Stock Transfer Agent Basics Dan Loeffler Chris Ward Relationship Manager Relationship Manager July 13th, 2017 © 2017 Wells Fargo Bank, N.A. All rights reserved. For public use.

What is a stock transfer agent? A transfer agent is appointed by a company to maintain records of investors’ ownership. A transfer agent provides a number of services to a company associated with issuing shares of publicly traded stock but their primary role is that of registrar (the record keeper).

Why do companies hire a transfer agent? The transfer agent’s services provide a cost effective way to meet many of the obligations that come with having shareholders, including complying with federal and state securities regulations. The transfer agent has the people, technology and expertise to handle ongoing maintenance of shareholder records, dividend payments, proxy mailings and complex transactions (mergers, acquisitions, tender offers, spinoffs, etc.)

Two types of shareholders: Registered and Beneficial Registered shareholders are serviced by the transfer agent. Beneficial shareholders are usually serviced by a third party, such as a brokerage firm.

Registered Shareowner Also known as “shareholders of record” These are people, groups or entities that hold shares directly in their own name on the company’s register. The issuing company, or its transfer agent, then keeps the records of ownership for the shareholder and provides services such as transferring shares, paying dividends, coordinating shareholder communications, and more. This ownership is represented by either a physical stock certificate or held in Direct Registration (DRS) in a “book” position in the name of the shareholder.

Beneficial Shareowner Beneficial shareowners hold their shares with a bank, broker or other financial institutions. When shares are kept in this manner, it is often referred to as keeping the shares in “street name.” On the transfer agents records these shares are primarily held in the name of a depository. Transfer Agent Registered Shareowner DTCC or CEDE Broker Beneficial Shareowner

Transfer agent responsibilities Dividend disbursement Investment plan services Cost basis tracking Annual meeting services Escheatment Lost shareholder searches Corporate Actions Maintain records of registered shareholders Share issuances Ownership changes

Dividend disbursement Calculate and pay dividends Payments made by check, direct deposit (ACH), and dividend reinvestment Deduct applicable back-up withholding and non-resident alien tax Tax reporting to IRS Routine W-9/W-8 BEN solicitation Issue duplicate copies of tax forms as requested by shareholder

Investment plan services Direct stock purchase/Dividend reinvestment plan Registered or bank sponsored plan Simple, low-cost program attracts potential investors Customizable plan delivers flexibility around investment methods and timing Ability to target “affinity groups” (e.g. customers) and even raise capital Grow your registered shareholders Establish a direct communication channel with investors Increase investor loyalty (registered holders tend to vote with management and hold shares for a longer period) Employee stock purchase plan Administration of employee enrollment according to your defined criteria Distribution of plan materials to eligible employees Ongoing enrollment/management including internet and telephone enrollment options Effective and accurate recordkeeping of plan participation Perform necessary tax and disclosure activities

Cost basis tracking Cost basis regulation effective January 1, 2011 required financial institutions such as transfer agent, banks and brokers to report cost basis to investors and to IRS for security transactions. Covered securities vs non-covered securities Acquisition price per share Acquisition date Adjusted cost basis

Annual meeting services Provide certified shareholder list Perform broker search and fill requests Insert and mail proxy materials to all registered shareholders and any outside stock plans Provide Affidavit of Mailing Provide telephone and internet voting options Provide daily reports of registered shareholder voting totals Tabulate proxies for all holders Provide final reports of voting for all holders Attend shareholder meeting and act as Inspector of Election

Escheatment of abandoned property Escheatment is the process of transferring lost or abandoned property to a state. How can securities like shares of stock become abandoned? This happens in a number of ways. Here are some of the more common: The shareowner is deceased, and left no will or living heirs The shareowner moved, but did not update their mailing address The securities are in an account that the shareowner forgot they had.

