FINANCIAL WELLNESS RETREAT

Equity Workshop
For U.S. Employees

NOT ALL PRODUCTS AND SERVICES ARE AVAILABLE IN ALL

JURISDICTIONS OR COUNTRIES.
Agenda

Understanding Restricted Stock Units

Understanding Stock Options

Financial Housekeeping

The Bottom Line

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Understanding Restricted
Stock Units
What is a Restricted Stock Unit?

A Restricted Stock Unit, or RSU, A form of compensation. No cash

is a PROMISE to deliver shares of required up front.
company stock to the holder on a RSUs are treated and taxed as ordinary
specified event or date. income when the units are vested and
converted to shares.

Capital gains tax may apply when

shares are ultimately sold.

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Lifecycle of an RSU

AWARD VESTING TAXATION TRACKING &

PERIOD OTHER EVENTS

RSU awarded Period of time RSUs must • You will owe ordinary
be held before they are income tax on delivered
converted to company shares and will be
shares and delivered subject to withholding at
to you. vest/delivery.
• Taxes are calculated
based on the Fair Market
Value (FMV) of the
shares at vest/delivery.
• You can track (and
perhaps one day sell)
your awards on your
equity management
platform.
• Upon termination of
employment, you keep
all the shares that have
vested up until that date,
but will no longer vest in
additional shares.
• You may owe taxes on
shares when sold.

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What is Vesting?

When a unit “vests”, it

is converted to common
shares and you own the
underlying stock.

Until then, it remains a

promise to transfer shares
in the future if the vesting
conditions are met.

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What is the Fair Market Value?

The Fair Market Value is the price per share

of the stock.

The FMV is important for tax calculation purposes

(at time of vest/delivery and time of sale).

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RSUs Taxation
RSUs have two taxable events in their life:
AT VEST/DELIVERY
Your RSUs are taxed as part of your ordinary
compensation in the same year the RSUs vest
and the common shares are delivered to you,
and are subject to withholding at vest/delivery.
AT SALE
When you sell your stock, any increase between the FMV at vest/delivery and
the FMV at sale is considered a “capital gain” and is subject to taxation.
• If stock is held for 1 year or less = short-term capital gain
(i.e. taxed at federal ordinary income tax rates)
• If stock is held for more than 1 year = long-term capital gain
(i.e. taxed at lower federal capital gains tax rate)
• If the stock price has gone down at sale, you may have a capital loss.
For any losses or gains at sale, the tax burden is fully your responsibility.
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Taxes at Sale: Long-Term vs. Short-Term Capital Gains

Capital Gain
SHORT-TERM LONG-TERM
CAPITAL GAINS TAX vs. CAPITAL GAINS TAX
=
Applied to shares held Applied to shares held
FMV at Sale one year or less more than one year

–
Follow federal ordinary
income tax rates
Basis in the Shares (10%-37%)
Three tax brackets:
0%, 15%, 20%
(depends on taxable income
and tax filing status)

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Understanding Stock Options
What is a Stock Option?
A Stock Option is the right— but
not the obligation— to purchase
company stock at a fixed price -
known as the exercise (grant) price
within a set period of time.
The exercise price is based on the Fair Market
Value (FMV) of the company’s common stock at the
time the option is granted.
Subject to vesting.
You purchase common shares of company stock by
exercising the stock option and paying the exercise
price.
For Incentive Stock Options, taxes are generally not
due until you sell the shares.
Options will expire if not exercised before their
expiration date.
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What is Vesting?
Stock options vest according to the vesting schedule
in your agreement.
Vesting determines when you may exercise stock
options and have full ownership rights over the shares
underlying your stock options.
Until your options vest and until you exercise them,
you do not have ownership rights over the underlying
shares.
Once an option is vested you may choose to exercise
it. For example, you may choose to exercise it if the
exercise price is less than the fair market value (FMV)
of the underlying common stock.
Upon exercise, you are subject to ordinary income tax
on an amount equal to the FMV on the date of
exercise minus the exercise price.
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Lifecycle of a Stock Option

GRANT VESTING EXERCISE TAXATION TRACKING

Stock options are The required period of A stock option is Based on the type of • You can track and/or sell
awarded to you time stock options must exercised when you pay stock option you’ve been your awards on your
be held before they can granted, you may owe equity management
the exercise price to
be exercised and taxes when you exercise platform.
receive the shares of
underlying shares company stock. your options. • You may owe taxes on
purchased. shares when sold.
A stock option may be For incentive stock
worth exercising if the options, you will need to
Fair Market Value (FMV) hold your shares for a
of the underlying period of time after
common stock is more exercise to maintain
than the exercise price. favorable tax treatment.

