Presented by NAME TO BE ENTERED TITLE TO BE ENTERED Scottish Provident

1. Business Protection Presentation title: The cost of unprotected success – the three key questions Presented by NAME TO BE ENTERED TITLE TO BE ENTERED Scottish Provident

2. The effect of losing a key person Share Price Carter&Carter April 2007 £12.75 Co value £500m October 2007 £0.85p (shares suspended) Administrators went in in April 08 Group plc C&C folded year after founder’s crash death Training group Carter & Carter has gone to the wall less than a year after it’s founder was killed in a helicopter crash... ….C&C has struggled to cope since his death

3. What went wrong Creditor Confidence • Direction & vision • Entrepreneurship • Boardroom cohesion *Research on behalf of Scottish Provident by Omnibus, February 2010

4. Other consequences IFAs Creditors Solicitors Solicitors Bank Bank Auditors Clients

5. Owner / Managed Business Image placement of BP image No ‘substitutes bench’ Limited market for shares

6. The owner managed business4 key business functions Address any problems Leadership Financial control Production Sales

7. Silos – Custom Control Systems Ltd Frank Technical Director R&D Quality control Buying Projects Contracts Team leader Peter Finance Director Cash flow Credit control Cost control Forecasting Profit testing Loans/Capital tax Co Sec Anne Sales and marketing Connections Product & market Negotiating Team leader Exports Alan Managing Director Vision Direction Leadership Board cohesion Bank confidence

8. Silos – Custom Control Systems Ltd Peter Finance Director Cash flow Credit control Cost control Forecasting Profit testing Loans/Capital tax Co Sec Anne Sales and marketing Connections Product & market Negotiating Team leader Exports Alan Managing Director Vision Direction Leadership Board cohesion Bank confidence

9. Silos – Custom Control Systems Ltd How will they source a replacement? What are the financial consequences? What will happen to the shares? Peter Finance Director Cash flow Credit control Cost control Forecasting Profit testing Loans/Capital tax Co Sec Anne Sales and marketing Connections Product & market Negotiating Team leader Exports Alan Managing Director Vision Direction Leadership Board cohesion Bank confidence

10. Silos – Custom Control Systems Ltd How will they source a replacement? Peter Finance Director Cash flow Credit control Cost control Forecasting Profit testing Loans/Capital tax Co Sec Anne Sales and marketing Connections Product & market Negotiating Team leader Exports Alan Managing Director Vision Direction Leadership Board cohesion Bank confidence

11. How quickly can they source a replacement? Time 3-6 months Head hunter costs £15,000 Share option buy out 10,000 Relocation costs 20,000

12. How quickly can they source a replacement? Friends Provident paid £370,000 for Trevor Matthews to move home Matthews received the ‘relocation allowance’ for his move from Edinburgh to Dorking, Surrey. A spokesman for Friends Provident says: ‘Relocation costs are a standard part of most employee contracts where people have to move location for their role.’ ‘It was extremely important for us to be able to secure Trevor Matthews’ appointment to us.’ Money Marketing – 15/09/2009

13. How quickly can they source a replacement? 3-6 months £15,000 10,000 20,000 £5,000 £40,000 10,000 £100,000 Time Head hunter costs Share option buy out Relocation costs Package • Car lease • Salary / pension • Bonus

14. The three key questions How will they source a replacement? What are the financial consequences? Peter Finance Director Cash flow Credit control Cost control Forecasting Profit testing Loans/Capital tax Co Sec Anne Sales and marketing Connections Product & market Negotiating Team leader Exports Alan Managing Director Vision Direction Leadership Board cohesion Bank confidence

15. What are the financial consequences? How do the customers feel today? Will they remain loyal? What happens if quality and service levels fail? What will be the effect on turnover and gross profit? How will the company meet its fixed costs?

16. What are the financial consequences? What will the... competition be doing today? Contacting key customers? Approaching key staff? Taking to suppliers?

17. What are the financial consequences? What will the... executors of the estate be doing? Director loan accounts may need repaying? Outstanding salary and bonus may need to be paid Dividends now paid to the estate

18. What are the financial consequences? How do the... trade creditors feel today? Will they reduce or withdraw credit terms? Can they still get creditor insurance?

19. What are the financial consequences? How does the... bank manager feel today? Attitudes changing in the economic climate? Will, or can the bank fund cash-flow shortfall? Will they call in overdrafts? If they lend, will they require personal security?

