STOCK OPTIONS AND FREE SHARES

Laura Ferrié and Frédéric Le Lay

INTRODUCTION

PLAN

• I – STOCK OPTIONS

• II – FREE SHARES

• III – TAX, CONTRIBUTION TREATMENT AND LEGAL RULES

I) STOCK OPTIONS1) Definition

A stock option is not a share of stock !

It provides the opportunity to exercise a right to buy a share of stock at a defined price (or « call » in finance).

Stock options generate no value on their own.

2 types: Purchase Option of Shares and Subscription Option of Shares

Grant price is in general the average of the opening price during the 20 days preceding the grant.

A minimum acquisition period of 4 years (vesting) to respect for French tax resident.

2) How does it work ?

Vesting period

Expiration date• The date of expiration from

which options are no longer exercisable

6 years4 years

Grant date• Grant to an individual of a

specific number of options at a given price

• Vesting begins

Vesting period completed• Vesting period ends• 100% of options are

available to exercise

Exercise periodTaxes to be paid on

exercises

10 years (Stock option maximum grant life)

Stock Option Term

Vesting Period

No potentialgain

Potentialgain

Grant Date

Stock Price

Example : Assuming 200 options with a grant price of 45€ and a stock price of 80€ when exercised.

45 €(Strike)

80 €(Spot)

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II) FREE SHARES

A share is a certificate of ownership in a firm.

A share is quoted on the stock market and its price changes over time.

Shares are bought, sold and can generate income through dividends and/or through capital gain.

2 minimum legal periods to respect: acquisition period (2 years ) for all and a holding period ( 2 years ) for French tax resident.

1) Definition

2) How does it work ?

Thales: French tax residents

Vesting period (Legal minimum = 2 years)

Holding period Required by the French law

Shares not available to be sold

Availabilityto sale the shares

(When sold: Taxes and Social contributions)

2 years

4 years for Thales

Preferential tax treatment Shares property transfer

Vesting periodNo Holding period

for the non french tax residents

Availabilityto sale the shares

4 years

Thales: Non french tax residents

Shares property transfer Taxes and Social contributions on that date

III) TAX, CONTRIBUTION TREATMENT AND LEGAL RULES

1) Tax system

• Qualified plan: specific personnal income tax and social security rate. (≠ unqualified plan)

Stock options Free shares

Taxes on the gain of Acquisition (Qualified Plan/Approved Plan)

Below 152 500 € : 18% + 12.3% social tax Beyond 152 500 € : 30% + 12.3% social tax

30 % and 12.3% Social taxTaxes on the gain of Acquisition (Unqualified Plan/Approved Plan)

Below 152 500 € : 30% + 12.3% social tax Beyond 152 500 € : 41% + 12.3% social tax

Taxes on the Disposal gain (Qualified Plan or not) 19% and 12.3% Social tax

2) Legal rules

« Code de commerce »

AFEP/MEDEFs’ code

Stock option / Free shares Plan

Total shares validated and transferred on the 22th November 2015

220 shares

Example: Grant of 300 performance shares the 21th November 2011. Validation process (3 equal thirds of 100 shares)

Performance attainment

Third validation

Shares validated

Boards of Directors validate 2012 results

(first quarter 2013) 1st third= 100

shares

120%

100%

100

Boards of Directors validate 2013 results

(first quarter 2014)

2nd third = 100 shares

90%

90%

90

Boards of Directors validate 2014 results

(first quarter 2015)

3rd third = 100 shares

30%

30%

30

Sources:

- Site of the AFEP/MEDEF (Association Française des Entreprises Privées)

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Special thanks to : Joelle DUMERCQ (Long-Term Incentives Plan Manager) and Bruno GILLET (Apprentice)