E
l
St
k P
h
Pl
(ESPP)
Employee Stock Purchase Plan (ESPP)
June 2011
June 2011
Table of Contents
Introduction
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What is an ESPP and why implement it?
B i f
i t d
ti
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Brief process introduction
Plan Details
Characteristics of the plan
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Characteristics of the plan
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Tax considerations
Accessing the Morgan Stanley Smith Barney Online
Accessing the Morgan Stanley Smith Barney Online
Enrollment Tool
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Actual process for making elections
Frequently Asked Questions
Introduction
ESPP? What is it?
ESPPs allow employees to buy company stock via payroll
deductions
in NRG’s case we are offering the stock at a 15%
deductions – in NRG s case, we are offering the stock at a 15%
discount as an additional benefit
Why are we offering this?
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The ESPP is another example of how we believe that direct
employee ownership is critical to our shared success
Creates an additional avenue for
ownership above broad-based
ownership above broad based
equity grants
Brief Process Introduction
Employee elects to participate at
1-10% of biweekly base salary
NRG automatically distributes shares at
a 15% discount for the employee, using
the money in their account
Employee
Election
Purchase
Period
Begins
Purchase
Period
Ends
Shares
deposited
Shares
available
for sale
June 2011
July 1, 2011
Dec 31, 2011
Early Jan 2012
Jan 2013
Employee
changes
election
Begins
Employee’s payroll deductions accumulate in an
account over six months - “Saving-up to buy shares”
Employee can sell
shares after 1 year
June 1 – June 30: Enrollment Period
July 1 – Dec 31: Purchase period
−
Employees may elect to suspend/withdrawal up to Dec 16
Dec 31: Purchase Date
Early Jan 2012: Shares deposited into MSSB accounts
Jan 2012: Employees making their first purchase receive Welcome Kits
from MSSB with account access instructions
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from MSSB with account access instructions
Jan 1, 2013: Shares are available for sale
Eligibility and Enrollment
Eligible population
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All non-represented, non-temporary employees
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Represented where and when bargained-for
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Part-time employees that work a minimum of 17½ hours per week
Part time employees that work a minimum of 17½ hours per week
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Hired (or negotiated by) 60 days prior to the beginning of the next purchase
period
1−
Employees may not join in the middle of a Purchase Period
Purchase Periods will last six months
−
7/1/2011 – 12/31/2011; 1/1/2012 – 6/30/2012; 7/1/2012 – 12/31/2012
Elections can be made in the calendar month preceding the Purchase Period
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1-10% of annual base salary as of the 1
stday of the Purchase Period
For the purposes of the ESPP, your salary is frozen as of the first day of
each Purchase Period (effectively keeping your ESPP deductions
constant)
−
$20,000 annual contribution cap
−
Deductions are post-tax and held in a non-interest bearing account
5
Deductions are post tax and held in a non interest bearing account
Similar to other payroll deductions, ESPP deductions will be shown on
your pay stub
Purchase Period
Elections automatically roll from one Purchase Period to the next
−
If you wish to change your election percentage or discontinue participation,
you’ll need to make that election during the next Enrollment Period
During the Purchase Period, employees may elect to:
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Suspend contributions: payroll deductions cease
1, but accumulated
account balance still used to purchase shares
account balance still used to purchase shares
−
Withdraw contributions: payroll deductions cease and account balance
refunded to participant without interest
1
If you wish to begin participating again you’ll need to re-enroll during the
If you wish to begin participating again, you ll need to re-enroll during the
next Enrollment Period
No withdrawals or suspensions are accepted in the final 15 days of the current
No withdrawals or suspensions are accepted in the final 15 days of the current
Purchase Period
−
In other words, on June 16 and December 17 you become committed to
purchasing shares on June 30 and December 31 respectively
6 1Deduction cessation & refunds processed as soon as administratively feasible
Termination of Employment
Termination of employment
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Qualified retirement (2 options)
Cash-out all funds (no interest paid), or
Keep any contributions already made in the participant’s account to
purchase shares at the end of the current period
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Any termination other than a qualified retirement (including death
1)
Cash-out all funds (no interest paid)
7 1In the event of death, the designated life insurance beneficiary will also be the ESPP beneficiary
Purchase Date
The Fair Market Value (FMV) of the stock will be determined using
the market closing price on the last trading day within the Purchase
Period
Typically, this will be June 30 and December 31
−
If either of these days is a non-trading day, the previous trading
y
g
y
g
day’s market close price will be used to determine the FMV
The stock purchase price will be the FMV discounted by 15%
y
How many shares do I get?
