EFTA01127278

Summary of Coverage Individual Life Insurance Coverage on Leon Black • Split-Dollar Entity: AIF IV Management. Inc. • Policy owner: Norman Brownstein, Trustee under the Leon D. Black Insurance Trust #1 dated September 13, 1999. • These policies' register dates arc September 1999. Net Cash Split-Dollar Amount of Normal Annual Account Value Surrender Value Advance Carrier Policy Number Coverage Premium 12-31-12 12-31-12 12-31-12 Prudential VI 016 844 $30,000,000 $502,335 $4,504,232.62 $4,504,232.62 $6,108,212 AXA Equitable 49 232 126 $15,000,000 $264,894 $2,053,540.91 $2,019,619.09 $3,172,980 Security Life ofDenver 610014742 $ 5,000,000 $ 96,380 $584,170.30 $576,482.80 $1,180,138 Total - Individual Life Insurance Coverage $50,000,000 $863,609 $7,141,943.83 $7,100,334.51 $10,461,330 Second-to-Die, Wealth Transfer Life insurance Coverage on Leon & Debra Black • Split-Dollar Entity: AIF IV Management. Inc. • Policy owner: Norman Brownstein, Trustee under the Leon D. Black Insurance Trust #2 dated September 13, 1999. • These policies, other than the Prudential policy, have a register date of April 28, 1999 in order to save Debra's insurance age. (Prudential utilizes "current age" vs. "closest age", therefore backdating was not necessary and the register date for the Prudential policy is 9/13/99.) Net Cash Split-Dollar Amount of Normal Annual Account Value Surrender Value Advance Carrier Policy Number Coverage Premium 12-31-12 12-31-12 12-31-12 Prudential VO 001 958 $20,000.000 $179.595 $2,727,667.92 52.727.667.92 $ 2,304,955 New York Life 75 500 858 $20,000,000 S196.080 $3,081,046.27 $3,073,203.07 $ 2,514,929 Pacific Life VP 6089 7390 S 5,010,000 S 33.218 $457,928.92 5457.928.92 $ 424.480 John Hancock 20 039 301 $30,000,000 S359,022 $5,040,643.54 $5.040.643.54 $ 4,622,974 AXA Equitable 49 232 123 525.000.000 05 246 2,664,966.34 26 . 7 47 Total Second-to-Die Life Insurance Coverage $100,010,000 S973,161 $13,972,252.99 $13,938,013.25 512,495,285 his information has been takenfrom sources which we believe to be reliable. but there is no guarantee as to its accuracy. It is not a replacementfor any account statement or transaction confirmation issued by the provider. Please compare this document to your custodial statementfor accuracy, ar applicable. Please refer to the prospectus and most recent annual report for further information. Transcription errors do not affect actual policy values. am,. 11,141/4 M I1-&.m/.t IMINfak llowAtnteaMNII•A l'a.V.Zalaws.an 12,1401:91.4 EFTA01127278 ryant Group INCORPORATED Roger E. Cammon President d Co-Chlet EXOCaltiV0 Officer 701 Market Street Suite 1200 101 December 7, 2012 PERSONAL & CONFIDENTIAL Ms. Eileen Alexanderson Black Family Partners 9 West 571h Street, 141h Floor New York, NY 10019 via email Leon Black Trust-Owned Life Insurance Coverage 2012 Reportable Income & Annual Gift Dear Eileen: Annually, Leon must report or contribute the economic benefit of his Split-Dollar life insurance plans as income for income tax purposes. This same amount represents the annual value of the gift for gift tax purposes. The following page outlines the reportable income and annual gift on a policy by policy basis. If you have any questions concerning this information, please do not hesitate to contact me. Resp ctfully, Roge . Cammon Enclosure cc: Mr. Thomas Turrin 0* the AM &Rat& Odes re deed th AXA Adrian, LLC. atm ocrsioreorRaertocancosenominaC ea The weed individual ellen socannes nart investment advisory preduclernougli AXA Adetion, LLC (NY, NY 2113144600), derider F NRA. SIPC. and offers annuity and insurance doderis Omagh AXA Network. LLC and its subsiddies Bryant Croup. Inc is nol owned or opened by AXA Advisees ca AXA Network. Securites caved OvougA M Wangs Se:unites. Inc, A Registered BroiterilDeoloc. Monde( FINRNSIPC. Bryant Group. Inc. ts ;,dependency owned and Operated. IP1C1nst DIIICANDIWpflaIrManettp•II WIC per EFTA01127279 INDIVIDUAL LIFE INSURANCE COVERAGE ON LEON BLACK ) Split-Dollar Entity: All', IV Management, Inc. ) Policy owner: Norman Brownstein, Trustee under the Leon a Black Insurance Trust NI dated September 13, 1999. ) These policies' register dates are September 1999. POLICY AMOUNT W. ANNUAL REGISTER REPORTABLE C.