Family owned business exit strategy

Panel:

Carole Azran-Dickstein, Partner, Kolodny & Anteau

Irwin Nachimson, Partner, Nigro Karlin Segal & Feldstein, LLP

Steven J. Wolt, Parq Advisors LLC

James Baer, Managing Partner, Baer & Troff, LLP

Laura A. Zwicker, Partner, Greenberg Glusker Fields Claman & Machtinger LLP

Moderator: Alexander B. Kasdan, Managing Director, DelMorgan & Co.

Event Organized by Anna Spektor, Founder and President, Expert Presence

FAMILY OWNED BUSINESS EXIT STRATEGY April 25, 2013

1

Carole Azran-Dickstein is a partner at Kolodny & Anteau, a leading Beverly Hills law firm specializing in sophisticated and complex marital dissolution issues, with extensive expertise in issues relating to paternity, palimony, marital and domestic torts, child abuse and child abduction.

Since 1986, Carole's practice has been focused exclusively on Family Law with an emphasis on complex business and unique asset valuation, high income support issues, as well as issues regarding child custody and related litigation. Carole is also licensed to practice law in New Jersey where she practiced family law exclusively for three years.

Carole holds a BA in Psychology/Teaching Credential from the University California at Los Angeles and a JD from Loyola Law School Los Angeles. She is admitted to the California and New Jersey State Bars, as well as to the New Jersey Supreme Court. Carole also served as a Judicial Extern in the Family Law and Motion Department of the Los Angeles Superior Court.

Carole's reported cases include In re Marriage of Dick and In re Marriage of Benjamin.

Carole is a member of :

•  The State Bar of California/Family Law Section

•  Los Angeles County Bar Association/Family Law Section

•  Beverly Hills Bar Association/Family Law Section

•  New Jersey State Bar Association

9100 Wilshire Boulevard 9th Floor West Tower Beverly Hills, CA 90212 Phone: 310-271-5533 azran-dickstein@ kolodny-anteau.com www.kolodny-anteau.com

2

Irwin Nachimson is a partner of Nigro Karlin Segal & Feldstein, LLP and has been with the firm for approximately 20 years. Irwin has worked on family law, fraud, investigative and litigation support assignments. His assignments have included calculating cash flow available for support, dividing community and separate assets, tracing assets and valuing companies. Irwin has also worked on various assignments with asset based lenders in troubled debt scenarios and been involved with numerous assignments in Chapter 11 cases. Irwin�s assignments have included monitoring companies, analyzing cash flow forecasts, tracing sources and uses of funds and investigating fraudulent transactions. Irwin has worked in a variety of industries including the Petroleum, Real Estate, Non-Profit, Computer, Entertainment, Distribution, Manufacturing, Agriculture, and Food industries. Irwin has worked on projects for financial institutions including Bank of America, Wells Fargo, Comerica, Union Bank of California, Bank of the West and Silicon Valley Bank. Irwin also specializes in merchandising and profit participation audits on behalf of actors, directors and producers in the entertainment industry as well as other high net worth individuals. As part of these audits he as visited and done extensive work at various major studios. Irwin is a graduate of The University of California Los Angeles (UCLA) and earned his MBA from The University of Southern California (USC). Irwin is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants, The California Society of Certified Public Accountants and The Association of Insolvency and Restructuring Advisors. Irwin is certified in Financial Forensics by the American Institute of Certified Public Accountants (AICPA). Prior to his work at Nigro Karlin Segal & Feldstein, LLP, Irwin worked with Arthur Andersen. Irwin is married to his wife of 16 years, Sharona, and has four children. Irwin is a board member of National Conference of Synagogue Youth. He is also on the Board and a member of the audit committee of the Union of Orthodox Jewish Congregations of America.

