Post-IPO Planning Overview - Morgan Stanley - Fa

Please refer to important information, disclosures and qualifications at the end of this material.

Pre-IPO/Post-IPO Planning Overview

John Lopez Financial Advisor Managing Director – Wealth Management 2775 Sand Hill Road – Suite 120 Menlo Park, CA 94025 P: 650-926-7695 [email protected]

Brendan O’Brien Financial Advisor Vice President – Wealth Management 2775 Sand Hill Road – Suite 120 Menlo Park, CA 94025 P: 650-926-7687 [email protected]


Table of Contents Section 1

Wealth Management Team

Section 2

Overview

Section 3

10b5-1 Preset Diversification Program®

Section 4

Equity Hedging and Monetization Strategies

Section 5

Loans Secured by Restricted and Control Stock

Section 6

Gifting of Restricted and Control Stock

Section 7

Executive Financial Services (“EFS”) Competitive Advantage

2


Section 1

Wealth Management Team

3


WEALTH MANAGEMENT TEAM

The Silicon Valley Group at Morgan Stanley For the past 25 years, the Silicon Valley Group has been serving corporate executives, entrepreneurs and ultra high net worth families. Our wealth advisory platform allows us the ability to provide tactical and macro driven solutions customized to our client needs. Our team approach leverages our background in financial planning, portfolio structuring, wealth transfer, estate planning as well as control and restricted stock services. We believe we are uniquely positioned and experienced to deliver the broad range of services that Morgan Stanley has to offer. Our platform includes the following: Investment Management Services: •

Customized individual stock and ETF portfolio solutions diversified across global capital markets

•

Individual non-fee based bond portfolios with customized duration and credit quality

•

Access to in-house Portfolio Management with a combined 45+ years of experience

•

Complete portfolio transparency of fees and expenses

Wealth Transfer and Financial/Estate Planning: •

Ultra high net worth planning tools combining cash-flow modeling, asset preservation and risk management

•

Pre-IPO estate planning solutions

•

Charitable pursuit services and strategies for retirement and education funding

•

Access to both internal and external legal services

Liquidity and Monetization Services: •

10b5-1 trading plan drafting advisory and execution capabilities

•

Hedging and monetization solutions for concentrated control and restricted stock

•

Stock option and restricted stock administration services

•

Access to lending services


WEALTH MANAGEMENT TEAM

The Silicon Valley Group JOHN LOPEZ

John Lopez is a Managing Director and Corporate Client Group Director with Morgan Stanley. He is a Senior Wealth Advisor with over 25 years of experience in Private Client Wealth Management. John joined Morgan Stanley and its predecessor firms in 1987 and has been ranked as Barron’s Top 100 Wealth Advisors (2007)*. John focuses his practice on the complex needs of the high and ultra high net worth families. John has extensive experience in pre-IPO planning and estate planning strategies for entrepreneurs and senior executives as well as a background in employee benefit plan implementation and execution for publicly traded corporations. John holds a BA in both Finance and Economics from California State University at Chico. He is also the founding member of the Silicon Valley Group at Morgan Stanley and lives in Portola Valley with his wife and three boys. BRENDAN O’BRIEN

Brendan O’Brien is a Financial Advisor and Financial Planning Specialist with Morgan Stanley. Brendan joined the firm in 1999 and has over 14 years of experience in advising clients and corporate executives on liquidation strategies for control and restricted stock. As a member of the Silicon Valley Group, he also specializes in working closely with our Executive Financial Services group to help ensure corporate executives and members of senior management meet any regulatory and reporting requirements associated with stock and option execution. As a financial planning specialist Brendan works closely with our clients to provide a high level of individualized service and investment strategies consistent with their individual financial goals and needs. Brendan holds a BS in Finance from Santa Clara University. In his spare time he is an avid lacrosse fan and contributor in the community volunteering time to coach and coordinate collegiate lacrosse leagues nationally. He currently lives in Burlingame with his wife and two sons. ALEX KAMINARIS

Alex is a Portfolio Manager and Financial Advisor at Morgan Stanley with 12 years of experience. As a member of the Silicon Valley Group, Alex overseas the discretionary management of client accounts and portfolio positioning. Alex oversees the implementation and framework for the team's customized composite portfolios based on yield enhancement, dividend growth equities, and multi-asset class macro ETF strategies. Alex was previously with J.P. Morgan’s Private Bank in New York focused on the firm’s Ultra-High Net Worth non-US clients. As an analyst, Alex focused on portfolio and risk management across all asset classes including non-traditional and alternative asset classes such as hedge funds and private equity. Previous to that, Alex was with J.P. Morgan Partners, L.P., the firm’s private equity arm with exposure to Leverage Buyout Opportunities & Venture Investments. Alex holds a BS in Economics and a BA in International Studies from Johns Hopkins University.


