1 Frequently Asked Questions Regarding our ESOP
3 Table of Contents Introduction to this FAQ Overview Purpose... 4 ESOP Basics What is an ESOP? What does ESOP stand for? What are shares? What is stock?... 5 History History: how did we get to this point? What were the alternatives?... 6 General ESOP Transaction Background Who bought what from whom? How does it work, in general?... 6 ESOP Eligibility and Other Rules Who will participate in the ESOP? How do you get stock? How much stock could a typical participant receive? Can you lose your ESOP benefits? What is vesting? When will you actually receive benefits from the ESOP? How much will it be worth? How is the price determined? Will the ESOP take away your other retirement benefits specifically the 401(k) Plan? Voting and Decision-Making Who runs the ESOP? Do you get to vote on anything? What is different when you show up for work now? Risks, Rewards, and Safeguards Is this a good thing for employees? It sounds like something for nothing. What s the catch?
4 20. Is it risky to have so much of my retirement invested in company stock? Do you have any kind of legal protection? Additional Questions and Information What ESOP information can you expect to see in the future? What if you have additional questions?
5 Introduction to this Q&A 1. Overview ( PTL or the company ) recently created an opportunity for employees to own company stock. In order to do this, PTL established a new Employee Stock Ownership Plan ( ESOP ) as of January 1, The ESOP allows Tony Waller to sell the company while keeping ownership and control of PTL in local hands, and returns some of the company s value to the people who helped build it. On September 26, 2013, Mr. Waller sold 100% of his company stock to the ESOP. Each year the company expects to contribute cash to the ESOP to pay for these shares. These shares will be allocated to accounts of eligible employees each year as the loan payments are made. The employees now own 100% of s shares through the ESOP Trust. Over the next several months, the company will provide you with many opportunities to learn more about the ESOP and how it may affect you including written information like this Questions & Answers (Q&A) handout, as well as training sessions that you may attend. 2. Purpose This Q&A provides you with a basic overview of the ESOP to answer questions we anticipate you might have. This Q&A is not trying to convince you that the ESOP is a good thing or a bad thing. Instead, it is trying to help you understand the ESOP better so that you can form your own opinion, or at least know what other questions you would like to ask. is not legally required to provide this Q&A, but the company is required to give you other information once you become eligible to participate in the ESOP. This Q&A does not satisfy the company s legal obligations and it is not a substitute for other information you are required to receive by law. Although PTL has attempted to make this Q&A accurate, it is not legally binding you should consult the ESOP legal documents for legally binding information. A list of the major legal documents is provided at the end of this Q&A. 4
6 ESOP Basics 3. What is an ESOP? What does ESOP stand for? ESOP stands for Employee Stock Ownership Plan. An ESOP is a type of retirement plan that buys part or all of a company on behalf of employees who are eligible to participate. It s similar to a pension or 401(k) plan, except that instead of owning stocks and bonds of outside companies like most retirement plans, the ESOP owns the stock of The ESOP holds the stock in individual accounts that are set up for each eligible participant. Participants receive the value of their accounts after they leave the company, according to rules that are explained in more detail in this Q&A and in the ESOP legal documents. 4. What are shares? What is stock? Stock is ownership of the company. One share of stock represents a portion of the ownership of the company. Whoever owns the stock owns the company. For example, if there are 100 shares and you own five shares, you own five percent of the company. Today, the ESOP owns 100% of the shares of PTL s stock. The actual stock certificates are held in an ESOP Trust for the benefit of employees who are eligible to participate in the ESOP. History 5. History: how did we get to this point? has been, is, and will continue to be a leading provider of transportation services in this country. Since Tony Waller purchased the business in 1973, it has grown and prospered significantly. Mr. Waller is now interested in looking towards the future and planning for his eventual exit and the business succession. He is not ready to retire now, but wants to establish a sound plan that rewards those who have been part of the company s growth in the past and who will contribute to the company s success in the future. While the ESOP is a new benefit, we will continue to do the things that we have always tried to do. The basic form of the company will remain unchanged. There will be no change in management or operations as a result of the ESOP. Management, however, will continue to seek out and use employees ideas for improving the company so that our customers continue to receive the best possible service and our employees investment in the company is successful. 5
