This memorandum is an overview of the legal and strategic
issues related to implementing share incentive schemes in
China, including understanding Chinese cultural views of
employment and compensation, structuring share incentive
schemes to comply with applicable Chinese currency controls and
securities law restrictions and the tax consequences of options
to the employees. The memorandum is applicable whether the
company granting the options is a U.S., Cayman Islands or other
non-Chinese entity. Implementing an equity-based compensation
program for employees of a foreign subsidiary is a challenging,
and often costly, undertaking. Because the use of options and
other equity-based compensation occurred in China only a couple
of years ago, relevant laws and regulations, to the extent
applicable, do not specifically address certain issues and/or
are ambiguous in certain aspects. In 2005 and 2006, China
released