Section 2

Overview

3


OVERVIEW

Timeline Pre-IPO

Custody Services

Tax and Estate Planning

• Security Safe Keeping

• Outright Gifts

• Record Keeping

– Tax Free

• Splitting/Gifting

– Taxable

• Online Access

• Leveraged Gifts – Grantor Retained Annuity Trust (“GRAT”) – Charitable Lead Annuity Trust (“CLAT”) – Blind Trust • Stock Option Exercise – NQSO – ISO

4


OVERVIEW

Custody Services and Benefits Pre-IPO

Security Safekeeping

Record Keeping

Splitting/Gifting

Online Access

• Private/Public stock

• Property registered

• Process and record all

• Track positions

certificates housed in

and reported in

Morgan Stanley Wealth

shareholder’s name

• Access Morgan • Handle gifting and

Management’s Vault • Position included on • Avoid potential loss of

splits

the monthly statements

other transfers

Stanley Wealth Management resources

the physical certificate and fees/deposits

• Work with the

required to replace

Issuer and their

certificate

Transfer Agent to facilitate the clearance of shares held in electronic statement form at the agent through the Direct Registration System (DRS)

5


OVERVIEW

Timeline Post-IPO

Restricted Stock

Risk Management

Monetization and Diversification

Tax and Estate Planning

• Regulatory

• Type of Risk

• Monetization

• Estate Planning

– Rule 144

– Market

– Sales

– Outright Gifts

– Section 16

– Industry

– Margin Loan

– Leveraged Gifts

– Company Specific

– Covered Call Writing

• Philanthropy

– Collar/Loan

• Manner of Gift

• Corporate Policy – Blackout Period • Contractual – IPO Lock Up

• Sales – Open Market – 10b5-1 Plan

– Prepaid Forward • Diversification

• Administrative Support

– Block

– Asset Class

• Cleansing/Processing

– Secondary

– Investment Style

• Hedging

– Outright – Split Interest • Recipients of Gift – Public Charity – Private

– Protective Put

– Foundation

– Collar

– Hybrid

– Prepaid Forward • Exchange Fund

6


OVERVIEW

Custody Services and Benefits Post-IPO

Prepare Restricted Share Transactions

Administration Support

Cleaning/Processing

Hedging/Borrow

• Interface with Issuer’s

• Preparation and

• Work with Issuer’s

• Securities must be

Counsel to review

processing of required

Counsel to ensure that

custodied at Morgan

proposed transactions

documentation

the Transfer Agent

Stanley Wealth

receives appropriate

Management

and help ensure compliance with

– Form 144

instructions and

regulatory or

– Seller’s Rep Letter

contractual restrictions

– Broker’s Rep Letter

• Clean restricted shares

– Additional requests

as per SEC regulations

per Issuer’s Counsel

documentation

• Pledged for margin loan • Hedging or monetizing

to settle restricted trades

7


OVERVIEW

Income Tax Considerations Stock and Stock Options Planning

Non-Qualified Stock Options (“NQSO”)

Incentive Stock Options (“ISO”)

• Very broadly speaking, upon the exercise of an NQSO, the difference between the then fair market value and the exercise or strike price (“the spread”) is taxed as compensation for Federal income tax purposes. Future appreciation, if any, is treated as capital gain and taxed at a preferential rate if the stock is held for more than one year after the date of exercise

• Upon exercise of an ISO, the spread is not taxed as compensation but is treated as an adjustment item for alternative minimum tax (AMT) purposes. After exercise, if the stock is held for the longer of one year from the exercise date and two years from the date the option was granted, all appreciation over the strike price will be considered capital gain when the stock is sold. Some or all of any AMT paid may be available as a credit in the year the stock is sold

– The benefit of exercise in advance of a liquidity event is, therefore, the potential for a reduced tax burden on future appreciation, if any.

– Exercise of an ISO prior to a liquidity event (i.e., when the spread is lower) can minimize or eliminate AMT exposure and starts the individual’s holding period. Exercise early in the year can also give the executive more flexibility in terms of making a disqualifying disposition by year end and/or having the liquidity to pay any AMT by April 15 of the year after exercise. Clients should consult with their tax advisors before undertaking any strategy

– Additional risk, however, is introduced through the investment of capital (to pay the strike price and any tax liability) for an uncertain tax benefit – Clients should consult with their tax advisors before undertaking any strategy

8


OVERVIEW

Employee Issued Stock Options

Registration of Shares for Sale

• S-8 Registration: Securities Acquired Through Employee Stock Benefit Plans – If, however, the employee IS an Affiliate of the Issuer, the stock is not freely saleable. In this case, either the sale must be made using an exemption, or a registration statement must be in effect covering resale. The exemption provision normally relied upon is Rule 144 – An S-8 registration statement covers the issuance of stock from the corporation to an employee pursuant to an employee stock option plan or other type of employee benefit plan (e.g., stock purchase plan or stock option plan). Assuming that an S-8 registration statement is in effect and that the participating employee is NOT an Affiliate, the employee would have freely saleable stock