10960 Wilshire Blvd. Suite 500 Los Angeles CA 90024 (310) 229-5161 www.nksf.com [email protected]

3

Jim Baer is a Principal and Founding Partner of Baer and Troff, LLP. His legal practice experience includes serving as outside general counsel and business advisor to numerous companies and individuals, including as strategic advisor for managing and settling of complex business litigation. His legal practice also includes venture capital financings for both venture capital firms and portfolio companies, and advising business entities, boards of directors and individuals on general corporate matters, loan transactions, mergers and acquisitions, restructuring transactions and corporate securities issues.

A member of the American Bar Association and the Los Angeles County Bar Association, Jim is also a past member of the Corporations Committee for the Business Law Section of the State Bar of California and is a current member of the Los Angeles County Bar Executive Committee.

Jim also has expertise as a mediator in a wide variety of matters. He is currently President of CMBG Advisors, Inc., a firm specializing in business restructuring and Assignments for the Benefit of Creditors (ABCs).

Jim was head of the Corporate Department in the Los Angeles office of Katten, Muchin & Zavis, a Chicago-based firm. Previous to that, he practiced with Gibson, Dunn & Crutcher, LLP, a Los Angeles-based firm.

Jim received his Juris Doctorate law degree from Loyola Law School in Los Angeles in 1983. He was admitted to the State Bar of California in 1983.

11840 Dorothy Street Suite 301 Los Angeles CA 90049 1.310.802.4200 phone 1.310.471.6971 fax www.btllp.com [email protected]

4

Steven J. Wolt, a veteran in the life insurance industry, with over 17 years of experience, has worked closely with owners of privately held businesses, executives of publicly traded companies and affluent families on their estate planning, life and disability insurance needs.

Steven specializes in designing and implementing cost-effective strategies to mitigate risk, maximize flexibility and reduce taxes for his clients. His knowledge of estate planning, executive benefits and planned charitable giving make him a resource to Accountants and Lawyers seeking to implement life insurance strategies for their clients in the affluent marketplace.

Steven began his career in New York City and quickly became one of MetLife's top producers. He has amassed numerous awards over his 15+ year career, including the Top of the Table with the Million Dollar Round Table as well as the prestigious Chairman’s Council from Met Life.

Steven is an active member of the board of directors for both the Los Angeles World Affairs Council and Catholic Charities, and is an active member of St. Monica's Church in Santa Monica.

Steven earned his Bachelor’s degree from Fordham University in New York and lives in Santa Monica, CA.

9595 Wilshire Boulevard Suite 510 Beverly Hills, California 90212 (424) 253-7400 www.parqadvisors.com [email protected]

5

Laura A. Zwicker is a Partner at Greenberg Glusker Fields Claman & Machtinger LLP and a Chair of the Firm’s Private Client Services Group. Laura’s practice focuses primarily on counseling high net worth individuals and their families in connection with domestic and international estate and tax planning issues and business succession planning; advising financial institutions with regard to fiduciary and custodial issues; forming, advising and dissolving non-profit organizations; and probate and post-death trust administration. Laura is a member, Executive and Planning Committes, 2013 USC Gould School of Law Tax Institute, a member, STEP (Society of Trust and Estate Practitioners), and an advisoro to Marat Daukayev Ballet Theatre.

Laura holds a JD degree, magna cum laude, from Indiana University School of Law, Bloomington, IN, Order of the Coif, and a BA degree, cum laude, from Washington University, St. Louis, MO.

