EFTA02674239

LEON D. BLACK TRUST-OWNED SPLIT-DOLLAR LIFE INSURANCE COVERAGES ANNUAL REVIEW FEBRUARY 2013 Presented by: Donald L. Bryant, Jr. IIIl BrwlocrouP 701 Market Street Suite 1200 St. Louis, Missouri 63101 Office Only the MA Equitable policies are offered through AXA Advisors. LLC. The named individual offers securities through AXA Advisors, LLC (1290 Avenue of the Americas NY, NY 212-314-4600), member SIPC, and offers annuity and insurance products through AXA Network, LLC and its subsidiaries. Bryant Group, Inc. is not owned or operated by AXA Advisors or AXA Network. Securities offered through M Holdings Securities, Inc., A Registered Broker/Dealer, Member FINRAISIPC. Bryant Group, Inc. is independently owned and operated. 2013 Bryant Group Incorporated All Rights Reserved EFTA_R1_01954589 EFTA02674239 LEON BLACK February 2013 Annual Review of Trust-Owned Split — Dollar Life Insurance Coverage The materials in this report have been prepared by Bryant Group, Inc. solely for the use of its clients. - The materials are designed to convey accurate and authoritative information concerning the subject matter covered. However, they are provided with the understanding that Bryant Group, Inc. does not engage in the practice of law, or give legal, accounting or asset allocation advice. For advice in these areas regarding the application of this information to specific transactions, please consult your appropriate advisors. IRS Circular Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any US federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of 0) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. - Any hypothetical investment performance data contained in these materials are included for illustrative purposes only and are not guaranteed. Similarly, historical data are presented for informational purposes and are not intended to suggest future performance. - Further, this information contains intellectual property, is proprietary, and may not be shared with any person without the specific written approval of Bryant Group. Inc. Beyond this limited authorization, all rights are reserved and no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise). Bryant Group. Inc. acts as agent for a number of life insurance companies for the sale of We insurance, annuities and disability insurance. Variable life insurance and variable annuities are offered for sale by associates of Bryant Group. Inc.. who are registered representatives of AXA Advisors. LLC. The named individual offers securities through AXA Advisors. LLC (NY, NY 212-314-4600). member FINRA, SIPC, and offers annuity insurance products through AXA Network, LLC and its subsidiaries. Bryant Group, Inc. is not owned or operated by AXA Advisors or AXA Network. Bryant Group, Inc. acts as agent for a number of life insurance companies for the sale of life insurance. annuities and disability insurance. Variable life insurance and variable annuities are offered for sale by associates of Bryant Group. Inc., who are registered representatives of M Holdings Inc. Securities Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer, Member FINRAISIPC. Bryant Group, Inc. is independently owned and operated. Bart Dan NyarIA tov read,. Lex,Renessfebrary 2013 Anna %vex Omit Bryant Group (114' If I EFTA_R1_01954590 EFTA02674240 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage TABLE OF CONTENTS I. Review of Need, Solution, and Rationale for Individual and Second-to-Die Life Insurance Coverage I —1 • Collateral Assignment Split — Dollar Life Insurance Diagram I — 3 + Review of IRS Notice 2002 — 8 and Final Regulations Regarding Split-Dollar Plans I - 4 II. Summary of Coverage • Current Policy Values and Split-Dollar Advance II — I III. Planning Idea: Trust Purchases Policies and Split-Dollar Agreements Terminated + 8% Gross Rate of Return Policy Projections III — 2 + 6% Gross Rate of Return Policy Projections III — 3 • Re-allocation of Security Life of Denver Policy III - 4 8 *pm Or fryaroM evu F8alt eceRasrawastrary 2013 Arnaa RearsOcca BrYant, Group EFTA_R1_01954591 EFTA02674241 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage I. Review of Need, Solution, and Rationale for Individual and Second-to-Die Life Insurance Coverage Background: Facts In 1999, $50,000,000 of Individual, Trust—Owned Life Insurance was implemented on Leon's life and $100,000,000 of Second-to-Die, Trust—Owned Life Insurance was implemented on Leon and Debra's lives. The policies utilized are Variable Universal