9


OVERVIEW

Restricted Stock Overview Regulatory—Rule 144

Key Points

Rule 144—Overview

• Rule 144 under the Securities Act is a safe harbor

Two Primary Categories:

provision that provides an exemption from the requirement to register certain securities • Various conditions must be met to sell Restricted Stock or Control Stock pursuant to Rule 144 • When selling their stock, Affiliates must be mindful of short-swing profit and reporting obligations (Section 16)

Restricted Stock: • Unregistered stock which has been issued by the Company or sold by an Affiliate of the Company in a private transaction. Control Stock: • Stock owned by an Affiliate of the Issuer Rule 144 Conditions to Resale: • Holding Period • Volume Limitations • Notice of Sale • Manner of Sale • Current Public Information

10


OVERVIEW

Restricted Stock Overview (cont’d) Regulatory—Section 16

Section 16 Considerations

• 16(a) Reporting Requirements – Every officer or director of an Issuer which has a class of equity security registered with the SEC under the Act and every beneficial owner of more than 10% of such equity interests in the Issuer (collectively, “Affiliates”) must file reports with the SEC disclosing any equity interest in the Issuer (including options and derivative securities) as well as any changes in such ownership interest • 16(b) Liability – Any profit by an Affiliate from any purchase and sale (or any sale and purchase) of any equity security of the Issuer (including options and other derivative securities) within any six-month period is recoverable by the Issuer • 16(c) Short Sales – Section 16(c) prohibits an Affiliate from selling short any equity security of the Issuer, but this does not prohibit selling calls or buying puts with the respect to securities held by the Affiliate

11


OVERVIEW

SEC Rule 144 Resale Reference Chart

12


OVERVIEW

Restricted Stock Overview Regulatory—Corporate Blackout Periods

Key Points

Preset Blackout Period

• Companies impose blackout periods upon their

• A blackout period is imposed for a preset time

employees to limit potential insider trading liability

period and subsequent to a company’s earnings announcement

• Rule 10b5-1 provides an affirmative defense against allegations of trading on material non

Flexible Blackout Period

public information. Many companies now exempt employees from otherwise applicable blackout

• Company announces from time to time when

period restrictions if a 10b5-1 Preset

employees are prohibited from transactions in the

Diversification Program (PDP) has been

company stock

established in accordance with Rule 10b5-1(c)

13


OVERVIEW

Restricted Stock Overview (cont’d) Contractual—Lockup Agreements

Key Points

Restrictions

Length

• A Lockup Agreement is a

• Generally, a lockup provides

• Varies from agreement to

contractual commitment that is

that restricted parties will not

agreement (i.e., 60, 90, or 180

typically made to the

offer, sell or pledge the

days)

underwriters of an offering by

Company ‘s stock (or enter into

the Company , its executive

derivatives on the Company ’s

officers, directors and principal

stock such as options) without

longer than lockups relating to

stockholders

prior consent of the lead

secondary offerings (generally

underwriter

180 days for an IPO versus 90

• This contractual commitment is

• IPO lockups typically last

days for a secondary offering)

typically secured in connection with an offering in order to – Foster price stability after the offering, and – Encourage long-term employee ownership

14


Section 3

10b5-1 Preset Diversification Program®

15


10B5-1 PRESET DIVERSIFICATION PROGRAM

Affirmative Defenses Under SEC Rule 10b5-1(c)

Rule 10b5-1(c)(1): Affirmative Defense for Pre-Established Trading Plans • This affirmative defense protects persons by recognizing that material nonpublic information is not de facto a factor in trading executions, provided such trades are made pursuant to a pre-existing contract, instruction or plan. At Morgan Stanley, these are known as a Preset Diversification Program (“PDP”) or 10b5-1 Trading Plan • It provides that a person’s sale (or purchase) of securities is not, in fact, “on the basis of” material nonpublic information, if that person can demonstrate that before becoming aware of that information, that person had: – Entered into a binding contract to sell (or purchase) the security, – Instructed another person to sell (or purchase) the security for the instructing person’s account, or – Adopted a written plan for trading securities • This written contract, instruction and plan must either: – Specify the amounts, prices and dates for such securities to be sold (or purchased), or – Be based on a written formula for determining such parameters, or – Delegate all trading discretion and decisions to a person who does not possess material nonpublic information, and – Prevent the exercise of subsequent influence over the trading parameters by the person providing the contract, instruction and plan

16



Key Benefits of a PDP

1

Affirmative defense against potential claims of insider trading

2

Access to public markets without regard to corporate blackout periods

3

Ability to dispose of stock on a predictable and consistent basis

4

Potential to mitigate signaling issues generally associated with sales by insiders

5

Convenience of putting diversification on “auto-pilot”

6

Discipline during volatile market fluctuations

7

Customization of the selling plan to reflect the particular monetization needs of each individual seller

8

Potential to facilitate the organized disposition of shares by multiple company insiders

9

Reduce the risk associated with a concentrated equity position through diversification