\It ICIER NI MUER COVERAGE PREMIUM DATE. INCOME & GIFT AMOUNT Prudential $30,000,000 $502,335 9/13/99 $51,413 All • uitable $15 000 000 $264 894 9/13/99 $25 191 Security Life of $5.000.000 $96.380 9/20/99 $8,360 Denver Total - Individual Life $50,000,000 S863,609 Insurance Cavern: e SECOND-TO-DIE, WEALTH TRANSFER LIFE INSURANCE COVERAGE ON LEON & DEBRA BLACK ) Split-Dollar Entity: A1F IV Management, Inc. ) Policy owner: Norman Brownstein, Trustee under the Leon D. Black insurance Trust #2 dated September 13, 1999. ) These policies, other than the Prudential policy, have a register date of April 28, 1999 in order to save Debra's insurance age. (Prudential utilizes "current age" vs. "closest age", therefore backdating was not necessary.) POLICY AMOUNT OF ANNUAL REGISTER REPORTABLE CARRIER NUMBER COVERAGE PREMIUM DATE INCOME Se GIFT AMOUNT -- — — Prudential $20,000,000 $179,595 9/13/99 $3,430 Min $20 000 000 $196,080 4/28/99 $4,456 MM. $5,000,000 $33,218 4/28/99 $860 John Hancock $30,000,000 $359,022 4/28/99 $5,445 AXA • • uitable 525.000.000 $205,246 4/28/99 $4 977 Total Second-to-Die Life $100,000,000 $973,161 S19,168 Insurance Covera: e EFTA01127280 Leon Black Trust-Owned, Split-Dollar Life Insurance Coverages Annual Review Meeting November 30, 2011 I. Review Current Projection of Split-Dollar Life Insurance Plans - Summary Page (III-I from October 2011 Review) attached. II. Explore using another, existing irrevocable trust or other entity to purchase the policies and terminate the Split- Dollar arrangement. - Attached Comparison: Continue Current Split-Dollar Plan Versus Another Trust Purchases the Policies and Split-Dollar Plan Terminated. • Second-to-Die policies composite comparison. • Individual policies on Leon composite comparison. III. Issues to Consider in the above referenced transaction. 11A.Soil Ds Bry•MKiln BISS. Lon‘fteSsAgoods for 1140611mais.doe Bryant Group iNcor,p0RATi. EFTA01127281 SPLIT-DOLLAR PLANS - 2011 In Force Update LEON and DEBRA BLACK ORIGINAL PROJECTIONS 2010 PROJECTIONS 2011 PROJECTIONS 1:8 10.00% Hypothetical Gees* Rate 09.00% HypMµtical Gross Rate 40 9.00% Hypofµlkal Grose Rate q 8 .00 % Hype:Mlles, Gross Rota of Return 8 Currant Chug.* of Return 8 Current Charges of Return & Current Charges of Return & Current Charges SECOND-TO-DIE SPLIT-DOLLAR PLANS Sep limn July MI 1 Pee( Vases ben Peon Jae 2911 Pcrlotv Velma Protium Company ~Sim 9/. e Deals CØ Preis." ~any Warren Conpany Payne< Preen." peen*. Permeni Menem Pobes c—n. Pv roaren taseee Peprael ~ea Pena Cmerage Pitmen yews Rowntel Gem). Yee% ~Very Ute es RecOMM We Yen lateenesl the Kieneoclea liefeslIc Variable lets» 30.000,000 Dent Sr Ots 159022 12 2011 21 Deem. Age Protection 98 Policy IIMM 2020 100. 19 2018 22 2021 Reel Am , Trains peernuse port la wee OM/ 12019) (2010 an MA II tu laba hip IL 25.000,000 205.2/6 Leal em Pc4Icy 16 2015 29 2028 0~9 09T 26 2025 Deem a Omni* os 9) le 33 2032 %Men ~men Imo 55 Jae (20111 (202/) (2091) (X01) 20,000,000 106.060 Clatre, 0~2 Am De.asPea 17 2016 32 2031 Ølro. Policy 16 28 2027 40 2039 "M. • Thieen oetontre ores '0 Ja. <2015/ (030) 12020) (2038) Prudential' Preferred 20.000.000 179.595 Dittos - ~se Are Polley 19 2018 36 203S Men em Mee3 Me lø 32 2031 43 AI Clealh co- Ø. • Tree, peMsere ~bee/ (017) 0034) (2020) (2041/ Pacific tifo's Sate Estate 0Ø'e Pee 2028 Denis Am. 5.010.000 33.218 18 2017 29 oats-% ks Deemer Pretense Peaty 07 27 2506 35 2034 00 • Theeen menus pod »do» (2018) (2027) (3329 (2CO3) TOTALS: , 100.010,000 1 I 9rJ.161J INDIVIDUAL SPLIT-DOLLAR PLANS (Leone 009) Prone" 6*** Poorer Catpeny Peen" Correany ~Turn Cenmery MOM Path erve heels Peas*, Cameo. Pamnam Tasse. Payne& Rs" I senen 1Nsley Boroa: Canner CoeMe Peonern ~sm. Peewee, Yeas ReCOMY Um Yens Rocommy Wt Years Recovery llN Yen Recomm we lan' Apr Lees A- Pc4Icy 30,000,000 502,335 25 2024 Ile 35 Al Death I O 33 AA 0401h 1 I.:air*. 