Example: Set aside 5% of a $25,000 base salary to ESPP
Annual salary
$25,000
Election (%)
5%
Annualized election ($)
$1,250
Biweekly (26 pay periods)
/ 26
Per pay period deduction
$48 08
Total contribution
$625
Employee purchase price per share
/ $21.25
Per pay period deduction
$48.08
6 month period (13 pay periods)
x 13
Total contribution (Approx.)
$625
Calculated Shares
29.41
Actual number of purchased shares
29.41
Number of shares that would have been purchased without 15% discount
Fair Market Value (FMV)
$25.00
Discount
- 15%
Employee purchase price per share
$21.25
25.00
Due to rounding, a participant may receive fractionally more than
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Share Handling
Shares will be deposited in the employee’s Morgan Stanley Smith Barney
account as soon as administratively feasible following the close of the
P
h
P i d
Purchase Period
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No immediate tax liability resulting from the 15% discount
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Morgan Stanley Smith Barney will mail you an Account Statement
All purchased shares are subject to a one-year Holding Period
If an employee terminates, the shares become eligible for sale
If an employee terminates, the shares become eligible for sale
Once eligible for sale, employees can log onto Morgan Stanley Smith Barney
and sell their shares
Selling Your Shares
Once an employee makes their first purchase, Morgan Stanley Smith Barney
(MSSB) will create an account for them
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MSSB will also send employees a Welcome Kit with all the necessary
information required to access their account and transact shares
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Contact MSSB directly for a current listing of transaction fees
Any “fractional shares” are always sold with the last whole share
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From our example, if you have 29.41 shares, you may sell from 1 to 28
shares, or 29.41 shares, but you may not sell 29 shares
Due to Disqualifying Dispositions (see next slide) you may not transfer shares
to any other account until six months following the Holding Period
1
Participants remain subject to the Company's Security Trading and
Non-Disclosure Policy
11 1“Fractional shares” are non-transferable; they must be liquidated if transferring the entire
Tax Considerations
If you sell your shares within the first six months following the end of the Holding
Period, your transaction will be considered a
“Disqualifying Disposition”
by the IRS
1−
Typically less favorable tax rates may apply (ordinary income)
X
If you sell your shares after six months following the end of the Holding Period, you
will likely receive more favorable tax treatment (capital gains)
1Y
will likely receive more favorable tax treatment (capital gains)
June 1, 2011 July 1, 2011 Dec 31, 2011 Jan 1, 2013 July 1, 2013
X
Y
June 2011 Enrollment July – Dec 2011: Purchase Period Jan 2012 to Jan 2013: Holding Period Jan– June 2013: Sale of shares considered Disqualifying Disposition July 2013+: Sale of shares not considered Disqualifying DispositionNRG recommends that you speak with a tax advisor before buying or selling
any securities, including participation in the ESPP.
12 1All examples assume continued employment with NRG and current IRS tax law; you should consult a
Accessing the
Accessing the
Morgan Stanley Smith Barney
Online Enrollment Tool
Enrolling in the ESPP
Accessing the online enrollment tool
https://www.benefitaccess.com
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Enter the enrollment module through the Enroll/Change link on the Morgan Stanley Smith Barney Benefit Access® welcome page
Enrolling in the ESPP
Accessing the online enrollment tool
Enter NRG’s company ticker symbol: NRG and click Next
Enrolling in the ESPP
Accessing the online enrollment tool
Enter your Social Security Number and click Next
Enrolling in the ESPP
Offering Period and Challenge Question
Enter the Offering Period (also called Purchase Period) that you wish to enroll in. For example, you will enroll in the 7/1/11 – 12/31/11 Offering you will enroll in the 7/1/11 12/31/11 Offering
Period in June 2011. You may not join an Offering Period already in progress.
Enter your birth date; this is a “challenge” question used to verify your identity
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Enrolling in the ESPP
If you’ve completed the form correctly, you’ll
Validation
y p y, y
receive a validation window; click Next to proceed
Enrolling in the ESPP
Customer Service Phone Number
Plan parameters presented. These parameters are for the Enrollment Period only; the Enrollment Period only; please refer to the Purchase Period section (Slide 6) for options during a Purchase Period
Your available enrollment choices are listed here
Election History
The Purchase Period that you are electing for is noted here. You will be electing in June for
Your available enrollment choices are listed here
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the July-December period and electing in December for the January-June period.
Enrolling in the ESPP
Enroll/Modify Your Election
To enroll, select a whole percentage between 1 and 10, and then click Change Contribution>>If your base annual salary is $25,000 and you $
elect 1%, then $9.62 will be contributed each pay period during the six months:
$25,000 x 1% / 26 pay periods = $9.62
**This per pay period amount will not changeThis per-pay period amount will not change during the Purchase Period, even if your base salary does; your salary will be updated and captured for use in the next Purchase Period.