17



A Common Dilemma and Potential Solution Illustrative Timeline

Typical Corporate Window Trading Program 1/1 Earnings Release

4/1 Earnings Release

Blackout


Blackout


Blackout

Blackout

Trading Permitted During Window Periods

Certain Events May Cause Trading Windows to Close 1/1 Earnings Release

4/1 Earnings Release Litigation Settlement Negotiations



Internal Receipt Of Clinical Trial Results

Acquisition Negotiations

Blackout Trading Prohibited during Window Periods when Key Employees or Insiders are in Possession of Material Non-public Information Trading Pursuant to a 10b5-1 Plan 1/1 Earnings Release 10b5-1 Plan Implemented

4/1 Earnings Release Litigation Settlement Negotiations

7/1 Earnings Release Internal Receipt of Clinical Trial Results

10/1 Earnings Release Acquisition Negotiations

Trading Permitted Pursuant to Terms of Plan

Notes 1. The above illustration is based on hypothetical conditions and are not representative of any specific company stock

18



Sample Selling Strategies

• Morgan Stanley works with each seller participating in a Preset Diversification Program to develop a customized strategy to help meet the specific monetization and diversification objectives of that individual seller

Regular Periodic Selling • Sell 7,500 each day at the market price • Sell 50,000 each month at the market price Use of Limit Prices • Sell up to 5,000 per day, but no sales at a price of less than $20 • Sell a total of 250,000 shares at a price of not less than $15 Quantity Limits • Sell no more than 10% of the daily volume as reported on NASDAQ

Tax-Advantaged and Option-Sensitive Selling • Sell higher basis and near-to-expire option shares • Cashless option exercise programs • Exercise and sale of options to reduce AMT exposure Combination Strategy • Incorporate elements of the above into formulaic or hybrid solutions tailored to the individual needs of each seller

19



Other Considerations Clients Executing a PDP Should Keep the Following Important Considerations in Mind

• PDP should be approved by the compliance officer or general counsel of the Company • A PDP may require a cessation of trading activities at times when lockups may be necessary to the Company (e.g., follow-on offerings, secondary offerings, mergers, etc.) • A PDP does not generally alter the restricted stock regulatory requirements (e.g., Rule 144, Section 16, Section 13D) which may otherwise be applicable • A PDP that is modified or terminated early may weaken or lose the benefit of the affirmative defense • Public disclosure of a PDP (e.g., via press release) may be appropriate for some insiders • Most companies will permit a PDP to be implemented only during open window periods • Some companies impose a mandatory waiting period between the execution of a PDP and the first sale pursuant to a PDP

20



10b5-1 Trading Plans Stats The Washington Service Companies with 10b5-1 Plans in the S&P 500 Index (2)

Source

Year

Total

No. of Companies (1) With 10b5-1 Filings

2012

499

259

52

2011

497

243

49

2010

491

222

45

2009

489

198

40

2008

486

183

38

2007

483

222

46

2006

475

188

40

2005

467

172

37

2004

459

125

27

10b5-1 Penetration %

The Washington Service tracks insider trade information filed with the Securities and Exchange Commission. The above numbers are compiled by the Washington Service from Form 4 filings in the period listed. Information contained herein was obtained from sources believed reliable but the accuracy and completeness thereof cannot be guaranteed. Information contained herein is subject to change. 31 December 2012

Notes Reprinted with the permission of Washington Service. (301)-913-5100—www.washingtonservice.com 1. Reflects a distinct count of companies for the year 2. Based on companies in the S&P 500 Index as of December 31st of each reporting year

21


Section 4

Equity Hedging and Monetization Strategies

22


EQUITY HEDGING AND MONETIZATION STRATEGIES

Alternative Exit Strategies—Covered Call

• The costs, commissions, fees, interest charges or other expenses associated with the OTC option strategies described in these materials will vary on a transaction-by-transaction basis because they are calculated based on a number of factors specific to each transaction, including interest rates, expected dividend yield, and the liquidity and volatility of the underlying asset. Additionally, given the customized nature of OTC options contracts, other risks associated with the negotiated terms of a particular option transaction may influence the cost of the option

Hypothetical Situation

Hypothetical Strategy

• The investor owns shares of XYZ Corporation (“XYZ”), has a neutral investment view of the stock, and would like to generate income by overwriting the position

• The current price of XYZ stock is $50.00 per share

• The investor is willing to forgo any potential upside price appreciation above a target stock price

• The investor sells to Morgan Stanley a six-month call option with a strike price of $55.00 (110.00%) and receives an upfront premium of $4.00 (8.00%) per share • The risk of this trade is the forgone potential upside price appreciation of the stock above the call strike price minus the premium of $4.00

Payout Table at Maturity $ Stock Price at Maturity

Call Strike Price

Final Call Value

Initial Call Value

Position Value at Maturty

(1)

(2)

(3)

30.00

55.00

0.00

4.00

34.00

40.00

55.00

0.00

4.00

44.00

50.00

55.00

0.00

4.00

54.00

60.00

55.00

5.00

4.00

59.00

70.00

55.00

15.00

4.00

59.00

[For Illustrative Purposes Only]