38 At 0/611) T**/▪ * LelrtymYuaaggb4ea eels 12023) (M53) (2001) MO) MAE hr• Ule Polity 15,000000 284.894 24 2023 Tens ele 06 33 AI Death 4 Ip lele:1 29 Al Death "are:~ 31 Al Death I ~Me prersuir woo eo <NM 0031) (202?) (24031 5,000,000 03.390 25 At Doan 29 Poky tapes tase. 11 Policy Polity lapse I' 1; 91 I 29 Pay le** • "`",;A" .Teemve mein. -Yd ti dele 0023) 0027) (2039) (X1271 TOTALS: 60,000,000f MAN GRAND TOTAL: 150,010,000 lane uon5mer**equiciarcy 938 ***SW Tomlman 190 OleeM9IllMenellATM9 ese 87. .uno» to lee Soti•Dolar Pen 009pps teen celery. lo any ane aleelea *Yee ~en 91 ~ 99 95. Inses19~1~ 1./ 09( he ~me • Tie ksereed snuel ~men* Tied lar "imam The Sala" Ve poky le 1~1 /sett Tre marten un coosrega Noss teats be M. Økse SpleCeelal Pen des* such at keNsimg Me Mae penmen ~rank fney be ~00 5 TY 09/e9I1109M M poScy year 320.eorft Age niteneØle S~c1 *samples ra My% Die MC9C~ stua preravn. Nosy 3129539 ~we, /pm rq 6199 2011 TOM Maw M nattesse emenee tutl Lepe // sure tae trampcbrey (Age MI IM9039•0 upon P. nett sb$clhae. 900~009 is the 8{N.Ø han basen trey* os*Ntas Tµ pØ an« •3 policy mot 39 0/0/336m1/6) based won Pe ~1 assempltos Ntl ~AO he darn al promun apenefeespel Pe pat ~does. orer &anon » 8e SfAoDolat Mtn ~SO 'Mr/ "Ca.C... 5 s Ti. etat em.Y 10144470 4 Pad lot 31 yews TIM ~Mies he Miley In tepee an 91. TO ~WM IT* Menem ~Leon's Age 91. Males »IS SpisCellw Pun anes. re» le «mere) pv ante., penam peynems nay Coneleled 4 Tµ 0C/Cy lapses n poky Mal 300eens be 77) amer ulen se apered annantan N nag se incliCaed annul, venom Deten,A0 won re Pan50~~.“Per &arms Po ta Sp13001/0 Flan nage my/ comMeret :Olt lea Meas. EFTA01127282 8.00% Gross Rate of Return Assuring 800% I/too/to:cal Gross Rat. of Return 6 Comm, Poky Charges SECOND-TO-DIE SPLIT-DOLLAR PLAN MR. & MRS. LEON BLACK 5100.010.000 COMBINED Second-To-Die Death Benefit Coverage - 5 SVUL Policies Based Upon a $973,161 Normal Annual Premium Payment ANOTHER TRUST PURCHASES THE POLICIES & CONTINUE CURRENT SPLIT-DOLLAR PLAN TERMINATES THE SPLIT-DOLLAR PLAN A ION EXECUTIVE A ION EXECUTIVE Taal Death Benefit Annuli: Gift • Trust Death Bens: Arnual HIS lien Anus' Prerrium • Coverage Areval Pritornitill • Incorrusg Gus: Coverage Incoming Trust Age Age Recovery Recovery Year Death Proceofts Dealt Proceeds 1999 48 44 968.500 99,889.018 4,661 968.500 99.889.018 4,661 2000 49 45 967.740 99,699,252 5.421 967.740 99.699.252 5.421 2001 50 46 966.850 99.443.309 6.311 966.850 99.443.309 6.311 2002 51 47 965.777 99.179.897 7.384 965.777 99,179.897 7,384 2003 52 44 964.535 99.617.969 8,626 964.535 99,617.969 8.626 2001 63 49 963.035 99.668.704 10,126 963,035 99.668,704 10.126 2005 54 50 963.035 100.780.647 10,126 963,035 100,780647 10,126 2006 55 51 959,427 101.714.915 13734 950.427 101,71-1.915 13,734 2007 56 52 957,201 100927.298 15,960 957.201 100.927.298 15.960 2086 57 63 955.429 98.531.757 17.732 955.429 98,531.757 17,732 2009 58 54 953.867 99.570.544 19.294 953.867 99,570.544 19.294 2010 69 65 955.300 101.213.274 17,861 955,300 101,213,274 17.861 2011 60 56 954.468 101.415,687 18,693 954.468 101.415,687 18.693 2012 6i 57 953.784 101,867,381 19,377 (11.677,665) 100010,000 614,139 2013 62 58 953.073 102.369,722 20.088 100.010.000 614.139 2014 63 59 952,297 102930.414 20,864 100.010.000 814.139 2015 64 60 951,602 103.556.668 21.559 100.010,000 570.567 2016 65 61 950.488 104.267,144 22,673 100.010,000 289.313 2017 66 62 949.482 105.045.370 23,679 100.010,000 207.695 2016 67 63 948.267 105.891.419 24.894 100010.000 80.500 