1900 Avenue of the Stars 21st Floor Los Angeles, CA 90067 (310) 785-6819 www.greenbergglusker.com [email protected]

6

Alexander B. Kasdan is a Managing Director at DelMorgan & Co. He has more than twenty years of investment banking, real estate, corporate law and corporate strategy experience. Alex has executed over 100 domestic and cross-border transactions totaling more than $10 billion in overall volume in a variety of industries. Prior to joining DelMorgan, Alex founded and ran Convergence Capital Partners, LLC, a boutique investment banking advisory firm and was an investment banker at Barrington Associates in Los Angeles, where he headed the restructuring group, Peter J. Solomon Company, Credit Suisse First Boston and Merrill Lynch. Alex practiced law with O’Melveny & Myers LLP (formerly O’Sullivan Graev & Karabell LLP) and Paul, Hastings, Janofsky & Walker LLP (formerly Battle Fowler LLP), where he specialized in mergers and acquisitions, private equity and corporate finance transactions. In addition, Alex served as Corporate Counsel in charge of business development at Schlumberger Ltd., a global oilfield and information services company. Alex graduated magna cum laude from Middlebury College with a B.A. degree in Economics and Italian and was elected to Phi Beta Kappa during his junior year. In addition, he holds a J.D. degree from Columbia University Law School and has studied at the University of Florence in Italy. Alex is admitted to the Bar in the State of New York. Alex is a Senior Advisor to Governance and Transactions LLC, an advisory firm established in 2003 by Mr. James L. Gunderson, former Secretary and General Counsel of Schlumberger Limited, to assist boards, management and owners with corporate governance, compliance, structuring and strategic transactions.

100 Wilshire Blvd. Suite 750 Santa Monica, CA 90401 (310) 980-1718 www.delmorganco.com [email protected]

7

Anna Spektor, the Founder and President of Expert Presence, specializes in digital and event marketing, public relations and brand communications programs for professional services firms. As a business development consultant, Anna helps clients develop and implement comprehensive strategies designed to generate new and solidify existing referral relationship, elevate profile, and build brand awareness. Anna is also the founder of Expert Forum and Expert Webcast, affiliate companies focused on providing the professional community with quality educational content, continuing professional education and targeted networking opportunities.

1999 Avenue of the Stars Suite 1100 Los Angeles, CA 90067 (310) 995-6579 www.expertpresence.com [email protected]

8

Fiduciary Duties and Obligations of Spouses in a Family Owned Business

Presented by:

Carole Azran-Dickstein, Kolodny & Anteau

9100 Wilshire Boulevard, 9th Floor West Tower

Beverly Hills, CA 90212

[email protected]

9

STANDARD OF CARE BETWEEN SPOUSES

What is the standard of care between Husband and Wife?

10

STANDARD OF CARE BETWEEN SPOUSES

Until the mid-1970s, the "good faith" standards were imposed upon married persons.

These standards have since evolved into the higher “confidential duty” and “fiduciary duty” standards.

On January 1, 1994 Family Code section 721 became operative which significantly changed the duties between spouses.

11

DUTY OF HIGHEST GOOD FAITH BETWEEN SPOUSES

Family Code 721(b):

This section imposes a fiduciary duty of the highest good faith and fair dealing on each spouse, such that neither shall take any unfair advantage of the other.

The fiduciary relationship between spouses is subject to the same rights and duties of non-marital business partners, as provided in the Corporations Code.

12

So how would Husband’s

fiduciary duties come into play

in the “sale of business scenario?�

13

In general, either spouse has the right to manage and control the community property subject to an exception regarding a business.

A spouse who is managing a business which is all or mostly all community personal property has:

1.  Primary management and control of that business; and

2.  Can act alone so long as they provide give prior written notice of any sale, lease, exchange, encumbrance or other disposition of the property used in the operation of the business.

[FAMILY CODE SECTION 1100(D)]

RIGHT TO MANAGE COMMUNITY PROPERTY

14

DUTY OF FULL AND COMPLETE DISCLOSURE EXISTS BETWEEN SPOUSES

Pending the division of community assets and debts, Husband would also have to disclose :

- all material facts and information regarding the existence, characterization, and valuation of all assets (and debts) in which the community has or may have an interest; and

- to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.

[FAMILY CODE SECTION 1100(E)]

15

FAILURE TO MEET FIDUCIARY DUTIES

So for those of us who work with clients as their financial advisors, business lawyers or business managers, what happens if the divorcing managing spouse does not meet his fiduciary duties?

