Understanding 423 Employee Stock Purchase Plans
What is an Employee Stock Purchase Plan?
An Employee Stock Purchase Plan (ESPP) is an employer-sponsored program that
allows you to make planned, periodic purchases of your company stock through
convenient payroll deductions.
How does the Plan work?
If you are an eligible employee of the company, you can authorize payroll deductions—generally
as a percentage of compensation or a whole dollar amount, depending on your plan.
The amounts are accumulated and, at the end of each Offering Period, are used to purchase
shares of common stock.
Your specific plan documents will address the consequences of terminating employment and
may include provisions for increasing or decreasing payroll deductions and withdrawing from
participation.
Who is eligible?
For a 423 qualified plan, Internal Revenue Service (IRS) rules dictate if you are an employee
of the Company or a designated subsidiary (customarily employed at least twenty (20) hours
per week for a minimum of five (5) months per year), you are eligible to participate in the next
Offering Period for the 423 ESPP.
However, in no event may you participate to the extent that you would own five percent (5%)
or more of all the outstanding stock of the Company after the Offering Period. Other limitations
may apply.
How can I join?
If you are eligible to participate, additional details and instruction for enrollment will be sent to
you under separate cover.
If I decide not to join right now, will I have another opportunity?
Yes. You may join in any later Offering Period during which the Plan is in effect. However, you
may not join in the current Offering Period after the Open Enrollment Period has passed. The Plan
will remain in effect unless the Board of Directors terminates it or the number of shares reserved
for purchase under the Plan have all been purchased.
May I begin participation in the middle of an Offering Period?
No. To participate you must enroll during the Open Enrollment Period before the start of the
Offering Period.
continued
You can sell your
shares at any time
provided the Company
is not in a blackout
period or you are
not in possession of
material non-public,
insider information.
Can I withdraw from
the Plan at any time?
Please verify with your plan administrator
the process by which you withdraw from the
plan. Your payroll deductions will stop and,
depending on your plan, you will be refunded
the balance in your account, or the cash will
be used to purchase stock. If you do withdraw
from the Plan, you cannot rejoin during that
Offering Period. You can, however, enroll in the
next Offering Period.
What happens if I leave the Company?
If at any time you cease to be employed by the
Company or a subsidiary, generally you will be
withdrawn from the Plan and your uninvested
payroll deductions will be returned to you.
How much can I contribute?
Do I automatically own a share of
the Company’s common stock
as soon as its cost has been
deducted from my compensation?
No. The stock is bought on the Purchase Date.
The Purchase Date is the last trading day of
each Offering Period. Generally, you must
be employed on the Purchase Date to
purchase stock.
How many shares can I buy?
The number of shares purchased depends on
how your company defines the Fair Market
Value (FMV) on the Purchase Date and the
cumulative amount of your contributions at the
end of the Offering Period. On the last trading
day of the Offering Period (the Purchase Date),
accumulated contributions will be used to
purchase shares at the purchase price.
Depending on your plan documents, you can
authorize payroll deductions—generally as a
percentage of compensation or a whole dollar
amount. The IRS limits the number of shares
that can be purchased in any calendar year. No
participant may purchase more than $25,000
(in total value) of stock in a calendar year.
The IRS limits the number of shares that can be
purchased in any calendar year. No participant
may purchase more than $25,000 (in total
value) of stock in a calendar year.
Once you have authorized deductions, they will
be deducted from your after-tax paycheck each
full pay period during the Offering Period and
held by the Company until the Offering Period
is completed.
After the close of each Offering Period, your
shares will be delivered to your Morgan Stanley
Smith Barney account.
May I increase or decrease
my payroll deductions during
an Offering Period?
Please refer to your plan-specific documents.
May I make a cash contribution
to the Plan in addition to my
payroll deduction?
What happens to the
shares purchased for me?
How can I find out the number
of shares purchased for me at
the close of the Offering Period?
You can view the total number of
shares purchased for you at the close
of each Offering Period by accessing
your account on Morgan Stanley
Smith Barney’s Benefit Access website.
Generally, no. Contributions can only be made
by the after-tax deductions from your paycheck.
continued
You can sell your
shares at any time
provided the Company
is not in a blackout
period or you are
not in possession of
material non-public,
insider information.
When can I sell shares purchased
through the Plan?
You can sell your shares at any time provided
the Company is not in a blackout period or you
are not in possession of material non-public,
insider information. You will be subject to
certain tax obligations at the time of the sale.
What happens if there is a stock
split, stock dividend or other
change affecting the Company’s
common stock?
Your shares reserved under the Plan will be
adjusted proportionately in the event of a stock
split or stock dividend. In the event of any other
change affecting the Company’s common stock,
the Board of Directors of the Company will
make any necessary adjustments.
Is my right to purchase shares
under an ESPP transferable?
No. The Plan is designed as a benefit for
employees of the Company.
What are the Tax Implications of
buying/selling ESPP shares?
The general Federal Income Tax consequences
of the grant and exercise of stock under an
Employee Stock Purchase Plan (as defined in
Section 423 of the Internal Revenue Code) and
the subsequent disposition of shares acquired
under such Plan, are discussed below. Please
note that this information applies to U.S.
Federal tax guidelines only and that State and
local tax regulations may affect the calculations
and therefore the tax consequences.
Employees in foreign countries may be subject
to different guidelines. This discussion is very
general in nature and does not consider a
participating employee’s tax status. You must
check with your own tax advisor for evaluation
of your complete tax consequences.
Offering Period Start Date
You are not taxed at the start of the
Offering Period.
Time of purchase of stock
You are not taxed when shares are purchased
even though they may be purchased at a
discount.
Sale of Shares Acquired Under the Plan
Qualifying Disposition: If shares are sold two
years or more from the first day of the Offering
Period and one year from the Purchase date,
a gain is taxable in two parts. When you sell
the stock, any discount that you received when
you bought the stock is generally considered
additional compensation that you have to
pay taxes on as ordinary income. Any further
gain—beyond the discount—may be considered
a long-term capital gain.
Disqualifying Dispositions: Shares sold within
two years from the beginning of the Offering
Period and one year from the Purchase Date
are considered “disqualifying dispositions.”
When a Disqualifying Disposition occurs, the
difference between the FMV on the Purchase
Date and the Purchase Price is treated as
ordinary income on your W-2 in the year of
the sale.
continued
Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used
and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances
from an independent tax advisor.
© 2010 Morgan Stanley Smith Barney LLC. Member SIPC.
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