Exhibit 10.21
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
The date of this document is July 7, 2000.
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ELECTRONICS FOR IMAGING, INC.
EMPLOYEE STOCK PURCHASE PLAN
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TO OUR EMPLOYEES:
We are pleased with this opportunity to provide you with information
regarding our Employee Stock Purchase Plan, referred to in these materials as
the "Purchase Plan." We believe the Purchase Plan is an important part of the
benefits provided to our employees, and we hope you will take the time to review
this information carefully.
Electronics For Imaging, Inc. (the "Company") adopted the Purchase Plan
in order to provide you with an opportunity to share in the Company's growth by
purchasing the common stock of the Company ("Common Stock") without payment of
brokerage costs, at a discounted price, and under terms that are favorable from
a tax standpoint. The Company believes the Purchase Plan assists it in hiring
qualified employees and in building a satisfying long-term relationship with
existing employees through recognition of their contribution to the Company.
We have divided this discussion of the Purchase Plan into two parts.
The first part of this document describes the terms of the Purchase Plan. The
second part of this document describes the U.S. federal tax consequences
relating to your participation in the Purchase Plan.
The following information may not answer all the questions you have
about the Purchase Plan and is not intended to go into every detail of the
Purchase Plan. A copy of the Purchase Plan is attached to this prospectus.
Further questions about your rights under the Purchase Plan may be directed to
the Company's Equity Services Group, Abarca Equity, Inc. at (650) 577-3165.
Questions relating to the tax consequences of your participation in the Purchase
Plan should be referred to your personal tax advisor.
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INFORMATION ABOUT THE COMPANY
An important part of your participation in the Purchase Plan is
understanding the Company, its products, operations and financial condition.
Like any stockholder of the Company, you can keep yourself informed about the
Company by reviewing reports and other documents which the Company prepares for
stockholders and the general public. If you hold shares of the Company you will
be entitled to attend stockholder meetings and to vote in the election of
directors and on other matters brought before the Company's stockholders.
If you have not already received a copy of the Company's current annual
report as a stockholder of the Company, this information should be delivered to
you with these materials. Whether or not you have already received this
information, you may always request a copy from the Company's Legal Department.
The U.S. federal securities laws require the Company to provide
information about its business and financial status in annual reports, commonly
known as "10-Ks" and quarterly reports, commonly known as "10-Qs." These reports
are filed with the Securities and Exchange Commission ("SEC" or the
"Commission"). In addition, if certain important corporate events occur during
the year, the Company may file reports commonly known as "8-Ks." The Company
also prepares and files with the Commission a proxy statement in connection with
its annual meeting of stockholders. The proxy statement provides further
information about the Company and its officers, directors and major
stockholders. From time to time the Company may also file other documents with
the Commission as required by Sections 13(a), 13(c), 14 and 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
All of these documents constitute part of the information required by
the securities laws to be provided or made available to you in connection with
your purchase of stock under the Purchase Plan; that is, these documents are
incorporated by reference into these materials, which constitute the prospectus
for the Purchase Plan.
Copies of these documents can be obtained, without charge, by
contacting the Company's Legal Department, Electronics For Imaging, Inc., 303
Velocity Way, Foster City, CA; or by telephone at (650) 357-3910.