2019 68 64 946.983 106.825,414 26.178 103,010,000 2020 69 65 945.170 107,828.121 27.991 103,010.000 2021 70 66 (7.I98.970) 108,286,697 20.561 100.010.000 2022 71 67 592.632 108.781.288 21,507 100.010.000 2023 72 68 590,820 108.743.502 23.319 100,010.000 2024 73 69 589.661 108.187,059 24,478 190,010,000 2025 74 70 587.076 107.632.300 26,163 100010.000 2026 75 71 586,630 107,078,888 27.509 100.010,000 2027 76 72 584.266 106.527,841 29.873 100.010.000 2028 77 73 581,303 105.979.755 32.836 100.010.000 2029 78 74 577.348 105,435,624 36,791 100.010.000 2030 79 75 573.363 104.895.480 40.776 100.010.000 2031 80 76 568,546 104,362.152 47.594 100.010.000 2032 81 77 (6.173.393) 104.019.842 33.365 100,010.000 2033 82 78 370.368 103,682.692 38.525 100,010.003 2034 63 79 (774.052) 103.345.751 38.735 100.010.000 2036 84 80 330,903 103.014.848 44,772 100,010.000 2036 85 81 324.539 102.690.309 51,136 100.010.000 2037 86 62 317.024 102,373,285 58.651 100.010,000 2038 87 83 305.471 102.067.814 70.204 101,063,258 2039 88 84 (7.409.648) 101.935.862 47.643 102,614.407 2040 89 85 129.587 101,806.275 50.008 104,254.279 2041 90 86 121.122 101.685.153 58.473 106.984,401 2042 91 87 - 101.685.153 68,456 107.805.796 2043 92 88 - 101.685.153 79,866 109,717.955 • 2044 93 89 17,219,807) • (101.685,153) 009.717.065 2045 94 • NPV of Corporate Cash Flow 0 6.00'.: 9.408.104 3,554.801 Leon's GM Amocnl Leon's Gill Amount 2012 8 Triodafter. 1,178,543 Firma Prangwn Payments 2,990.492 Total GO Arnow/. 1.334,473 Total GM Amon, 3,146.422 ExeCutve8 Internal Rate of Return: 17.43% Executive-, Interne, Rom of Fleipm• 12.26° . Company recovers 811.677.665 of the $12495235 Soll.Doear Advance. mo men' the trio! has ',Melon, cash ea meet me premium payments, adaltiOrial 9,81may NOT be reed., .1),1-7:-.De SO4 (7.[Mpaudesi o r. 203.. [. 3 EFTA01127283 8.00% Gross Rate of Return Assummg 850% Hypothetcal Gross Rau) of Return & Current Poky Charges INDIVIDUAL SPLIT-DOLLAR PLAN MR. LEON BLACK S50,000,000 COMBINED Individual Death Benefit Coverage - 3 VUL Policies Based Upon a $863.609 Normal Annual Premium Payment ANOTHER TRUST PURCHASES THE POLICIES 8 CONTINUE CURRENT SPLIT-DOLLAR PLAN TERMINATES THE SPLIT-DOLLAR PLAN CORPORATION EXECUTIVE CORPORATION EXECUTIVE Trust Death Sena Annual G414 Trust Death Benefit Annual Gift + Annual Premom Coverage Annual Premium . Coverage His Incoming Trust hcomng Tryst Recovery Recovery Year Age Death Proceed Death Proceeds 1999 4B 821,004 50,014.178 42,605 821,004 50,014,178 42.605 2000 49 819.621 48.961.588 43,988 819,621 48.961.588 43.988 2001 50 818.242 48,466,260 45,367 818,242 48,466,260 45.367 2002 51 816.807 48,529.954 46.802 816,807 48.529,954 46.802 2003 52 814.613 48,342.621 48.996 814.613 48.342.621 48,996 2004 53 811.444 48,318.209 52,165 811.444 48.318,209 52.165 2005 54 811.444 48,283.943 52.165 811.444 48283.943 52,165 2006 55 801.954 48.696.486 61.655 801,954 48,696,486 61.655 2007 56 797.040 47,238.285 66.569 797,040 47,238.285 66.569 2008 57 790.702 46,399.128 72.907 790.702 46.399.128 72,907 2009 58 783.973 47.129.584 79.636 783.973 47,129,584 79.636 2010 59 789.957 46.932.191 73.652 789.957 46.932.191 73,652 2011 60 783.131 46.897,480 80,478 783.131 46.897,480 80.478 2012 61 777.169 46.872.328 86,440 (6.718.901) 52.175.103 871,885 2013 62 770,687 46,851.150 92,922 52.405.417 871.885 2014 63 762.118 46,851.734 101,491 52,638,439 871.885 2015 64 752.889 46,869.569 110,720 52.873.112 871.885 2016 65 742.214 46.936.950 121,395 53.147,660 871.885 2017 66 730.594 47,019.778 133,015 53.424.398 871.885 2018 67 717,818 47,118.029 145,791 53,713.743 871.885 2019 68 704.233 47,221.657 159,376 54,033,057 871.885 2020 69 689.262 47,296.829 174,347 54.356,256 871.885 2021 70 672.846 47.328.701 190,763 54.681.898 871.885 2022 71 648.085 47,306.100 215,524 55.1307.819 795,142 2023 72 621,140 47,210.548 242.469 55.007.819 369.550 