Wells Fargo 2008 Annual Report Download - page 147

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other circumstances specified in the Securities Purchase
Agreement with the Treasury. Treasury, as part of the
preferred stock issuance, received warrants to purchase
approximately 110.3 million shares of Wells Fargo common
stock at an initial exercise price of $34.01 (based on the trailing
20 day Wells Fargo average stock price as of October 10,
2008). The proceeds from Treasury were allocated based
on the relative fair value of the warrants as compared with
the fair value of the preferred stock. The fair value of the
warrants was determined using a valuation model which
incorporates assumptions including our common stock
price, dividend yield, stock price volatility and the risk-free
interest rate. The fair value of the preferred stock is deter-
mined based on assumptions regarding the discount rate
(market rate) on the preferred stock which was estimated to
be approximately 13% at the date of issuance. The discount
on the preferred stock will be accreted to par value using a
constant effective yield of 7.2% over a five-year term, which
is the expected life of the preferred stock.
ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares
of our ESOP (Employee Stock Ownership Plan) Cumulative
Convertible Preferred Stock (ESOP Preferred Stock) were
issued to a trustee acting on behalf of the Wells Fargo &
Company 401(k) Plan (the 401(k) Plan). Dividends on the
ESOP Preferred Stock are cumulative from the date of initial
issuance and are payable quarterly at annual rates ranging
from 8.50% to 12.50%, depending upon the year of issuance.
Each share of ESOP Preferred Stock released from the
unallocated reserve of the 401(k) Plan is converted into
shares of our common stock based on the stated value of the
ESOP Preferred Stock and the then current market price of our
common stock. The ESOP Preferred Stock is also convertible
at the option of the holder at any time, unless previously
redeemed. We have the option to redeem the ESOP Preferred
Stock at any time, in whole or in part, at a redemption price
per share equal to the higher of (a) $1,000 per share plus
accrued and unpaid dividends or (b) the fair market value,
as defined in the Certificates of Designation for the ESOP
Preferred Stock.
Shares issued Carrying amount
and outstanding (in millions) Adjustable
December 31, December 31, dividend rate
2008 2007 2008 2007 Minimum Maximum
ESOP Preferred Stock (1):
2008 156,914 —$ 157 $ — 10.50% 11.50%
2007 110,159 135,124 110 135 10.75 11.75
2006 83,249 95,866 83 96 10.75 11.75
2005 62,484 73,434 63 73 9.75 10.75
2004 45,950 55,610 46 56 8.50 9.50
2003 29,218 37,043 29 37 8.50 9.50
2002 18,889 25,779 19 26 10.50 11.50
2001 10,393 16,593 10 17 10.50 11.50
2000 2,644 9,094 39 11.50 12.50
1999 — 1,261 — 110.30 11.30
Total ESOP Preferred Stock 519,900 449,804 $ 520 $ 450
Unearned ESOP shares (2) $(555) $(482)
(1) Liquidation preference $1,000. At December 31, 2008 and 2007, additional paid-in capital included $35 million and $32 million, respectively, related to preferred stock.
(2) In accordance with the AICPA Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans, we recorded a corresponding charge to unearned
ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to
be released. For information on dividends paid, see Note 19.