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<TABLE>
CONTENTS
<CAPTION>
SECTION PAGE
<S> <C> <C>
1. Plan Operation..................................................................................5
2. Eligibility for the Purchase Plan...............................................................6
3. Administration of the Purchase Plan.............................................................6
4. Signing up to Participate in the Purchase Plan..................................................7
5. Participation in an Offering after it has Begun.................................................7
6. Continuing Participation in Offerings...........................................................7
7. Amount of Earnings that can be withheld to purchase Common Stock................................8
8. Time of Stock Purchases.........................................................................9
9. Limitation on Number of Shares Purchased........................................................9
10. Purchase Price for the Shares under the Purchase Plan...........................................9
11. Holding of Payroll Deductions Before Stock is Purchased........................................10
12. Money not used to purchase Common Stock on the final Purchase Date of an Offering..............10
13. Changing Payroll Deductions....................................................................10
14. Termination of Employment......................................................................10
15. Leaves of Absence..............................................................................10
16. Withdrawal from Participation..................................................................11
17. No Additional Contributions....................................................................11
18. Sale of Stock Purchased Under the Purchase Plan................................................11
19. Trading Restrictions on Sale of Stock..........................................................12
20. Sales Commissions..............................................................................12
21. Registration and Transfers.....................................................................12
22. Changes to the Terms of the Purchase Plan......................................................12
23. Dividends on Common Stock......................................................................12
24. Plan Not a 401(k) Plan or Other Qualified Retirement Plan......................................13
25. Special Rules for Employees....................................................................13
26. Tax on the Money Withheld to Purchase Stock....................................................14
27. Tax Consequences when Stock is Purchased under the Purchase Plan...............................14
28. Tax Consequences Upon the Sale of Stock Purchased Under the Purchase Plan......................14
29. Characterization of Your Income................................................................15
30. Difference Between Ordinary Income and Capital Gains and Losses for Federal Income Tax
Purposes.......................................................................................18
31. Withholding Requirements at the Sale...........................................................18
32. Disposition of Stock for Tax Purposes..........................................................18
</TABLE>
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PART I
Terms Of The Purchase Plan
Part I of this document provides general information about
participation in the Purchase Plan. Part II of this document describes the
various tax consequences to you of your participation in the Purchase Plan.
1. PLAN OPERATION
The Purchase Plan enables you to purchase, through payroll deductions,
shares of Common Stock at a discount from its market price on either the
Offering Date or the Purchase Date, as described below. Note that the amount of
your payroll deductions is calculated based on your gross (i.e., pre-tax)
dollars earned; however, your payroll deductions come out of your net (i.e.,
after-tax) pay.
The Purchase Plan provides for the issuance of up to 400,000 shares of
Common Stock. Common Stock subject to the Purchase Plan may be unissued shares
or reacquired shares, purchased on the open market or otherwise. To the extent a
right under the Purchase Plan terminates for any reason, any shares not
purchased under such right will again become available for issuance.
Under the Purchase Plan, rights to purchase Common Stock are granted to
eligible employees pursuant to an offering ("Offering") established from time to
time by the Board of Directors of the Company (the "Board"). With respect to
each Offering, the Board has the authority to specify:
(i) a date ("Offering Date") on which rights to purchase Common Stock
will be granted to eligible employees;
(ii) the period of time (an "Offering Period"), which cannot exceed 27
months, during which the Offering will be in effect;
(iii) the dates during an Offering Period ("Purchase Dates") on which
shares of stock will be purchased pursuant to rights granted under
the Offering; and
(iv) the terms under which employees may contribute money to purchase
Common Stock in the Offering.
Offerings. The Board authorized an initial Offering to commence on
August 1, 2000 (the "Effective Date") and end on July 31, 2002 (the "Initial
Offering"). Thereafter, subject to the power of the Board to change the terms of
an Offering prior to the commencement of the Offering, a new two-year Offering
will commence on August 1 of every other year, beginning August 1, 2002. If an
Offering Date does not fall on a day during which Common Stock is actively
traded, then the Offering Date will be the next subsequent day during which the
Common Stock is actively traded.
The current Offering terms under the Purchase Plan include an
"automatic restart" provision. This feature provides that if, on any Purchase
Date (other than the last Purchase Date of an Offering), the fair market value
of the Common Stock is less than the fair market value of the Common Stock on
the Offering Date, then, following the purchase of Common Stock, the current
Offering will end and a new Offering will begin the next day. Participants in
the just terminated Offering will be automatically enrolled in the new Offering.
Such new Offering will terminate on the day prior to the second anniversary of
its Offering Date subject to earlier termination if the "automatic restart"
provision is triggered as described above.
Purchase Dates. The first Purchase Date under the Initial Offering
occurs on January 31, 2001. Thereafter, Purchase Dates occur each July 31 and
January 31. If a Purchase Date does not fall on a day during which the Common
Stock is actively traded, then the Purchase Date will be the nearest prior day
during which the Company's Common Stock is actively traded.
