Management Proposal No. 4
MANAGEMENT PROPOSAL NO. 4
Vote to Approve the Company’s 2021 Employee Stock Purchase Plan
Our Board Recommends FOR the approval of the Company’s 2021 Stock Purchase Plan
On January 15, 2020, the HR and Compensation Committee of the Board adopted the HP Inc. Company 2021 Employee Stock Purchase Plan (the “2021 ESPP”) and reserved 50,000,000 shares of HP common stock for issuance thereunder (subject to adjustments permitted under the 2021 ESPP). The 2021 ESPP will be effective May 1, 2021, subject to HP stockholder approval within 12 months of Board approval.
HP stockholders are being asked to approve the 2021 ESPP and the Board’s reservation of shares under the 2021 ESPP for the purpose of qualifying such shares for special tax treatment under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). The 2021 ESPP is intended to replace HP’s 2011 Employee Stock Purchase Plan (the “2011 ESPP”), which will terminate on May 1, 2021, upon the effectiveness of the 2021 ESPP.
The affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meeting is required for approval of this proposal.
Summary of the 2021 ESPP
The principal features of the 2021 ESPP are summarized below. The following summary of the 2021 ESPP does not purport to be a complete description of all of the provisions of the 2021 ESPP. It is qualified in its entirety by reference to the complete text of the 2021 ESPP, which has been filed with the SEC as Annex A to this proxy statement. Any HP stockholder who wishes to obtain a copy of the 2021 ESPP may do so upon written request to the Secretary at HP’s principal executive offices.
General. The purpose of the 2021 ESPP is to provide employees of HP and its designated subsidiaries and affiliates with an opportunity to purchase HP common stock and, therefore, to have an additional incentive to contribute to the prosperity of HP.
Administration. The 2021 ESPP is administered by a committee (the “Administrative Committee”) appointed by the Board. The Administrative Committee has full power and authority to promulgate any rules and regulations which it deems necessary for the proper administration of the 2021 ESPP, to interpret the provisions and supervise the administration of the 2021 ESPP, to make factual determinations relevant to 2021 ESPP entitlements and to take all action in connection with administration of the 2021 ESPP as it deems necessary or advisable, consistent with the delegation from the Board. The decisions of the Board and the Administrative Committee are final and binding upon all participants.
Eligibility. Any employee of HP or any HP subsidiary or affiliate designated by the Administrative Committee who is regularly employed for at least 20 hours per week and more than five months in a calendar year on an Entry Date (as defined below) is eligible to participate in the 2021 ESPP during the Offering Period (as defined below) beginning on that Entry Date, subject to administrative rules established by the Administrative Committee. However, no employee is eligible to participate in the 2021 ESPP to the extent that, immediately after the grant, that employee would have owned 5% of either the voting power or the value of HP’s common stock. No employee may be granted an option to purchase HP’s common stock pursuant to the 2021 ESPP at a rate that exceeds $25,000 of the fair market value of such common stock per calendar year. Eligible employees become participants in the 2021 ESPP by filing with HP an enrollment agreement authorizing payroll deductions on a date set by the Administrative Committee prior to the applicable Entry Date. As of October 31, 2019, approximately 51,445 HP employees, including certain executive officers, were eligible to participate in the 2011 ESPP and such individuals are expected to be eligible to participate in the 2021 ESPP.
Participation in an Offering. The 2021 ESPP is implemented by offering periods lasting for six months (an “Offering Period”). If stockholders approve the 2021 ESPP, the first six-month Offering Period will begin on May 1, 2021. Common stock is purchased under the 2021 ESPP every six months on the last trading day of each Offering Period (a “Purchase Date”), unless the participant becomes ineligible, withdraws or terminates employment earlier. The Entry Date is the first trading day of the Offering Period. To participate in the 2021 ESPP, each eligible employee must authorize contributions pursuant to the 2021 ESPP, which will generally be collected through payroll deductions. Such payroll deductions may not exceed 10% of a participant’s eligible compensation and are also subject to the limitations discussed above. A participant may increase or decrease his or her rate of contribution through payroll deductions at any time, but at no time may such rate of contribution exceed 10%. Each participant who has elected to participate is automatically granted an option on his or her Entry Date to purchase shares of common stock. The option is automatically exercised at the end of each Offering Period with the contributions accumulated during such Offering Period. The option expires upon the earlier to occur of the Offering Period, the employee’s termination of employment, or upon the employee becoming ineligible. The number of shares that may be purchased by an employee in any Offering Period, subject to the limitations discussed above, may not exceed 5,000 shares of common stock.