Life Insurance policies with a variety of large, high quality carriers. Below is a summary of the Needs, Solution, and Rationale for these coverages. Needs Need #1: Need #2: Solution Solution #1: Cash at Leon's death to retire debt and not disturb other assets and investments. Liquidity at the second death of Leon and Debra to assist in paying estate taxes. — Individual variable universal life insurance coverage on Leon's life. — Coverage is owned by an irrevocable life insurance trust. — Coverage is financed via a Split-Dollar life insurance plan. Solution #2: — Second-to-Die, variable universal life insurance coverage on Leon and Debra's lives. Coverage is owned by an irrevocable life insurance plan. Coverage is financed via a Split-Dollar life insurance plan. IrApent Cva 9gyarrtA thru Fa ildt LeceRerasfebrary 2013 Anna' %vex aoca Bryant Group INCORPORA I ED I-1 EFTA_R1_0 1954592 EFTA02674242 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage Rationale Rationale #1: Individual coverage on Leon's life delivers income tax-free and estate tax-free cash at Leon's death. Rationale #2: Second-to-Die coverage delivers income-tax free and estate ..tax-free liquidity at the second death, when the estate tax comes due. By utilizing the Split-Dollar financing arrangement, only the value of the economic benefit of the insurance coverage is considered a gift to the irrevocable trust. Without a Split-Dollar Plan, the full amount of the premium is considered a gift to the trust. Death proceeds are income tax-free. — Assets in irrevocable trust are free of estate tax. The company recovers its premium advances. - Significant wealth transfer is accomplished with minimal gift tax implications. • The following page provides a diagram of the Collateral Assignment Split-Dollar Life Insurance Plan. The policy is owned by the trust, but is collaterally assigned to the company, until the company recovers its share of the premium advances. • The company recovers its premium advances through a cash value withdrawal in the future or through the death proceeds in the event of death of the insureds prior to the recovery of premium advances. At the death of the insured(s), the insurance carrier pays the death benefit to the trust. The payment is income tax-free and estate tax free. - The trustee follows the terms of the trust which may include the ability to buy assets from the estate or lend money to the estate to pay estate taxes. BAgial Don Bryon( A elm Pa* LeartRoverff dray 2013 New, Rain din I - 2 Bryant rG,oup INC EFTA_R1_0 1954593 EFTA02674243 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage COLLATERAL ASSIGNMENT SPLIT-DOLLAR PLAN WEALTH TRANSFER PLAN There are Four Parties to this plan: INSURED(S) IRREVOCABLE LIFE INSURANCE TRUST (ILIT) ENTITY* (Corporation or Family Limited Partnership) O Split-Dollar Agreement INSURED(S) Rights of Split- ({) Dollar Agreement Economic Benefit/Gift to the Trust ENTITY (Corporation or Family Drilled Partnership) LIFE INSURANCE COMPANY (provides insurance policy) Spit-Dollar Advance/Premium Split-Dollar Advance Repaid Through Cash Value Withdrawal or Death Benefit LIFE INSURANCE COMPANY Life Insurance Policy Septale Amount Imagined Oran Q Death Benefit • The Irrevocable Life Insurance Trust (IUT) is the policyowner. The policy is assigned to the Entity until it recovers its loan balance. ' The Entity recovers its loan balance at: • Death of the insured(s), • At a future date, when the life insurance product is funded (with assumptions), or • At termination of the agreement. avertoar aye-mars Flatl, learfahwordetimier 2013 'aa ReS•00O1 I - 3 Bryant Group INCORPORATED EFTA_R1_01954594 EFTA02674244 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage Review of IRS Notice 2002-8 & Final Regulations Regarding Split-Dollar Plans Existing Split-Dollar Plans • In January 2002, the IRS issued Notice 2002-8 outlining "expected proposed regulations" regarding split-dollar life insurance arrangements. • On July 3, 2002, the IRS issued Proposed Regulations on split-dollar life insurance arrangements. • On September 11, 2003, the IRS issued Final Regulations on the tax treatment of Split- Dollar life insurance arrangements. The Final Regulations provide rules for Split-Dollar life insurance arrangements that are entered into or materially modified after September 17, 2003. • Analysis of the Notice and the Final Regulations indicate the following options are available for split-dollar plans in place prior to January 28, 