Notes 1. Final Call Value is the greater of (i) Stock Price at Maturity—Call Strike Price and (ii) $0.00 2. Initial Call Value is the premium received by the investor at inception 3. Position Value at Maturity = Stock Price at Maturity - Final Call Value + Initial Call Value

23



Alternative Exit Strategies—Prepaid Forward

A prepaid forward is a strategy enabling the investor to hedge against a decline in an equity position and gain immediate liquidity while forgoing potential upside price appreciation above a certain level. In the strategy, the investor purchases a put option with the strike price at the floor price and sells a call option with the strike price at the ceiling price. The investor monetizes this position by contractually agreeing to deliver a variable amount of shares, or its cash equivalent, at the expiration of the contract. The delivery amount at maturity depends on the stock price at maturity in relation to the floor price and ceiling price. The investor is protected below the floor price and forgoes any potential upside price appreciation beyond the ceiling price Position Value at Maturity Position Value (%)

+∆% Floor Price

100%

Ceiling Price

- ∆%

Stock Price at Maturity Underlying Stock

Prepaid Forward and Stock

[For Illustrative Purposes Only]

24



Alternative Exit Strategies—Prepaid Forward Clients Executing a PDP Should Keep the Following Important Considerations in Mind

• A prepaid forward potentially generates 60%–90% of the stock’s current value immediately while limiting downside exposure and capping some potential upside price appreciation – Investor forfeits price appreciation above the ceiling price – 100% of purchase proceeds can be invested in marketable securities – Purchase price may not be taxable until maturity – There is no margin call risk – The risk of entering into a prepaid forward contract is the forgone potential upside price appreciation in the stock above the ceiling price – Variations of the Prepaid Forward – drawdown: The investor can draw down the proceeds at any point in the term of the contract, up to the maximum of the present value of the purchase price – accelerated Return: The investor can participate in twice the price appreciation of the stock up to the ceiling price. However, the prepayment amount is generally lower than the traditional prepaid forward – uncapped: The investor can participate in the full price appreciation of the stock. However, the prepayment amount is generally lower than the traditional prepaid forward

25



Alternative Exit Strategies—Prepaid Forward (cont’d)

• The costs, commissions, fees, interest charges or other expenses associated with the OTC option strategies described in these materials will vary on a transaction-bytransaction basis because they are calculated based on a number of factors specific to each transaction, including interest rates, expected dividend yield, and the liquidity and volatility of the underlying asset. Additionally, given the customized nature of OTC options contracts, other risks associated with the negotiated terms of a particular option transaction may influence the cost of the option

Hypothetical Situation

Hypothetical Strategy

• The investor owns shares of XYZ Corporation (“XYZ”) and would like to hedge against a decline in the stock

• The current price of XYZ stock is $50.00 per share • The investor owns 1,000,000 shares and enters a one year prepaid forward contract with Morgan Stanley. The investor receives a purchase price of $42.00 (84.00%) at inception in exchange for an obligation to deliver a number of shares based upon the settlement price determined at maturity. The strategy has a floor price of $45.00 (90.00%) and a ceiling price of $60.00 (120.00%)

• The investor wishes to maintain exposure to partial upside price appreciation • The investor wishes for substantial liquidity without realizing a taxable sale today

• The risk of this trade is the forgone potential upside price appreciation of the stock above the ceiling price of $60.00

Payout Table at Maturity Client Owes—Cash Settlement Stock Price at Maturity $

Floor Price $

Downsid e Hedge $

Forgone Upside $

(1)

(2)

30.00

45.00

-

15.00

+

0.00

40.00

45.00

-

5.00

+

50.00

45.00

-

0.00

60.00

45.00

-

70.00

45.00

-

Client Owes—Physical Settlement Total Owed $

Aggregate Total Owed Delivery Ratio $

=

30.00

30,000,000

0.00

=

40.00

+

0.00

=

0.00

+

0.00

0.00

+

10.00

Client Keeps

Shares Delivered

Residual Shares

Residual Value $

1.000

1,000,000

0

0

40,000,000

1.000

1,000,000

0

0

45.00

45,000,000

0.900

900,000

100,000

5,000,000

=

45.00

45,000,000

0.750

750,000

250,000

12,500,000

=

55.00

55,000,000

0.785

785,710

214,290

10,714,500

(3)

[For Illustrative Purposes Only] Notes 1. Downside Hedge is the greater of (i) Floor Price—Stock Price at Maturity and (ii) $0.00 2. Forgone Upside is the greater of (i) Stock Price at Maturity—Ceiling Price and (ii) $0.00 3. Delivery Ratio = 1.00 if Stock Price at Maturity is below Floor Price. The Delivery Ratio = (Floor Price) / (Stock Price at Maturity) if Stock Price at Maturity is between Floor Price and Ceiling Price. The Delivery Ratio = [1 – (Ceiling Price - Floor Price) / (Stock Price at Maturity)] if Stock Price at Maturity is above Ceiling Price

