ESOP Committees – How They Interact & Setting up a Communications Committee

1. TEA November 2012 ESOP Committees – How They Interact & Setting up a Communications Committee • The ESOP Association • 2012 Las Vegas Conference & Trade Show • November 8th & 9th, 2012 • Christopher Horner, Dickinson Wright PLLC • Tom Oettinger, The Onyx Group • Ali Jamshidi, CTL Engineering • Jay Simecek, The Ohio Employee Ownership Center

2. TEA November 2012 ESOP Committees – How They Interact & Setting up a Communications Committee • Agenda: • Introductions • Overview of committees in an ESOP • Legal requirements • The Onyx Experience • The CTL Engineering Experience • Issues When Creating a Communications Committee • Q & A

3. TEA November 2012 ESOP Committees – How They Interact & Setting up a Communications Committee • …… Issues to CONSIDER • Roles • Mission / Scope • Structure • Membership / Representation • Term • Selection / Election • Budget • Meetings • Bylaws

4. TEA November 2012 The Big Picture • Linking employee ownership to corporate performance. • Employee ownership is not enough. • Research indicates that employee ownership plusemployee participation leads to increased corporate performance relative to employee ownership alone.

5. TEA November 2012 Common Theme • Goals: All committees have a common purpose: to facilitate the strategic mission of the corporation. • Structure: All committees have a common philosophical underpinning: The objectives of the committee should dictate its characteristics. • Resources: All committees should have access to the resource necessary and appropriate to achieve their objectives. • Evaluation: All committees should be evaluated and modified to increase efficiency and achieve new strategic objectives.

6. TEA November 2012 What is an “ESOP Committee”? • Administrative (Fiduciary) Committee • Communications Committee • Other “ESOP Committees”

7. TEA November 2012 Fiduciary Committee

8. TEA November 2012 Fiduciary Committee • Decision-making regarding administration of the Plan • Operation of Plan • Management of Plan assets • Advise the trustee of the ESOT • Dispositions of employer securities • May be a Named Fiduciary Under ERISA • Fiduciary duties

9. TEA November 2012 Communications Committee

10. TEA November 2012 Communications Committee • Decision-making regarding strategic employee ownership objectives (Authoritative) • Advise management and educate and train employee owners (Advisory) • Not necessarily subject to ERISA fiduciary duties

11. TEA November 2012 Legally Required Communications • Summary Plan Description (“SPD”) • Summary of Material Modifications (“SMM”) • Summary Annual Report (“SAR”) • Participant Statement • Disclose Governing Documents • Plan Document • Trust Agreement • Form 5500 • Beneficiary Designation Elections

12. Purpose of ESOP Communication Committees Help implement the strategic vision of employee ownership through communication and education TEA November 2012

13. Roles: Board sets the vision of employee ownership Management leads with primary role as communicators ESOP Communication Committee employees involved in learning TEA November 2012

14. Key Communication and Education Roles Communicate to employees that they are shareholders with a stake in the company’s future Provide the knowledge and skills needed to think and act like owners Develop processes for open communication, information-sharing and continual learning Lead employees to act as owners TEA November 2012

15. CTL Engineering • Headquartered in Columbus, Ohio • Started in 1927 • Columbus Testing Laboratories • 245 employee owners • 100% employee owned (83% ESOP) • Engineering and consulting services • Telecommunications • Security & Video Surveillance

16. CTL EngineeringEstablishing CTL’s ESOP • Eight years discussing with owner • Company performance inconsistent • 1990 made profit, but no cash • Choices: • - Take a loan to pay taxes • - Create non-cash deduction

17. ESOP • 14% • Owners • 86% CTL EngineeringESOP Solves CTL Problems • Viable solution to owner’s tax issues • Company stock contribution of 7% in 1991 • Another 7% contribution in 1992 • ESOP offered significant advantages • ESOP good for all parties

18. CTL EngineeringESOP in Limbo • Expected people to get on board • People didn’t buy into ESOP concept • Did little communication • ESOP unimportant to most • Owner was disappointed

19. CTL EngineeringOwner’s Options • Outsider • Purchaser • Management • Buyout • Sell to • ESOP

20. CTL EngineeringOwner Options • Management preferred ESOP purchase • Owner unsure ESOP was “right” • “Tire kickers” visited our facilities • Owner looking for financial commitment • ESOP shrinking as people left CTL

21. Mgmt 17% ESOP 83% CTL Engineering Owner Sells to ESOP • ESOP became most viable option • Outside and insiders educate owner • Financial and business benefits • Building ownership culture TEA November 2012