2002: Option #1 — Continue Current Split-Dollar Plan, Pre-January 28, 2002, Notice 2002-8 • The Notice states that "no inference should be drawn from this Notice regarding the appropriate Federal income, employment and gift tax treatment" of split-dollar arrangements entered into before publication of the final regulations. • Some commentators have suggested that this means "business as usual" for split-dollar arrangements entered into before final regulations are published. • This option involves some risk the IRS in the future will successfully argue that remaining policy cash value after the company recovers its premium advances should be taxable income to the participant and subject to gift tax (when applicable). • The "unknowns" are whether the Service will be interested in waging this battle and if so, the outcome. B Don Br an/AWu ears tsmi4.,awf &bay 2017 Alltlia gireete Ca, I - 4 Bryant Group iNCORPORATED EFTA_R1_0 1954595 EFTA02674245 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage Option #2 — Safe Harbor Provision — Re-characterizes Split-Dollar Advance and Future Premium Payments as Interest Bearing Loans • The Notice 2002-8 provides a "safe harbor provision" which guarantees complete protection from taxation of policy equity in the future when the split-dollar arrangement is terminated and the company recovers its split-dollar advances. • In other words, under the provisions outlined below, there will be no income taxation on the remaining cash value in the policy after the company recovers its premium advances. • Prior to January 1.2004 the split-dollar plan is terminated by repaying the company its split-dollar advance. • In January 2004, the executive and the company enter into an Interest Bearing Note Agreement at the then Applicable Federal Rate. • The loan interest due annually from the executive may be bonused by the company as compensation expense. • The executive pays the annual loan interest to the company. • The bonus payment and receipt of interest income offset each other on a cash flow and taxable income basis to the company. • The executive's cost is the annual tax due on the bonused compensation. • By re-characterizing the split-dollar advance and future premium payments as an interest bearing loan, the policy equity after the company receives its premium loan will not be subject to income tax or gift tax. B Art Clon Elq0KA Ow reink lealReivenfets 209 MVua R6.9s ft* Bryant Group 5 ,A)064If i) EFTA_R1_0 1954596 EFTA02674246 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage Option #3 — Prior to January 1, 2004, the Company Forgives the Split-Dollar Advance; Premiums in 2004 and Beyond, If Needed, are Bonused by the Company • In 2003, the scheduled premium is paid by the company under the split-dollar plan. • Prior to January 1, 2004, the split-dollar advance is forgiven by the company. • The forgiven split-dollar advance is bonused to the executive as compensation expense and is reportable income and the measure of the gift. • Additional premiums, if necessary, are paid by the company and bonused to the executive or paid directly. Wool Don EirsintA Ow Knock Licalletsf stray 200 Amami ReNtes eta Bryant Gioup INCORPORA I El) I - 6 EFTA_R1_0 1954597 EFTA02674247 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage All three funding options were analyzed, presented, and reviewed in 2003. After reviewing this information with John Hannan on several occasions, consulting our corporate counsel, Larry Brody, discussing this information with Tom Turrin, Leon's CPA, and considering the trusts have no equity (cash value in excess or premium advances by the company), the consensus was to "stay the course" and continue to monitor the policies' performance and any additional developments regarding split-dollar life insurance. 8 Jr: Cr SayanfA raa,c. iscaliminvefere-w) 1013 Anrwi Ana/tax. Bryant Group iNCOOPORATED EFTA_R1_01954598 EFTA02674248 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage II. 