Transition Q&A

District-specific Q&A will be supplied in advance of each district’s transition, containing information unique to that transition.

GENERAL

1. What is an Independent Service Provider (ISP) Agreement?An ISP Agreement is a negotiated contract between a business (ISP) and FedEx Ground that includes a range of negotiable financial and non-financial terms.An ISP is an incorporated business that contracts with and is compensated by FedEx Ground for providing pickup and delivery services. The ISP is responsible for hiring personnel, providing vehicles and maintenance, determining the best way to achieve the contracted-for results, and complying with applicable federal, state and local laws and regulations. An ISP operates under an ISP Agreement with a term of up to three years and individually negotiated components that are unique to its business and contracted service area.
2. What is a CSA?Unlike Primary Service Areas within which businesses provide service under the terms of an Operating Agreement, a Contracted Service Area, or CSA, is a generally larger geographic area within which a business under an ISP Agreement agrees to provide service and manage all aspects of pickup and delivery.For transition purposes, a CSA comprises any combination of Ground and/or Home Delivery PSAs that operate out of a single station – current or planned – as long as the new CSA meets station-specific “minimum transition scale” guidelines.

   A “single station,” as referenced above, can be a FedEx Ground station, a Home Delivery station, or a FedEx Ground and FedEx Home Delivery co-location that are either current or planned stations. Certain stand-alone Ground and Home Delivery stations in close proximity to one another, generally with overlapping service areas, may also be considered co-locations for the purposes of this transition. These close locations will be referred to as “designated close-locations” and will be identified as each district’s transition gets underway.

3. Can any business pursue an ISP Agreement as long as that business meets all transition-associated conditions and deadlines?
   Any business that achieves minimum transition scale by the date communicated will have the exclusive opportunity to negotiate an ISP Agreement, providing all other transition conditions and deadlines are met. However, if the CSP’s Operating Agreement is terminated, for whatever reason, it will lose this exclusive opportunity to negotiate and the CSA will be opened for multiple candidates to bid. If this occurs, the current candidate as well as other candidates will have the opportunity to pursue the CSA.
4. What is the process for a business to transition from an Operating Agreement to the ISP Agreement?Transition to an ISP Agreement typically takes 9-24 months for an entire station/district and consists of several key phases and milestones, including:
   •   Conversion (reaching the required number of PSAs or stops – or minimum transition scale – required byFedEx Ground);
   •   Preparing for Negotiations;
   •   the ISP Agreement Negotiations Process (FedEx Ground typically allows 5 weeks for the NegotiationsProcess); and
   •   ISP Operations (this is the actual date that the business begins operating under an ISP Agreement, whichhas a length up to three years, typically two years).

January 2016 Generic Q&A – District-specific Q&A will be provided 1

5. What is meant by “minimum transition scale”?Minimum transition scale is defined as operating the minimum number of PSAs (or minimum stop-based equivalent) in a single station, co-location or designated close-location (as determined by FedEx Ground) that are either current or planned stations. Minimum transition scale is generally five PSAs or 500 stops. The number of PSAs, or stops, may be fewer in certain smaller stations.Tractor PSAs do not count toward the minimum required number of PSAs needed to reach minimum transition scale.
6. How is a business’s stop-based equivalent determined?For the purposes of transition, the number of stops a business operates is determined by:
   •   Historical data for the previous 12 months excluding November and December; and
   •   All completed stops (pickups and deliveries) a CSP performs within the service areas that will make up itsCSA.
7. When can a business request that FedEx Ground evaluate its work areas to determine if it meets the stop equivalent to achieve minimum transition scale?
   FedEx Ground will evaluate a business’s work areas after the transition to the ISP Agreement is announced in that business’s particular district. CSPs can begin requesting stop evaluations 90 days before the deadline to achieve minimum transition scale.
8. Can multiple businesses form a single corporation in order to achieve “minimum transition scale”?It is up to each business to determine how it wants to structure its business. Businesses can seek legal, financial and business advice when doing so. However, FedEx Ground will contract only with businesses that are incorporated, in good standing, and are registered with the state(s) in which they do business.Additionally, only one authorized officer can be designated to act on behalf of the corporation. Businesses can designate one business contact per station per service type.
9. If a business has an Operating Agreement in multiple states or locations, will it need to negotiate an ISP Agreement in each location?
   Businesses interested in pursuing ISP Agreements in multiple stations (i.e., separate stations not considered co- or close-locations) will need to pursue separate agreements for each station, which includes achieving minimum transition scale in each station by the date communicated for that station/district.