2024 73 590.917 47.043.260 272.692 55.007.819 104,656 2025 74 556.699 46,849.180 306,910 55.007,819 104,656 2026 75 518.663 46.679.170 344.946 55.1307,819 104,656 2027 76 489.574 46,189.596 374,035 55,007,819 104.656 2028 77 393,344 42,540.144 373.885 55.007.819 104.656 2029 78 362.999 42.177.146 404230 55.007,819 104,656 2030 79 229.364 41.947.781 438,479 55.007,819 104,656 2031 80 204.926 41.742.855 476.152 55.007,819 104.656 2037 81 177,132 41.565.723 517,941 55.007,819 104,656 2033 82 145,114 41,420.609 563.498 55.007,819 104.656 2034 83 108,752 41.311,857 613.095 55.007,819 104,656 2035 84 68.658 41.243.199 692.588 55.007.819 104,656 2036 85 24.882 41,218,337 843.782 55,007,819 104,656 2037 86 (20.460.853) (41.218.337) (55 007.819 2038 87 2039 88 NPV of Corporate Cash Flow COO:: 9.101.879 4,426,369 2012 & Thereafter Total Gdt Amount: Leon's GUI Amount 7,996,488 8,763,473 Future Premium Payments' Total Gift Amount. Leon's Gift Amount 11244,063 12,011,048 9 Li Executvos Internal Rate ot Return: 10.38% Executive's Internal Rate of Return. 7.73% ' Company recovers 56.718.901 of the 310.459.932 Spit-Golar Advance. 2 In me event the trust has sufficient cash to meet the premium payments. additional gifts may NOT be needed. 4 r-4ncuY Spid amPnce, C ruiRlltsu 11,2370: EFTA01127284 Review of $150 mil Life Insurance purchased through Bryant Group Rationale for the $50mil life insurance policy on Leon: Proceeds would be available at time of death to pay off some of indebtedness related to your art collection Rationale for the second-to-die policy on Debra and Leon: Proceeds would be available at time of death to pay estate taxes These policies are owned in irrevocable life insurance trusts (the Leon D Black Insurance Trusts #1 and #2). The policies purchased were set up in a split-dollar structure to minimize gift tax. The split-dollar entity, AIF W Management Inc (now part of BFP), advances the annual premiums (in lieu of compensation to Leon). Fortunately, these variable universal life policies were purchased from top carriers who have fared relatively well in the recent financial crisis. Investments in various mutual funds were elected at the time of the purchase of the policies by John Hannan. The goal in a structure like this is to have the policy assets invested in a way that they will appreciate enough to have sufficient equity to allow for a cash withdrawal to both repay premiums previously advanced by the split dollar entity(at which point the split $ arrangement is terminated) and cover premiums going forward. The death benefit, when ultimately paid to the Trust, is income tax-free and estate tax free. In 2009, you paid gift tax on a reportable income and gift of $90,639 compared with the MI amount of $1.8 mil of premiums paid annually which would otherwise have been considered gifts to the trusts. These policies were initiated in September 1999. You have paid in $19.5 mil in premiums (shown in the `split-dollar advance' column on the attached 12/31/09 Summary of Coverage). The cash surrender value (which is tied to the underlying value of the assets invested) was valued at $142 mil at 12/31/09. This reflects a difficult decade for stocks generally. Also, the investment options chosen were heavily growth oriented. Think back to 1999 in the midst of the tech bubble in the making. At that time growth was the only thing working and the only thing people wanted to own. The other side of the bubble ie.2000-2002 was quite painful. In the period 1/1/00-12/31/09 the Russell 1000 Growth index declined 33% cumulatively. The original options have not been revised or rebalanced along the way. While in the currently slow growing economy growth style portfolios are likely to do well, I have a review of the funds owned on my to-do list and will work to add some international options and rebalance a bit from the existing