The U.S. Department of Treasury recently published proposed regulations under Section 6039 of
the Internal Revenue Code (the “Code”) that revise and clarify the information reporting
requirements triggered by the exercise of incentive stock options (within the meaning of Section
422 of the Code) and the transfer of stock acquired pursuant to an employee stock purchase plan
(within the meaning of Section 423 of the Code). Section 6039 of the Code requires a
corporation to provide a written information statement to an employee and to file a return with
the IRS whenever the corporation has either (i) transferred stock to such employee in connection
with the employee’s exercise of an incentive stock option or (ii) recorded (or recorded by its
agent) the transfer of stock acquired by such employee under an employee stock purchase plan.

Regulations existing prior to the issuance of the new proposed regulations set forth only the
employee information statement requirements and do not provide taxpayers with the information
requirements of the IRS filing. As such the IRS has heretofore waived the filing requirement.

The revised list of information required to be provided to employees under the new proposed
regulations also constitutes the information required to be filed with the IRS.

Information Required to Be Provided to the IRS and the Employee

The following table sets forth the information that must be provided to both the IRS and the
employee on new Forms 3921 and 3922, which will be issued by the IRS later this year:

The applicable form must be filed with the IRS and provided to the employee on or before
January 31 of the year following the calendar year in which the transfer of stock subject to
Section 6039 occurs. The proposed regulations permit a corporation to comply with the
information statement requirements relating to transfers of shares acquired under an employee
stock purchase plan by having the corporation’s authorized transfer agent provide such statement
to the employee.

Transition Period and Proposed Effective Date

Although the IRS return requirements have been waived for stock transfers occurring during the
2007 and 2008 calendar years, corporations must nevertheless furnish the required information
statements to employees. Additionally, with respect to stock transfers occurring during such
years, corporations may continue to rely on the current regulations under Section 6039 in lieu of
the new proposed regulations. Compliance with these proposed regulations, should they become
final, will be mandatory with respect to applicable stock transfers during and after 2009.

Penalties for Failure to Comply

An employee information statement must be delivered in person or mailed to the employee’s last
known address (and may be delivered electronically if the employee consents to such electronic
delivery). Generally, failure to furnish such information statements to employees in a timely
manner (where such failure is not due to the corporation’s intentional disregard of the
requirements) will result in a $50 penalty per failure, up to a maximum of $100,000 per calendar
year. Intentional disregard of these requirements may result in higher penalties.

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