Initial ESOP Communications

1. Initial ESOP Communications ESOP Association Two-Day ConferenceLas Vegas, Nevada9:00 AM -- November 4, 2004 Loren RodgersOwnership Associates

2. Agenda • ESOP Training • Getting the Most from Required Communications • Going Beyond the Nuts and Bolts • Tips for Making it Work

3. -1- ESOPTraining

4. DESIGNING ESOP COMMUNICATIONS Start with the Basics.

5. Employee Stock Ownership Plan So, what is an ESOP?

6. ESOPs… …are retirement plans, and …they invest primarily in company stock.

7. DESIGNING ESOP COMMUNICATIONS Cover the “hard issues”

8. The “Hard Facts” • Participant legal rights • Risks of ownership • Benefit trade-offs • Sole ownership / joint ownership • Direct ownership / beneficial ownership

9. ESOPs and Rights • Legally: • Access to Plan Documents • Annual Account Statements • Voting on major corporate decisions • Liquidation • Sale of substantially all assets • Recapitalization • etc. Psychologically:Employee-Ownership means rights.

10. DESIGNING ESOP COMMUNICATIONS Describe the upside -- without making promises.

11. Research Highlights • ESOP companies, on average, outperform non-ESOP companies by approximately 2.3% on a number of measures. • ESOP companies file for bankruptcy less often than non-ESOP companies. • On average, ESOP participants have approximately 2.5 times more retirement assets than non-ESOP participants , without a loss in income.

12. DESIGNING ESOP COMMUNICATIONS Share the “big picture” – and employees’ role.

13. Standard Employment Deal 8 hours work 8 hours pay

14. Employee-Ownership “New Deal” Ideas and Effort Ownership Rewards 8 hours work 8 hours pay

15. Individual Performance Department Performance Ideas and Effort

16. Ownership Rewards ESOP Stock Value

17. Employee’s Return on Effort Individual Performance Department Performance ESOP Stock Value

18. Stock Valuations Required every year, after the books have been closed. Three main methods: • Asset • Income • Comparison Slide 29

19. DESIGNING ESOP COMMUNICATIONS Use images.

20. ESOP Suppose eligible payroll is $2,500,000 If the total allocation is 850 shares, and Beth earns $25,000 Beth gets 8.5 shares and John earns $20,000. and John gets 6.8 shares. Total payroll = $2,500,000 Total allocation = 850 shares John’s $20,000 John’s 6.8 shares Beth’s $25,000 Beth’s 8.5 shares Stage 2: Allocation Eligible Payroll

21. -2- Getting the Most from Required Communications

22. DESIGNING ESOP COMMUNICATIONS Account statements and the SPD can help… or hurt.

23. 1 2 3

24. Account Statement: Part 1

25. from the year before current year allocation from the company Investment gain or loss distributions additions from other people forfeiting unvested value miscellaneous bookkeeping Account Statement: Part 2

26. Account Statement: Part 2

27. Account Statement: Part 2

28. Account Statement: Part 3

29. -3- Going Beyond theNuts and Bolts

30. DESIGNING ESOP COMMUNICATIONS ESOPs are not an “off-the-wall” idea.

31. Growing Popularity Number of ESOP Companies in the US

32. Where are they? Map of the U.S.

33. O’Connor GMC Where are they in New England? Cianbro Corporation MO MO J & S Oil Co. MO Howell Laboratories MO Berlin City Car Center Carris Reels King Arthur Flour MO Hypertherm Sebago Technics MO Admix MO Cirtronix Normandeau Associates DENS Partners MO LITECONTROL

34. Ownership means… incentive a good benefit investment what is it? teamwork bogus equality employee involvement

35. DESIGNING ESOP COMMUNICATIONS The government actively supports ESOP development.

36. Russell Long LONG, Russell Billiu, born: November 3, 1918; US Senate 1948 to 1986. Chairman, Committee on Finance. Died: May 9, 2003.

37. Legislative Balance • Increase competitiveness • Share ownership broadly • Protect retirement savings • Tax benefits • Stable ownership structure • Orderly Process Legislative Goals Business Concerns

39. Oversight of ESOPs • Internal Revenue Serviceensures that tax benefits only go to companies who run the ESOP equitably and fairly according to the rules. • The Department of Laborensures that employees receive a fair benefit from the ESOP.

40. DESIGNING ESOP COMMUNICATIONS Describe the ESOP transaction... and the motivations for the ESOP.

41. OurCo Stock Outside Purchaser The Transaction: Option A Founding Shareholders Smith and Others What happens to OurCo, Inc.? OurCo Employees? Our “OurCo Culture”?

42. The ESOP:A Trust for OurCo Employees OurCo, Inc. (Cash and Loans) OurCo Stock OurCo Stock Stays intact! The Transaction: Option B Founding Shareholders Smithand Others

43. DESIGNING ESOP COMMUNICATIONS People want to know: why are we doing this?

44. “Return on Ownership”

45. The Five Challenges • The Policy Challenge • The Interpersonal Challenge • The Literacy Challenge • The Information Challenge • The Entrepreneurship Challenge

46. DESIGNING ESOP COMMUNICATIONS Build systems to ensure perceptions of fairness and trust.

47. -4- Tips for MakingIt Work

48. Support Middle Managers • Repeat / Use Multiple Channels • Use Structured Peer-to-Peer Learning • Warn About “First Year Dip” • Use Games • Be Careful with Projected Account Value • Interactive Learning

49. Tips • Support Middle Managers • Repeat / Use Multiple Channels • Use Structured Peer-to-Peer Learning • Warn About “First Year Dip” • Use Games • Be Careful with Projected Account Value • Interactive Learning

50. Common Feelings About Ownership Fear Wait and See Enthusiasm What is it? Cynicism