Global Stock Options. PAKISTAN Rizvi, Isa, Afridi & Angell

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1 Global Stock Options PAKISTAN Rizvi, Isa, Afridi & Angell CONTACT INFORMATION: Ahsan Zahir Rizvi Rizvi, Isa, Afridi & Angell D-67, Block 4, Clifton Karachi-75600, Pakistan To understand the answers given below it is important to first read the survey scenario, which can be accessed by CLICKING HERE>>. 1. Are there any corporate actions that need to be taken by the Committee or the shareholders to establish the plan? The Plan will be governed by the Public Companies Employees Stock Options Schemes Rules 2001 (the "Rules"). Under the Rules, a Compensation Committee (whose role is analogous to that of the Committee as contemplated by this survey) shall formulate the terms of the Scheme. These terms need to be approved by the shareholders of the company through a special resolution. After such approval, the Scheme needs to be approved by the Securities and Exchange Commission Pakistan (the "Commission"). 2. Are there any requirements in your jurisdiction about the composition or authority of the Committee? The Committee needs to be appointed by the company's board of directors. Under the Rules, the Committee shall not include the directors of the public company offering the Scheme who can be classified as employees of the company or are on its pay roll. The authority of the Committee is restricted to formulating, administering and superintending the Scheme.

2 3. What does the Committee have to publicly disclose about its Plan-related decisions and when must those disclosures be made? The Committee does not have to make any public disclosures with respect to the Plan; however, the company's board of directors will have to make disclosures of details of the Scheme in the directors' report which will be circulated to the company's members before the annual general meeting. 4. Is a participant subject to taxation: on receipt of the option; on exercise; or otherwise? Under the Income Tax Ordinance 2001 ("ITO") the offering of an employee stock option is not taxable. When an option under the Scheme is exercised, the participant will be taxed with respect to the fair market value of the underlying shares less any consideration paid by the participant to acquire the option. When a participant disposes of an option to acquire shares, the amount chargeable to tax shall include the amount of any gain made on the disposal. When shares are issued to an employee under an employee stock option are subject to a restriction on the transfer of the shares, no amount will be chargeable to tax to the employee until the earlier of the time the employee has a free right to transfer the shares or the time the employee disposes of the shares. 5. Does the tax treatment vary depending on where the Participant resides or habitually exercises his duties (i.e. outside your jurisdiction)? Under the ITO the total taxable income for residents and non-residents is as follows: a) A resident person (i.e. an individual present in Pakistan for a period of, or for periods amounting in aggregate to a period of 183 days in any given tax year) is chargeable to tax in Pakistan for both Pakistan source income and foreign source income. b) A non-resident (i.e. a person who is not a resident person in a tax year) is chargeable to tax in Pakistan only to the extent of Pakistan source income. 6. Does the tax treatment vary depending on the type of option or specific Plan provisions concerning the option? Tax treatment does not vary depending on the type of option. The ITO states that where shares issued to an employee under an employee share scheme are subject to any restriction on the transfer of the shares, no amount shall be chargeable to tax until the earlier of (i) the time the employee has a free right to transfer the shares; or (ii) the time the employee disposes of the shares. 7. Is Company X entitled to claim a deduction from (or other reduction of) taxable income with respect to the option and, if so, when and how is this calculated? No tax exemptions from total income or any part thereof, reduction in applicable tax rates or liability and deductible allowances (i.e. allowance that is deductible from total income for the purposes of calculating the tax payable with respect thereto) for public companies

3 with respect to employee share option schemes offered by the same are available under the ITO. 8. Does the tax treatment under 7 vary depending on where the Participant resides or habitually exercises his duties (i.e. outside your jurisdiction?) 9. Are there special rules for significant shareholders (for example, more than 10% shareholders of the Company)? With respect to a public company which is not listed on a stock exchange registered under the Securities and Exchange Ordinance of 1969, there are no special rules for shareholders whose stake in such public companies, equals or exceeds ten percent (10%). Under the Listed Companies (Substantial Acquisition of Voting Shares and Take-Overs) Ordinance, 2002, with respect to a public company listed on the stock exchange, any acquirer who acquires more than ten percent voting shares in a listed company is required to disclose the aggregate of his shareholding in that company to the said company and to the stock exchange on which the voting shares of the said company are listed. Under Section 22 of the Companies Ordinance, 1984 every person who is, directly or indirectly, the beneficial owner of more than ten percent of a listed company s equity securities, is required to submit to the registrar of companies and the Commission, a return in the prescribed form containing the prescribed particulars pertaining to the beneficial ownership of such securities and notify in the prescribed form of any changes in the shareholding. 10. What are the other principal tax considerations, if any, such as withholding for social insurance, employment taxes, unemployment taxes, etc., for Company X or its local subsidiary or branch office in your jurisdiction, and the participant? Pakistani laws pertaining to social security of employees and employment or unemployment taxes are applicable to workers whose monthly wages are equal to or below the minimum wage threshold. In such an event Workers Participation fund contributions and Employees Old Age Benefit Contributions would be deductible from the employers taxable income. Under section 149 of the ITO salary paid to employees by companies incorporated in Pakistan shall be subject to withholding taxes deductible by the employer at the time of paying the salary. 11. What needs to be done, if anything, under your local law so that Participants obtain the favorable tax treatment offered by your jurisdiction?