funds. Whereas the original plan called for an equity build in the underlying assets that would have allowed premium recovery to begin next year, it looks as though we face another decade of premium payments before we begin that process. Assuming an average return of 9%, it will be 2020 before we get to the point of the premium advances being covered. The death benefits are fully intact at the $150 mil face value of the policies and will service their intended purposes. The terms of the structure stipulate that if the needed equity appreciation is not achieved before the death of the insured, the repayment of premiums advanced by the split-dollar entity is paid from the death benefit. EFTA01127285 Additional planning suggestion from Roger Cammon for consideration: Make an additional gift to the trust of a 'lowly valued, likely to appreciate' asset which, once contributed and appreciated, could be used to accelerate the process of terminating the split $ arrangement. I will give this idea additional consideration. We also spoke about insurance as asset protection. There is definite appeal. For instance, let's use an example of a $25mi1 life insurance policy purchased for asset protection purposes: Contrary to a purchase of insurance for the normal purpose of the death benefit, in this case, the death benefit is just the tax shield for the assets inside the policy. You want to buy as little death benefit as life insurance tax law will allow. Premiums would then be extremely small and, from the start, the cash value is accessible via a loan from the policy. Under NY State law, the cash value of life insurance is exempt from the claims of creditors. If housed in a trust as Weil Gotahal has suggested, there would be even greater surety of asset protection but you would have to pay the gift tax on the $25mi1 or cost of the policy. The assets in the policy would grow tax free and can be invested in a choice from the carrier menu of investment options or it is possible to buy a customized policy allowing a hedge fund or any other alternative asset. EFTA01127286 Eackaround Original intention: build up enough cash in the policy to unwind the split dollar arrangement and have enough value left over to maintain the policy with no further premiums. Investment returns have been disappointing. Current projections imply a need to continue with premium payments for another 10 years (@ $1.8mil/yr) AIF IV is a LP of Black Family Partners LP and Leon is the sole shareholder of AIF IV Mgmt I began with the question of what's the appropriate amount of insurance for Leon & Debra to have but this is a bit of a moot point since amt already held is in line with max available. Est at $165mil-lower than historically due to consolidation of reinsurers. Possible Solutions: Switch to guaranteed insurance plan Trust gets stated DB, gives up opportunity for equity growth ?material modification, premiums required going forward? Pay back the split dollar amt using GRAT or CLAT with favorable gift tax implications Per Ada will take too long Any change in carriers-considered a `material modification'-would eliminate SD benefit Per Gail Brannock and Jay Rabinowitz UST, Roger Cammon amend current split $ agreement to be a non equity split dollar where trust owes the company the greater of the CSV or premiums paid at termination or death Split $ entity has to stay in place until Leon's Death Trust gets the death benefit less premium advances that go to All' Any equity policy growth above DB goes to AIF Per memo from Carlyn: if the split $ arrangement is terminated, AIF would receive only the current cash value now AIF IV Mgmt under the split $ agreements pays the premiums but Black Family Partners does now. Resulting question-is AIF owned by BFP or Leon?Per Lindsey Cei email AIF IVis an LP of Black Family Partners. Leon is the sole shareholder of AIF IV Mgmt