Pat, I am keeping you busy these days.  Any comments on below?  Michelle

 -----Original Message-----
From: 	Butler, Pam  
Sent:	Tuesday, July 31, 2001 3:03 PM
To:	Cash, Michelle
Subject:	FW: Question on stock grants - legal clarification requested

Michelle, can you give this opinion or arrange to get one?  Please let me know how we need to proceed and and expected turnaround.  Thanks!

 -----Original Message-----
From: 	Butler, Pam  
Sent:	Tuesday, July 24, 2001 6:39 PM
To:	Cash, Michelle
Cc:	Oxley, David
Subject:	FW: Question on stock grants - legal clarification requested

Michelle, I've been seeking an accounting opinion from a FIN 44 perspective the impact on delaying vesting of options if someone goes on an unpaid leave of absense (like a sabbatical).  Besides below documentation, I've made the case verbally that we can point to the following to show that someone on leave is still an employee:
401k account distribution is not triggered
can continue in Enron medical benefits
Cash balance vesting continues i.e. service is bridged
employee can't compete or work for someone else, will sign waiver to that affect

Accountants will not answer my question unless I obtain legal opinion that employment status is maintained.  Can you give legal opinion?    If not, David, shall we incur expense of seeking outside opinion of counsel to get this question answered?

 -----Original Message-----
From: 	Butler, Pam  
Sent:	Thursday, July 19, 2001 3:12 PM
To:	Tyler, Tracy
Cc:	Farmer, Stanley
Subject:	RE: Question on stock grants - legal clarification requested


Tracy, currently someone is placed on inactive status when they go on unpaid leave of absence; they cease participation in all plans but can continue to have medical coverage if they choose to make the necessary 100% contributions; since they are on no pay status, no FICA or SUTA/FUTA is paid in; for headcount purposes they cease to be included in total headcount reporting.  So it is hard to say whether it qualifies under the below provisions.

For the sake of this opinion, however, if we wanted to pursue sabbaticals for a select few and could code them as "active - sabbatical" and thus show them up for headcount purposes, then what would the answer be?
 -----Original Message-----
From: 	Tyler, Tracy  
Sent:	Monday, July 16, 2001 5:11 PM
To:	Butler, Pam
Cc:	Farmer, Stanley
Subject:	RE: Question on stock grants - legal clarification requested

Pam,

Just to make sure we are clear on our end, what you are saying is that the grantee would be considered an Enron employee under common law under the standards set forth in Question 1(b) in FIN 44 as follows:

 A grantee is an employee if the grantor exercises or has the right to exercise sufficient control over that individual to establish an employer-employee relationship. That relationship shall be determined based on common law as illustrated in case law and currently under U.S. Internal Revenue Service Revenue Ruling 87-41. Accordingly, for purposes of applying Opinion 25, a grantee meets the definition of an employee if the grantor consistently represents that individual to be an employee under common law. The definition of an employee for payroll tax purposes under the U.S. Internal Revenue Code includes common law employees. Accordingly, a grantor that classifies a grantee potentially subject to U.S. payroll taxes as an employee under Opinion 25 must also (except as provided in paragraph 6) represent that individual as an employee for payroll tax purposes. A grantee does not meet the definition of an employee under Opinion 25 solely because the grantor represents that individual as an employee for some, but not all, purposes. For example, a requirement or decision to classify a grantee as an employee for U.S. payroll tax purposes does not, by itself, indicate that the grantee is an employee for purposes of Opinion 25 because the grantee must also be an employee of the grantor under common law.
We will base part of our conclusion on the answer we are provided. Thanks for the clarification in advance.
Tracy A. Tyler
Manager 
Enron Corporate Transaction Support
direct: 713-345-2860
mobile: 832-651-3121




 -----Original Message-----
From: 	Butler, Pam  
Sent:	Monday, July 16, 2001 4:34 PM
To:	Tyler, Tracy
Cc:	Farmer, Stanley
Subject:	RE: Question on stock grants - legal clarification requested

Tracy, someone on leave of absence without pay is changed to inactive status but is not terminated.  During this inactive phase, no payments generally would be made to the employee.  If any payment were made to the employee, he/she would be charged US FICA/Medicare, etc.  For example, an employee on inactive status could exercise vested options while on leave; this income would be reported as employee compensation and to the extent FICA limits had not been reached, would be FICA/Medicare taxed at time of payout.  Since they are not earning a salary, per se, during the leave, no FUTA/SUTA taxes are withheld.

What other additional information do I need to provide?  Would a screen print of someone who's on leave from our SAP system be helpful?

 -----Original Message-----
From: 	Tyler, Tracy  
Sent:	Monday, July 16, 2001 1:40 PM
To:	Butler, Pam
Cc:	Farmer, Stanley
Subject:	Question on stock grants - legal clarification requested


Pam, 

Stan Farmer and I have been working per your request on the compensation issue related to leaves of absence.  We need further legal clarification regarding one point before we can properly assess the situation you described in your previous e-mail.  

When you state, "It is also assumed that employees on unpaid leaves maintain their "active" employment status," we need to know the manner in which you are defining an active employee.  For purposes of evaluation under FIN 44, the definition of an employee is a person under common law as illustrated under US Internal Revenue Ruling 87-41 potentially subject to US payroll taxes as an employee of the grantor of the options.  During the leave of absence, does the grantee continue to meet the definition of an employee under this statute? 

We need a legal opinion as to employee qualification under the Revenue Ruling above before we can further investigate proper accounting procedure.  As soon as we receive your response we will continue our research and provide you with the requested guidance in a timely manner.

Thanks for your assistance.
          
Tracy A. Tyler
Manager 
Enron Corporate Transaction Support
direct: 713-345-2860
mobile: 832-651-3121