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Administration of Equity Plansin the BRIC Countries:

Panel DiscussionFriday 11 April 2008

Lindsey Doud – RBC cees

Nicholas Greenacre – White & Case

Uwe Ruetschlin – ABB

Marcus McEvoy – Citi Smith Barney

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Introduction

• Why BRIC?

• Driving global economic growth• Nearly half $255bn raised globally by IPOs in 2007

• 382 BRIC IPOs - $106.50bn

• Q3 record quarter for BRIC IPOs

• Prospect of economic slow down heightened interest in companieswith genuinely superior growth potential

• Decoupling?

Outperforming other economies

Source of Data: Ernst & Young

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Panel

• Lindsey DoudDirector, RBC cees

• Nicholas GreenacrePartner, Employment & Benefits Group, White & Case

• Uwe RuetschlinGroup Vice President, Share Plan Management, ABB

• Marcus McEvoyVice President, Relationship Manager, Citi Smith Barney

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Agenda

• The ABB plan

• Legal and tax issues by country

• Practical issues by country – challenges and solutions

• Conclusion

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ABB Plan – An Overview

• 4 stage roll out to 50 countries• 102,000 eligible employees• Average 20% participant take-up• Considerations by country:• Enrolment period

• 1 month to decide on monthly savings amount (10% of monthly base salary max.CHF 750) and participation

• Savings period• Purchase price set at the beginning of the savings period – market price• Monthly deduction of savings amount from payroll• Savings are held in local currency in an interest bearing account

• Purchase decision period• Employee decides to Buy or Withdraw• Conversion of savings, interest and Top Up into Plan Currency and/or• Repayment of savings plus interest

• Share holding period• Delivery of shares into employee share account – no restrictions on sale

Brazil

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Legal issues

• Specific tax issues connected to employment issues

• Employment charges

• Social insurance contributions

• Structure of plan determines size of risk

• Compliance with specific vesting/exercise periods

• Outlay of employee’s own capital

Brazil

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Practical issues

Challenges

• Payroll deduction not allowed

• BRL is not a supported currency

Brazil

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Practical issues

Solutions• Monthly deduction of savings amount from private account of

participant• Held in local currency in interest bearing account

• Repayment during savings period without interest• Repayment at the end of plan cycle with interest

• Transfer of savings and interest for all employees purchasing the ABBshares under the ESAP after 12 months to an ABB account• Conversion of savings after 12 months into Plan currency (CHF)• Transfer of Swiss Francs to Citi Jersey• Citi cheque suppress participant payments and deliver proceeds to

corporate account• Payroll distribution / wiring of proceeds• Training / communications – both corporate and participant• Default to USD or plan currency

Brazil

Russia

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Legal issues

• Individual income tax / unified social tax implications

• Prospectus filing requirement

• Obligations may be avoided if conducted outside of Russia

• Advertising / offer of shares restrictions for companies not registeredwith FSFM

• Currently not possible for non-Russian issuer to register

Russia

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Practical issues

Challenges

• Prospectus filing requirement

• RUB is not a supported currency

Russia

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Practical issues

Solutions• Administration outside of Russia – prospectus filing requirements /

securities law may not apply if grant and share transfer take placeoutside of Russia• Limit transaction type to cashless (no transaction resulting in shares)• Proceeds delivered in USD / plan currency• Open bank account in the name of the Trustee• Monthly deduction of savings amount from payroll• Savings are locally held for 12 months• Savings are held in local currency in an interest bearing account

• Repayment during savings period without interest• Repayment at end of plan cycle including interest

• Conversion of savings after 12 months into Plan currency (CHF) for allemployees having decided to purchase the ABB shares under theESAP• Transfer of Swiss Francs to Citi Jersey

Russia

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India

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Legal issues

• Annual returns to be filed with Reserve Bank of India throughauthorised dealer

• Annual income tax returns to be filed w/details of fringe benefits

• Application for exemption from prospectus filing requirements?

• FBT may be recoverable

• Favourable tax treatment may be available on any subsequent capitalgain

• Repatriation of funds within 90 days

• If no clear exemption re: FX restrictions cashless exercise of options

India

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Practical issues

Challenges

• Fringe Benefit Tax – payable by employer of 33.99% for allemployees and ex-employees on any securities granted

• INR not a supported currency

India

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Practical issues

Solutions

• Monthly deduction of savings amount from payroll

• Savings are locally held for 12 months (Trust Account)

• Savings are held in local currency in an interest bearing account• Repayment during savings period and without interest

• Repayment at the end of the plan cycle including interest

• Conversion of savings after 12 months into Plan currency (CHF) forall employees having decided to purchase the ABB shares underthe ESAP

• Transfer of Swiss Francs to Citi Jersey

• Limit plans to cash-settled programmes – Stock Appreciation Rights(SARs), Restricted Stock Units (RSU)

• Delivery of proceeds in USD, INR or plan currency

India

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China

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Legal issues

• Recent legislation indicates that all stock option plans run in Chinashould be registered with the State Administration of Foreign Exchange(SAFE) even where the Plan is run using strictly cashless exercise

• Large potential fines for non-compliance

• Any currency earned for the sale of shares under an option plan (orshare purchase plan) should be repatriated to a fiduciary foreignexchange account (set up by the Company and also registered with theSAFE).

• The regulations could apply to all stock plans

China

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Challenges• SAFE approval needed – complex and time-consuming, large fines

for non-compliance• Restriction on foreign share ownership for Chinese Employees• Circular 78 – proceeds must be delivered to foreign currency

account in China• Plan approval to be obtained by SAFE• Transfer of shares prohibited• Sales proceeds have to be paid back to China

• CNY is not a supported currency

ChinaPractical issues

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Practical issues

Solutions• Monthly deduction of savings amount from payroll• Savings are locally held for 12 months (Trust Account)• Savings are held in local currency in an interest bearing account

• Repayment during savings period and without interest• Repayment at the end of the plan cycle including interest

• Conversion of savings after 12 months into Plan currency (CHF) forall employees having decided to purchase the ABB shares underthe ESAP

• Transfer of Swiss Francs to Citi Jersey• Citi cheque suppress participant payments and deliver proceeds to

a corporate account• Citi Network in China – ability to help with set-up of FX account• Limiting transaction types to cashless only• Cheque suppression / payroll distribution for China employees• Delivery of proceeds in USD or plan currency

China

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Conclusion

• Why incentive plans in BRIC?• Vital tools for employee retention

• Becoming easier to implement

• Developing law in emerging markets

• Factors to consider

• Life cycle of company

• Geographic location• Posting/reassignment of mobile, international executives

• Relevant tax and accounting policies• Rapidly changing but…

• Becoming easier to administer globally

• Still divergent factors that must be considered

Flexible plans

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Questions?

Thank you for your participation