16

BREACH OF FIDUCIARY DUTY

Husband may be subject to a

Breach of Fiduciary Duty Motion

filed by Wife.

17

In the landmark Breach of Fiduciary Duty Case, Marriage of Feldman, Husband was a very successful real estate developer in San Diego, who tried to hide some of his assets from wife during their divorce proceedings.

For example, Wife’s attorneys asked Husband’s attorney if Husband had acquired any new properties. Husband’s attorney responded that Husband was leasing a residence.

Wife later learned that Husband had formed a new business entity after separation and bought a $6,000,000 residence in the name of the new business entity which leased the home to Husband.

Husband also failed to disclose a 401k Plan and an Israeli Bond.

Hypothetical - GOOD LAWYERING or SANCTIONABLE GAME PLAYING?

18

Wife filed an application with the Court seeking:

1. Monetary sanctions for failing to make financial disclosures; and

2. Payment of her attorney’s fees which is mandatory under the statute.

The Appellate Court affirmed the trial Court's granting of W’s Motion awarding her $250,000 in sanctions for breach of fiduciary duty and $140,000 in attorney's fees.

Hypothetical – GOOD LAWYERING or SANCTIONABLE GAME PLAYING?

19

If one spouse commits fraud against the other, the Court has discretion to award as a type of punitive damage, 100% of any asset undisclosed or transferred in breach of the fiduciary duty.

If no fraud found, the undisclosed asset is equally divided between the parties.

[FAMILY CODE SECTION 1101]

IF FRAUD – PUNITIVE DAMAGES SHALL BE AWARDED:

20

Fiduciary Duties implemented to ensure California’s public policy:

1. To preserve, and protect community assets and liabilities that exist at the date of separation to avoid dissipation of the community estate before distribution;

2. To ensure fair and sufficient child and spousal support awards; and

3. To achieve a division of community and quasi-community assets and liabilities on the dissolution of marriage.

[FAMILY CODE SECTION 2100]

PUBLIC POLICY FAVORS PROTECTING THE COMMUNITY ASSETS

21

ADDITIONAL FIDUCIARY DUTIES

No Unilateral Transfers of Assets During Marriage:

1.  Noncompliance gives rise to a claim for breach of fiduciary duty, as well as a "set-aside" remedy on behalf of the aggrieved spouse.

2.  Automatic Temporary Restraining Orders [ATROs], become effective immediately when an action is initiated. The ATROs prohibit each spouse from:

Transferring, encumbering, hypothecating, concealing, or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life.

22

Hypothetical - Sale of Business

Married couple, H running the business, and in the process of negotiating a sale to a strategic buyer, in the same industry. W files for divorce and serves H a week before the scheduled closing date.

How does the filing of divorce by W change the negotiations?

23

Hypothetical - Forced Sale of Business

Married couple owns a business held as community property and they have a third party owner who owns 50% and this third party wants to buy out the 50% held by the married couple, who coincidentally are in the middle of a divorce.

Can the third party partner force a sale under the terms of the Shareholders Agreement?

24

Hypothetical - Corporate Woes

Married couple going through a divorce at a time when the company gets a call from City National Bank that the loan on the business has been called and the company is forced to liquidate.

Did both parties sign the loan documents?

What if only H signed?

What if W signed but she was not represented by independent counsel?

25

Hypotheticals - Divorce and Business Valuations

Divorcing H and W do not get along, are both integral to running the business, do not have significant assets outside of the business and cannot agree on the valuation.

Business is sold in divorce, H continues on with a consulting agreement and an earn-out. What is the value to W in divorce?

26

Closing

I hope this brief discussion of the fiduciary duties and obligations between spouses has provided you with:

1.  Some information so that you are able to spot fiduciary duty issues;

2.  Some tools to enable you to best represent your clients so that they do not breach any of these duties; and

3.  Some resources so that you can consult with other professionals should your clients ever confront fiduciary duty issues.