Purchase Price; Shares Purchased. Shares of common stock may be purchased under the 2021 ESPP at a price not less than 95% of the fair market value of the common stock on the last trading day of the Offering Period; however, the Administrative Committee has the discretion to adjust the purchase price in the future so long as it is not less than 85% of the fair market value of the common stock on the last trading day of the Offering Period. The number of whole shares of HP common stock a participant purchases in each Offering Period is determined by dividing the total amount of the participant’s contributions during that Offering Period by the purchase price, subject to the 5,000 share limit.
Termination of Employment. Termination of a participant’s employment for any reason, including death, immediately cancels his or her option and participation in the 2021 ESPP. In such event, the contributions credited to the participant’s account will be returned without interest to him or her or, in the case of death, to the person or persons entitled to those contributions.
Adjustments upon Changes in Capitalization, Merger or Sale of Assets. In the event that HP common stock is changed by reason of any stock split, stock dividend, combination or recapitalization, appropriate proportional adjustments may be made in the number of shares of stock subject to the 2021 ESPP, the number of shares of stock to be purchased pursuant to an option and the price per share of common stock covered by an option. Any such adjustment will be made by the Board, whose determination shall be conclusive and binding. In the event of a proposed sale of all or substantially all of the assets of HP or the merger or consolidation of HP with another company, the Board may determine that each option will be assumed by, or an equivalent option substituted by, the successor company or its affiliates, that the Purchase Date will be accelerated and that all outstanding options will be exercised on such date, or that all outstanding options will terminate and accumulated payroll deductions will be refunded.
Amendment and Termination of the Plan. The Board may terminate or amend the 2021 ESPP at any time, except that it may not increase the number of shares subject to the 2021 ESPP other than as described in the 2021 ESPP. The 2021 ESPP will continue until May 1, 2031, unless otherwise terminated by the Board.
Transferability. Options granted to employees may not be voluntarily or involuntarily assigned, transferred, pledged, or otherwise disposed of in any way, and any attempted assignment, transfer, pledge, or other disposition will be null and void and without effect.
Withdrawal. Generally, a participant may withdraw from the 2021 ESPP during an Offering Period prior to the change enrollment deadline established by the Administrative Committee. The Administrative Committee may establish rules limiting the frequency with which participants may withdraw and re-enroll in the plan and may establish a waiting period for participants wishing to re-enroll.
New Plan Benefits. Because benefits under the 2021 ESPP will depend on employees’ elections to participate and the fair market value of HP common stock at various future dates, it is not possible to determine the benefits that will be received by executive officers and other employees if the 2021 ESPP is approved by the stockholders. Non-employee Directors are not eligible to participate in the 2021 ESPP.
U.S. Federal Income Tax Consequences
If HP stockholders approve this proposal, the 2021 ESPP, and the right of participants to make purchases thereunder, should qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the 2021 ESPP are sold or otherwise disposed of. Upon sale or other disposition of the shares, the participant will generally be subject to tax and the amount of the tax will depend upon the holding period. If the shares are sold or otherwise disposed of more than two years from the applicable Entry Date and more than one year from the date of transfer of the shares to the participant, then the participant generally will recognize ordinary income measured as the lesser of (i) the excess of the amount received upon such sale or disposition over the purchase price, or (ii) an amount equal to 5% of the fair market value of the shares as of the Entry Date. Any additional gain should be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of this holding period, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on the holding period. HP is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent ordinary income is recognized by participants upon a sale or disposition of shares prior to the expiration of the holding period(s) described above. In all other cases, no deduction is allowed to HP.
The foregoing is only a summary of the effect of U.S. federal income taxation upon participants and HP with respect to the 2021 ESPP based on the U.S. Federal income tax laws in effect as of the date of this proxy statement. It is not intended to be exhaustive and does not discuss the tax consequences arising in the context of the employee’s death or the income tax laws of any municipality, state or foreign country in which the employee’s income or gain may be taxable or the gift, estate, or any tax law other than U.S. federal income tax law. Because individual circumstances may vary, HP advises all recipients to consult their own tax advisor concerning the tax implications of participation in the 2021 ESPP.