7 6. What were the alternatives? Mr. Waller had three major alternatives: Do nothing until later: Wait until some future point, whenever he is ready to retire, and sell the assets of PTL to the highest bidder at that time. Find an outside buyer: This would add a new owner to the picture. Outside buyers almost always make changes that can range from complete shut down to eliminate their competition, to re-staffing with new people or their own people. Remain independent: Neither of the above options fit what he wanted to do, which is to stay involved, but share the responsibility and have a future exit strategy. Mr. Waller believes that the ESOP best fits the situation and provides valuable benefits for him, job security and retirement benefits for the employees, and the continuation of PTL s involvement in the community. General ESOP Transaction Background 7. Who bought what from whom? As of September 26, 2013, created the ESOP. The ESOP used money that it borrowed from PTL to buy 1,000,000 shares (100%) of PTL stock from Tony Waller. Although the sale was completed on September 26 th, the ESOP has not yet paid for these shares since it borrowed money from PTL for the purchase. The ESOP will pay for these shares gradually as it repays its loan. 8. How does it work, in general? There are several basic steps. In the beginning: the shares that the ESOP purchased from Mr. Waller were transferred to the ESOP Trust. The ESOP Trust borrowed the money from PTL to purchase Mr. Waller s stock. PTL borrowed the money to lend the ESOP Trust from outside lenders and from Mr. Waller. Each year: The ESOP Trust will pay back the money it borrowed from PTL in the form of shares of PTL Stock to be allocated to individual employees accounts. This allocation will be completed over a twenty-five year period. PTL will service the debt incurred for this transaction with profits generated by the company. 6
8 Each year: once you are eligible to participate in the ESOP (many employees are already eligible), a portion of the shares that the ESOP pays for will get allocated into your individual ESOP account based on your earnings and years of service. At the end: after you leave the company, you will receive payment for the vested shares in your ESOP account. The value that you receive will be whatever the shares in your ESOP account are worth at that point in time. These basic steps are explained in more detail in questions 9-14, below. ESOP Eligibility and Other Rules 9. Who will participate in the ESOP? Will drivers be eligible? Current employees: All employees who were hired on or before January 1, 2012, worked at least 1,000 hours in 2012 and are 21 years of age are eligible to participate in the ESOP as of January 1, (Employees who had worked for the company for one full year prior to January 1, 2013.) New employees: Employees who joined the company after January 1, 2012 must complete one year of employment during which they must work at least 1,000 hours (about half time), and must be at least age 21. You participate in the ESOP beginning on January 1 or July 1 immediately after you meet both of these requirements. All employees are treated exactly the same with this ESOP. Over the Road Drivers will participate on the same basis as office, maintenance, and administrative employees. If you don t want to participate: Technically, you have the option not to participate in the ESOP. In most ESOPs, it is unusual for an eligible employee to elect not to participate, because you would be giving up benefits and not getting anything back. 7
9 10. How do you get stock? How much stock could a typical participant receive? Each year, the amount of stock that is divided up (allocated) among all eligible participants will depend on the amount of the ESOP loan payment made that year. Each individual participant who meets the requirements will get an allocation (a portion of the shares). To get an allocation each year, you must: Become eligible (see #9) Complete a Year of Service = work at least 1,000 hours during the year Still be employed on the last day of the Plan Year (December 31), unless you die or become disabled during the year Each eligible participant will receive a portion of the total ESOP shares that year based on his/her compensation (wages/salary) and his/her years of service. For example: Assume the company s eligible payroll is expected to be $18.0 million next year. If an individual participant earns $36,000 next year, the wage component of his/her allocation is 0.2% ($36,000/$18,000,000). If that participant has worked for PTL for 10 years and the total years worked for eligible participants was 2,500 years, the years of service component of his/her allocation would be 0.4% (10 years/2,500 years). This employee s total allocation percentage would be 0.3%. (1/2 the wage allocation (0.2%) plus ½ the years of service allocation (0.4%) or (1/2 x 0.2% + ½ x 0.4% = 0.3%.) If the total number of shares paid for and allocated by the ESOP next year is expected to be 40,000 shares, then this individual would receive an allocation of about 120 shares into his or her ESOP account next year. The total cash contribution made by PTL to the ESOP, the ESOP s loan payment, the individual s payroll and years of service, and/or the company s total eligible payroll will probably be different in future years. Because these all affect allocation amounts, each individual will probably get a different number of shares allocated each year. The future worth of any individual s account depends on the company s performance (see #14). The bottom line: participants will receive shares of Paschall Truck Lines, Inc. s stock in their ESOP accounts each year, and the future value of these shares depends on the future value of our company. will contribute cash to the ESOP each year for the ESOP to repay its loan. You are not permitted to buy extra ESOP stock, and you are not allowed to contribute cash to the ESOP. 8
