1. + IC-DISC – U.S. Tax Incentives for the Export of Lumber Overview of Captive Insurance Appalachian Hardwood Manufacturers, Inc. 2015 Annual Meeting February 27, 2015

2. + Lumber Industry - Tax Incentives to Promote Exports  Lumber industry generates $200 billion in sales annually  Revenue Act of 1971 and Revised by the Deficit Reduction Act of 1984 created incentives for U.S. companies to export  IC-DISC – Interest Charged – Domestic International Sales Corporation  In 2008, the IRS reported only 1,600 IC-DISC.  As a means of encouraging exports, qualifying, export products are subject to substantially lower rates.  60% PLUS reduction in federal income taxes.  Possible state tax savings as well.

3. + IC-DISC - Structure & Requirements LOTS OF TECHNICAL REQUIREMENTS – DO NOT ATTEMPT THIS AT HOME! C Corp. – Does Not Pay Federal Taxes (but no flow through to shareholders) IRS Election to be treated as an IC-DISC Minimum capitalization at all times Must maintain separate bank account and accounting records Files IRS Form 1120 IC-DISC Commission paid in by export supplier and out to the shareholders Shareholders may be company owners or incentive program for key employees or as an estate planning tool or otherwise

4. + IC-DISC – Indirect Structure Tax exempt $$Dividends$$ Commissions 50% benefit!!!

5. + IC-DISC – Direct Sales Structure All of the export profits are tax exempt Caveat: Monies are still locked in a C corp. Again – U.S. objective is to spur U.S. exports 100% tax benefit!!!

6. + “Qualified Export Receipts” – What Counts Defined as receipts from selling or leasing export property to purchaser or lessee outside of the US. Generally, no more than 50% of the value of the export property its attributed to articles imported into the U.S. Example: Mahogany grown in South America but processed in the U.S. -- May or may not qualify. Timing – Qualified Export Receipts can only begin at date of formation Beyond IC-DISC 101 – What Qualifies? Direct Export Indirect Export (sold to party that then exports the property) Part of a Whole that is export directly or indirectly Leasing of Equipment Engineering or Architectural Services – performed in the US or abroad Excluded – Unprocessed softwood timber

7. + IC-DISC – Export Profits 23.8% FIT With an IC-DISCWithout an IC-DISC 45+% FIT

8. + IC-DISC - Tax Savings Simplified Pre-taxable Income$ 6,000,000 FIT @ min. 39.6%$ 2,376,000 FEDERAL TAX WITHOUT IC-DISC $2,376,000 Total Revenue$30,000,000 Non -IC-DISC Sales $10,000,000 Pre-Tax Income $ 2,000,000 (20% margins) FIT @ min. 39.6% $ 792,000 IC-DISC Sales $ 20,000,000 Pre-Tax Income $ 4,000,000 (20% margins) FIT @ 23.8%$ 952,000 FEDERAL TAX WITHOUT IC-DISC $1,744,000 WITHOUT IC-DISC WITH IC-DISC “DIRECT SALES” Factors: Operating Company Sales$30,000,000 Domestic Sales$10,000,000 Export Sales$20,000,000 Total Pre-Tax Income$ 6,000,000 (20% pre-tax margins)

9. + Export Assurance, Ltd. True Turnkey Services We jointly design, structure, implement and operate the IC-DISC arrangement. Client handles the checkbook, billing and physical flow of product. We handle the legal and financial structure. Support by Capstone and Law Firm in case of IRS audit or inquiry.

10. + Captive Insurance  There are 10,000± captive insurance companies in the world.  A captive insurance company is a company that has been established to insure the risks of a specific organization(s).  Single-Owner Captives. A person establishes a "single owner or pure captive" to insure its own risks and the risks of its subsidiaries and affiliates.  The Single-Owner Captive is the core of Capstone's business.  Capstone Associated Services, Ltd. specializes in single-owner captives with annual premiums of under $1,200,000/calendar year.

11. + Captive Structure Customized Coverages Ins. Premiums FOR PROFIT, U.S., TAX EXEMPT ENTITY!!! WHO IS A GOOD CANDIDATE? Private, closely-held, profitable business(s) Revenues of $5 million or more or $1.5+ million taxable income

12. + Why Form a Captive  Customize Your Coverage – the true reason for a captive  Mitigate Your Risk– reduced total cost of risk  Concern over coverage exclusions and retained risks  Increased Cash Flow - financial and tax considerations  Increase income tax & wealth building efficiencies

13. + Asset Protection Overlay Insurance Premiums $$ Secured Loan $$

14. + Commercial vs. Captive Coverages

15. + Sample Coverages Written By 831(b) Captives  Loss of Key Employee  Disease affecting production or quality of lumber  Loss of Customer  General Liability  Professional Liability  Property  Excess Coverage  Environmental /Pollution  Product Liability  Cyber Risk  Flood  Regulatory Changes

16. + Inherent Benefits of 831(b) Captives  Improved risk protection from customized policies  0 % Federal Income Tax on underwriting profits  Investment income is taxed at regular C- Corp rates  Increase income tax efficiencies  Increase wealth accumulation efficiencies  Ownership benefits  State tax implications  Dodd Frank considerations  Limited to premium income <$1.2 Million per year

17. + How to Access Captive Surplus  Insurance Loss  Secured Loan  Qualified Dividend  Captive Acquires or Finances Strategic Assets  Long Term Capital Gain (qualifying event) 17

18. + Services & Expertise Capstone – The Granddaddy in the Captive Industry. 17 years. 175 captives.  Recognized as the most sophisticated organization.  Turnkey services provider, coordinates risk manager, local domicile counsel, actuary, independent auditor, third-party re-insurer, professionals engaged in policy design and pricing, and others.  175 + captives formed over 15 years. Substantial infrastructure. Best practices.  Affiliated law firm with 10+ business (tax, corporate, regulatory, litigation) lawyers strong in experience.  Optimize captive ownership and operations.  Not a clerical or administrative provider. We are tax lawyers.  We do not disclaim tax & legal issues. Hand tax audits and tax litigation.

19. + Questions?