26


Section 5

Loans Secured by Restricted and Control Stock

27


LOANS SECURED BY RESTRICTED AND CONTROL STOCK

Elements of Due Diligence on a Loan

• Determination of Affiliate or Insider status with Issuer’s Counsel • Determine Borrower’s Ability to Sell – SEC Rule 144 holding periods – Blackout Periods-Period during which the executives and key employees are restricted by their company’s insider-trading policy from conducting company-stock transactions • Determine if securities can be pledged at all – Company insider trading policy regarding pledging company stock • Contractual restrictions – IPOs – Lock up agreement – Employment arrangements – Rights of first refusal (shareholder agreement) • Currency of company’s published financial filings with the SEC • Confirm that Company will clear shares upon any sale by MSSB as creditor

28


LOANS SECURED BY RESTRICTED AND CONTROL STOCK

Notable Considerations

Pledgee/Lender

Pledgor

• Loan facilities with recourse allow the pledgee to tack back to the acquisition date of the stock pledged if selling in a demand/default scenario. Therefore, if a Control Person/Affiliate pledges restricted stock for a third-party borrower they must also guarantee the loan facility

• If the pledgee sells stock in a demand/default scenario the Form 4 filing will reflect this. Therefore, it is preferential for the client/pledgor to sell stock on their own behalf

• The pledgee is not a Control Person/Affiliate of the Issuer, therefore, as pledgee selling in a demand/default scenario

• If the pledgee sells stock in a demand/default scenario the client/pledgor must aggregate their sales with the sales of the pledgee during any period of three months within six months of the demand/default

– Control stock is freely salable – Restricted stock held for greater than six months but less than one year is salable pursuant to Rule 144, provided the current public information requirement is met – Restricted stock held for greater than one year is freely salable pursuant to Rule 144(b)(1) • The pledgee is not subject to Issuer closed windows/blackouts

29


Section 6

Gifting of Restricted and Control Stock

30


GIFTING OF RESTRICTED AND CONTROL STOCK

Gifts of Restricted or Control Stock—Some Quirks to Remember

• If Donating CONTROL Shares – Donor who is an Affiliate must aggregate his or her sales with any sales by the donee for one year after the date of the gift – Donee who is not an Affiliate can sell freely without restrictions and without needing to comply with Rule 144 (Remember: An Affiliate must ALWAYS comply with Rule 144) • If Donating RESTRICTED Shares – Donee must wait the required holding period (six months or one year) after the shares were acquired by the donor from the Issuer or an Affiliate before selling (i.e., donee can tack to the donor’s holding period) • If Donating Shares that are both CONTROL and RESTRICTED – Donor must aggregate for one year; and – Both donor and donee must wait the required holding period before selling

31


Section 7

Executive Financial Services (“EFS”) Competitive Advantage

32


EXECUTIVE FINANCIAL SERVICES (“EFS”) COMPETITIVE ADVANTAGE

Executive Financial Services

Rule 144 Market Share Report (1) Calendar Years 2008–2012

Deutsche 3.1%

Other Brokers 9.9%

Experienced

• Morgan Stanley’s Executive Financial Services (“EFS”) Department, a specialized team of 25 experienced professionals who aim to assist the Financial Advisor in delivering the firm’s wealth management services to corporate executives and holders of concentrated positions. Transacting in restricted shares can be a complicated process and EFS is there to help ensure that both the Financial Advisor and client have as much support as needed

Services

• EFS can assist in the compliance of Securities and Exchange Commission (“SEC”) Rule 144, administration and execution of your 10b5-1 Preset Diversification Program, collateral loans against restricted and control securities, financing and facilitation of employee stock options transactions, corporate repurchase programs for executives or directors as well as hedging and liquidation strategies

Market Leaders

• Since 2008, Morgan Stanley Wealth Management’s group has ranked No.1 in Rule 144 business (1) and has

Morgan Stanley (1) 22.3%

E-Trade 3.6% Charles Schwab 3.7% Credit Suisse 6.2% Fidelity Investments 6.2% JP Morgan Chase 7.2%

Bank of America Merrill Lynch 20.2%

UBS 8.6%

Goldman Sachs Group 9.1%

– Conducted the due diligence to facilitate the potential sales of over $54.4Bn (1.9Bn + shares) under SEC rules – Filed over 29,800 Notices of Proposed Sales under Rule 144 with the Securities and Exchange Commission Knowledgeable

• Executive Financial Services, partnering with Financial Advisors designated (“EFS”) Directors, offers premier service while possessing the knowledge to help ensure compliance with SEC rules and regulations

1. Source: The Washington Service tracks insider trade information filed with the Securities & Exchange Commission. The above data is compiled by the Washington Service from Form 144 filings in the period from 1/1/2008 to 12/31/2012. Data from the period 1/1/2008 to 5/31/2009 reflects the formerly separate Restricted Securities businesses of the Global Wealth Management Group of Morgan Stanley & Co. LLC and the Smith Barney division of Citigroup Global Markets Inc. that now form Morgan Stanley Smith Barney LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC. Information contained herein was obtained from sources believed reliable but the accuracy and completeness thereof cannot be guaranteed. Information contained herein is subject to change.