Lost shareholder search It’s in the best interest of the transfer agent and the company to locate shareholders instead of escheating the property Returned mail back to Shareowner Services Account is coded in system as undeliverable (if mail is returned twice, the account is deemed lost) Date in which the account was determined lost is recorded Conduct a national database search First search between 3 and 12 months from the time the account was deemed lost Conduct second search between 6 and 12 months after the first search Due diligence letter Prior to escheating the property to the state, a final attempt at contact is made

Corporate actions Paying Agent Exchange Agent Distribution Agent Tender Agent

Maintain records of registered shareholders Transfer agents maintain a record of ownership, or registrar, of issued and outstanding shares of stock. This record includes contact information for an issuer’s registered shareholders, as well as their account details. Note: Brokers maintain the records of beneficial shareholders. A transfer agent has the facilities to assist companies and shareowners with a wide variety or transactions all of which are very important in the process of maintaining records. Share Issuances DWAC’s and share movement through the DRS profile system Transfer of shares (Ownership Change)

Share issuances Electronic issuance of shares: Deposit or Withdrawal At Custodian (DWAC) Direct Registration System (DRS) Restricted Book-entry Physical issuance of shares: Stock certificate Typically certificates are issued for restricted stock

Sample issuance instruction letter

DWAC’s and share movement through the DRS profile system Deposit or Withdrawal At Custodian (DWAC) The DWAC program at DTC is used to transfer shares from the issuer’s transfer agent to a broker/participant or for repurchased shares, from a broker/participant to a transfer agent. Shares transferred are typically a result of a stock option exercise or employee plans. Direct Registration System (DRS) DRS allows registered shareholders to hold their shares in book entry form with the issuer’s transfer agent. The system allows shares to be transferred electronically between the broker/participant and the transfer agent. Transfer Agent  Broker/Participant Broker/Participant  Transfer Agent DRS supports the industry’s initiative for dematerialization of physical securities.

Broker initiates the DWAC DWAC process WFSS Broker Beneficial holder (options) Company Depository trust company (DTC) Cede & Co. A F B E C D Broker initiates the DWAC

What does a DWAC look like?

DWAC accepted

Medallion guarantee stamp A medallion signature guarantee is a unique signature guarantee used to facilitate the transfer of securities. Each medallion stamp guarantor carries a surety bond that provides financial backing to protect issuers and transfer agents against loss from wrongful or fraudulent signatures. A medallion signature guarantee may be obtained at most full-service banks, brokerage firms, and larger credit unions. What does a medallion stamp signify on an endorsement? The signature is genuine The signer is an appropriate person to endorse The signer has legal capacity to sign

Surety value of medallion stamps There is a unique identification number with a letter prefix on each medallion stamp which signifies the amount of surety bond obtained. The stamp must cover the entire value of the shares being transferred. Alpha prefix Surety amount A $ 1 million B $ 750,000 C $ 500,000 D $ 250,000 E $ 100,000 F $ 100,000 (Credit Union) X $ 2 million Y $ 5 million Z $ 10 million and higher

Transfer shares or ownership change One of a transfer agent’s primary duties is assisting registered shareholders with requests to transfer ownership of their shares. This can be done using a Stock Power Form to capture the details of the registered shareholder’s request, or the shareholder can send in a letter detailing their request. Shareholder or broker presents instructions to transfer agent Instruction letter or stock power form Signature(s) must be medallion stamp guaranteed Physical certificate(s) presented, if applicable If shares are restricted, legal opinion from issuer’s counsel must be presented Presentment is reviewed by transfer agent Transfer is completed or rejected

Additional transfer agent oversight and monitored activities Transaction processing requirements Prompt responses to inquiries Accuracy and retention of records Safeguarding of funds and securities Evaluation of internal accounting controls Proper handling of stock certificates Searches for “lost” shareholders conducted according to the applicable state law

Current issues in the transfer agent world The Securities and Exchange Commission (SEC) has adopted an amendment to shorten the standard settlement cycle for most broker-dealer securities transactions. The amended rule will shorten the settlement cycle from trade date plus three business days (T+3) to trade date plus two business days (T+2) The U.S. Financial services industry is scheduled to implement this change on Tuesday, September 5, 2017

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