Employee Stock Ownership Plan Employee Communication Cornerstone Systems Employee Stock Ownership Plan Employee Communication 2018 Executive Financial Services, Inc. 3350 Players Club Parkway, Suite 330 Memphis, Tennessee 38125 www.execfin.com www.esopcoach.com

What is an ESOP? Retirement Plan for employees of Cornerstone Systems ESOP Account is invested in Cornerstone stock Value of ESOP Account depends on value of Cornerstone stock As Cornerstone grows, the stock price increases, and the benefits you receive at retirement grow

401(k) Plan vs. ESOP Employee Stock 401(k) Plan Ownership Plan You make contributions Company makes contributions You select your investments Your account is invested in Cornerstone stock Account performance is based on fund performance Account performance is based on performance of Cornerstone stock

Company Contributions How much do ESOP companies contribute? Average for all retirement plans: 4% of compensation Average for private ESOP companies: 8–10% of compensation

Company Contributions How much do ESOP companies contribute? Average for all retirement plans: 4% of compensation Average for private ESOP companies: 8–10% of compensation Cornerstone ESOP Contribution for PYE 2017: 16.71% of compensation

How Does an ESOP Work? The ESOP acquired Cornerstone stock in exchange for a promissory note issued to the Company The Company makes contributions to the ESOP, which the ESOP uses to make payments on its loan to the Company The ESOP releases shares from its Suspense Account and allocates them to the individual accounts of the ESOP Participants The Annual Allocation depends on the loan payment

ESOP Annual Allocation Your Salary Allocation Ratio determines the number of shares allocated to your ESOP Account each year Your Gross Compensation Total Eligible = Annual Allocation Percentage

ESOP Annual Allocation Your Salary Allocation Ratio determines the number of shares allocated to your ESOP Account each year Your Gross Compensation $40,000 = = 0.3635% Total Eligible Compensation $11,005,141 Allocation Requirements (except in the case of death, Disability, or Retirement): 1,000 Hours of Service “Last Day of the Year” Rule

ESOP Annual Allocation Number of Shares Allocated to your individual ESOP Account (“Annual Allocation”) Total Number of Shares Released from ESOP Suspense Account Salary Allocation Ratio × =

ESOP Annual Allocation Number of Shares Allocated to your individual ESOP Account (“Annual Allocation”) Total Number of Shares Released from ESOP Suspense Account Salary Allocation Ratio × = 30,061.8167 Shares 109.2747 Shares × 0.003635 =

Cornerstone Systems, Inc. Employee Stock Ownership Plan ESOP Statement for PYE 2017 Cornerstone Systems, Inc. Employee Stock Ownership Plan Plan Year Ended 12/31/2017 STATEMENT OF ACCOUNTS John Smith

ESOP Share Price History

Key ESOP Provisions ESOP Eligibility ESOP Vesting ESOP Distributions

ESOP Plan Year ESOP became effective January 1, 2012 ESOP Plan Year begins January 1 and ends December 31 Same as Cornerstone’s fiscal year

ESOP Eligibility ESOP Eligibility Requirements ESOP Entry Dates Age 21 1 “Year of Service” 1,000 Hours of Service during a period of 12 consecutive months ESOP Entry Dates January 1 July 1

ESOP Vesting As you earn years of service, you become vested in larger percentage of your ESOP Account

ESOP Eligibility & Vesting Employed with Cornerstone as of: January 1, 2012 Became ESOP Participant on January 1, 2012 Vesting Years of Service began January 1, 2012 Later than January 1, 2012 Must satisfy Eligibility requirements to become ESOP Participant Will become ESOP Participant on the next Entry Date (January 1 or July 1) Vesting Years of Service begin on date of hire

ESOP Vesting & Forfeiture Assume 10 shares allocated to ESOP Account each year Number of Shares

ESOP Distributions Retirement, Death, or Disability Distributions begin the following Plan Year Value of stock in your ESOP Account is converted to cash and paid to you in 5 annual installments Retirement Age: 65 years old Termination of Service Distributions begin 6th Plan Year following termination Value of vested portion of your ESOP Account is converted to cash and paid to you in 5 annual installments

Tax Treatment Distributions taxed as ordinary income You can “roll over” your ESOP distribution into a traditional IRA or another retirement plan in another company No tax until you withdraw the money from that plan

ESOP Miscellaneous Points No loans from your ESOP Account Continue to make pre-tax elective deferrals to your 401(k) Plan Make sure your Beneficiary Designation Form is up to date

2.3% Annual Employment Growth 2.4% Greater Annual Sales Growth ESOP Companies ESOP Company Non-ESOP Company > 2.4% Faster Growth 2.3% Annual Employment Growth Post-ESOP Pre-ESOP > 2.4% Greater Annual Sales Growth Employee-Owners Employees > 2½ times more wealth

ESOP Returns “ESOPs are a model for how to make retirement security a reality for the American middle class” ESOP Stock Market > 62% higher performance 11.5% annual return vs. 7.1% ESOP 401(k) Plan > 3–5 times higher account balances

ESOP & Employee Ownership The ESOP should empower you to “think like an owner” An ESOP puts everyone in the same boat, rowing in the same direction