Stock purchase program

Participating in an employee stock purchase plan (ESPP) can be an important part of employee’s overall financial strategy. ESPPs enable you to invest in your company by purchasing shares of your company’s stock, usually at a discount, through automatic deductions from your paycheck. ESPP shares are yours as soon as the stock purchase is completed, you can hold onto the shares as part of your portfolio or sell them at your discretion.

Employee Stock Purchase Plan

• The purchase plan allows employees to become company shareholders.
• Employees can purchase company stock at a discount.
• Company pays the purchase commission.
• Employees can select the amount for payroll deductions.
• Stock can be purchased through the ESPP during a defined period each calendar quarter.
• Current employees can sell stock purchased through the ESPP at any time after holding the stock for a minimum duration as stated.
• Purchase without paying a broker’s fee
• Participation in the Employee Stock Purchase Plan is optional.

The Employee Stock Purchase Plan provides a way for eligible part-time and full-time associates to own a financial stake in their Company

The Employee Stock Purchase Plan gives an opportunity to buy Company’s Common Stock at a discount from what one would generally have to pay on the open market for a purchase occurring at the same time. The Company is authorized to sell up to certain shares of the Company’s common stock through the Plan.

Other key features of the Plan:

• Save: Contribute certain percentage of your pay.
• Convenience: Payroll deductions and automatic stock purchases every couple of months.
• Discount: Minimum percentage discount on the lower of the stock price at the beginning or end of the six‐month offering period.
• Flexibility: You can increase your contribution percentage prior to each contribution period, decrease it one time during an offering period, or end your participation.
• Accessibility: You can sell previously purchased stock and withdraw your contributions from the ESPP prior to the next stock purchase date. Comply with the Securities Trading Policy when selling your ESPP stock.
• Ownership: Once stock is purchased for you, you own it! There are no vesting requirements.
• Portability: You can take your ESPP stock with you
  
• Offering/Purchase Period: An offering period is a predetermined length of time during which after-tax contributions will be collected for the plan via a payroll deduction. There may be more than one day in the offering period on which shares will be purchased, by your company, on your behalf.
• Periodic Stock Purchases: The funds collected via automatic payroll deduction are accumulated through the end of each purchase period to then be used, by your company, to purchase shares on your behalf. Under most plans, the purchase price is set at a discount (at the company’s discretion) of up to a maximum of 15% for qualified plans. Some companies also offer a “look back” provision, which compares the share price at the beginning and end of the purchase period and uses the lower to calculate your purchase price.

Rewards and Risks of Plan Participation

Ownership of stock entails rewards and risks. The rewards come in the form of dividends, and the potential for gains resulting from increases in the stock price from the time you purchase the stock. However, stocks do not always pay a dividend or increase in value.

It’s a good idea to periodically reassess your plan participation.

Maximum Shares

Under federal law and plan rules, the maximum number of shares you can purchase annually is equal to $25,000 divided by the fair market value share price on the first New York Stock Exchange trading day in January. The maximum number of shares includes both shares purchased by your after-tax payroll contributions, as well as the shares purchased by reinvested dividends.

Under the Internal Revenue Code, the plan may also be required to limit the total number of shares that may be purchased by all eligible employees.

Voting Rights

As a shareholder, you’ll have the right to vote on issues presented at the annual shareholders’ meeting or any other shareholder meeting at which the holders of company common stock are entitled to vote. You’ll receive information and a proxy ballot, along with instructions for returning your ballot by mail, by phone or by the Internet (whichever you choose). Your voting rights correspond to the number of shares you own.

Types Of Employee Stock Purchase Plans

The two types of ESPPs, as shown below, are primarily differentiated in terms of how the gain on disposition (either by gift or sale) is taxed, that is ordinary income vs. capital gain.

• Qualified

Qualified ESPPs are governed by Section 423 of the Internal Revenue Code.

Taxation at Purchase: Where the purchase of stock is made with after-tax dollars the purchase itself is not a taxable event, even though that purchase is at a discount from current market value.

Taxation at Disposition: Assuming you dispose (via gift or sale) of the shares at a profit, some portion of your gain will be considered ordinary income. This amount depends upon whether or not you meet certain holding period requirements. The holding period requirement is two years from the grant date (typically, the first day of the offering period) AND one year from purchase date.

Disposing before the end of the holding period: If you dispose (either by gift or sale) of your shares before the end of the holding period, it is considered a “disqualifying disposition.” The ordinary income that needs to be reported, even if you do not have a profit on your disposition, is equal to the difference between the market value of the shares on your purchase date and the price at which you purchased the shares.

Disposing after the end of the holding period: If you dispose (either by gift or sale) of your shares after the holding period requirement has been met, it is considered a “qualifying disposition.” Any gain on the sale will be taxable as ordinary income. Ordinary income is equal to the lesser of the actual gain on the sale, or 15% of the fair market value on the grant date. Any further gain would be taxable as long-term capital gain (traditionally, capital gains tax rates have been lower than the rate at which ordinary income is taxed). Any loss on the sale of shares will be treated as long-term capital loss.

Assuming you are an employee of the company, any ordinary income resulting from a qualified ESPP should be included on your W-2 as determined by your employer.

• Non-Qualified

An ESPP that is not qualified under Section 423 of the Internal Revenue Code has no IRS holding period requirement and any discount received is a taxable event as of the date of purchase. Ordinary income will be calculated on the purchase date as the difference between the value of the shares on the purchase date and the purchase price. This amount will be treated as wages, subject to tax withholding and should be included on your W-2 as determined by your employer.

When you sell the shares, any additional gain or loss will be taxed as capital gains/losses.