Since BFP did not become a party to the split $ agreement but was just advancing funds to AIF for premiums then, perhaps, does AIF have to repay BFP the full amount of its outlays even if the it gets a cash surrender value less than premiums paid. EFTA01127287 If we unwind the split $ arrangement we will have a more palatable number years of premium payments and then the policies should at least be self sustaining. Bad news, underlying investments dramatically underperformed expectations and so the original plan to repay AIF for the premium advances, unwind the split $, and have $150mi1 of policies which are self sustaining and require no additional premiums has failed. The good news is that if we proceed with the proposal from Carlyn to unwind the split $ arrangement with resources already outside Leon's estate, these policies with substantial death benefits will be owned by trusts to benefit his children. Unwinding the split $ arrangement eliminates the reportable income and gifts of approx $100,000/yr we have been incurring Once unwound, the second to die policies require premium payments for a manageable number of years. Individual policies are in less good shape, may need to liquidate or exchange these policies. Normally you would want to wait to terminate the SD until there is enough equity to repay advances and eliminate premiums It has been suggested we should liquidate the Security of Denver policy or exchange for a new policy since even assuming a 9% return the policy only holds up until Leon is 77 yrs old EFTA01127288 McDermott Will&Emery New York MEMORANDUM Date: December 5, 2011 cc: Eileen Alexanderson Ada Clapp Tom Turrin To: Leon Black From: Carlyn McCaffrey Elyse G. Kirschner Re: Split Dollar Insurance Proposal This memorandum explains a proposal regarding the split-dollar insurance arrangements among you, ATE IV Management Inc., an S corporation wholly owned by you ("AIF"), and Norman Brownstein, the trustee of your 1999 Life Insurance Trusts (the "Trustee") We discussed this proposal with Eileen Alexanderson, Ada Clapp and Tom Turrin at a meeting last week. Background In 1999, the Trustee purchased $50 million of insurance on your life (three separate policies), and $100 million of insurance on the joint lives of you and Debra (five separate policies). The Trustee entered into two split-dollar agreements with you and AIF, one for the policies on your life, which are held in the 1999 Life Insurance Trust #1, and one for the policies on your and Debra's lives, which are held in the 1999 Life Insurance Trust #2. Each split-dollar agreement obligates AIF to pay the full amount of the Planned Periodic Premium (as defined in the policy contract) on each policy. Each agreement also obligates you or the Trustee to make annual payments to AIF of the annual value of the current life insurance protection offered by the policies. The Trustee has the right to terminate each split-dollar agreement at any time. AIF does not have any right to terminate either split-dollar agreement. DM US 30967272-I.088835.00I EFTA01127289 In exchange for AIF's agreement to pay the Planned Periodic Premiums, the Trustee agreed that when a policy matured by reason of the death of the insured or insureds he would pay AIF an amount equal to the sum of all the premiums paid by it on such policy less the amounts previously paid to it with respect to such policy (the "Net Aggregate Premiums"). The Trustee also agreed that if he terminated a split-dollar agreement before the death of the insured or insureds he would either pay AIF an amount equal to the Net Aggregate Premiums for the policies subject to the terminated agreement or would transfer the policies to AIF To secure his obligations under the split-dollar agreements, the Trustee assigned the insurance policies to AIF as collateral. The total Planned Periodic Premiums with respect