33



Competitive Advantage 10b5-1 Preset Diversification Program

• Morgan Stanley has a competitive advantage in the 10b5-1 PDP business

Experienced

• Morgan Stanley (1) helped pioneer the use of creative structures to facilitate the sale of stock by Affiliates outside of restrictive blackout periods as early as 1997

Customization

• Morgan Stanley’s 10b5-1 PDP Team works closely with the client and his/her Financial Advisor to structure, draft and execute customized PDP strategies which are in sync with the client’s risk management needs and investment objectives

Market Leaders

• Since the adoption of SEC Rule 10b5-1 in August of 2000, Morgan Stanley Wealth Management’s proprietary 10b5-1 PDP Trading Desk has – Monetized over $45Bn in sales (1.2Bn + shares) pursuant to Rule 10b5-1 – Adopted, monitored and executed over 18,100 customized selling programs

Team Approach

• Morgan Stanley’s 10b5-1 PDP Team is comprised of an experienced group of firm professionals

Structure

• Morgan Stanley has been recognized as one of the first major firms on Wall Street to invest in the establishment of a separate 10b5-1 PDP Trading Desk to preserve open lines of communication between the firm’s PDP clients and their Financial Advisors

1. Source: The Washington Service tracks insider trade information filed with the Securities & Exchange Commission. The above data is compiled by the Washington Service from Form 144 filings in the period from 1/1/2008 to 12/31/2012. Data from the period 1/1/2008 to 5/31/2009 reflects the formerly separate PDP businesses of the Global Wealth Management Group of Morgan Stanley & Co. LLC and the Smith Barney division of Citigroup Global Markets Inc. that now form Morgan Stanley Smith Barney LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC. Information contained herein was obtained from sources believed reliable but the accuracy and completeness thereof cannot be guaranteed. Information contained herein is subject to change.

34



2005–2012 10b5-1 Market Share

• With more than 25% of share value, Morgan Stanley Wealth Management is the market leader in Rule 10b5-1 trading (1)

2005–2012 10b5-1 Market Share (1) Value $Bn

Total %

36.8

25.56

Bank of America

25.9

18.01

3

JPMorgan Chase & Co.

12.1

8.40

4

UBS AG

9.9

6.93

5

Goldman Sachs Group Inc.

9.6

6.71

6

Fidelity Investments

7.8

5.47

7

Allen & Co.

5.9

4.11

8

Credit Suisse Group

5.8

4.07

9

Charles Schwab Corp.

4.3

3.03

10

Deutsche Bank AG

3.5

2.47

Top 10 Total

122.1

84.75

Total

144.1

100.00

Rank

Broker

1

Morgan Stanley

2

(1)

Reprinted with the permission of Washington Service. (301)-913-5100—www.washingtonservice.com 1. Source: The Washington Service tracks insider trade information filed with the Securities & Exchange Commission. The above data is compiled by the Washington Service from Form 144 filings in the period from 2/1/2005 to 12/31/2012. Data from the period 2/1/2005 to 5/31/2009 reflects the formerly separate PDP businesses of the Global Wealth Management Group of Morgan Stanley & Co. LLC and the Smith Barney division of Citigroup Global Markets Inc. that now form Morgan Stanley Smith Barney LLC. The above data also includes transactions from Morgan Stanley & Co. LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC. Information contained herein was obtained from sources believed reliable but the accuracy and completeness thereof cannot be guaranteed. Information contained herein is subject to change.

35



Disclaimers

• This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. This material was not prepared by the Morgan Stanley research department. It was prepared by Morgan Stanley sales, trading or other non-research personnel.Any such offer would be made only after a prospective investor had completed its own independent investigation of the securities, instruments or transactions, and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the accuracy or completeness of this material. Morgan Stanley Smith Barney has no obligation to provide updated information on the securities/instruments mentioned herein. • This material should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. This information is not intended to, and should not, form a primary basis for any investment decisions that you may make. Morgan Stanley Smith Barney is not acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended or under section 4975 of the Internal Revenue Code of 1986 as amended in providing this material. • Tax laws are complex and subject to change. This information is based on current federal tax laws in effect at the time this was written. Morgan Stanley Smith Barney and its affiliates do not render advice on tax and tax accounting matters to clients. This material was not intended or written to be used, and it cannot be used or relied upon by any recipient, for any purpose, including the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Each client should consult his/her personal tax and/or legal advisor to learn about any potential tax or other implications that may result from acting on a particular recommendation. • Options are not suitable for all investors. • Before engaging in the purchase or sale of options, potential clients should understand the nature of and extent of their rights and obligations and be aware of the risks involved, including, without limitation, the risks pertaining to the business and financial condition of the Issuer of the underlying security or instrument. Options investing, like other forms of investing, involves tax considerations, transaction costs and margin requirements that can significantly affect the profit and loss of buying and writing options. The transaction costs of options investing consist primarily of commissions (which are imposed in opening, closing, exercise and assignment transactions), but may also include margin and interest costs in particular transactions. Transaction costs are especially significant in options strategies calling for multiple purchases and sales of options, such as multiple leg strategies, including spreads, straddles and collars. If you are considering options as part of your investment plan, your Morgan Stanley Smith Barney Financial Advisor or Private Wealth Advisor is required to provide you with the "Characteristics and Risks of Standardized Options" booklet from the Options Clearing Corporation. Clients should not enter into options transactions until they have read and understood the Disclosure Document, as options are not suitable for everyone, and discuss transaction costs with their Financial Advisor or Investment Representative. Please ask your Financial Advisor, Private Wealth Advisor for a copy of the Characteristics and Risks of Standardized Options booklet. A copy of the ODD is also available online at: http://theocc.com/publications/risks/riskchap1.jsp. • Preset Diversification Program is a registered Trademark of Morgan Stanley Smith Barney LLC, protected in the United States and other countries. • © 2012 Morgan Stanley Smith Barney LLC. Member SIPC.