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Choices for Exercising Stock Options
Your tax obligation will vary based on how you choose to exercise your stock options.

DESCRIPTION PAY IN RECEIVE

Pay cash to exercise your options. You will own the shares you
Exercise and Hold exercised and can benefit from any potential future increases in Cash Shares
Cash Exercise stock value.

Exercise your options and immediately sell your shares. Receive

Exercise and Sell the net proceeds in cash after option exercise costs, taxes, Cash from
Same-Day Sale or commission and fees. stock sale Cash
Cashless Exercise The proceeds from the stock sale are used to cover the purchase proceeds
price and additional fees.

Exercise your stock options and sell enough shares to cover the Cash from
Sell-to-Cover option exercise costs, commissions, fees, and taxes and receive stock sale Shares
the remaining shares. proceeds

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Non-Qualified Stock Option (NQSO) Taxation
The type of stock options you have, and the length of time you hold them, will also impact your tax obligation.

At Exercise Sell After Holding Shares Sell After Holding Shares

One Year or Less for More than One Year

Difference between the fair

market value (FMV) at exercise
Exercise and Hold and the grant price is taxed as
Cash Exercise ordinary income and subject to
federal, state and local income
taxes in addition to payroll taxes.
Difference between the FMV at
Difference between the FMV at
exercise and the sale price is taxed
exercise and sale price is taxed as a
as a short-term capital gain or
long-term capital gain or loss.
loss.

Exercise and Sell Difference between the FMV at exercise and the grant price is taxed as
Same-Day Sale or ordinary income and subject to federal, state and local income taxes in Not applicable
Cashless Exercise addition to payroll taxes

Difference between the FMV at

exercise and the grant price is
taxed as ordinary income and
subject to federal, state and local
Sell-to-Cover
income taxes in addition to payroll
taxes.
For received net shares, difference
Difference between the FMV at
between the FMV at exercise and
exercise and the sale price is
taxed as a short-term capital
sale price is taxed as a long-term
capital gain or loss.
gain or loss.

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Incentive Stock Option (ISO) Taxation
At Exercise
Sell After Holding Shares 2 Sell After Holding Shares for
Years or Less From Grant or More than 2 Years from Grant
1 Year or Less from Exercise and 1 Year from Exercise
Disqualifying Disposition Qualifying Disposition

Difference between Difference between the grant price and the

Exercise and grant price and FMV at lesser of (1) FMV at exercise or (2) the
Difference between the grant price and
exercise is included for sale price is taxed as ordinary income
Hold sale price is taxed as a long-term capital
purposes of alternative and subject to federal, state and local
gain or loss.
Cash Exercise minimum tax income taxes. Any additional gain is taxed
calculations. as a capital gain.

Exercise and Sell Difference between the grant price and the sale price is taxed as
Same-Day Sale or ordinary income and subject to federal, state and local income Not Applicable
Cashless Exercise taxes.

Difference between the Difference between the grant price and the
grant price and the sale lesser of (1) FMV at exercise or (2) the For received net shares, difference
price is taxed as sale price is taxed as ordinary income between the grant price and sale price is
Sell-to-Cover ordinary income and and subject to federal, state and local taxed as a long-term capital gain or loss.
subject to federal, state income taxes. Any additional gain is taxed
and local income taxes. as a capital gain.

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Financial Housekeeping
If You Choose to Cash Out Your Equity

TAKE A COOLING PAY PAY OFF HIGH CREATE AN BUILD TOWARD

OFF PERIOD YOUR TAXES INTEREST DEBT EMERGENCY YOUR PERSONAL
CASH RESERVE GOALS
Don't make any Talk to a tax advisor Prioritize paying off Even after an infusion Whether you want
sudden moves you about your total tax any debt with high of cash, you still need to build a long-term
might regret. Consider liability to avoid any interest rates, such as reserves! Set aside investment portfolio,
your short- and long- unexpected surprises credit balances, up to 6 months of make a major
term financial goals at the end of the year. personal loans, or living expenses to purchase like a home
and create a student loans. cover any unexpected or car, or travel the
comprehensive plan emergencies. world, having a plan
that reflects your new on how to finance
circumstances. your goal is a key
step in achieving it.