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 0I dated September 13, 1999. • These policies' register chutes are Scotenther 1999 Carrier Policy Number Amount of Coverage Normal Annual Premium Account Value 12-31-12 Net Cash Surrender Value 12-31-12 Split-Dollar Advance 12-31-12 Prudential 530.000.000 $502,335 $4,504,232.62 $4,504,232.62 $6,108,212 AXA Equitable $15,000,000 $264,894 $2,053,540.91 S2,019,619.09 $3,172,980 Security Life of Denver $ 5.000,000 $ 96,380 $584.170.3Q $576 487 8Q___ 51 180 la Total — Individual Life Insurance Coverage 550.000.000 5863.609 $7.141,943.83 57,100,334.51 510461.330 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 resister 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.) Carrier Polk Number Amount of Coverage Normal Annual Premium Account Value 12-31-12 Net Cash Surrender Value 12-31-12 Split-Dollar Advance 12-31-12 Prudential $20,000,000 $179,595 $2,727,667.92 $2,727,667.92 $ 2,304,955 New York Life $20,000,000 SI 96,080 53.081,046.27 53,073,203.07 $ 2,514,929 $ 5.010,000 $ 33,218 $457,928.92 $457,928.92 $ 424,480 Pacific Life John Hancock 530,000.000 5359,022 $5,040,643.54 $5,040,643.54 $ 4,622,974 AXA •citable $25,000,000 $205.246 $2.664.966.34 $2.638.569.80 $ 2.627.947 Total Second-to-Die Life Insurance Coverage $100,010,000 $973,161 $13,972,252.99 S13,938,013.25 $12,495,285 This information has been taken from sources which we believe to be reliable, but there is no guarantee as to 'ts accuracy. It is not a replacement for any account statement op transaction confirmation issued by the provider. Please compare this document to your custodial statement for accuracy, as applicable. tfteniOtal BotinfA Ow raw,. leoriftrne*Fetray 2013 Paved Rena don —Bryant Group EFTA_R1_01954599 EFTA02674249 LEON BLACK February 2013 Annual Review of Trust-Owned Split - Dollar Life Insurance Coverage III. Trust Purchases Policies and Split-Dollar Agreements Terminated A planning idea from Leon's estate planning counsel, Carolyn McCaffrey, which was presented in 2010 is for another Trust to purchase the policies from the two 1999 Trusts. — The respective 1999 trusts use the purchase price of the policies to repay the company its premium advances. • The following pages summarize the policy projections assuming the Trust purchases the policies and the Split-Dollar plans are terminated. - Two scenarios are presented and projected assuming a 6% and an 8% gross rate of return. 1. No additional premium payments. ■ The individual policies on Leon's life will require additional premium payments to maintain coverage to Leon's life expectancy and beyond. policies beyond liftexpectancy. • Another issue to consider is the best use of the $5,000,000 Security Life of Denver individual policy on Leon's life. - Projections are presented which compare: Maintaining the $5,000,000 Security Life of Denver policy versus re-allocating the Security Life of Denver policy values into the other two individual policies on Leon's life. °Nem Don 87am/A nrvreack IF *teary 2013 hvial Ryon don Bryant Group EFTA_R1_0 1954600 EFTA02674250 Projections Based Upon December 2012 Policy Values 8.00% Gross Rate of Return Assuming 8.00% Hypothetical Gross Rate of Return & Current Policy Charges LEON and DEBRA BLACK MALE I CURRENT AGE 61 and FEMALE / CURRENT AGE 58 • After Purchase and Termination of Split-Dollar Plan. Face Amount Reduced to Initial Death Benefit • Projected Premium Outlays Maintain Life Insurance Coverage as Indicated PREMIUM OPTION: No Premiums Initial Death Benefit Coverage Advance December 2012 Net Cash Surrender Value December 2012 Net Death Benefit a Life Expectancy Coverage VMS SECOND-TO-DIE POLICIES John Hancock's Majestic Variable 30.000.000 4,622,974 5.040,644 44.973.432 2055 Estate Protection 98 Policy (Debra's • Age 1000 AXA Equitable's Survivorship 25,000,000 2,627.947 2.638.570 25.000.000 2047 Incentive Life Policy (Debra's Age 92) New York Life's Survivorship 20,000,000 2,514,929 3.073.203 20,000,000 2046 Variable Universal Life Pohl_ (Debra's Age 91) Prudential' Survivorship Preferred 20,000,000 2.304.955 2.727.668 20.000.000 2044 Policy (Debra's Age 89) Pacific Life's Select Estate 5,010.000 424,480 457.929 5.010.000 2046 Preserver Policy I (Debra's Age 91) Totals: 100,010,000 12.495.285 13,938.013 114.983,432 INDIVIDUAL POLICIES Prudential's Variablo Universal Life 30,000,000 6,108.212 4.504,233 2025 Policy /MI (Leon's Age 74) Assuming No AXA Equitable's Incentive Life Policy St 15.000,000 3,172,980 2.019,619 Premiums. Death Benefit Coverage is NOT Maintained to 2027 (Leon's Ago 76) Leon's Life Security Life of Denver's Firstline II 5,000,000 1,180,138 576,483 Expectancy (Age 85) 2018 Policy 1t (Leon's Age 67) Totals: 50,000,000 10461.3301 7.100,335 0 GRAND TOTALS: 150,010.000 22,956.615 I II 21.038 48 114,983,432 (Please Turn the Page Over for Important Disclosures) III - 2 Annual Premium Payments to Maintain Coverage Annual Premium Starting 2013 Pay Yrs Total Additional Premium Outlay Net Death Benefit @ Life Expectancy To Maintain Coverage fo Debra's Age 95+ Coverage Until 0 0 44,973,432 (205,246) 3.1 (827,256) 25,000,000 2055 (Debra's Age 100.) (196,080) I.9 (376,935) 20,000,000 (179,595) 4.5 (813,380) 20,000,000 (33.218) 5.3 (176,905) 5.010.000 2055 (Debra's Age 100') 2055 (Debra's Ago 1000 2051 (Debra's Age 96) 2051 (Debra's Age 96) (614,139) (1.994,476) 114.953.432 To Maintain Coverage to Leon's Age 86• (502,335) 9.3 (4,666,015) (264,894) 13.0 (3,443,622) (113,694) 24.0 (2,728,651) 30,000,000 20,669.058 5.000,000 2038 (Leon's Age 87) 2038 (Leon's Age 87) 2038 (Leon's Age 87) f (880,923) (1.495,062) r-(10,838. 