How Common Stock is Purchased. If you decide to participate in the
Purchase Plan, you will authorize the Company to automatically deduct after-tax
dollars from each of your paychecks until you (1) instruct the Company
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to stop these deductions, (2) you are no longer eligible under the Purchase Plan
or (3) the Purchase Plan is discontinued. On each designated Purchase Date, the
Company will use your deductions to purchase Common Stock for you at a price
equal to the lower of (i) 85% of the fair market value of Common Stock on the
Offering Date or such other date on which you are first eligible to participate
in the Offering and (ii) 85% of the fair market value of Common Stock on the
Purchase Date (i.e., you will receive at least a 15% discount from the price of
the Common Stock on the Offering Date).
2. ELIGIBILITY FOR THE PURCHASE PLAN
Because the Purchase Plan is a tax advantaged plan, Internal Revenue
Service ("IRS") regulations require certain minimum standards for participation
in the Purchase Plan. The Board has the discretion to specify other standards
for participation. When the Board determines the standards which will apply,
these standards, together with the IRS standards, are set forth in an offering
document.
Under the Initial Offering, you are eligible to participate under each
Offering on the Offering Date if you are customarily employed by the Company or
a designated affiliate for more than 20 hours per week and at least five (5)
months per calendar year. Neither consultants and advisors who are not also
employees, nor individuals who own (or are deemed to own) in the aggregate five
percent (5%) or more of the combined voting power or value of all classes of
stock of the Company or any parent or subsidiary of the Company, are entitled to
participate in the Purchase Plan. Under the terms of the Initial Offering if you
are an employee of a subsidiary or parent of the Company, you may participate in
the Initial Offering under the same terms as employees of the Company.
3. ADMINISTRATION OF THE PURCHASE PLAN
The Board may delegate administration of the Purchase Plan to a
committee composed of not fewer than two (2) members of the Board (the
"Committee"). The Board or such Committee has the authority to interpret the
Purchase Plan and to determine eligibility and the terms of other benefits under
the Purchase Plan. Even though administration of the Purchase Plan may be
delegated to the Committee, the Board has the final authority to construe and
interpret the Purchase Plan.
Information about all of the Company's Board members, including Board
members currently serving on the Committee, is provided in the reports and
documents prepared by the Company and filed with the SEC. Additional information
about the administration of the Purchase Plan can be obtained from the Company's
Legal Department.
References to the Board in this document should be deemed references to
the Committee, as applicable.
4. SIGNING UP TO PARTICIPATE IN THE PURCHASE PLAN
In order to participate in an Offering under the Purchase Plan, you
must submit an ESPP Enrollment/Change Form to the Company's Stock Administrator
prior to the date your participation is to be effective (i.e., prior to an
Offering Date), unless a later time for filing such form is set by the Company.
If you do not have a copy of such form, extra copies can be obtained from the
Company's Stock Administrator or the Company's internal website. The ESPP
Enrollment/Change Form authorizes the Company to automatically deduct the
percentage specified by you from each paycheck during the Offering to purchase
shares of the Common Stock.
5. PARTICIPATION IN AN OFFERING AFTER IT HAS BEGUN
Employees Eligible at Offering Date
If you were an eligible employee on the Offering Date but did not elect
to participate at the beginning of an Offering, you must wait until the day
after any Purchase Date to participate in the ongoing Offering.
New Employees
If you are a new employee or otherwise first became eligible after the
Offering Date, you may begin participation on the first business day during the
month of November, February, May or August during that Offering by completing an
ESPP Enrollment/Change Form as described above. The purchase price for your
Common Stock
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will be calculated differently from the purchase price of employees who
commenced participation at the beginning of the Offering (or who were eligible
to commence participation at the beginning of the Offering). The purchase price
of your Common Stock will be the lesser of:
(a) 85% of the value of the Common Stock on the date you were first
eligible to participate during such Offering; or
(b) 85% of the value of the Common Stock on the relevant Purchase Date.