27

Forensic Accounting Issues in Divorces Irwin Nachimson, Partner

28

Income Issues and Property Issues

There are two categories through which we need to look at a small business in a Divorce Setting

• How much income is currently being generated by the small business for the purpose of calculating support and value.

• What is its value?

29

Income Issues and Property Issues

Income being generated by the company is typically assigned to the �in-spouse� for the purposes of calculating support.

• How do we determine the true income of a company

and what documents are needed?

30

Income Issues and Property Issues

• Basic Documents Needed To Determine True Income: –  Company Tax Returns –  Company Trial Balances and General Ledgers –  Company Contracts –  Bank Statements –  Account Receivables and Payable Ledgers

Income Available for Support

31

Income Issues and Property Issues

•  Typically we look at Income for the most recent 12 Month Period –  How do We Determine a True Income Number?

1.  Add Backs: Prerequisites – Example:

Auto expenses Meals and Entertainment Travel Charitable Contributions Divorce Legal Fees Pensions Medical and Life Insurance

32

Income Issues and Property Issues

How do We Determine a True Income Number? (continued)

2.  Taxable vs. Non Taxable

3.  Depreciation – Non Recurring Expenses

4.  Reductions From Income – Non Recurring Income

(i.e., Expiring Contracts)

33

Income

•  Income vs. Cash Flow

•  Income Generated – Includes Accrued Receivables vs. Cash Approach (Does Not Include Accrued Sales)

•  Also Applies to Payables

•  How much is other spouse retaining within the Company and not reporting as a distribution

34

Income

•  Fraud

•  Un-Reported Income

•  Bogus Employees (Girlfriend)

•  Fictitious Vendors

•  Hidden Bank Accounts

35

Income and Valuation

•  Valuation Methods I. Income Approach

–  Takes into account •  Risk •  Appropriate Multiple & Reasonable Compensation •  Historical Earnings

II.  Market Approach – Other Comparable Companies

III.  Asset Approach – Assets Only

36

Asset Approach

•  Various Discounts Lack of Control Lack of Marketability

37

Asset Approach

•  How do you buy them out? Award Other Assets (House) Notes Payable Share of the Profits

38

Valuation - Issues Involved

•  Value of Small Business •  Dates of Valuation

Date Closest to Trial Service Business – Date of Separation Other Stipulated Date

39

The Corporate Law Perspective

Presented by:

James K Baer, Partner

Baer & Troff, LLP

40

Overview

Splitting up a private family-owned business in the context of a divorce proceeding is similar to dividing up any privately-owned business.

But note…

• The personal issues and dynamics are more likely to be important and to have high emotional content

• Special limitations and requirements imposed by Family Law including:

•  The requirement that any transmutation of property interests be made in writing by an express declaration that is accepted by the spouse whose interest is adversely affected

•  The imposition of fiduciary duties in transactions between spouses: �a duty of the highest good faith and fair dealing on each spouse and neither shall take advantage of the other.�

41

Unique Considerations

•  Both spouses are active in the business and have similar roles and interests.

•  Both spouses are active in the business and have different roles and/or interests (e.g., one spouse is central to the development and growth of the business and one is in a supporting role).

•  One spouse is active in the business, the other is a co-owner only (at least for the most part).

42

Implementation of the Split-Up

When divorce means splitting up the family business, there are several different ways to implement the split-up, which may vary depending on economic objectives of each spouse, willingness of the spouses to cooperate and the extent of anticipatory planning:

• One spouse buys out the other

• The company is liquidated and the proceeds distributed to the owners

• The company is sold to a third party

• The spouses figure out some middle ground to continue the company by finding a trusted third party to operate and control the business working together or giving one spouse substantial control and protecting the rights of the other to their share of assets and profits.

43

Information Rights

Access to information is essential to protecting a shareholder�s investment, particularly in private family-owned business where there is unlikely to be another source for that information:

• Minimum rights are available by statute and the available statutory rights are different depending on the state and the entity.