288 ) (12 832 764) 55,669,058 170,652,490 CuenJaen, Sett Teneeelon Ocean &emery 8%.2012 as EFTA_R1_01954601 EFTA02674251 O Lae expectancies from policy Inception are based on appropriate mortality assumptions. Joint life expectancy is 45 years (Debra's Age 88). Leon's life expectancy is 38 years (His Age 85). O This is an illustraton and is not intended to predict actual performance. Variable Universal Life Insurance policy values shown are not guaranteed. Please refer to the complete in force illustrations and appropriate product prospectus lot detailed Information. Including illustrated policy performance assuming 0.00% Hypothetical Gross Rate of Return and Guaranteed (Maximum) Policy Charges. O For split-dollar plans placed pnor to January 28. 2002. recent IRS notices do not directly address the potential taxation of the executives cash value after the corporation has recovered its share of the premium advances. Please consult your tax advisor for further guidance. CuM.10100 SpitS Ten...nation Opian &mount 8% • 2012 as ;81011 EFTA_R1_01954602 EFTA02674252 Projections Based Upon December 2012 Policy Values 6.00% Gross Rate of Return Assuming 6.00% Hypothetical Gross Rate of Return & Current Policy Charges LEON and DEBRA BLACK MALE I CURRENT AGE 61 and FEMALE / CURRENT AGE 58 ■ After Purchase and Termination of Split-Dollar Plan. Face Amount Reduced to Initial Death Benefit ■ Projected Premium Outlays Maintain Life Insurance Coverage as Indicated PREMIUM OPTION: No Premiums Initial Death Benefit Coverage Advance December 2012 Net Cash Surrender Value December 2012 Net Death Benefit a Life Expectancy Coverage Until SECOND-TO-DIE POLICIES John Hancock's Majestic Variable 30.000,000 4,622,974 5.040,644 30,000.000 2055 Estate Protection 98 Policy irk (Debra's Age 100•) SIM AXA Equitable's Survivorship 25,000,000 2,627,947 2.638.570 2041 Incentive Life Policy (Debra's Age 86) Assuming No New York Life's Survivorship 20,000,000 2,514,929 3,073.203 Premiums. Death 2039 Variable Universal Life Policy la 500 858 Benefit Coverage is NOT Maintained (Debra's Age 84) to Joint Life Prudential's Survivorship Preferred 20.000,000 2.304.955 2.727.668 Expectancy (45 2039 Policy # Years) (Debra's Age 84) Pacific Life's Select Estate 5,010,000 424,480 457.929 2041 Preserver Policy (Debra's Age 86) Totals: 100,010,000 12.495.285 13,938.013 30.000.000 INDIVIDUAL POLICIES Prudential's Variable Universal Life 30,000,000 6,108.212 4,504,233 2024 Policy ft (Leon's Age 73) Assuming No AXA Equitable's Incentive Life 15.000.000 3,172,980 2.019,619 Premiums. Death 2025 Policy 0 Benefit Coverage is NOT Maintained to (Leon's Age 74) Leon's Life Security Life of Denver's Firstline II 5,000,000 1,180,138 576,483 Expectancy (Age 85) 2018 Policy # (Leon's Age 67) Totals: 50,000,000 10461.3301 7.100,335 0 GRAND TOTALS: 150,010.000 22,956.615 I 21.038 48 30,000,000 (Please Turn the Page Over for Important Disclosures) III .3 Annual Premium Payments to Maintain Coverage Annual Premium Starting 2013 Pay Yrs Total Additional Premium Outlay Net Death Benefit @ Life Expectancy To Maintain Coverage fo Debrfl Age 95• Coverage Until 0 0 30.000,000 (205,246) 20.5 (4,208.518) 25.000.000 (196,080) 17.2 (3.380,604) (179.595) 248 (4.450.280) 2055 (Debra's Ago 100•) 2055 (Debra's Age IC0') 20,000,000 2051 (Debra's Age 96) 20.000.000 2051 (Debra's Age 96) (33,218) 39.0 (1,295.502) 5.010.000 2052 (Debra's Age 97) (614,139) (13.334.904) 100.010.000 To Maintain Coverage to Leon's Age 86• (502,335) 17.6 (8,866,212) (264,894) 17.0 (4.503.198) (132,716) 24.0 (3,185,178) 30O00.000 15.346,917 5.000.000 2038 (Leon's Age 87) 2037 (Leon's Ago 86) 2038 (Leon's Age 87) (899,945) (1.514.084) (16.554.588) 29.889.492) 50,346.917 150,356,917 Curnialra SoitS Termination Ooten Salary 9 6% 2012 as ?Wier EFTA_R1_01954603 EFTA02674253 O Lae expectancies from policy Inception are based on appropriate mortality assumptions. Joint life expectancy is 45 years (Debra's Age 88). Leon's life expectancy is 38 years (His Age 85). O This is an illustraton and is not intended to predict actual performance. Variable Universal Life Insurance policy values shown are not guaranteed. Please refer to the complete in force illustrations and appropriate product prospectus lot detailed Information. Including illustrated policy performance assuming 0.00% Hypothetical Gross Rate of Return and Guaranteed (Maximum) Policy Charges. O For split-dollar plans placed pnor to January 28. 