6. CONTINUING PARTICIPATION IN OFFERINGS
Once you submit an enrollment form, deductions will be made continually
until:
o you withdraw from participation (see Section 16),
o you are no longer an eligible employee on an Offering Date for
an Offering (see Section 2),
o no further shares are authorized for purchase under the
Purchase Plan, or
o the Board discontinues the Purchase Plan, which it has the
right to do at anytime. (However, if the Board terminates the
Purchase Plan, such termination will not, without your written
consent, impair your accrued rights under any Offering during
which the Plan is terminated.)
7. AMOUNT OF EARNINGS THAT CAN BE WITHHELD TO PURCHASE COMMON STOCK
The Purchase Plan document provides that the Board may designate the
amount you can authorize the Company to withhold of your earnings. Under the
Initial Offering, the Board has established a maximum percentage deduction of
10%. Under the Initial Offering you may choose any whole percentage of
deductions up to 10% but cannot choose a fraction of a percentage. For example,
you may choose to have 2% or 3% of your earnings deducted during each pay period
but not 2.5%. The amount you choose to have deducted is up to you.
For purposes of the Purchase Plan, your earnings include all regular
base salary paid to you including amounts that would have otherwise been paid
but you elected to have deferred under the Company's 401(k) plan or any other
deferred compensation program established by the Company) but does not include,
overtime pay, commissions, bonuses, incentive pay, profit-sharing, the cost of
employee benefits paid for by the Company, education or tuition reimbursements,
imputed income arising under any Company group insurance or benefit program,
traveling expenses, business and moving expense reimbursements, income received
in connection with stock options, contributions made by the Company under any
employee benefit plan, and similar items of compensation.
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8. TIME OF STOCK PURCHASES
Shares of Common Stock are purchased for you under the Purchase Plan on
the Purchase Dates, which are each January 31 and August 31. If a Purchase Date
does not fall on a day during which the Common Stock is actively traded, the
Purchase Date will be the nearest prior day during which the Company's Common
Stock is actively traded.
9. LIMITATION ON NUMBER OF SHARES PURCHASED
The maximum number of shares that you can purchase on a Purchase Date
will be the whole number equal to or less than your aggregate payroll deductions
(under the Initial Offering up to 10% of your earnings withheld during the
period described in Section 8, above) divided by the applicable purchase price.
No fractional shares will be issued. However, you may not accrue the right to
purchase more than $25,000 worth of Common Stock, as valued at the beginning of
an Offering (or the first day on which you were eligible to participate in the
Offering), pursuant to all similar employee stock purchase plans of the Company
or its affiliates for each calendar year in which such rights are outstanding at
any time. (Note: fair market value for determining the number of shares you may
purchase during a calendar year is the stock's fair market value as of the later
of either (i) the first day of the Offering, or (ii) the day on which you first
became eligible to participate in the Purchase Plan during an Offering).
The maximum aggregate number of shares available to be purchased during
an Offering by all employees eligible to participate in the Purchase Plan will
be the number of shares remaining available under the Purchase Plan on the
Offering Date for such Offering. If the purchase of shares using all of your and
other employees' payroll deductions would result in the sale of more than the
number of shares then available under the Purchase Plan, the Board will allocate
a pro rata portion of the shares available for purchase for you and other
employees in as nearly a uniform manner as practicable and as it deems
equitable.
10. PURCHASE PRICE FOR THE SHARES UNDER THE PURCHASE PLAN
The shares are purchased at a price which is the lower of:
(a) 85% of the value of the Common Stock on the Offering Date (or, if
later, the date you were first eligible to participate); or
(b) 85% of the value of the Common Stock on the Purchase Date.
For example, if the price of the stock on the Offering Date is $10.00 and the
price of the stock on the Purchase Date is $12.00, then stock will be purchased
for you at a price per share of $8.50 (85% of $10.00). If the price of the stock
had been $8.00 on the Purchase Date, then stock would be purchased for you at a
price per share of $6.80 (85% of $8.00). If you are first eligible to commence
participation after the initial Offering Date in any Offering, the purchase
price of your stock will be determined as of the date on which you were first
eligible and received a right under the Offering. See Section 5.