Frequently Asked Questions
•What is an Employee Stock Purchase Plan? •How does the Plan work?
•Is there an incentive to enroll in the NRG ESPP? •Who is eligible?
•How can I join?
•How do I get access to enroll online?
•Do I need to re-enroll every Purchase Period?
•If I decide not to join right now, will I have another opportunity? •May I begin participation in the middle of a Purchase Period?May I begin participation in the middle of a Purchase Period?
•Can I withdraw from the Plan at any time? •What happens if I leave the Company? •How much can I contribute?
•If my salary changes during a Purchase Period, does my contribution change? •May I increase or decrease my payroll deductions during a Purchase Period? •May I make a cash contribution to the Plan in addition to my payroll deduction?
•Do I automatically own a share of NRG common stock as soon as its cost has been deducted from my
compensation?
•What happens to the shares purchased for me?What happens to the shares purchased for me?
•How can I find out the number of shares purchased for me? •When can I sell shares purchased through the Plan?
•What happens if there is a stock split, stock dividend or other change affecting NRG common stock? •Will NRG stock become an option in the 401(k) plan?
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•Is my right to purchase shares under an ESPP transferable? •What are the Tax Implications of buying/selling ESPP shares? •What is a Disqualifying Disposition?
Frequently Asked Questions
What is an Employee Stock Purchase Plan?
NRG’s Employee Stock Purchase Plan (ESPP) is an employer-sponsored, qualified 423(b) program as defined under IRS regulations that allows you to make planned, periodic purchases of NRG stock at a discount through convenient, biweekly payroll deductions.
How does the Plan work?
You can authorize after tax payroll deductions of 1% to 10% of your biweekly pay. These amounts accumulate in payroll for six months – called the Purchase Period – and are used to purchase shares of NRG stock at the end of the period. NRG will have two Purchase Periods per year: January 1 through
J 30 d J l 1 th h D b 31
June 30 and July 1 through December 31.
Is there an incentive to enroll in the NRG ESPP?
Yes! Your accumulated payroll deductions will purchase NRG shares at 85% of the closing price on the last day of the Purchase Period (or previous closing price if the market is not open on the final day). For example, if NRG closes at $25.00 on the last day of the Purchase Period, you will purchase the shares at $21.25 (i.e., $25 x 85%).
Who is eligible?
All non-represented employees, and represented employees where and when bargained for, with at least p p y , p p y g , sixty days of service preceding the first day of the purchase period.
How can I join?
NRG has partnered with Morgan Stanley Smith Barney to make participation in the ESPP easy. You can visit Morgan Stanley Smith Barney’s Benefit Access® website (https://www benefitaccess com) or call a
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visit Morgan Stanley Smith Barney s Benefit Access® website (https://www.benefitaccess.com) or call a Morgan Stanley Smith Barney customer service representative at 1-800-367-4777 (via phone only: NRG’s numeric ticker number is 627341). You will be able to enroll in the month preceding the Purchase Period, either June or December. Specific dates may change; please log on or contact Morgan Stanley Smith Barney for the actual participation dates.
Frequently Asked Questions
How do I get access to enroll online?
Simply go to https://www.benefitaccess.comand click on the “Enroll/Change” link; please refer to the “Accessing the Morgan Stanley Smith Barney Online Enrollment Tool” section of this presentation.
Do I need to re enroll every Purchase Period?
Do I need to re-enroll every Purchase Period?
No. Once you make your election, it will automatically carry-over into the next Purchase Period. If you elect to halt your contributions at anytime, you will need to re-enroll in the Plan if you wish to start contributing again.
If I decide not to join right now, will I have another opportunity?
Yes. The Enrollment Period is the calendar month before each Purchase Period (June and December).
May I begin participation in the middle of a Purchase Period?
No To participate you must enroll during the Enrollment Period prior to the start of the Purchase Period No. To participate, you must enroll during the Enrollment Period prior to the start of the Purchase Period.
Can I withdraw from the Plan at any time?
Yes. At any time during the Purchase Period, you may elect to halt your payroll contributions and allow whatever you have accumulated so far to purchase shares at the end of the Purchase Period. You also
l t t h lt d d ti d h l t d t ib ti f d d t ith t i t t
may elect to halt deductions and have your accumulated contributions refunded to you, without interest. In either case, this election can not be reversed, however you can elect to participate again during the next Enrollment Period.
What happens if I leave the Company?
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pp
p
y
If at any time you cease to be employed by the Company for any reason other than retirement, your deductions will cease and your accumulated pay will be refunded to you, without interest. If you retire, you may elect to allow your accumulated payroll deductions to purchase shares at the end of the current Purchase Period.
