Business Continuation Planning Desjardins Insurance refers to Desjardins Financial Security Life Assurance Company.

What would happen to your business if you died last night? Who is going to run the business? Will your spouse or family be involved? What about remaining partner(s)/owner(s)? Will the business be sold to them? Will they want it? How much would they pay for it? Where would the funding come from? What are your wishes? DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

What would actually happen? Is the business readily marketable? Can the assets be easily converted to cash for the benefit of your family? Is there a logical successor who can take over the business? family member key person partner other shareholder DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Options when a business owner dies… The business can be sold to an outsider The remaining owner(s) can continue in business with the deceased’s spouse, or family The deceased’s interest can be sold to the remaining owner(s), or other interested party The assets may be sold and keep the company The business can be liquidated. DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Buy Sell How is this done? Agreement DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Buy Sell Agreement What is it? A legal agreement which provides for the transfer of a business interest in the event of: Death Disability Retirement Desire to leave business DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Buy Sell Agreement Who is it between? Business owners, either shareholders or partners Business owner and key employee(s) Business owner and child/children DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

What are the benefits? For the deceased’s family … They have a guaranteed market for the business interest They are guaranteed a fair price They are not forced to become involved in the business or be dependent upon remaining owner(s) It facilitates the settlement of the deceased’s estate DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

What are the benefits? For the remaining owner(s) ... The business keeps running They continue as sole owner(s) without involvement from deceased’s family It provides a smooth transfer of the business interest The sale price, or the method to determine it, is fixed in the agreement DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

What are the benefits? For all parties ... There are NO SURPRISES! The agreement is entered into when all parties are alive and have input into details of the business continuation plan. DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Where does the money come from? The agreement establishes the terms of transfer of the business interest However where does the money come from to complete the transaction? DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Sources of money at death Sell personal assets Borrow funds Pay over time Life insurance Let’s examine each of these sources ... DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Sell Personal Assets except there might be … Potential loss of value if a forced sale Possible loss of income producing assets Potential tax consequences Insufficient funds provided DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Borrow funds, however… Can a lender be found? Interest payments will add to cost Can business generate sufficient funds to repay loan? DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Pay over time, but … Deceased’s family is dependent on ongoing success of business It could negatively affect the cash flow of the business The remaining owners must pay both principal and interest DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Life Insurance "The Economical Method" It provides immediate cash when required It’s economical - the annual cost is a fraction of the benefit ultimately paid The insurance proceeds are tax-free The business continues unencumbered DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Insurance Funding Methods Personally owned Criss cross Corporate owned Promissory note Share redemption DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Personally Owned Criss Cross Company B owns 50% A owns 50% B owns Insurance on A A owns Insurance on B DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Personally Owned Criss Cross A dies Insurance proceeds B A's widow A’s shares B owns 100% of company DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Criss Cross Advantages Disadvantages easy to understand corporate creditors have no access to insurance proceeds insurance proceeds received tax-free Disadvantages insurance costs may be inequatable due to age, health and percentage of ownership insurance premiums paid with after tax personal dollars DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Corporate Owned Company A owns 50% B owns 50% Company owns life insurance on A and B. Company is owner, premium payer and beneficiary. DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Corporate Owned Promissory Note Method A dies Promissory note B A's widow A's shares B owns 100% of company DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Capital Dividend Account Corporate Owned Promissory Note Method Capital Dividend Account Company Insurance proceeds Tax free capital dividends Repays note B A’s widow DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Promissory Note Advantages Disadvantages premiums paid with corporate dollars impact of premium differentials reduced Disadvantages more complex than criss cross life insurance proceeds are not protected against corporate creditors at death DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Corporate Owned Share Redemption Method A dies Insurance proceeds B now owns 100% of co. Company $ from CDA A’s shares A’s family DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Share Redemption Disadvantages Advantages premiums paid with corporate dollars impact of premium differentials reduced Disadvantages complex arrangement life insurance proceeds are not protected against corporate creditors at death no increase in survivor's ACB DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Which method is best? Considerations: Tax bracket of company and individual Is capital gains exemption available? Degree of complexity involved Terms of the buy sell agreement Number and ages of parties to agreement and percentage of ownership DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Income Tax Issues What capital gains implications arise on transfer of business interest? Do shares qualify for $750,000 capital gains exemption? Does agreement allow for payment of tax free Capital Dividends? Are wills co-ordinated with agreement? Do Stop-Loss Rules apply? DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

Full Disclosure… This presentation is a general overview of business continuation arrangements. Consult your legal and accounting advisors for detailed information. Regular review of agreement and funding is recommended. Other relevant factors may be critical to final decision. DESJARDINS INSURANCE | FOR REPRESENTATIVES' USE ONLY /30

For more information, contact: BRYANT & WHITFORD CONSULTANTS ALBERT HILL - President 1-877-607-7141 Email: bryantandwhitford@bell.net www.bryantandwhitford.com FOR REPRESENTATIVES' USE ONLY /30