11. HOLDING OF PAYROLL DEDUCTIONS BEFORE STOCK IS PURCHASED
Your payroll deductions are held by the Company and maintained with the
Company's general funds until the next Purchase Date when shares of Common Stock
are purchased. You do not earn any interest on the amount withheld.
12. MONEY NOT USED TO PURCHASE COMMON STOCK ON THE FINAL PURCHASE DATE OF
AN OFFERING.
Unless the limitation described in Section 9 applies to you, the only
funds in your account at the end of an Offering will be the remaining amount
withheld for you that cannot be used to purchase a whole share of Common Stock
on the Purchase Date. This amount will be left in your account and used to
purchase stock in the next Offering. If the limitation described in Section 9
does apply to you, the amount left in your account because of such
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limitation, as required by IRS regulations, will be returned to you, without
interest, as soon as reasonably practicable after the end of the Offering.
For example, assume that the purchase price of the stock is $10.00 and
that you had payroll deductions equal to $437. The Company will be able to
purchase 43 shares of Common Stock for you with $7.00 remaining. Since $7.00 is
less than $10.00 (the purchase price of the stock), the $7.00 will stay in your
account and be used to purchase stock in the next Offering. This example assumes
that the limitations in Section 9 do not apply.
13. CHANGING PAYROLL DEDUCTIONS
You generally may change your payroll deduction percentage only as of
the first business day of the month of February or August during any Offering.
However, you may reduce your payroll deduction percentage once during any given
six month Purchase Period. Additionally, you may reduce your deduction to zero
percent or you may withdraw from an Offering at any time prior to the end of the
Offering, excluding the five (5) days immediately preceding each Purchase Period
(or such shorter period of time determined by the Company and communicated to
the participants). If you reduce your percentage to zero, the funds already
withheld will be used to purchase stock for you on the next Purchase Date. If
you withdraw, you will receive a return of your accumulated payroll deductions
from the Offering (reduced to the extent, if any, such deductions have been used
to acquire Common stock on any prior Purchase Date), without interest.
14. TERMINATION OF EMPLOYMENT
Whether you leave the Company voluntarily or your employment is
terminated for any reason (including death or disability), your rights to
purchase stock under the Purchase Plan terminate immediately, and your payroll
deductions not already used to purchase stock under the Purchase Plan will be
returned to you (or your estate), without interest, as soon as reasonably
practicable.
15. LEAVES OF ABSENCE
During an approved leave of absence, you can continue to participate in
the Purchase Plan for 90 days from the beginning of your leave. If a return to
your job is not legally guaranteed by the Company or by federal, state or local
law, after 90 days you will receive a refund of all deductions accumulated to
date (reduced for prior stock purchase) without interest. You will not be
permitted to participate in any future Offerings until such time as you become
eligible again under the Purchase Plan. (See Section 2.) If your return to work
has been expressly promised by the Company or is guaranteed by law, you may
continue to participate in the Purchase Plan after 90 days so long as your
return to work continues to be so promised or guaranteed.
16. WITHDRAWAL FROM PARTICIPATION
You can withdraw your money at any time other than the five (5) days
preceding a Purchase Date by completing and delivering to the Company an ESPP
Enrollment/Change Form. Your payroll deductions will stop and your deductions
will be returned to you, less any amount previously used to purchase stock,
without interest, as soon as reasonably practicable. If you withdraw from an
Offering, you may not re-enroll in the same Offering but may participate in
future Offerings under the Plan.
17. NO ADDITIONAL CONTRIBUTIONS
You may not make additional contributions to the Plan. Only amounts
withheld through payroll deductions can be used to purchase shares
under the Purchase Plan.
18. SALE OF STOCK PURCHASED UNDER THE PURCHASE PLAN
Subject to any applicable "lock-up" periods, you can generally sell
stock purchased under the Purchase Plan as soon as the stock is issued to you,
or you can hold onto your stock and enjoy your rights as a stockholder of the
Company. However, see Section 19 if you are in possession of material
undisclosed information. You may also be restricted from selling by the terms of
the Company's trading window policy. See Sections 28 and 29 for the tax
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consequences of an immediate sale. Officers and directors subject to Section 16
of the Exchange Act should refer to Section 25.