10 11. Can you lose your ESOP benefits? What is vesting? Once shares are in your account, you still have to earn the right to keep them. This is called vesting. It works like a hold on your account if you leave PTL before your ESOP benefits are vested, you will forfeit some or all of your benefits. There are two ways for your ESOP benefits to become vested: Your benefits become vested once you reach Normal Retirement Age or if you die or become disabled. Normal Retirement Age is age 65. Otherwise, your benefits become vested over time, as you earn Years of Service. You need to work at least 1,000 hours during a Plan Year from January 1 to December 31 to earn each Year of Service. You get vesting credit in the ESOP beginning on January 1, 2013 if you were already employed on that date and were 18 years of age by the end of the year. (Employees may receive vesting credit at age 18 although they must be 21 years of age to be a plan participant.) If you were hired later, you get vesting credit in the ESOP beginning in the later of the year that you are hired or the year that you turn 18 years old. The table below shows what portion of your benefits are vested based on how many Years of Service you have earned: Years of Service Portion Vested Less than 1 0 % 1 20 % 2 40 % 3 60 % 4 80 % 5 or more 100 % 9
11 12. When will you actually receive benefits from the ESOP? In general, you will not receive any payments from the ESOP while you are still employed at PTL you will receive your benefits only after you leave the company (with one major exception that is described below). If you leave due to normal retirement (after reaching age 65), or if you die or become permanently disabled, you (or your beneficiary) may begin to receive distributions as soon as feasible in the Plan Year following the Plan Year in which you leave. If you leave for any other reason (quit, get fired, etc.), you can choose to begin receiving the vested portion of your benefits as soon as feasible in the Plan Year following the Plan Year in which the ESOP loan is repaid. In both cases, the company can choose to pay you cash for the value of your ESOP account either in one lump sum or over a five-year period, depending on your vested account balance. The only difference is how long you have to wait until your pay out period starts. You are not permitted to receive PTL stock from the ESOP only current PTL participants? and the ESOP are allowed to own company stock. Therefore, you will receive the cash value of the PTL shares in your ESOP account. The value of your shares will be as of the most recent ESOP appraisal at the time that your shares are converted into cash. 13. How much will it be worth? How is the price determined? is not a publicly traded company like IBM or GM. This means that our shares are not available from a broker, nor is our stock listed in the financial pages of the newspaper there is no established market price for PTL shares. In these circumstances, federal law requires an independent appraiser who works for the ESOP Trustee (not for the company) to determine fair market value of the shares. This is what the shares would be worth if an independent buyer bought them. The valuation process is very technically complex, which is why the ESOP Trustee hires an external expert. You will hear more about the valuation process in the future. Under federal law, the appraiser must re-appraise PTL share value at least once each year. All participants will receive a statement every year showing how much the stock in their ESOP accounts was worth as of the previous December 31. Those employees who were eligible to participate in the ESOP for 2013 (see #9) will receive their first individual ESOP Statement next Spring or Summer. However, the distribution (pay out) that you will receive in the future will be based on the fair market value of the shares that are in your ESOP account at that future point in time. 10
12 14. Will the ESOP take away your other retirement benefits specifically the 401(k) Plan? NO. In the process of implementing the Employee Stock Ownership Plan, Mr. Waller made the decision that the 401(k) Plan, established for the benefit of employees in 1995, would not be eliminated, modified or changed. The company will continue to pay administrative fees for the plan and will continue to provide matching contributions to employee deferrals. The ESOP is an additional benefit for PTL employees that in no way changes or reduces other benefits provided by the company. Voting and Decision-Making 15. Who runs the ESOP? The ESOP is managed by an outside Trustee, First Bankers Trust Services of Quincy, IL. The Trustee is legally obligated to protect the interests of the ESOP participants. Most large ESOP companies hire an outside firm (often the trust department of a bank) to serve as ESOP Trustee. 16. Do you get to vote on anything? The ESOP does not permit voting on day-to-day operating decisions. These decisions will continue to be made by management as they always have been. There are a few issues on which shareholders do get to vote. In an ESOP, the shareholder is the Trustee, so in all cases when there is an issue that requires voting, the Trustee votes all of the ESOP shares. There are a small number of major issues on which the Trustee must ask for and follow directions from the participants before voting in effect, you get to tell the Trustee how to vote the shares in your account on these issues. These issues are determined by a combination of state and federal law and you will be advised if one of these situations arises. However, none of these issues involve day-to-day operating decisions of the company. 11
