Initial ESOP Communications ESOP Association Two-Day Conference Las Vegas, Nevada 9:00 AM -- November 4, 2004 Loren Rodgers Ownership Associates

Agenda 1.ESOP Training 2.Getting the Most from Required Communications 3.Going Beyond the Nuts and Bolts 4.Tips for Making it Work

-1- ESOP Training

Start with the Basics. DESIGNING ESOP COMMUNICATIONS

So, what is an ESOP? E mployee S tock O wnership P lan

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

Cover the “hard issues” DESIGNING ESOP COMMUNICATIONS

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

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

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

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.

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

Standard Employment Deal 8 hours pay 8 hours work

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

Ideas and Effort Department Performance Individual Performance

Ownership Rewards Stock Value ESOP

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

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

Use images. DESIGNING ESOP COMMUNICATIONS

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

-2- Getting the Most from Required Communications

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

Account Statement: Part 1

Account Statement: Part 2 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

Account Statement: Part 2

Account Statement: Part 3

-3- Going Beyond the Nuts and Bolts

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

Number of ESOP Companies in the US Growing Popularity

Where are they? Map of the U.S.

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

Ownership means… investmen t employee involvement a good benefit equality bogus teamwork incentive what is it?

The government actively supports ESOP development. DESIGNING ESOP COMMUNICATIONS

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

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

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

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

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

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

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

InvestmentReturn Incentive Only Low to Medium Low (-1 to 2%) Culture + IncentiveHigh High (5 to 13%) “Return on Ownership”

The Five Challenges 1.The Policy Challenge 2.The Interpersonal Challenge 3.The Literacy Challenge 4.The Information Challenge 5.The Entrepreneurship Challenge

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

-4- Tips for Making It Work

1.Support Middle Managers 2.Repeat / Use Multiple Channels 3.Use Structured Peer-to-Peer Learning 4.Warn About “First Year Dip” 5.Use Games 6.Be Careful with Projected Account Value 7.Interactive Learning

Tips 1.Support Middle Managers 2.Repeat / Use Multiple Channels 3.Use Structured Peer-to-Peer Learning 4.Warn About “First Year Dip” 5.Use Games 6.Be Careful with Projected Account Value 7.Interactive Learning

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

Common Feelings About Ownership Write down one letter: a.Fear b.Cynicism c.What is it? d.Wait and See e.Enthusiasm

1.Physical Working Conditions 2.Election of Employees’ Committee 3.Speed of Production 4.Job Assignments 5.Safety Rules and Practices 6.Quality Standards and Measurement 7.Hiring 8.Promotions, Performance Evaluation 9.Equipment Layout 10.Asset Purchases 11.Employee Compensation and Benefits 12.Firing 13.Marketing and Advertising Strategies 14.Raising Capital, Relationships with Banks and Investment Groups 15.Product, Technology, and Investment Strategy 16.Lay-off Policy, Employment Levels 17.Management Compensation 18.Distribution of Profits (dividends, reinvestment, debt reduction) 19.Selection and Oversight of Senior Management 20.Constitutionalism: Setting and Moving Decision-Making Boundaries 21.Selection of Board of Directors 22.Fate of the Company: merger, sale, major location change Standard List of Corporate Decisions