THE NEW OPTIONS REGULATIONS - AN OVERVIEW .


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Squire, Sanders
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THE NEW OPTIONS REGULATIONS - AN OVERVIEW Robert B. Webb III, Esq.

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S Q U I R E , S A N D E R S & D E M P S E Y .L .P. Presentation A universal law office with more than 700 legal counselors in 26 workplaces overall Squire, Sanders & Dempsey L.L.P.

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Representing customers worldwide in matters crossing 80 nation outskirts Speaking 50+ dialects Practicing in 150+ courts and purviews Representation of about portion of the Fortune 500 organizations including 9 of the main 10 and 17 of the main 20 Squire, Sanders & Dempsey L.L.P.

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Employee Benefits Capability planning and drafting complex characterized advantage and characterized commitment arranges money adjust plans supplemental official retirement arranges rabbi trusts ostracize benefits disallowed exchange exclusions Department of Labor and IRS arrange reviews CAP and VCR projects and COBRA issues. Squire, Sanders & Dempsey L.L.P.

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Stock Plan & Executive Compensation Expertise Stock Option Programs Employee Stock Ownership Plans Stock Purchase Plans Deferred remuneration Plans Phantom Stock Plans Management Buyout Expertise Squire, Sanders & Dempsey L.L.P.

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Key Services Corporate, exchanges and securities Environmental Intellectual property Labor and work Litigation and universal question determination Project back Public fund Real domain Regulatory Restructuring and chapter 11 Tax Squire, Sanders & Dempsey L.L.P.

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Tyson " s Corner Office Established in 2001 22 lawyers – experienced Virginia specialists Lawyers experienced in the arrangement, capitalization, administration, development and demeanor of a wide range of organizations. Handle complex business loaning and renting, innovative financing structures, corporate control and shareholder issues, M&A planning, securities offerings, and investment opportunity and other value proprietorship arranges. Commit regard for ensuring licensed innovation, preparing businesses for work law consistence and organizing official pay assentions. Work Law, HR Benefits and Labor law skill Squire, Sanders & Dempsey L.L.P.

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Washington DC Office Established in 1971 Strong administrative practice before all significant elected legislative offices Extensive involvement in the legislature - legal advisors originate from FCC, FERC, US Dept. of Justice, White House and Congress Work intimately with global workplaces Litigation legal advisors with particular involvement in option question determination, salaried criminal resistance, complex business case and protected innovation prosecution Practice in universal and seaward corporate assessment matters, worldwide speculation fun and global exchange and levy matters Industry mastery in vitality, flight and broadcast communications Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - AN OVERVIEW August 3, 2004 – IRS Issued New "Last Regulations" with respect to investment opportunities and IRC 423 Stock Purchase Plans Available from IRS site at http://www.irs.gov/bar/irs-regs/td9144.pdf or www.esop.us/irsoptionregulations.pdf Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS – What these directions are not These are not identified with alternative expensing for budgetary bookkeeping These controls are not identified with boss finance and FICA/FUTA withholding commitments Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - The Regulations address Sections 421, 422 and 423 of the Internal Revenue Code. IRC 421 – General arrangement which gives that there is no assessable endless supply of a "statutory investment opportunity." A "Statutory Stock Option is an alternative to buy load of a company that is either (an) an impetus investment opportunity under Section 422 of the Code, or (b) the privilege to buy stock compliant with a stock buy arrange under Section 423 of the Code Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - The Regulations mirror a thorough arrangement of directions for statutory investment opportunities – finishing an IRS administrative venture initially started with the 1984 distribution of proposed controls. In 2003 the IRS issued new proposed directions The Regulation don\'t influence the assessment treatment for nonqualified investment opportunities The Regulations don\'t change the Alternative Minimum Tax treatment of pick endless supply of a motivator investment opportunity Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - In huge part, the Regulations reflect a significant part of the substance of the 1984 proposed directions, yet endeavor to give more prominent lucidity in specific regions. Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS – Specific Points Employment Relationship IRC 422 and 423 give that Statutory Stock Options may just be conceded to workers of the giving enterprise, a parent or backup of the giving company, or an organization issuing or expecting the choice in a merger inside the extent of IRC 424. . Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS – Specific Points Employment Relationship The controls give that on account of a presumption or substitution under IRC 424(a), the time of amid which choices might be conceded incorporates the period up to 3 months after work end. . Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS – Specific Points Employment Relationship The directions additionally give, that on account of representatives with an authoritative or statutory appropriate to return (wiped out leave, family therapeutic leave, military leave) the period incorporates 3 months (or longer as on account of Family medicinal leave or military leave re-business rights). . Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS – Specific Points Disqualifying Dispositions An excluding mien happens when an optionee buy and afterward discards stock before 2 years from the date of allow or one year from work out. The directions clear up the computation of these periods. Most eminently – when choices are "early worked out" before vesting, if a precluding manner happens, holding period is figured from the date of work out, however normal pay is ascertained based upon the date of vesting, not the date of practice . Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - – Specific Points Shareholder Approval Requirements Statutory Stock Option Plans must be affirmed by shareholders inside 12 months before or after an arrangement is received. The directions don\'t shift this essential run the show. The Regulations do clear up, that when a merger happens, an expected arrangement must be affirmed, yet that this endorsement necessity is met if the merger is affirmed by shareholder vote and the arrangement of merger explicitly depicts the arrangement and gives that it will be proceeded after the combination. Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - – Specific Points Maximum Aggregate Number of Shares The Code explicitly requires that the shareholder endorsement must incorporate a greatest number (not rate or equation) of shares that might be issued under the arrangement. The controls illuminate this must be a particular number for the statutory arrangement, not a worldwide number for both statutory and non-statutory choices The directions likewise clear up that this number might be figured as a "net" number – i.e. in the case of mesh is allowed, just the net number means something negative for the aggregate. Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - – Specific Points Fair Market Value Statutory Options must be conceded at Fair market Value ( or a set rate thereof in specific cases) The Regulations rehash the Code arrangements that a sensible exertion will suffice, yet in reference to non-open companies, allude to assurance by "a normal of examinations by qualified appraisers" – hence recommending that one evaluation may not be sufficient. The IRS particularly remarked that they were dismissal proposals that a solitary examination ought to suffice. Minority/Discounts/Control Premiums might be utilized Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - – Specific Points $100,000 Limitation As to any individual, the number which qualify as Incentive investment opportunities is constrained to $100,000 which "first get to be distinctly exercisable whenever amid the year. The Regulations clear up this is ascertained consistently however connected in the request allowed. Along these lines choices conceded 5 years back yet which "vest" in December will, "pre-empt" ISO status and utilize as far as possible in front of alternatives allowed 1 year prior yet which vest in February. Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - – Specific Points $100,000 Limitation If a choice concede surpasses the cutoff, an organization may assign or "bifurcate" the give by isolated authentication or assignment in plan records. Missing such assignment, any shares buy are initially considered practiced under as far as possible, then regarded as Non-qualified choices. Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - – Specific Points Substitution, Modification or Assumption In a statutory choice is altered, developed or restored, that is by and large regarded as another alternative An alteration is any change which gives the optionee extra advantages. Corporate Transactions, for example, mergers, stock profits, or comparative are not regarded as changes Squire, Sanders & Dempsey L.L.P.

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THE NEW OPTIONS REGULATIONS - – Specific Points Substitution, Modification or Assumption A change to a choice to give a company the prudence to give an extra advantage upon practice is viewed as an adjustment. The

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