13 17. What is different when you show up for work now? has already been developing a participative atmosphere with our management and employees over the past several years. The ESOP adds a new financial reward and ownership responsibility component to this. Until this fiscal year, the company asked employees to come to work and give their best effort because that was the best way to ensure company success and job security, and because it s the right thing to do. Starting this fiscal year, these old reasons still apply, but you have two important new reasons to do your best: it s your responsibility as an owner, and you will get a piece of the wealth you help create. In the long run, expects to increasingly involve employees in improving operating performance and profitability, so that everyone wins. This will be a gradual, ongoing process and not a quick-fix program. Now is the time to start establishing a true ownership way of life. Risks, Rewards, and Safeguards 18. Is this a good thing for employees? One of the primary benefits of this ESOP transaction is that it provides for continuity of management and ownership. Mr. Waller will continue in his role as CEO of the company, senior management will remain in place, and the headquarters and administrative functions of the company will remain in Murray, KY. This would have been unlikely if Mr. Waller had sold his stock to an outside party. How well the company does in the future will depend on you. Research studies consistently show that participative ESOP companies perform better than companies that are not employee-owned or participative. If PTL does well, the ESOP stock could be worth quite a lot of money, but no one can predict how much. The company intends to be very successful, and if this works, participants can share in significant wealth. If the company does poorly, the ESOP stock is likely to fall in value. If the company fails, the ESOP stock will most likely be worth little or nothing, although it is impossible to predict in advance what would happen. This is one of the facts of ownership: it involves risk it is not a sure thing. Whether you personally think this is a good thing or a bad thing depends upon how well you believe the company will perform in the future, and on your comfort with this type of risk. Different people have different opinions and there is not one correct answer. 12
14 19. It sounds like something for nothing. What s the catch? If PTL wins, you win, but the reverse is also true. There s no guarantee that your ESOP balance will be worth anything significant in the future. The whole idea is for PTL to continue to provide outstanding transportation services for customers, and good jobs, pay, and benefits for employees. If you can help the company continue to be successful, you now have the opportunity to receive your fair share of the increase in stock value that may result. The factors that determine whether the company will continue to succeed have not changed. For and the ESOP to succeed in the future, we still have to provide customer satisfaction and quality service. 20. Is it risky to have so much of my retirement invested in company stock? The historical track record of PTL is extremely sound. We believe that the company stock will continue to be a sound investment, and remember, you have the opportunity to affect the value of the PTL stock in your ESOP account. However, it is always a risk to have a significant part of your retirement funds invested in one place. This is why we continued, without modification, the PTL 401(k) Plan. You still have the opportunity to invest on a tax deferred basis in a wide variety of mutual funds and to receive a company contribution on your deferral. 21. Do you have any kind of legal protection? The ESOP is governed by a federal law called ERISA, which governs all qualified benefit plans. This is the same federal law that protects the 401(k) Plan. You have specific legal rights that are summarized in the ESOP Summary Plan Description ( SPD ) and additional ESOP documents that you can review. The ESOP Trustee is also legally obligated to protect the interests of the ESOP participants. However, there is no insurance or guarantee of the future value of the stock in your ESOP account. 13
15 Additional Questions and Information 22. What ESOP information can you expect to see in the future? By law, you must have access to some ESOP information. You will also receive additional ESOP information that the company believes will be helpful in understanding this new benefit. Legally required information ESOP plan document, describing all of the legal rules governing the ESOP. Participants may review the plan document and/or request a copy by contacting Human Resources; Summary Plan Description ( SPD ), summarizing the ESOP plan document. Eligible participants will receive a copy within the next several weeks and all new employees will receive a copy once they become eligible to participate; ESOP Annual Report, showing total ESOP activity for the year. Participants may review by contacting Human Resources; Individual ESOP Annual Account Statement, showing the number and value of shares and cash in your ESOP account and your vesting status as of December 31. Each participant will receive a Statement in the Spring or Summer every year that they have an account balance. Additional ESOP activities that PTL is considering but that are not legally required Formation of an ESOP Steering Committee ESOP training sessions, to explain more about the ESOP rules Integrate ESOP information into existing policies and procedures Other activities that you (employees) suggest, subject to review by management 23. What if you have additional questions? If you have any questions about the ESOP you may Tony Waller Tom Stephens Chuck Wilson They will gather the most common questions about the ESOP and communicate the answers to all employees of PTL. 14