22. CTL Engineering Initiation of Fun Czars • Created to establish a higher morale • Non-executive personnel • One goal…build ESOP spirit and enthusiasm • Main result of our efforts…turnover has decreased and retention has increased • Formal budget submitted and reviewed annually

23. CTL Engineering Committee Challenges • Mature ESOP • New participants aren’t seeing the benefit • Rebalancing should help • Multiple offices • Over half of employees are in the field

24. CTL Engineering What’s Worked • Visiting every office every other year • New hire training • Guess the Stock Value • ESOP representatives in every branch • All events are ESOP events • ESOP month • Quarterly ESOP Advisory

25. CTL Engineering ESOP Culture ≠ Overnight Success • Not everyone buys in right away • Needs consistency and repetition • Provide ESOP information in all forms

26. CTL Engineering All Events=ESOP Events

27. CTL Engineering Promote Involvement • Contest for best T-shirt design

28. CTL Engineering What’s Worked - New • Quarterly ESOP Advisory • Submit for a chance to win $100 American Express Gift Card

29. CTL Engineering Fun Czars Results • Turnover decreased • Building ESOP environment/spirit • “May I speak to the owner?” • Receptionist: “You’re speaking to one.” • Think like owners • Weathered the 2008 economic downturn • Furloughs • Suspended 401k Match • No layoffs

30. CTL Engineering – Financial Education

31. CTL Engineering Stock Value History 1995-2011 TEA November 2012

33. TEA November 2012 Mission/Guidelines/Bylaws • Initially typically drafted by management or Board of Directors • Committee then revises as needed

34. TEA November 2012 Typical Mission Statement • Support success of ESOP • Support success of Company • Encourage education and understanding of ESOP by employees • Encourage and facilitate development of an ownership culture at the Company

35. TEA November 2012 Scope of Responsibility for ESOP Communications Committee • ESOP Communication? • Wages & Benefits? • Marketing Strategy for Company Products? • Quality Control Issues? • ESOP Newsletter • ESOP Training? • ESOP and Company Celebrations? • Annual Participant Meeting? • Company Financial Information? • Participant Voting (if pass-thru voting applies)? • Attend ESOP Conferences and local training?

36. TEA November 2012 Structure of ESOP Committee • Number of members • Eligibility for committee membership • Term of membership • Composition of committee • Selection/Election Process • Committee Mission/Guidelines/Bylaws • Scope of Responsibility

37. TEA November 2012 Number of Members • Odd number to avoid tie votes? • ≤ 4 people – probably too small • ≥ 12 people – probably too large

38. TEA November 2012 Eligibility to Serve on Committee • All employees? • Management only? Non-management only? • Full-time employees only? • ESOP Participants only? • ESOP Participants who are at least partially vested only? • Fully vested ESOP Participants only?

39. TEA November 2012 Term of Office • 1 Year? • 2 Years? • 3 Years? • 1 Year with re-election possible but with majority of Committee not eligible for re-election? • 3 Years with only 1/3 of committee elected each year? • Unlimited as long as person is willing to serve?

40. TEA November 2012 Representation of Constituencies • Management vs. Non-management • Old vs. New Employees • Departments • Locations

41. TEA November 2012 Representationon Board of Directors • No representation of Committee on Board • Committee Chair on Board automatically • Management selects Board member • Committee selects/elects Board member

42. TEA November 2012 Committee Selection/Election • Who Conducts selection/election? • Who Counts Votes? • What are the voting hours? • Who’s eligible to vote? • 1 Person 1 Vote vs. 1 Share 1 Vote • Who defines departments?

43. TEA November 2012 Voting Methodology • Ballot • E-mail • Phone • FAX • All of the above • Raising hands at a meeting

44. TEA November 2012 Committee Budget • Direct Expenses • Material for events • Registration fees for conferences/seminars • Travel to conferences/seminars/meetings • Newsletter costs • Communication costs • Time spent by committee members

45. TEA November 2012 Committee Meeting Issues • Company time vs. after-hours • Paid vs. unpaid • Frequency of meetings • Length of meetings • Priority vs. departmental work assignments

46. TEA November 2012 Selection of Committee Chair • Elected position? • Chosen by management? • Highest level person on committee? • Selected by committee members?

47. TEA November 2012 Typical Bylaws • Contain decisions reached re all the issues we are discussing in this program!

48. TEA November 2012 Typical Guidelines • Detailed policies and procedures for: • Committee elections • Committee officer selection and responsibilities • Committee meetings • Replacement for a departed committee member • Committee functions • Committee members attending ESOP Conferences and Programs • Specification of scope of responsibility