Frequently Asked Questions
How much can I contribute?
You can contribute up to 10% (whole percentages) of your biweekly base salary, but your annual contribution may not exceed $20,000. If your salary changes during the purchase period, your payroll deductions will not change until the following Purchase Period (i.e., if your election results in $15 per pay period deducted from your pay that $15 will continue even if your salary changes mid Purchase Period) period deducted from your pay, that $15 will continue even if your salary changes mid-Purchase Period). Payroll deductions are taken on an after-tax basis.
If my salary changes during a Purchase Period, does my contribution change?
No. The percentage you elect is a function of your salary at the start of the Purchase Period, meaning the actual dollar amount you are contributing will remain constant throughout the entire Purchase Period. In the following Purchase Period, your actual dollar amount will increase reflecting your new annual base salary. In other words, your salary is frozen for the duration of the current Purchase Period for the purposes of the ESPP.
May I increase or decrease my payroll deductions during a Purchase Period?
No. You must wait until the next Enrollment Period to increase or decrease the payroll deductions, effective in the next Purchase Period. You may withdrawal from participation at any time: see “Can I withdraw from the Plan at any time?.”
May I make a cash contribution to the Plan in addition to my payroll deduction?
No. Contributions can only be made via after-tax payroll deductions.
Do I automatically own a share of NRG common stock as soon as its cost has been deducted
f
ti
?
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from my compensation?
No. You own the stock once the Purchase Period has closed either on June 30 or December 31, and your discounted shares have been deposited in your Morgan Stanley Smith Barney account.
Frequently Asked Questions
What happens to the shares purchased for me?
After the purchase at the end of the Purchase Period, either on June 30 or December 31, your shares will be delivered to your Morgan Stanley Smith Barney account as soon as administratively feasible (typically within a week).
How can I find out the number of shares purchased for me?
Morgan Stanley Smith Barney will send you an Account Statement with each purchase. You can view the total number of shares purchased for you as well as other pertinent information by visiting the ESPP participant website at https://www.benefitaccess.com. You will need your log-in credentials (User Name and Password) which will be provided to you upon your first actual share purchase.
When can I sell shares purchased through the Plan?
Shares purchased via the NRG ESPP are subject to a 1 year Holding Period. If shares are purchased on December 31, 2011, you will not be able to sell them until January 2, 2013. If your employment with NRG terminates, the Holding Period no longer applies. You will be subject to tax obligations at the time of the sale. Participants remain subject to the Company's Security Trading and Non-Disclosure Policy.
What happens if there is a stock split, stock dividend or other change affecting NRG common
stock?
stock?
Your shares reserved under the Plan will be adjusted proportionately in the event of a stock split or stock dividend. In the event of any other change affecting NRG’s common stock, the Board of Directors of NRG will review the potential for necessary adjustments.
Will NRG stock become an option in the 401(k) plan?
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Will NRG stock become an option in the 401(k) plan?
Having NRG common stock as an option in the 401(k) adds an additional layer of administrative and fiduciary complexity to the 401(k) plan. NRG is using the ESPP, which offers employees a 15% discount, as the preferred method for employees to obtain NRG common stock.
Frequently Asked Questions
Is my right to purchase shares under an ESPP transferable?
No. The Plan is designed as a benefit only for NRG employees.
What are the Tax Implications of buying/selling ESPP shares?
Since the NRG ESPP is considered a “qualified” plan by the IRS you are not immediately liable for the Since the NRG ESPP is considered a qualified plan by the IRS, you are not immediately liable for the 15% difference between the discounted purchase price and the Fair Market Value (FMV) when the shares are purchased. If you sell your shares within six months after the Holding Period, your sale will be
considered a “disqualifying disposition” by the IRS and may be taxed less favorably than if you wait an additional six months.
NRG recommends that you speak with a tax advisor before buying or selling any securities, including participation in the ESPP.
What is a Disqualifying Disposition?
This happens when you sell shares acquired via an ESPP within 2 years of the beginning of the Purchase Period or within a year following the actual share purchase, whichever is longer; in the NRG ESPP, this equates to the six month period following the close of the Holding Period (assuming continued
employment with NRG).
In a Disqualifying Disposition, you will owe ordinary income tax on the value of the 15% discount. For example, if you purchased 1 share at $21.25, which represented a 15% discount off the Fair Market Value (FMV) of $25, you would owe ordinary income tax on $3.75, regardless of whether you sold the stock for a gain or loss.
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The impact of this transaction will depend on your specific financial situation, as well as other factors including the timing of your sale. NRG recommends that you speak with a tax advisor before buying or selling any securities, including participation in the ESPP.
