides an exemption that can be used by
foreign companies that do not file reports with the SEC
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The Rule is designed specifically for equity compensation
plans, but can be used for plans which offer deferred
compensation obligations, which are deemed “securities”
If the exemption requirements are satisfied, a company may
grant stock, options or other securities to U.S. employees
without having to comply with the SEC registration
requirements
3 | GLOBAL EQUITY PROGRAMS
SEC ISSUES
 Key provisions of Rule 701
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Each participant in the plan must be provided with a copy of the
plan document
Sales of securities in a 12-month period cannot exceed the
greatest of:
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$1 million
15% of the company’s total assets
15% of the outstanding securities of the class involved
Options are considered sales at the time the options are
granted, and dollar limits are calculated by the grant value (i.e.,
exercise price times number of shares)
4 | GLOBAL EQUITY PROGRAMS
SEC ISSUES
 Sales in excess of $5 million in any 12-month period will
trigger a requirement for additional disclosure requirements
 Must disclose (i) the risk factors associated with investment in the
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securities and (ii) company financial statements, among other items
Effective 3/4/2008 the financial statements may be prepared in
accordance with the IASB International Financial Reporting
Standards
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Previously, reconciliation with U.S. GAAP was required
Disclosures must be furnished a reasonable period before the
purchase
 Even if expanded disclosure not required, some companies
provide additional disclosure to minimize risk of claims under
the “anti-fraud” provisions of the Securities Act
5 | GLOBAL EQUITY PROGRAMS
SEC ISSUES
 Regulation D provides an alternative exemption
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Equity awarded to individuals who qualify as “accredited
investors” are exempt from registration
An individual with income above $200,000 in each of the last
two years (and reasonably expected to maintain that level in
the current year) can qualify as an accredited investor
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Alternative—an individual with over $1 million in assets (including
value of home)
6 | GLOBAL EQUITY PROGRAMS
SEC ISSUES
 Outright award of shares (e.g., restricted stock,
performance shares, an SAR) may avoid reliance on
either Rule 701 or Reg. D under the so-called “no-sale”
exception from registration
 Companies that want to grant equity compensation in
the U.S. need to check for compliance with relevant
state laws
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These are sometimes referred to as “blue sky” laws
Applies to companies whose securities are not listed on a
national exchange.
7 | GLOBAL EQUITY PROGRAMS
STOCK EXCHANGE RULES
 Equity Compensation Plans generally require Shareholder
Approval
 Exemption for foreign broad-based plans similar to tax
qualified plans, 423 stock purchase plans or parallel
excess plans, except for differences required by foreign
law
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FAQ permits insubstantial differences
FAQ permits substantial differences to comply with foreign tax laws
 Different local laws considered on a case by case basis
Written disclosure to Exchange required
Material revisions require approval of Compensation Committee of Board
8 | GLOBAL EQUITY PROGRAMS
US ISSUER GLOBAL EQUITY
PROGRAMS
 Compliance with US Securities Laws
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1933 ACT – Registration and Prospectus
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Local (Foreign Jurisdiction) Tax Consequences
Form S-8
Exemptions
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Rule 701
Regulation D
Regulation S
9 | GLOBAL EQUITY PROGRAMS
US ISSUER GLOBAL EQUITY
PROGRAMS
 Regulation S
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Limited to Offerings Outside the US
Covers both Sales and Resales
Typically Used by US Grantees of Foreign Company Stock to
sell shares on Foreign Exchange
10 | GLOBAL EQUITY PROGRAMS
US ISSUER GLOBAL EQUITY
PROGRAMS
 Regulation S Exempts from Registration with the SEC
Offers to non US employees who work outside of the
US
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All Offers and Sales Outside of US
Issuer does not engage in Offer or Sale inside the US
11 | GLOBAL EQUITY PROGRAMS
US ISSUER GLOBAL EQUITY
PROGRAMS
 Conditions of Regulation S Exemption
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Securities Issued for Compensatory Purposes
Services Cannot be Rendered in a Capital Raising Transaction
Interests in Plan Cannot be Transferable Except on Death
Issuer Must Take Reasonable Steps to Preclude Offer or Sale
in the US
Documentation must state Securities Not Registered Under US
Laws and May Not be Offered or Sold in US unless registered
or exempt from Registration
12 | GLOBAL EQUITY PROGRAMS
US ISSUER GLOBAL EQUITY
PROGRAMS
 EU Prospectus Directive
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Applies to All Offers of Securities made to the Public in any
Member State which exceeds 2.5 million Euros in a 12 Month
Period
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Employee Share Purchase Schemes Covered
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One EURO = $1.27 as of November 10, 2008
Exception if listed on an EU exchange
Stock Options not deemed to be securities
Exemptions for small grants and “qualified investors
Non EU Companies Must Choose a Home Member State
Non EU Companies Must Use IFRS Accounting Standards
13 | GLOBAL EQUITY PROGRAMS
US ISSUER GLOBAL EQUITY
PROGRAMS
 EU Prospectus Directive
 January 2009 proposal to extend “employee share scheme
exemption” to all companies making offers under employee share
plans to employees resident in the EU as long as a document is
made available containing information on:
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Number and nature of securities offered
 Expected to be implemented in 2011
 CESR FAQ (2/09) provides temporary solution to public issuers
offering stock under employee share schemes in the EU
 Short-form disclosure
 Still need approval of Home Member State competent authority
14 | GLOBAL EQUITY PROGRAMS
TAX ISSUES
 U.S. tax rules apply to determine tax treatment of
executives without distinction between foreign and
domestic stock
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Need to be sensitive to unexpected consequences due to
differing foreign design practices (e.g., nil-priced options,
“good-leaver” vesting of shares, etc.)