19. TRADING RESTRICTIONS ON SALE OF STOCK
If you are aware of important inside information you must not sell
shares of the Company's stock, whether acquired under the Purchase Plan or
otherwise, before dissemination of the information to the public. Basically,
"inside information" is information that is both very important (material) and
non-public (not disclosed through press releases, newspaper articles or
otherwise to the public which buys and sells securities). Whether information is
material will depend on the specific circumstances. A general test is whether
dissemination of the information to the public would be likely to affect the
market price of the Company's stock or would be likely to be considered
important by people who are considering whether to buy or sell the Company's
stock. Certainly if the information makes you want to buy or sell, it would
probably have the same effect on others. Material information may include
projections, estimates or proposals.
If you are contemplating selling your stock and think you might have
"inside information" you must discuss your possible sale with the Company's
Legal Department. If, after this discussion, it is determined that the
information is in fact inside information, you must wait to sell your stock
until after the information has been made public.
20. SALES COMMISSIONS
You pay no commissions when stock is purchased for you under the
Purchase Plan. The shares you purchase will be issued to you by electronic
transfer into a stock brokerage account set up by the Company on your behalf.
Generally, you must sell your stock through a stock broker who can arrange for
its sale, and you can expect to be charged a fee or commission. The Company will
not buy from you any shares of stock purchased for you under the Purchase Plan.
In addition, officers and directors are subject to special limitations on the
sale of their stock. (See Section 25.)
21. REGISTRATION AND TRANSFERS
Your shares purchased under the Purchase Plan may be issued only in
your name, or in the joint names of you and your spouse as community property or
as joint tenants. You should coordinate with the brokerage firm that maintains
your brokerage account as to the requirements for transferring the shares. For
information about the Company's transfer agent, contact the Company's Legal
Department.
22. CHANGES TO THE TERMS OF THE PURCHASE PLAN
The Company will not change the terms of your rights under an ongoing
Offering without your consent. The Company can prospectively change the terms of
your rights under the Purchase Plan at any time by amending the Purchase Plan or
future Offerings. Furthermore, certain changes, such as an amendment increasing
the number of shares authorized under the Purchase Plan, require stockholder
approval.
23. DIVIDENDS ON COMMON STOCK.
The Company currently is not paying dividends on its Common Stock and
presently intends to continue this policy in order to retain earnings for use in
its business.
24. PLAN NOT A 401(K) PLAN OR OTHER QUALIFIED RETIREMENT PLAN
The Purchase Plan is not a qualified retirement plan and therefore does
not have the same tax deferral benefits as a qualified retirement plan, nor is
the Purchase Plan subject to any provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Your participation in the Purchase
Plan does not affect your ability to participate in the Company's 401(k) plan.
25. SPECIAL RULES FOR EMPLOYEES
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All employees are subject to restrictions on the timing of the sale of
stock of the Company. If you are an officer or director of the Company, you are
subject to special rules regarding the sale of the Company's stock, such as the
limitations on the amount you can sell found in Rule 144 and the restrictions on
timing of purchases and sales found in Section 16(b) of the Exchange Act. The
Company has previously notified all officers and directors who are subject to
such trading limitations. You will be notified in the future if you subsequently
become subject to such trading restrictions. If you need a reminder about how
Section 16(b) or Rule 144 operates, you should contact the Company's Legal
Department. In addition, all employees must comply with any Company policy
permitting employees to sell shares only during certain periods of time ("window
periods") which the Company will communicate to you from time to time.
Under the Section 16(b) regulations, purchases of stock for you under
the Purchase Plan are treated as transactions exempt from Section 16(b).
However, sales of stock acquired under the Purchase Plan are not so exempt.
Accordingly, if you sell stock purchased for you under the Purchase Plan
immediately (subject to compliance with the requirements as to window periods,
discussed above), the purchase and sale of such stock will not be matched, and
no Section 16(b) liability will be found in the absence of any other purchases
or acquisitions of Company stock. Of course, if you have made or make non-exempt
purchases of the Company's stock within six (6) months of any sale before or
after your Purchase Plan stock, a matchable 16(b) transaction would result and
you would be required to forfeit of any resulting profit.