20. The vicious circle of doubt Bank No cash flow Customers Repay loans Replacement Cash flow Creditors ££ Cover Be your own banker

21. Summary of needs Replacement costs Director loan account Bank loans & overdraft Contribution to GP £ 100,000 £ 50,000 £ 150,000 £ 150,000 £ 450,000 Need 1 Key Person Cash Flow

22. The three key questions How will they source a replacement? What are the financial consequences? What will happen to the shares? Peter Finance Director Cash flow Credit control Cost control Forecasting Profit testing Loans/Capital tax Co Sec Anne Sales and marketing Connections Product & market Negotiating Team leader Exports Alan Managing Director Vision Direction Leadership Board cohesion Bank confidence

23. The key questions Who gets the shares? • What’s in the will? Spouse / partner? • How will they generate income? Children? • How old? Majority or minority shares?

24. The majority shareholder The majority shareholder No power No market No guarantee of income The estate has no problem!

25. Articles of association Pre-emption rights? • Must offer to existing shareholders first? Value clause • - How will the shares be valued? • - Problems of post death valuation But - Where does the money come from? Both the Estate and the company may have the problem

26. The majority shareholder Run or work in the company? Appoint / remove directors? Strip retained profit out of the business? Sell the shares - To who? - At what price? - Check articles!

27. The business ‘Will’ Cross Option Agreement Life / CIC Policy Fair value For Estate In Trust or Company Share Purchase? Control for the business Fair value for Estate

28. Method Company share Purchase Business trust Highly flexible Suits most businesses IHT / CGT issues if not set up correctly More expensive as premiums are a personal expense Cheaper – company pays – no tax charge Easy to set up Complications on purchase Only suits certain companies Purchase paid from distributable profit

29. BPR-applies BPR applies Spousal bypass – the problem Shares sold Shares to Spouse IHT Free Cash in spouse’s Estate fully exposed to IHT Inter-spouse Relief applies

30. Avoiding IHT? Shares sold Avoiding IHT? Cash loans to spouses Cash loans to spouses Cash loans to spouses Shares DIS benefits Il Rate Band? To trust IHT free Shares DIS benefits Il Rate Band? To trust IHT free Loans repaid on death reducing estate WillTrust WillTrust Assets pass to next Generation poss. Free of IHT

31. Shares sold Avoiding IHT? Shares DIS benefits Il Rate Band? To trust IHT free WillTrust

32. Shares sold What are the financial consequences? Cash loans to spouses Loans repaid on death reducing estate WillTrust

33. Avoiding IHT? WillTrust Assets pass to next Generation poss. Free of IHT

34. Summary of needs Replacement costs Director loan account Bank loans & overdraft Contribution to GP Value of shares £ 100,000 £ 50,000 £ 150,000 £ 150,000 £ 450,000 £ 250,000 Need 1 Key Person Cash Flow Need 3 Share Protection

35. Summary of needs Possible total Replacement costs Director loan account Bank loans & overdraft Contribution to GP Value of shares £ 100,000 £ 50,000 £ 150,000 £ 150,000 £ 450,000 £ 250,000 £700,000 Need 1 Key Person Cash Flow Need 3 Share Protection

36. Business protection specialists Large sums assured Comprehensive CIC covers Pegasus WOL – long term care (LTC) option Highly flexible menu based plans Bespoke business increase options (GIO’s) Specialist technical and sales support teams Specialist underwriters Web support / calculators Master class training

37. What creates the profit? ‘People, not machines, are the real source of profits in any business.’ ‘Take away my factories, my plants, take away my railroads, my ships, my transportation, take away my money; strip me of all these – but leave me my people and in two or three years I will have them all again.’ Andrew Carnegie

38. Are your clients indulgingin unprotected success? Why recommend Scottish Provident and how to sell more protection Business Protection

39. If you want to find out more, contact: NAME TO BE ENTERED 0000 000 0000 Thank you. Important information The information in this presentation is based on Scottish Provident's present understanding of current law and practice and does not constitute legal and/or taxation advice. You may wish to use all or some of the slides from this presentation. But please keep in mind that if you use or adapt any of these slides for your own presentation, you must make sure it’s compliant with the appropriate regulations and incorporate any appropriate risk warnings. Scottish Provident does not accept liability for any adapted wording you may use in this presentation. SCPR5912 MAR10