10. What happens if a business does not want to pursue an ISP Agreement?

A business that does not pursue transition to the ISP Agreement may assign its Operating Agreement(s) and PSA(s) and pursue other opportunities. It also may choose to continue to provide service under the non-renewed Operating Agreement(s) until it expires.

11. Can an individual be a shareholder for more than one business operating under an ISP Agreement?

Yes, as long as the individual discloses the name(s) of all the businesses in which he or she is a shareholder to FedEx Ground.

12. Does FedEx Ground expect any service disruptions as a result of these announced transitions to the ISP Agreement?

Service disruptions are not anticipated.

January 2016 Generic Q&A – District-specific Q&A will be provided 2

FINANCIAL INCENTIVES

13. What financial incentives are available during a transition to the ISP Agreement?While each transition is unique, FedEx Ground has typically offered financial incentives in exchange for execution of a Limited Release and Operating Agreement Modification, as well as growth incentives for businesses that acquire eligible PSAs. Additional details about your district’s incentives will be made available in the district’s workbook.SMART GROWTH AND SERVICE AREA DESIGN
14. What factors have businesses considered when designing contracted service areas (CSAs)?Many businesses consider how new stops and service areas will fit together geographically, as well as the financial and efficiency advantages that may result. Businesses operating bordering and/or overlapping Ground and Home Delivery service areas within a six-day operation have typically experienced more efficient use of vehicles, fuel and personnel, as well as greater operational capacity and flexibility for meeting customer needs.
15. Can a business operate both Ground and Home Delivery PSAs under an ISP Agreement?Yes. ISP candidates can choose to operate any combination of Ground and/or Home Delivery PSAs or stops in the same station, co-location – current or planned – or designated stand-alone stations that are in close proximity to each other (as determined by FedEx Ground) under an ISP Agreement, as long as minimum scale guidelines are met.While a CSA may include non-contiguous (non-adjoining) service areas, a higher level of operational efficiency will likely be achieved through contiguous (adjoining) service areas and by overlapping Ground and Home Delivery areas. Network resources, such as co-locations and P&D systems, are being aligned to fully support these six-day operations.
16. Why are Ground and Home Delivery overlap and six-day operations a priority?Rapidly evolving market conditions and customer demand – including the growth of e-commerce and residential deliveries – necessitate a move toward increased service capacity and operational flexibility. These two factors help meet customer expectations and enable businesses operating under ISP Agreements to quickly address and adapt to volume surges, particularly during Peak and special holidays. Overlapping Ground and Home Delivery service areas help to address these factors and are mutually beneficial for both FedEx Ground and contracted service providers.
17. What are some of the benefits in operating overlapping Ground and Home Delivery service areas?Businesses that incorporate Ground and Home Delivery overlap into their CSAs have the best opportunity to realize increased stop density, improved productivity and a reduction in miles per vehicle or in the total number of vehicles needed. In recognition of these dynamics, servicing overlapping Ground and Home Delivery stops within a CSA will be a positive differentiator for businesses moving forward. FedEx Ground may consider the overlap of stops as a factor when contracting decisions are made.Additionally, businesses operating both Ground and Home Delivery service areas can do so under one ISP Agreement. There is only one service area to manage, in which all stops and packages are paid the same negotiated rate.

January 2016 Generic Q&A – District-specific Q&A will be provided 3

NEGOTIATIONS

18. How do FedEx Ground and ISP candidates negotiate?

Negotiations are conducted electronically and by phone between each ISP candidate’s negotiator and a negotiator based at FedEx Ground’s headquarters, giving each party time to evaluate proposals and counterproposals. The Negotiations Process continues (typically five weeks) until an agreement is reached or negotiations reach impasse. Negotiations need to be completed no later than the station-specific date established by FedEx Ground. ISP Agreements take effect upon the station-specific date established.

OPERATING AS AN ISP

19. Are businesses operating under an ISP Agreement limited in doing other business?

Businesses are free to conduct other business in accordance with applicable laws provided there is no breach of the ISP Agreement.

January 2016 Generic Q&A – District-specific Q&A will be provided 4