As a general rule, when a lease is structured in such a way that a lessee can purchase the leased equipment for a predetermined amount that is inferior to the fair market value of the equipment, the lessee should capitalize and treat this transaction as a loan.

When a lease allows a lessee to return the equipment at end of term without any additional obligation, then the lease rentals can be expensed. The lessee may have the option to purchase the equipment as long as the price is a fair representation of the market value of the equipment.

The contract of lease thus involves the followings :

• The supplier

The supplier provides and sells the equipment to a buyer.

• The lessor

This is the person who owns the property and equipment and assigns to the "lessee" the right to use the equipment in return for a rental amount, and this for the duration of the lease.

• The lessee

It is the user of the equipment leased by the lessor.

When a lease, by its structure, allows the lessee to purchase the equipment for a predetermined amount and less than the fair market value of the equipment, then the company must capitalized the equipment and process the lease as a loan.

When a lease allows the lessee to return the equipment at the end of the term without additional obligation than the rent can be processed as an expense in the company. The lessee can always buy the equipment as long as its price is relative to the fair market value of the equipment.

From 24 to 66 months, the lease term is usually a refection of the useful life of the equipment and the lessee's cash flow requirement

The lease rent is a fixed amount and will not vary over the term of the lease based on cost of fund variations. The rental amounts can pre-determined as to match productivity of the equipment and the lessees cash flow requirements.

Leasing is generally known as a competitive financing alternative to a loan.

In addition to not being subject to increases in the money market as lease rentals are fixed at the inception and for the full term of the lease, lessees are not subject to fee structures that are common to other financing alternatives. In fact, lessees do not incur credit fees, set-up fees and annual or administrative fees of any kind.

Lease rental amounts are determined in accordance to leasing factors. The main components used in defining a rental amount are the cost and the type of equipment, the lessee's credit rating and the structure of the lease itself.

Please contact one of our agent for more information on our various insurance products.