2002. recent IRS notices do not directly address the potential taxation of the executives cash value after the corporation has recovered its share of the premium advances. Please consult your tax advisor for further guidance. CuM.10100 SpitS Ten...radon Opian &mount 6% • 2012n ;81011 EFTA_R1_01954604 EFTA02674254 LEON BLACK February 2013 Annual Review of Trust-Owned Split — Dollar Life Insurance Coverage LEON BLACK INDIVIDUAL LIFE INSURANCE POLICIES — Re-allocation of $5,000,000 Security Life of Denver Policy B,Vpeni Oon Bryant Oyu nen LOW! ROWAWRitiWy 2013 N./BAIR...maxi Bryant Group EFTA_R1_01954605 EFTA02674255 Projections Based Upon December 2012 Policy Values 8.00% Gross Rate of Return Assuming 8.00% Hypothetical Gross Rate or Return 8 Current Policy Charges LEON and DEBRA BLACK MALE /CURRENT AGE 61 and FEMALE CURRENT AGE 58 • After Purchase and Termination of Split-Dollar Plan. Face Amount Reduced to Initial Death Benefit • Projected Premium Outlays Maintain Life Insurance Coverage as Indicated Maintain All 3 Policies Prudential's Variable Universal Life Policy AXA Equitable's Incentive Life Policy # Security • r's Firstline II Policy It Totals Reallocate Security Life Policy Prudential's Variable Universal Life Policy AXA Equitable's Incentive Life Policy Security Life of Denver' Firstline II Policy Totals: Initial Death Benefit Coverage 30,000.000 15.000,000 5.000.000 50.000.000 0 PREMIUM OPTION: Advance December 2012 Net Cash Surrender Value December 2012 6.108,212 4.504,233 3,172,980 2.019.619 1,180,138 576.483 10.461,330 7.100.335 30,000,000 6,106,212 4.504.233 15.000,000 3,172.980 45,000.000 2,019,619 No Premiums Net Death Benefit Life Expectancy Coverage Until Assuming No Premiums. Death Benefit Coverage Is NOT Maintained to Leon's Life Expectancy (Age 85) 2025 (Leon's Age 78) 2027 (Leon's Age 76) 2018 (Leon's Age 67) 0 Assuming No Premiums, Death Benefd Coverage is No Maintained to Leon's Life Expectancy (Age 85) 2027 (Leon's Age 76) 2029 (Leon's Age 78) Annual Premium Payments to Maintain Coverage Annual Premium Starting 2013 Pay Yrs Total Additional Premium Gulley Net Death Benefit Lde Expectancy To Maintain Coverage to Leon's Age 864 Coverage Until (502,335) 9.3 (4,666,015) (264.894) 13.0 (3.443,622) (113,694) 24.0 (2.728.651) 30,000.000 20.669,058 5,000.000 2038 (Leon's Age 87) 2038 (Leon's Age 87) 2038 (Leon's Age 87) (880.923) (10,838.288) 55.669.058 To Maintain Coverage to Leon's Age 86. (502.335) 7.2 (3.626.570) 30.000.000 2038 (Leon's Age 87) (264.894) 11.0 (2,913.834) 20.651,609 2038 (Leon's Age 87) Assumes policy is surrendered and ca h surrender value of 5576,000 Is reallocated to the Prudential and AXA Individual policies. 9.281,192 6,523.852 0 (767,229) (6,540.404) 50,651,609 • $576,000 Cash Surrender Value of the Security Life Policy reallocated to the Prudential and AXA Individual Policies. $346.000 was allocated to the Prudential policy and $230,000 was allocated to the AXA Policy. O Life expectancies from policy inception are based on appropriate modality assumptions. Leon's life expectancy is 38 years (His Age 85). CI This is an illustration and is not intended to predict actual performance. Variable Universal Life Insurance policy values shown are not guaranteed. Please refer to the complete in force illustrations and appropriate product prospectus for detailed information, including illustrated policy performance assuming 0.00% Hypothetical Gross Rate of Return and Guaranteed (Maernum) Policy Charges. O For sphteollar plans placed prior to January 28. 