1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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 × =

10. 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,
Shares
Shares × =

11. 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

12. ESOP Share Price History

13. Key ESOP Provisions
ESOP Eligibility
ESOP Vesting
ESOP Distributions

14. 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

15. 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

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

17. 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

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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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