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PART II
TAX ISSUES RELATING TO YOUR
PARTICIPATION IN THE PURCHASE PLAN
The information in this Part II responds to questions you may have
about the U.S. federal tax consequences of participating in the Purchase Plan.
You should understand, however, that this tax information is not complete. For
example, it does not address state or local tax laws or the application of laws
if you are subject to tax laws in other countries. Furthermore, because tax laws
and regulations may change, and interpretations of these laws and regulations
can change the way the laws and regulations apply to you, this information may
need to be updated after the date of issuance of this prospectus. Therefore, you
should consult with a tax advisor if you have questions relating to the tax
consequences of participation in, and the sale of shares received under, the
Purchase Plan.
26. TAX ON THE MONEY WITHHELD TO PURCHASE STOCK
The money withheld from your wages to purchase Common Stock under the
Purchase Plan is taxable income to you just as if you had actually received the
money. The amount withheld under the Purchase Plan is subject to federal, state
and local income taxes, as well as all employment (e.g., Social Security) and
payroll taxes.
27. TAX CONSEQUENCES WHEN STOCK IS PURCHASED UNDER THE PURCHASE PLAN
Even though you are buying the stock at a price which is 15% or more
below the fair market value of the stock at the time of purchase, you do not
have to pay tax on this benefit to you at the time of purchase. You may,
however, be subject to employment taxes at the time of purchase.
28. TAX CONSEQUENCES UPON THE SALE OF STOCK PURCHASED UNDER THE PURCHASE
PLAN
Generally, you will include in income and pay tax on the difference
between what you paid for the Common Stock and what you sold it for. The amount
of tax will depend on your personal tax situation and the characterization of
any profit or loss on the sale as ordinary income or capital gain or loss, or a
combination of ordinary income and capital gain or loss. (See Section 29.)
If you are an officer or director subject to Section 16 of the Exchange
Act, special rules apply to you. (See Section 25.)
29. CHARACTERIZATION OF YOUR INCOME
The characterization of the income you recognize will vary and will
depend on whether you sell the stock in a "disqualifying disposition" or a
"qualifying disposition." Whether a disposition is "disqualifying" or
"qualifying" depends on how long you held the Common Stock before the
disposition, as described below.
Disqualifying Disposition
Generally, a disqualifying disposition will occur if you transfer your
stock in a "disposition" (see Section 32) before you have held the shares for
both of the following holding periods:
o at least two (2) years after the first date you were eligible
to participate in the Offering in which you purchased the
stock; and
o at least one (1) year after the Purchase Date on which you
purchased the stock.
In the case of a "disqualifying disposition", the difference between
(i) the fair market value of the stock on the date it was purchased by you (the
"Purchase Date Value") and (ii) the price at which the stock was purchased (the
"Purchase Price") will be characterized as ordinary income. The difference
between the sale price and the Purchase Date Value will be characterized as
capital gain or loss.
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Thus, you may have ordinary income and a capital loss in the same year,
and you may not be able to fully offset such income with such loss.
Qualifying Disposition
Generally, if you transfer your stock in a qualifying disposition (a
disposition other than a disqualifying disposition, i.e., after both holding
periods described above), or if you die while owning the stock, then any gain
will be characterized as ordinary income only to the extent of the lesser of:
(i) the gain recognized or (ii) an amount equal to 15% of the fair market value
of the stock on the Offering Date of the Offering in which you purchased the
stock, or the date you were first eligible to participate if you were not
eligible on the Offering Date. Any recognized gain in excess of the amount
characterized as ordinary income will be treated as capital gain.
If you make a qualifying disposition that results in a loss, there will
be no recognition of ordinary income and you will have a capital loss equal to
the difference between the sale price and the Purchase Price.
Any capital gain or loss recognized on a sale or transfer of Common
Stock purchased by you under the Purchase Plan will be:
o long-term if the asset was held for more than 12 months, or
o short-term if the asset was held for less than or equal to 12
months.