4 12. What securities law, or other regulatory (or exchange) requirements are there, if any, such as: filing requirements; prospectus requirements; offering exemptions; size of offering limitations; and currency requirements? Price for issue, transfer and export of securities is to be paid in foreign currency through normal banking channels via remittance from abroad or out of foreign currency accounts maintained by the subscriber or purchaser in Pakistan. There are no restrictions with respect to offering size, unless Company X is a banking company under Pakistan law. Shares in a Pakistani company can be issued outside Pakistan on a reparable basis. Filing requirements for employees stock option scheme by public companies have been addressed in Answer 1. The Ordinance requires the circulation of a prospectus to invite offers from the public for purchase of shares. 13. Is a cashless exercise permissible? Yes; however, the Ordinance provides that no company, other than a listed company, may buy back its own shares. For the purposes of the Ordinance, a listed company is one whose securities are traded on a stock exchange which is registered under the Securities and Exchange Ordinance of Are there any rules in your jurisdiction that prohibit or discourage a foreign subsidiary of Company X from granting options to acquire shares of common stock of Company X to the subsidiary's executives? No company in Pakistan shall, except with the prior approval of the Commission, issue any securities outside Pakistan. Also, no person having more than 10% of the shares of a company can offer for sale to the public such shares held by him except with the prior approval of the Commission. Foreign exchange regulations prohibit the issuance of interests in Pakistan securities except with the special permission of the SBP. The SBP has granted general permission for transfer, sale and export of Pakistan securities subject to certain conditions. 15. Are the rules addressed in this survey applied differently based on whether the multinational operates in a particular jurisdiction as a branch office or as a domestic subsidiary? If so, what are these differences? The Rules apply to all public companies in Pakistan and are not applicable to branch offices as the latter are not companies for the purposes for the Ordinance. Hence, the rules are only applicable to subsidiaries which are public companies in Pakistan. Only regular employees who are on the pay roll of a public company shall be eligible to participate in an Employees Stock Option Scheme approved by the Commission and introduced pursuant to the Rules. 16. Do executive employees in other jurisdictions need to be covered by a plan of the subsidiary or a plan separate from your Plan to comply with your jurisdiction's law?

5 There are no restrictions on nonresident employees of the company which is granting employee stock options to be covered by a subsidiary of such company in the jurisdiction of the respective employees. However, as mentioned above, special permission will have to be obtained from the SBP by the company seeking to give options in which the underlying shares are those of a Pakistani Company. 17. If known, please comment on the accounting issues which are relevant for this Plan. Under the Rules, every company that has passed a special resolution for a Scheme pursuant to the Rules is required to comply with the accounting policies specified in the Schedule to the Rules. Also, the Board of Directors shall at each annual general meeting place before the shareholders a certificate from the auditors of the company that the Scheme has been implemented in accordance with the Rules as well as the aforesaid resolution. 18. List any other requirements of importance in your jurisdiction. 19. Severance Risks: Will the value of granted options legally need to be included in severance calculations? Rule 11 (1) of the Rules provides that an option granted to an employee shall not be transferable to any other person except to an entitled employee of a company. In keeping with this provision Rule 11 at sub-rule 11 (6) further provides that in the event of resignation or termination of service of an employee, all options not vested as on that day shall expire. Provided, the employee shall, subject to the terms and conditions of an employee stock option scheme shall be entitled to retain all the vested options. 20. Acquired Rights: Will Plan participants become legally entitled to future grants or immediate vesting at termination of employment or service? There are no statutory rights provided for in the Rules entitling the employee to a future grant or a vested interest after termination of his employment service; however provisions to that effect can be made in the Scheme. 21. Data Privacy: Will Company X or the local subsidiary or branch office need to take any additional measures to adhere to local data privacy laws? There is no specific legislation that deals with data protection in Pakistan. However, it may be noted that the Electronic Transactions Ordinance 2002 and the Pakistan Telecommunication Act 1996 criminalize unauthorized use of or access to any information system or intelligence/communication. Furthermore, the Electronic Transactions Ordinance 2002 provides that no person shall be compelled to disclose any secret information relating to a security procedure.