Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAUnited States of AmericaThe rate of federal income tax on the income from the exercise ofthe option will be based on the individual employee’s ordinaryincome tax rate (currently, in general, from 15% to 35%, dependingon the individual’s level of income). State and local tax rates varyby location.As noted in paragraphs 5.5 and 5.6 below, options over employershares with an exercise price that is no less than the fair marketvalue of a share on the date of grant should generally not raise anyissues under Code Sections 409A and 457A (provided that theoption has no other deferral features).• Incentive stock options: Incentive stock options (ISOs) may onlybe awarded to employees of a corporation (as well as employees ofcertain subsidiary and parent entities). The exercise of an ISOgenerally will not result in any federal income tax consequences,except to the extent it results in an alternative minimum tax forcertain taxpayers. 145.1.3 Social security contributions: The exercise of an ISO generally willnot result in any federal Medicare or social security tax consequences,except in the event of a disqualifying disposition (e.g. where the ISOHolding Period, as described under paragraph 6.2 below, is notsatisfied).On the exercise of a non-qualified stock option, the compensationincome arising on exercise (being equal to the excess of (i) the fairmarket value of the stock received on exercise over (ii) the aggregateexercise price) will generally be subject to Medicare taxes and socialsecurity taxes. Currently, the employee's share of (i) the Medicare tax isat a rate of 1.45% and (ii) the social security is at a rate of 6.2%. Socialsecurity taxes are not due on compensation income that exceeds thetaxable wage base (currently $106,800 for 2010). (The actual full rates(including both the employee and employer portions) for Medicare andsocial security taxes are 2.9% and 12.4% respectively. However, theserates are divided equally between the employer and the employee).14In general, upon the exercise of an ISO, the amount by which the fair market value of the shares on thedate of exercise exceeds the exercise price will be an adjustment in computing income for purposes ofthe AMT. The AMT is an alternate tax calculation on income of certain taxpayers, who must pay thegreater of ordinary tax or the AMT. This could result in such excess being subject to tax at a rate up to28% in the year of exercise. In addition, special AMT rules may apply if the shares are disposed of inthe same taxable year in which they were acquired.UK/1729295/03 207 September 2010