to all of the policies held in the trusts is approximately $1.8 million each year. For each year that the split dollar arrangement is in effect you have been treated as having received compensation equal to the cost of the current life insurance protection offered by each policy and as having made a gift of this amount to the 1999 Life Insurance Trusts. Tom Turrin has been properly reporting these amounts on your annual income and gift tax returns. For 2011, the amount of compensation/gift was approximately $97,652. However, as the premiums continue to increase over the term of the policies, the amount of taxable income you will be deemed to have received and the size of your taxable gifts to the insurance trusts will increase. Since 1999, when the parties initiated the split-dollar arrangements, AIF has paid about $20.1 million in premiums. In recent years AIF had been borrowing from the Black Family Partners in order to make these premium payments. In 1999, at the commencement of the split-dollar arrangements, it was estimated that by 2010 the cash surrender value of the policies would be about $22 million. However, because of poor market performance, as of March 31, 2010, the cash surrender value of the policies together was about $15 million. DM US 30967272-L088835.00H 2 EFTA01127290 Given the poor performance of the policies over the past decade and the fact that the $150 million death benefit will not come close to fully covering your anticipated estate taxes, it makes sense to evaluate whether it is appropriate for the insurance trusts to continue to maintain the existing policies. Eileen is analyzing whether to continue the existing policies. In the interim, we think it is important to restructure the split-dollar arrangements in order to minimize the ongoing tax consequences to you. To that end, we have proposed the transaction described below. Proposed Transaction Acquisition of Rights Under Split-Dollar Agreements by The Black 2006 Family Trust. The Black 2006 Family Trust (the "2006 Trust") will purchase AIF's rights under the split-dollar agreements from AIF for cash. The purchase price will be based on an appraisal of the value of such rights to be obtained by the trustees of the 2006 Trust and by AIF. Because the rights of AIF under the split-dollar agreements are limited to the right to receive the Net Aggregate Premiums on your death or on the death of the survivor of you and Debra (unless the owners of the policies elect to terminate the split-dollar agreements), the appraised value is likely to be substantially less than the current cash value of the policies. Eileen will arrange for the appraisals. Once this step has been completed, you will no longer have any income or gift tax liability on account of the annual cost of the current life insurance protection offered by each policy. Repayment of Loans to Black Family Partners. AIF will use the funds it receives from the trustees of the 2006 Trust to repay any outstanding loans to Black Family Partners. It will then liquidate. AIF's remaining cash, if any, will be distributed to you. DM US 10967272-I.088835.0011 3 EFTA01127291 Termination of Split-Dollar Aareements. The Trustee of the 1999 Life Insurance Trusts may then decide to terminate the split-dollar agreements in order to avoid any further potential liability for the annual cost of the current life insurance protection offered by the policies. Upon termination, because the Trustee lacks sufficient resources to pay the trustees of the 2006 Trust an amount equal to the Net Aggregate Premiums, he will transfer his interests in the policies to the trustees of the 2006 Trust. * * * « « If you have any questions, please call Carlyn at (212) 547-5324 or Elyse at (212) 547-5327. * * * « « CSMCC/EGK IRS Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. DM US 30967272-I 088835.0011 4 EFTA01127292