• Specific rights to information can (should be) included in the applicable certain organizational documents

• A shareholder seeking to preserve his or her equity interest in a family-owned business should insist on basic information rights and exercise them regularly.

44

Fiduciary Duty Provisions

•  Usually the owners and managers of a privately-owned company are careful to limit the fiduciary duties of one owner to another.

•  The statutory duties (under corporate law) of owners to each other are very limited.

•  The standard legal duties of a director, manager or officer to an owner are:

•  Duties of Care: The duty to use good judgment and to use ordinary care and prudence in the operation of a business.

•  Duties of Loyalty: Corporate fiduciaries breach their duty of loyalty when they divert corporate assets, opportunities or information for their personal gain; corporate fiduciaries are generally prohibited to put their personal interests ahead of those of the corporation.

45

Covenants Not to Compete

•  California Family Law provides that �each spouse shall act with respect to the other spouse in the management and control of the community property and liabilities in accordance with the general rules governing fiduciary relationships. . . .�

•  Obligation to make full disclosure of all material facts and information regarding the community assets and liabilities and to provide equal access to the information records and books upon request.

•  In the event of a sale of the business to a third-party or a buy out by one spouse of the interests of the other spouse in the business, it is likely that the buyer will request a non-compete from the seller(s).

•  Buy-Sell agreements should include an obligation of the seller to agree to a non-compete as a condition to receiving the purchase price.

•  In California, need to be sensitive to the limitations on non-competes.

46

Capital Structure

There are various alternatives for using the capital structure of a company (before and/or after split-up) to achieve objectives:

•  Different Classes of Equity Interests: Can differentiate economic returns, voting rights, priorities, and liability exposure to third parties.

•  Debt Instruments: Can provide one spouse with a priority payment that can reduce risk to the creditor spouse and limit the ability of the spouse controlling the company to adversely affect the rights of the creditor spouse.

•  Separating Assets and Business: Can separate an asset (e.g., intellectual property) and give it a protected return (e.g., a royalty).

•  Shareholders Agreements: Can provide an alternative way to give one shareholder specific control over certain governance or operational issues.

47

Involuntary Dissolution

If no resolution with respect to a split-up can be reached, a shareholder holding not less than 1/3 of the equity interests can file a complaint seeking involuntary dissolution, if one of the statutory grounds exists.

Statutory grounds include:

• An even number of directors who are equally divided and cannot agree as to management of the company�s affairs.

• Internal dissension of 2 or more factions of shareholders who are deadlocked so that the company�s business cannot be conducted.

Involuntary dissolution can be avoided if 50% or more of the shareholders purchase for cash the shares of the shareholders seeking dissolution at their fair value.

48

Valuation / Recapitalization / Sale Alexander B. Kasdan, Managing Director

49

Assembling the Working Group •  Investment Banker

  Pre-engagement diligence – solid financials, reputation, etc.

  Desirability of client – our reputation and time are on the line

  Selling on the �uptick�

  Identify all appropriate add-backs and adjustments to EBITDA

  Recast historical financials

  Projections and pro-forma adjustments

  Knowledge of marketplace and process

  Due diligence issues

  Management issues

  Investment banking fees – exclusivity, retainer, success fees

50

Valuation of the Business

  Reason for Valuation

  Fair Market Value

  Fair Value

  Other

  Methodology

  Minority and Marketability Discounts

  Personal transactional tax implications

  Due diligence issues

51

Issues to Consider

  Familiarity with M&A issues

  Knowledge of various deal structures

  Confidentiality of the sale process

  Non-compete agreements

  Stock sale vs. asset sale

  Employment and/or consulting agreements

  Board and minority shareholder/passive investor issues

  Legal fees

52

Company Preparation

Marketing the Company

Receive Proposals

Due Diligence and LOI

Negotiations and Closing

5-7 weeks 6-12 weeks 3-4 weeks 4-6 weeks 4-8 weeks • Information gathering • Prepare Company Summary • Prepare Information Memorandum (IM) • Finalize list of targets