ISO and 423 Plans require 50% ownership of subsidiaries up to
parent issuer
 Employees of entities taxed as a partnership will not receive
favorable tax treatment
15 | GLOBAL EQUITY PROGRAMS
US ISSUER GLOBAL EQUITY PLAN
ISSUES
 Local Tax Consequences
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Timing of Event
Measure of income
Ordinary vs capital gain
Social taxes
 Employment Issues
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UK Age Discrimination Rules
16 | GLOBAL EQUITY PROGRAMS
TAX ISSUES
 IRC § 409A presents a unique challenge for
arrangements funded outside the U.S.
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Unfavorable tax consequences arise when assets set aside in
an offshore trust in connection with a deferred compensation
arrangement
In some locations, it is common for an equity compensation
program to use a trust to acquire and hold shares ultimately
transferred to plan participants
Examine whether the arrangement involves deferred
compensation
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If so, need to dissolve the trust or locate it in the U.S. at least for U.S.
participants
17 | GLOBAL EQUITY PROGRAMS
INTERNATIONAL IMPLICATIONS OF
409A
 Extraterritorial application of IRC Section 409A.
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Global Workforce
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Expatriates
Non-Resident Aliens
Resident Aliens
Third Country Nationals
Section 409A imposes new tax rules – and harsh penalties for
failing to comply with these rules – upon “deferred
compensation” plans.
18 | GLOBAL EQUITY PROGRAMS
INTERNATIONAL IMPLICATIONS OF
SECTION 409A
 Section 409A
 No flat exemption of compensation arrangements made by
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foreign-owned companies or by U.S. companies with operations
abroad.
Final regulations—exceptions permit both U.S. citizens and
resident aliens working abroad, and non-resident alien individuals
working within the United States, to accrue benefits under foreign
plans that do not meet the Section 409A requirements.
 Where no exemption applies—necessary to amend the
foreign arrangement to comply with Section 409A
requirements by 12/31/08.
19 | GLOBAL EQUITY PROGRAMS
NEW SECTION 457A
 Enacted with the Emergency Economic Stabilization Act of 2008
(bailout legislation)
 IRS issued guidance in Notice 2009-8 [Jan 2009]
 Taxes “nonqualified deferred compensation” of “nonqualified entities”
in the year in which it is no longer subject to a “substantial risk of
forfeiture”
 Primarily intended to eliminate deferred compensation of hedge fund
managers of funds located in jurisdictions with favorable tax regimes,
but the law sweeps in many other offshore entities
 Plan compliance required as of January 1, 2009, subject to limited
relief under Notice 2009-8
20 | GLOBAL EQUITY PROGRAMS
GLOBAL AWARD AGREEMENTS
 Usually Governed by Law of Parent Company’s
(Issuer’s) Jurisdiction
 Award Agreements Often Contain Clawbacks for
violations of restrictive Covenants
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Non-Solicitation
Non-compete
Required disclosure
21 | GLOBAL EQUITY PROGRAMS
GLOBAL AWARD AGREEMENTS
 Articles 18 and 20 of Brussels I Regulations provide that
employers can sue EU-domiciled employees in relation
to “matters relating to individual contracts of
employment” only in courts of the country in which
employee is domiciled.
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Employees can agree to alternative jurisdiction only after a
dispute has arisen.
Binding on EU Courts.
 Samengo-Turner v. J&H Marsh & McLennan (Services)
Ltd.
22 | GLOBAL EQUITY PROGRAMS
GLOBAL AWARD AGREEMENTS
 Rome Convention-Governing Law will be that chosen by
parties, except
 Contracts of Employment-Choice of Law cannot deprive employee of
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mandatory rules of law which would have been applicable if no chosen
law.
Applicable mandatory law are those
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where employee works, or
if none, where place of business situated
 Convention provides that application of rules of law of any
country specified in agreement may be refused only if
application of such law is manifestly incompatible with the
public policy of the forum
 Duarte v. Black and Decker
23 | GLOBAL EQUITY PROGRAMS