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When Your Financial Situations Changes, Update Your Budget

Calculate your Track current Separate needs Set your budget. Stick with it,
Income. expenses. and wants in the monitor your
context of your results and adjust
overall goals and if necessary.
objectives.

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Categorize Your Expenses According to the 50-30-20 Rule

50% 30% 20%

Needs Wants Savings &
Bills you must pay and Things you spend Investments
the things necessary money on that are not Examples include
for survival. absolutely essential. saving for emergency
Examples include Examples include fund, retirement
rent/mortgage, entertainment, savings, debt
groceries, insurance, subscriptions, repayment.
and utilities vacations, dining out,
and expensive gadgets

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Be Proactive About Debt
If you have debt, take things step by step.

1 2 3 4

Get an accurate picture Develop a plan to Tend to your financial Maintain an emergency
of your credit and debt. address any debt you life by checking your fund to protect against
may have. credit reports. taking on more debt.

 Understand how
much debt you have
and where it resides.
 Be strategic about
any new debt that
you take on.
 Build your debt  Know your credit  Determine how
payments into your score. much you currently
budget.  Review your credit at have set aside for a
 Pay off the most least once a year. rainy day.
expensive debt first.  If you need to
 Pay more than the increase your
minimum. savings, build it into
your budget.

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The Bottom Line
You Don’t Have to do This Alone – There are Professionals to Help

ATTORNEY
Safeguards you and your family’s interests. Can objectively
and unemotionally deal with complex issues that may arise.

There are ACCOUNTANT

professionals who can Advises you on tax tactics and strategies that are specific to
help you assess your your financial situation.

options, prepare your

FINANCIAL ADVISOR
next steps and
Helps you understand your assets and your cash flow needs.
achieve your goals. Identifies strategies to help you reach long-term objectives,
like retirement or education planning.

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Talk to the People that Matter to You

Conversations about money are never only about money.

Have the conversations and then seek out the help you need.

PARENTS

PARTNER

CHILDREN
SELF

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The Bottom Line

GET ORGANIZED CONSIDER YOUR CHOICES

Think about your goals and understand your As you go through this process, you will have
financial situation so you can create a realistic to make a lot of decisions. Walk through them
vision of your future. one by one and remember you have your
team to help.

BUILD YOUR TEAM COMMUNICATE

Identify an Accountant, Attorney and Financial As you determine what you want your legacy to
Advisor who can help you understand your look like, maintain an open dialogue with your
options. family and your team to help everyone remain on
the same page.

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There are a lot of choices to make.
Having a plan makes a difference.

LIFE IS BIG. LET’S PLAN FOR IT.

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Disclosures

NOT ALL PRODUCTS AND SERVICES ARE AVAILABLE IN ALL JURISDICTIONS OR COUNTRIES.
Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should
consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.
Morgan Stanley Smith Barney LLC recommends that investors independently evaluate particular strategies and/or investments, and encourages investors to seek the advice of a
Financial Advisor. The appropriateness of a particular strategy and/or investment will depend upon an investor’s individual circumstances and objectives.
This material is provided for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or
to participate in any trading strategy.
Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment. Companies paying dividends can reduce or stop
payouts at any time.
Morgan Stanley offers a wide array of brokerage and advisory services to its clients, each of which may create a different type of relationship with different obligations to the client.
To understand these differences, please consult your Financial Advisor.
Important information about your relationship with your Financial Advisor and Morgan Stanley Smith Barney LLC when using a Financial Planning tool. When your Financial Advisor
prepares a Financial Plan, they will be acting in an investment advisory capacity with respect to the delivery of your Financial Plan. To understand the differences between brokerage
and advisory relationships, you should consult your Financial Advisor, or review our “Understanding Your Brokerage and Investment Advisory Relationships” brochure available at
http://www.morganstanley.com/ourcommitment/.
Hypothetical results are for illustrative purposes only and are not intended to represent future performance of any particular investment. Your actual results may differ. The principal value
and investment return of an investment will fluctuate with changes in market conditions, may be worth more or less then original cost. Taxes may be due upon withdrawal.
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