Employee Share Plans in Europe and the USA - Sorainen

Employee Share Plans in Europe and the USAFranceparent company of their employing company 34 if certain conditions are met, i.e. ifthe grant of free shares is made in accordance with the relevant conditions of theFrench Commercial Code 35 . These include, in particular, a minimum four-year3435Guidelines issued by the French tax authorities on 24 May 2005 (5F-14-05) and 10 November 2006(5F-17-06).The main conditions provided by the French Commercial Code are the following:• the grant of free shares must be approved by an extraordinary shareholders’ meeting whichauthorises the board of directors (conseil d'administration or directoire) to proceed with the grant.Such authorisation has a limited duration which shall not exceed 38 months from the date of theshareholders’ meeting. If the issuer of the free shares is a foreign company, the grant must beapproved in accordance with the local law requirements.• employees of the company and executive officers (i.e. the chairman of the board, the chiefexecutive officer, the general managers (Directeurs généraux délégués) and the members of themanagement board (Directoire)) may be granted free shares. However, free shares cannot begranted to an employee or an officer who holds more than 10% of the share capital of the companyor who would hold more than 10% of the share capital of the company further to the grant of thefree shares;• the overall number of shares which may be granted cannot exceed 10% of the total share capital ofthe issuing company at the moment when the board of directors decides to grant free shares. Theshares to be granted can either be outstanding shares or newly issued shares;• a minimum four-year lock-in period is required as from the initial grant and before the shares aresold. This period is divided into a minimum two-year vesting period and a further holding period ofat least two years (during which the beneficiary owns the shares but is prohibited from sellingthem);• companies may reduce/withdraw the holding period, provided the vesting period is of at least fouryears. This possibility is particularly interesting for the implementation of an international freeshares plan by a French company, in order to allow foreign beneficiaries to sell the shares at thetime taxation and social security charges are due (i.e. generally at the vesting of the shares).However, such mechanism is without particular interest from a French tax viewpoint, since thebenefit of the French favourable tax and social security regime is subject to a mandatory holdingperiod of at least two years following the vesting of the free shares;• the extraordinary shareholders' meeting is able to provide for the definitive grant of the sharesbefore the end of the vesting period in case of the disability of the beneficiary. The shares are thenimmediately transferable. In the case of death, shares are immediately transferred to the heirs ofthe beneficiary and are transferable;• the board of directors of the company are permitted to identify the persons entitled to benefit fromthe grant of free shares and to determine the conditions attaching to the free shares;• the vesting of the free shares can be subject to a presence condition and/or performance conditionwhich shall be determined precisely in the free share plan rules. The French Supreme Courtconsiders that a presence condition does not constitute an infringement of the employee's freedomto resign nor represents an illicit financial penalty. As to the performance criteria, it must beobjective, feasible and the realisation should not exclusively depend on the will of the employer;andUK/1729295/03 67 September 2010