In reporting on the results of Cisco’s shareholders meeting on Wednesday, LTW’s story was in error when describing a stock purchase plan.
Cisco provided the following information:
“Yesterday our shareholders voted to add 100 million shares to our employee stock purchase program (ESPP), not the stock options program. The ESPP, as you said allows employees to purchase company stock at a discount to the market. This is different from the options program where employees are given the right to purchase shares at a fixed price at the end of set vesting periods and only
exercise those options when the stock appreciates.
“In the ESPP program, employees contribute from their base and bonus pay into an ESPP account. At the end of a buying period (there are two 6 month long buying periods in a calendar year), the funds in the employee’s ESPP account is used to purchase CSCO stock. The price of the stock is 85% of the price at the beginning of the buying period or the end of the buying period, whichever is lower.
It’s a form of incentive that again aligns employee and shareholder interest and is a standard benefit in many publicly traded companies. Employees are limited in the amount they can deduct from their pay to put into the program.
“Differentiate this from options – where the employee is given an option grant that allows the employee the option of purchasing shares at a fixed price as the options vest. At the end of the vesting period, the employee makes a decision whether to buy CSCO stock at the fixed price (called the strike price). This decision will be based on the appreciation of the stock price during the vesting period. Again this program also aligns employee and shareholder interests because the employee will only benefit if the stock price appreciates and the options have value. Stock appreciation is of course also good for the shareholder.
“Here is a summary of key points:
Â· Shareholders were asked to update Cisco’s Employee Stock Purchase Plan to increase the maximum number of shares of common stock authorized for issuance over the term of the ESPP by an additional 100,000,000 shares, and to extend the term of the Plan from January 3, 2005 to January 3, 2010.
Â· Cisco’s ESPP was originally approved by shareholders in January 1990.
Â· Employee stock ownership aligns shareholder and employee interests, and Cisco believes the ESPP program is a valuable incentive to employees.
Â· Cisco shareholders approved raising the maximum number of shares of stock authorized for issuance and extended the term of the program by ensuring that we have sufficient reserves available under the ESPP to allow eligible employees the opportunity to continue to participate in the program.”