• Contact targets

• Execute CAs

• Distribute IMs • Organize Virtual Data Room • Address any other issues

• Receive written indications of interest • Select �short list� • Management Presentations • Initial due diligence

• Solicit final bids (LOIs) • Distribute draft agreements • Receive final offers

• Evaluate LOIs • Negotiate with final bidders • Coordinate working group (counsel, accountants, other advisors)

• Final due diligence

• Closing

Total Time =

22–37 Weeks

Illustrative Sale Process – Steps and Timeline

53

The main responsibility of business owners and management is to continue running

the business – need to meet all projections and forecasts

Keeping the Family in the Family Business: An Estate Planner�s

Perspective On Family Business Succession Planning

1900 Avenue of the Stars, 21st Floor, Los Angeles, California 90067

PRESENTED BY: LAURA A. ZWICKER Attorney at Law D: 310.785.6819 [email protected]

What Happens Now?

  Valuation   Intra-family buy/sell or

shareholders agreements are not likely to be binding on IRS

  Sale of shares may have estate tax implications

  Non-controlling/fractional interests

  Unbundling of integrated business assets

What Happens Now?

  Allocation of Control/Ownership   All to active family members   Equal equity interests, but all voting interests to active

family members   Equal equity and voting

interests, but active family members as �business trustee� for passive family members

Allocation of Ownership/Control

  All to active family members   Fund equalization with non-business assets   Fund equalization with insurance   Perception of equity of allocation within family

Allocation of Ownership/Control

  Equal division of business interests   Option to purchase

  Determination of purchase price   Funding of purchase price   Effect of purchase on estate tax value   Effect of purchase on entity holding California real property

  Allocate non-voting interests to passive family members   Legal duties of voting shareholders, officers and directors   Differing financial and emotional interests

  Business Trustee for passive family members   Fiduciary duties of trustee

What Happens Now?

  Liquidity

  Equalizing allocation to non-participating family members

  Fund buy-out non-participating family members

  Fund estate tax payments

Generating Liquidity

  Life Insurance   Policy owned by business

  Traditional funding

  Split-Dollar funding

  Effect on estate tax value

  Policy owned by trust   Funding premiums

  Allocation of proceeds not used

  Cross-ownership of policy

Generating Liquidity

  Outside Investors   Sale of entire company   Sale of non-controlling stake

  Integration into management   Acquire expertise along

with liquidity

  Conventional Borrowing   6166 Election

Keeping it in the Family

  Cultural sensitivities   Are there family members with appropriate

expertise   Protecting family ownership on divorce/gifting   Education and common vision for both active and

passive family members   Exit plan for passive family members   Dispute resolution system   Employment policy for next generation

Gift And Estate Tax

  Current Credit/Exemption Levels

Year Gift/Estate Tax Credit

Gift/Estate Tax Rate

GSTT Exemption

GSTT Rate

2012 $5.12 Million 35% $5.12 Million 35%

2013 $5.25 Million 40% $5.25 Million 40%

2018* $3.5 Million 45% $3.5 Million 45%

  Annual Exclusion of $14,000/donor/donee/year

*Under the President�s 2014 Budget Proposal, credit and tax rates would return to 2009 levels in 2018

CONFIDENTIAL+|+9595 Wilshire Boulevard, Suite 510 · Beverly Hills, CA 90212 · 424-253-7400 telephone · 424-253-7401 facsimile

Key$Person$Insurance$

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CONFIDENTIAL+|+9595 Wilshire Boulevard, Suite 510 · Beverly Hills, CA 90212 · 424-253-7400 telephone · 424-253-7401 facsimile

Buy/Sell$Plans+

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CONFIDENTIAL+|+9595 Wilshire Boulevard, Suite 510 · Beverly Hills, CA 90212 · 424-253-7400 telephone · 424-253-7401 facsimile

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