To illustrate the operation of the rules discussed above, assume that:
Your total payroll deductions were $1,000.00
Offering Date June 1, 2000
Stock value on Offering Date $10.00
85% of stock value on Offering Date $8.50
Purchase Date October 31, 2000
Stock value on Purchase Date $15.00
85% of stock value on Purchase Date $12.75
Your shares are purchased at $8.50
Number of shares purchased for you $1,000 / $8.50 = 117.65
You would receive 117 shares, while $5.50 (the excess of $1,000 over
the purchase price of 117 shares) would be retained in your account to be used
to purchase shares in the future.
<TABLE>
If you sold one of the 117 shares, the tax consequences of that sale
can be determined in accordance with the following chart.
37
<PAGE>
Chart of Sample Dispositions and Categorization of Profit or Loss
<CAPTION>
==========================================
Capital Gain (Loss) Per Share
======================================== =============== ============================ ==================== =====================
Selling Ordinary Income Per
Selling Date Price Share Short-Term Long-Term
======================================== =============== ============================ ==================== =====================
<S> <C> <C> <C> <C>
On or before October 31, 2001 $7.50 $15.00 ($7.50) --
(Disqualifying Disposition) - 8.50
------
$6.50
--------------- ---------------------------- -------------------- ---------------------
$15.00 $6.50 0.00 --
--------------- ---------------------------- -------------------- ---------------------
$20.00 $6.50 $5.00 --
======================================== =============== ============================ ==================== =====================
After October 31, 2001, but before $7.50 -- ($7.50)
June 1, 2002
(Disqualifying Disposition) $6.50
--------------- ---------------------------- -------------------- ---------------------
$15.00 $6.50 -- 0.00
--------------- ---------------------------- -------------------- ---------------------
$20.00 $6.50 -- $5.00
======================================== =============== ============================ ==================== =====================
On or after June 1, 2002 $7.50 $0.00 -- ($1.00)
(Qualifying Disposition*)
--------------- ---------------------------- -------------------- ---------------------
$15.00 $10.00 -- $5.00
- 8.50
------
$1.50
--------------- ---------------------------- -------------------- ---------------------
$20.00 $1.50 -- $10.00
======================================== =============== ============================ ==================== =====================
<FN>
* Whether your share is sold in a "qualifying disposition" will depend
on how long you held that share. Be sure to consult with your personal tax
advisor.
</FN>
</TABLE>
38
<PAGE>
30. DIFFERENCE BETWEEN ORDINARY INCOME AND CAPITAL GAINS AND LOSSES FOR
FEDERAL INCOME TAX PURPOSES
The maximum marginal tax rate applicable to ordinary income and
short-term capital gains is 39.6%. Currently, the maximum marginal tax rate is
20% for long-term capital gains. Additionally, capital gains and losses are
subject to certain other provisions of the Internal Revenue Code of 1986, as
amended, not applicable to ordinary income. Consult your tax advisor for more
information regarding the rates that apply to you.
31. WITHHOLDING REQUIREMENTS AT THE SALE
Currently, there is no income tax withholding required when Common
Stock is purchased or sold by you. You may, however, be subject to employment
tax withholding (e.g., Social Security) at the time of purchase. The Company is
required to report to the IRS any ordinary income recognized by you as a result
of a disposition. (See Section 32.) The Company may be required in the future to
withhold the amount due as taxes on such ordinary income from your salary.
32. DISPOSITION OF STOCK FOR TAX PURPOSES
A disposition generally includes any sale, exchange, gift or transfer
of legal title. Certain transactions are excluded, including a pledge or a
transfer by bequest or inheritance, or certain transfers to a spouse or former
spouse incident to a divorce. As this is a complicated area, you should consult
your tax advisor for the consequences of your disposition of Purchase Plan
stock.
A gift or other disposition by you of Common Stock acquired under the
Purchase Plan may cause you to recognize some ordinary income. (See Section 29.)
You should consult your individual tax advisor before disposing of stock
acquired under the Purchase Plan.
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