2002. recent IRS notices do not directly address the potential taxation of the executive's cash value after the corporation has recovered Its share of the premium advances. Please consult your tax advisor for further guidance. Cuftialhe Soitt Tensouglon Ind OKion Sun...Fey G :u12 m III - 4 2i1V2013 EFTA_R1_01954606 EFTA02674256 Projections Based Upon December 2012 Policy Values 6.00% Gross Rate of Return Assuming 6.00% Hypotnelical Gross Rate of Return & Current Policy Charges LEON and DEBRA BLACK MALE I CURRENT AGE 61 and FEMALE / CURRENT AGE 58 • After Purchase and Termination of Split-Dollar Plan. Face Amount Reduced to Initial Death Benefit ■ Projected Premium Outlays Maintain Life Insurance Coverage as Indicated Maintain All 3 Policies Prudential's Variable Universal Life Policy AXA Equitable's Incentive Life Policy IS Security Life of Denver's Firstline II Policy # Totals: Reallocate Security Life Policy Prudential's Variable Universal Life Policy 0 AXA Equitable's Incentive Life Policy # Security Life of Denver's Firstline II Policy II Totals: Initial Death Benefit Coverage 30,000,000 15.000,000 5,000,000 50,000,000 • PREMIUM OPTION: Spit-Dollar Advance December 2012 Net Cash Surrender Value December 2012 6.108,212 4.504,233 3,172,980 2.019.619 1,180.138 576.483 10.461,330 7,100,335 30.000,000 6.108,212 4.504.233 15,000,000 45,000,000 3,172.980 2,019,619 No Premiums Net Death Benefit Life Expectancy Coverage Lime Assuming No Premiums. Death Benefit Coverage Is NOT Maintained to Leon's Life Expectancy (Age 45) 2024 (Leon's Age 73) 2025 (Leon's Age 74) 2018 (Leon's Age 67) 0 Assuming No Premiums. Death Benefit Coverage Is NOT Maintained to Leon's Life Expectancy (Age 85) 2025 (Leon's Age 74) 2027 (Leon's Age 76) Annual Premium Payments to Maintain Coverage Annual Premium Starting 2013 Pay Yrs Total Additional Premium Outlay Net Death Benefit Life ExpediteCy To Maintain Coverage to Leon's Age 864 Coverage Until (502,335) 17.8 (8,866,212) (264.894) 17.0 (4.503,198) (132,716) 24.0 (3,185,178) 30,000.000 15,346.917 5,000,000 2038 (Leon's Age 87) 2037 (Leon's Age 86) 2038 (Leon's Age 87) (899.945) (16,554,588) 50,346,917 To Maintain Coverage to Leon's Age 86• (502.335) 14.7 (7,389,405) 30,000.000 2038 (Leon's Age 87) (264.894) 15.0 (3,973,410) 15.300.277 2037 (Leon's Age 80 Assumes policy is surrendered and cash surrender value of $576,000 Is reallocated to the Prudential and AXA Individual policies. 9.281,192 6,523,852 0 (767,229) (11,362,815) 45,300,277 • $576,000 Cash Surrender Value of the Security Life Policy reallocated to the Prudential and AXA Individual Policies. $346.000 was allocated to the Prudential policy and $230,000 was allocated to the AXA Policy. O Life expectancies from policy inception are based on appropriate modality assumptions. Leon's life expectancy is 38 years (His Age 85). CI This is an illustration and is not intended to predict actual performance. Variable Universal Life Insurance policy values shown are not guaranteed. Please refer to the complete in force illustrations and appropriate product prospectus for detailed informatron, inducting illustrated policy performance assuming 0.00% Hypothetical Gross Rate of Return and Guaranteed (Maximum) Policy Charges. O For sphfidollar plans placed prior to January 28. 2002. recent IRS notices do not directly address the potential taxation of the executive's cash value after the corporation has recovered its share of the premium advances. Please consult your tax advisor for further guidance. CuenJaoth spec Ten...Neon Ind OKion Sunriwy @ 6%, Xi12 dr Ill - 5 ate013 EFTA_R1_01954607 EFTA02674257 8.00% Gross Rate of Return Assuming 6.03% Hyper:reseal Gross Select Rah" & Ciurreril Policy Merges LEON and DEBRA BLACK Premium Cash Flows Yak 80 614 2013 61 58 2014 62 59 2015 63 60 2016 64 61 2017 65 62 2018 66 63 2019 67 64 2020 68 65 2021 69 66 2022 70 67 2023 71 68 2024 72 69 2025 73 70 2026 74 71 2027 75 72 2028 76 73 2029 77 74 2030 78 75 2031 79 76 2032 80 77 2033 81 78 2034 82 79 2035 83 80 2036 84 81 2037 85 82 2038 86 63 2039 87 84 2040 88 85 2041 89 86 2042 90 67 2043 91 88 2044 92 89 2045 91 90 Total Outlay PV of Cash Flow Q 6.00% Second-To-Die Policies Policy Face Amount John iiii . ... 530.000.000 Policy AXA EFLM Policy 525.000.000 Nes York Life Polio $20.000.000 Prude, Policy 520.000.000 y S5010.900 Total Face Amout: S100.010.000 Annual Outlay Peat!, Benefit 614.139 100,010,000 598,914 100,010.000 418.059 100,010,000 224.331 100,010,000 128218 100,010,000 10,815 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100,010,000 0 100.487.385 0 101,959,977 0 103,522,781 0 105,181,078 0 106.937,917 0 108,795245 0 110,754,790 0 112.817.711 0 114,983,432 0 117248,023 51,994,476 1,849,218 Individual Policies ' Policy Face Amount Ppoi rukdeyrillilm . $30.000.000 AXA 515,000,000 Pot Total Face Amout 545.000.000 MAYS Outlay Ottani bonen 767.229 47.270.739 767229 47.507.920 