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Disclaimers Express Credit Line is currently offered through Morgan Stanley Smith Barney LLC. All credit facilities are subject to the underwriting standards and independent approval of Morgan Stanley Smith Barney LLC. The Express CreditLine account is a securities-based loan, which can be risky and is not suitable for all investors: Funds that are drawn cannot be used to purchase, carry or trade in securities, including, without limitation, to repay margin debt, and cannot be deposited into a Morgan Stanley Smith Barney LLC or other brokerage account. Portfolio Loan Accounts are provided by Morgan Stanley Bank, N.A. All credit facilities are subject to the underwriting standards and independent approval of Morgan Stanley Bank, N.A. Portfolio Loan Accounts may not be available in all locations. Rates, terms and programs are subject to change without notice. To be eligible for a Portfolio Loan Account, applicants must have a brokerage account at Morgan Stanley Smith Barney LLC, which shall serve as collateral for the Portfolio Loan Account. The ongoing availability of a Portfolio Loan Account is contingent on the client maintaining sufficient eligible collateral. The proceeds from a Portfolio Loan Account may not be used to purchase, trade, or carry margin stock, and cannot be deposited into a Morgan Stanley Smith Barney LLC or other brokerage account. Tailored Lending is provided by Morgan Stanley Private Bank, National Association. All credit facilities are subject to the underwriting standards and independent approval of Morgan Stanley Private Bank, National Association. Tailored Lending may not be available in all locations. Rates, terms and programs are subject to change without notice. To be eligible for Tailored Lending, applicants must maintain a sufficient amount of assets under management at Morgan Stanley or any of its affiliates. The ongoing availability of a credit facility of line of credit is contingent, in part on, the borrower maintaining sufficient eligible collateral, unencumbered liquidity, cash flow or any combination thereof. Some restrictions apply to loans used to purchase, trade, or carry margin stock, and cannot be deposited into a Morgan Stanley Smith Barney LLC or other brokerage account. Securities Based Lending (SBL) Risks: Borrowing against securities may not be suitable for everyone. Securities-based loans involve a high degree of risk and market conditions can magnify any potential for loss. Most importantly: (1) Sufficient collateral must be maintained to support your loan(s) and to take future advances (2) You may have to deposit additional cash or marginable securities on short notice (3) Some or all of your securities may be sold without prior notice in order to maintain account equity at required collateral maintenance levels and you will not be entitled to choose the securities that will be sold. These actions may interrupt your long-term investment strategy and may result in adverse tax consequences or in additional fees being assessed. (4) Morgan Stanley Smith Barney LLC or its affiliates (the Firm) reserves the right not to fund any advance request due to insufficient collateral or for any other reason (5) The Firm can increase your collateral maintenance requirements at any time without notice (6) The Firm may have the right to call securities-based loans at any time and for any reason. Morgan Stanley Smith Barney LLC is a registered Broker/Dealer, not a bank. Where appropriate, Morgan Stanley Smith Barney LLC has entered into arrangements with banks and other third parties to assist in offering certain banking related products and services. Investment services are offered through Morgan Stanley Smith Barney LLC, member SIPC. Unless specifically disclosed in writing, investments and services offered through Morgan Stanley Smith Barney LLC are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, any bank and involve investment risks, including possible loss of principal amount invested. Barron's “Top 100 Financial Advisors,” as identified by Barron's magazine, using quantitative and qualitative criteria and selected from a pool of over 800 nominations. Advisors in the Top 100 Financial Advisors have a minimum of seven years of financial services experience and $600 million in assets under management. Qualitative factors include, but are not limited to, compliance record, interviews with senior management, and philanthropic work. Investment performance is not a criterion. The rating may not be representative of any one client's experience and is not indicative of the Financial Advisor's future performance. Neither Morgan Stanley Smith Barney LLC nor its Financial Advisors pay a fee to Barron's in exchange for the rating. Barron's is a registered trademark of Dow Jones & Company, L.P. All rights reserved.

37 CRC # 747227 – 10/2013

Post-IPO Planning Overview - Morgan Stanley - Fa

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