What is a purchase period?
Some companies interchangeably use the terms "offering period" and "purchase period" when these are the same length (e.g. six months). Other companies have longer offering periods containing shorter purchase periods. In these situations, a purchase period is an interim period within an offering period, generally when the offering period is longer than six months (e.g. 12 months or 24 months).
Example: The offering period is 12 months. Shares are purchased at the end of each of two six-month periods (the "purchase date") within the 12-month offering period. The two purchase periods within the offering are: (1) January 2 through July 2; (2) July 3 through January 1.
With a "lookback" provision, the purchase price at the end of a purchase period is usually based on the fair market value on the first day of the offering (or on the date you enrolled, if later) or on the last day of the particular purchase period (whichever is lower). Therefore, when you have multiple purchase periods in the offering period you always compare the prices between the start of the full offering and the end of each purchase period.
Example: The offering period runs from January 1 through December 31, with two purchase periods: January 1 through June 30 and July 1 through December 31. For the first purchase period, the purchase price (and any discount from it) is based on the lower of the prices on January 1 and on June 30. For the second purchase period it is based on the lower of the prices on January 1 and on December 31.
The graphic below illustrates the timeline of a typical ESPP life-cycle. (Click on the image below to see a larger version in a new window.)
See a related article on all of the key dates and terms you must know before you participate in an ESPP.