767.229 47,748.310 767.229 47.990.885 767.229 48,273.911 767229 48.559.742 767.229 48.858.841 375.119 49,188,616 264,894 49.523.035 264.894 49.860.710 264,894 50,199.530 0 50,537,398 0 50,601.990 0 50,651,609 0 50,651,609 0 50,651,609 0 50.651.609 0 50,651,609 0 50,651,609 0 50,651,609 0 50,651,609 0 50,651,609 0 50,651,609 o 50.651.609 0 50,851,609 0 50,651.609 0 0 0 0 0 0 0 0 0 0 0 0 0 0 56,540,404 5,260,322 Total Annual Outlay Peath Benefit 1,381,368 147.280.739 1.366.143 147.517.920 1.185.288 147.758.310 991.560 148,000,885 895,447 148.283.911 778.044 148.569.742 767.229 148.868.841 375.119 149.198.616 2a4.194 149.533.035 149.870.710 264.894 150.209.530 0 150,547.398 0 150.611.990 0 150.661.609 0 150.881,609 0 150.661.609 0 150.681.609 0 150.861.609 0 150.661.609 0 150.661.609 0 150.661.609 0 150.881.609 0 150.661.609 0 151.138.994 0 153.611.586 o 154,174,390 0 105.181.078 0 100.937.917 0 108.795.245 0 110.754.790 0 112.817.711 0 114.983,432 0 117.248.023 58.534.880 7,109,540 ' The Security Life of Denver Policy d end the 5576,000 Cash Surrender Value is reallocat lia and AXA Equitable Individual policies. 5346.000 was allocated to the Pruden wy 5230000 was allocated le the AXA Equitable Policy • Life expectancies from poky inception aro based on appropriate mortality assumphans: Joint We expectancy is 45 years (Debra's Ago 68). Leon's Ire expectancy is 38 years (His Ago 85). Let* reamarn Plees41%.14 III -6 14,2413 EFTA_R1_01954608 EFTA02674258 6.00% Gross Rate of Return Assuming S00% HyP°Sweatt Gross Rate of Ref ton 6 Current Polcy Chaves LEON and DEBRA BLACK Premium Cash Flows Mt MIL 7.946 2013 61 58 2014 62 59 2015 63 60 2016 64 61 2017 65 62 2016 68 63 2019 87 64 2020 68 85 2021 69 68 2022 70 67 2023 71 66 2024 72 69 2025 73 70 2028 74 71 2027 75 72 2026 78 73 2029 77 74 2030 78 75 2031 79 76 2032 80 77 2033 81 78 2034 52 79 2035 83 80 2038 84 81 2037 65 82 2038 86 83 2039 87 84 2010 86 BS 2041 59 86 2042 90 87 2043 91 88 2044 92 89 2045 93 90 Total Outlay PV of Cash Flow @ 6.00% Second-To-Die Policies Policy Face Amount John Hai m Pc4cy 530.000.000 AXA Equitable 525000.000 PotecyN New Yak Life 520.000000 Policy Prudential Policy Pacific Life Policy 520.000.000 55.010000 Total Face Amoul: 5100.010.000 Annual Outlay Death Benefit 614,139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 614.139 465.303 418.059 418.059 318.411 212.813 212.813 212.813 173.218 33.218 33.218 33.218 33,218 33,218 33,218 33.218 33.218 813135596 7,647.755 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100,010000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100,010000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100,010,000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100.010,000 100.010.000 Individual Policies I Policy Face Amount 530.000.000 Poti AXA Equitable ___________ $15,000.000 Policy Total Face ArnOut. 545.000.000 Annual Canny Death Benefit 767,229 47,239.362 767,229 47.426.916 767.229 47.610.661 767.229 47.789.174 767.229 47.999.925 767.229 48.204.472 767.229 48.412.671 767,229 48.641.025 767,229 48.862.659 767.229 49.075.549 767.229 49.276,950 767.229 49.464.139 767.229 49.638.877 767.229 49.803.010 621,609 49.936.611 O 50.034.938 O 49.822.426 O 49548.737 O 49.206.072 O 48.785.783 O 48.280.948 O 47.688.925 O 47.001.860 O 46.211,354 O 45.300277 O 30.000.000 O 0 O 0 O 0 O 0 O 0 O 0 O 0 811.362.815 7.834.202 Total Annual Outlay Death Benet 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.381.368 1.235,748 614.139 614.139 465.303 418.059 418.059 318,411 212,813 212.813 212.813 173.218 33.218 33.218 33.218 33,218 33,218 33,218 33,218 33.218 824.496.411 15.461.957 147.249.362 147.436.916 147.620.661 147.799.174 148.009.925 148.214.472 148.422.671 148.651.025 148872.659 149.085.549 149.286.950 149.474.139 149.648.877 149.813.010 149.946.611 150.044.938 149.832.426 149.558.737 149.216.072 148.795.783 148.290.948 147.698.925 147,011.860 146.221.354 145.310.277 130.010.000 100.010.000 100.010.000 100.010.000 1051.010.000 100.010.000 100.010.000 100.010.000 The Security Life of Denver Policy r and the $576,000 Cash Surrender Value is reallocated to the Prudential and AXA Equitable Individual policies. 5346.000 was allocated to the Prudential Policy and 5230.030 was allocated to the AXA Equitable Policy • Life expectancies from policy incep on are based on appropriate mortally assumptions: Joint kle expectancy is 45 years (Debra's Age 88): Leon's Ide expectancy is 38 years (His Age 85) 111-7 EFTA_R1_01954609 EFTA02674259