The secret life and novel applications of employee stock purchase plans Phoenix NASPP Chapter James J. Volpe Vice President, Wells Fargo Shareowner Services Confidential – For Discussion & General Information Purposes Only

2 Agenda I.Tax qualified ESPPs II.Non-qualified ESPPs This document and any other materials accompanying this document (collectively, the “Materials”) are provided for general informational purposes only. By accepting any Materials, the recipient acknowledges and agrees to keep the Materials confidential and not to distribute the Materials to any other party. ©2010 Wells Fargo. All Rights Reserved. Stand alone Registered or bank sponsored Associated with a Cross Functional Investment Plan III.Summary of alternatives IV.Q & A

3  Qualified plan: refers to IRC Section 423(b) - not a qualified (retirement) plan  Requirements  Employee only  Parent or subsidiary  Plan must be approved by stock holders  No 5% owners  Eligibility rules (can exclude any of the following)  Less than 2 yrs of service  20 hours/wk or 5 months or less annual customary employment  Highly compensated employees  414(q) limit - must be in top 20% of employees and in excess of $110,000 for the preceding year (2010 limit) Section 423(b) requirements

4  Same rights and privileges  Option price is not less than  85% of the price at the beginning or the end of the period  Option period is not greater than  5 yrs if the end of period price used  27 months if there is a look-back (beginning or end)  $25,000 limit  Non-transferable Section 423(b) requirements (continued)

5  Tax Qualified Advantages  Granted under a plan – typically authorized but unissued securities  Relatively inexpensive share issuance  No tax at purchase for US employees  Discount taxed as income for non-qualified  Companies have no withholding or reporting obligations (US participants)  Non-cash method to deliver real benefit value to employee  Higher discounts (15%) or look-back features – accounting expense and dilution, but no cash outlay Advantages of the qualified plan

6  Accounting changes under FAS 123(R) had impact on design and trends  Reduced look-back plans, reset features, amount of discount  Share ‘flipping’  Some companies want to force greater ownership – have seen some ‘match’ plans.  NQ plan that matches with restricted units vs. a discount that buys more shares  It is an improvement over straight holding period requirements Trends

7  Multiple offerings allowed  Can have different offering at subsidiary levels without violating equal rights and privileges  Employee exclusions (eligibility) can vary from period to period  Maximum shares to purchase  Grant date is 1 st day of offering period if share limit imposed  If no employee limit in plan, grant date is now purchase date (for determining holding requirements)  Expect companies with look-backs to amend accordingly  Liberal approach to the $25,000 limit 2009 new regs

8  Surprise! - majority are non-qualified!  S3 registered plan or unregistered plan  Stand alone ESPP or integrated direct investment plan  Market price or discounted. Discounts range 1% - 15% or higher  Most cost effective alternative The secret life and novel applications of ESPPs as part of your investment plan service

9 A basket of service features including:  Transaction types  For employees, new / current shareowners  Company paid transaction fees?  Employee payroll deduction – weekly/monthly/discount?  Different discounts for different participants What exactly IS an ESPP investment plan?

10 Considerations:  Registered plan or unregistered  Administration  Filing  Equity strategy - source of shares  Discounts  Marketing  Stand alone or part of a comprehensive investment plan strategy Kinds of investment plans

11  Lowest cost of equity  0% – 5%+ discount from market prices  Higher degree of participation  Transaction fees - participant paid, company paid or shared  Smart transactions - source of shares determine discount & fees Simple discounts: employee / retail investor focus

12  Alternative route to traditional equity capital raising  Control of timing, size and distribution of your company’s equity  Quiet, flexible, low cost access to equity markets  Promotes closer relationships with institutional investor community  Runs independently from all other investment plan transactions Waiver / discount: institutional focus Improving corporate liquidity

13  Employees – newsletters, directed mailings, intranet, events  Current shareowners – messaging with dividend checks, statements  Retail customers - periodic notice of the investment plan availability  Notice availability of your common stock investment plan in the annual report and include a one page fact sheet with all hardcopy/softcopy investor relations directed requests  Web site search function  Investor relations homepage – include common stock investment plan as a quick link under the information panel  Employee / investor events – availability of your prospectus/enrollment material Affinity marketing: employees and beyond

14 423b tax qualified plan  Eligibility tracking  Monitor $25,000 maximum  “Look back” pricing  Typically 15% discount  Restricted share  Disqualifying disposition tracking and reporting  On-line enrollment  On-line access  E-delivery Non tax qualified ESPP  Stand alone or integrated  No discount, discounts ranging from 1% to 5% are common, some at 10% or 15%+  Restricted share or not  Employee paid or company paid transaction fees  Terms, fees, discounts may be different for ESPP transactions  On-line enrollment  On-line access  E-delivery ESPPs – administrative summary Employee stock purchase plans

.  Environment, many companies are reevaluating their equity compensation programs while seeking to lower their administrative expense  Employee stock purchase plans are getting more focus, both the traditional 423b tax qualified plans as well as the nonqualified ESPPs in a simple payroll deduction plan or associated with dividend reinvestment or direct purchase plans  Your investment plan or stand alone non-qualified ESPP may provide a powerful and cost effective role in solving part of the equity compensation puzzle for your company 15 ESPPs – administrative summary Employee stock purchase plans

16 James Volpe Vice President, Wells Fargo Shareowner Services The secret life and novel applications of employee stock purchase plans Q&A