Employee Stock Ownership Plan (ESOP) [ESOP] [Contact Information] [Glossary]

WHAT IS AN ESOP?

An Employee Stock Ownership Plan, or ESOP, is an employee retirement plan, which makes the employees of a company, owners of stock in that company. The plan is governed by ERISA.

WHY DID SOPHISTICATED SYSTEMS START AN ESOP?

Dwight Smith, CEO, wanted to share the success of Sophisticated Systems with the people that help make it successful, the employees.

HOW DOES THE ESOP AFFECT ME?

The ESOP gives you a personal financial stake in Sophisticated Systems. If the company does well, your ESOP account will likely increase. Conversely, if the company does poorly, your account balance will not likely increase as quickly, in fact it may even decrease in value. As owners we all have a financial stake in the success of Sophisticated Systems and we all benefit from the efforts of each individual employee.

Therefore, our ESOP gives all of us as employee owners extra incentive to make our Company prosper.

HOW CAN I AFFECT THE ESOP?

To affect the ESOP you must first realize that you are an owner and accept the responsibility of being an owner. You must understand that everything you do (or don’t do) affects the ESOP. The stock value increases with increased sales and profits. Working hard, minimizing expenses, increasing the profit margins and striving for quality and doing your best are all ways to enhance the stock value.

WHAT IS VALUATION?

A valuation is an annual appraisal by an independent expert to determine the worth of the Company. It is expressed as dollar amount per share.

HOW DO I PARTICIPATE?

To become a participant you must be 21 or older and complete only one year of service. To receive a contribution for a plan year you must work at least 1,000 hours and be employed on December 31.

WHAT IS A CONTRIBUTION?

The Company will make annual contributions to the plan. Consideration shall be made to assure that sufficient total contributions are made by the Company to meet any Stock Obligations. You must work at least 1,000 hours and be employed on the last day of the plan year, December 31, to receive a contribution. Any participant whose termination of employment occurs due to death, disability, or retirement still receives a contribution.

SOURCES OF EARNINGS

Contributions & Sub S Distributions

Stock Valuations

Interest Earnings and Forfeitures

WHAT IS ALLOCATION?

Allocation is the annual division of contributions and forfeitures for the plan year (shares and cash) among all participants based on a points system and percentage of the employee’s annual compensation to the total eligible compensation for all employees. The points system takes into account the participant’s years of service and annual compensation amount.

WHAT IS VESTING?

Vesting is the percentage of your ESOP account that you will receive if you leave the Company. It is determined by how many years of service you have completed as of December 31. It

only takes five years to be 100% vested (vesting occurs at the end of each year of service).

WHAT ARE FORFEITURES?

If you terminate your employment prior to retirement and not due to death or disability, you will receive the vested portion and forfeit the unvested portion. This is called forfeiture.

CAN I WITHDRAW CASH FROM MY ESOP ACCOUNT WHILE EMPLOYED?

YES, if you are at least 55 years old and 10 years in the ESOP or at age 65 if approved by the Company.

CAN I BORROW FROM MY ESOP ACCOUNT?

NO.

ANNUAL STATEMENT OF ACCOUNT

By June of each year, every participant receives a statement of his or her ESOP account.

WHEN DO I GET MY MONEY AFTER I LEAVE?

Normal Retirement – at age 65 with 5 years of service
Death
Disability
Other Termination – Your account will be valued at the end of the plan year in which you terminate. If your account balance is $25,000 or less you will be paid out as quickly as administratively feasible. If your account balance is greater than $25,000, your account will be paid out over five years or as the administrative committee deems feasible.

WHAT IS A DISTRIBUTION?

The payout of cash for the current value of shares and cash in your account after you leave Sophisticated Systems, Inc.

This brochure is designed to give you the basic knowledge regarding SSI’s ESOP. For more specific information, please refer to your Summary Plan Description (SPD).