EFTA02707619

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 N1 dated September 13, 1999. • These policies' register dates are September 1999. Carrier Policy Number 4410)s et Cbverage Normal Annual Premium Account Value 12-31-12 —Wettish fastrander Value 12-ii -12 Siffli-rtisthit ' AtkanCt" 112-31-12 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 of Denver 610014742 £,000 000 96.380 $584.170.30 5_576.482.80 $1.180,138 Total — Individual Life Insurance Coverage 00.000,000 5863.609 $7,141,943.83 $7,100,334.51 . S10,461,338 ',Second-to-Die, Wealth Transfer Life Insurance Coverage on Leon & Debra Blaek • 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 regis er date for the Prudential policy is 9/13/99.) Carrier Policy Number Amount or average? Normal Annual Premium Account Value 12-31-12 Net Cash Surrender Value 12-31-12 Split-Dollar Advance 1241-12 Prudential VO 001 958 $20,000,000 $179,595 S2,727,667.92 $2,727,667.92 S 2.304.955 New York Life 75 500 858 $20,000,000 S196.080 S3,081,046.27 $3,073,203.07 S 2,514,929 Pacific Life VP 6089 7390 $ 5.010.000 $ 33.218 $457,928.92 $457,928.92 S 424,480 John Hancock 20 039 301 $30.000,000 $359,022 $5,040,643.54 $5,040.643.54 S 4,622,974 AXA Equitable 49 232 123 664 9 4 2.638.569.80 2 627 947 Total Second-to-Dle Life Insurance Coverage $100,010,000 $973,161 $13,972,252.99 513,938,013.21 ft2,495,28S LOC9020-Ld-Vid3 This information has been taken from sources which we believe to be reliable. bra there is no guarantee as to its accuracy. It is not a replacement for any account statement or transaction confirmation issued by the provider. Please compare this document to your custodial statement for accuracy as applicable. Please refer to the prospectus and most recent annual report for further information. Transcription errors do not affect actual policy values. qvh t oneCinnat.b.1:00.1 s4.V.Ja.ben•e• I Ai EFTA02707619 rpm ryant Group INCORPORATED Roger E. Cammon President & Co-Chief Executive Officer 701 Market Stint. Sul* 1200 SL Louis. Missend ssum (5141 211.8068 (314) 231-4850 fax December 7, 2012 PERSONAL & CONFIDENTIAL Ms. Eileen Alexanderson Black Family Partners 9 West 57th Street, 14th 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. Respectful I y, Rogev'E. Cammon Enclosure cc: Mr. Thomas Turrin 6 cis DatiCAMMILmiledincos4Vepnal2REC On The maned Individual offers securion and lavestrons arhavy recoreuhrough AXA Adorns. LLC (NY. NY 2133144600k member f INRA. WC, see offers annoy and inesnom pothole through AXA Network. LLC Aed Os soncluria Bryan Group. Inc is no' owned Or named by AXA Ashmore n AXA Network. Gay are AXA WWI pat* Menne enough AXA knees. at Wynne Offen through IA makings Securities, Inc. A Repined Broker/Dealer. Memoir FINRNSIPC Bryant Group. Inc re ondependeny owned and operant Ian CsairCAMOINteprierbklannOr ina< and EFTA_R1_02 06302 EFTA02707620 INDIVIDUAL LIFE INSURANCE COVERAGE ON LEON BLACK ) Split-Dollar Entity: A 1E, IV Management, Inc. ) Policy owner: Norman Brownstein, Trustee under the Leon D. Slack Insurance Trust #1 dated September 13, '999. ) These policies' register dates are September 1999. CARRIER Prudential ,4XA uitable Security Lye of Denver POLICY NUMBER VI 016 844 49 232 126 610014742 Total - Individual Life Insurance Coverag e • AMOUNT OF COVERAGE $30,000,000 $15,000 000 $5.000.000 $50,000,000 ANNUAL REGISTER REPORTABLE PREMIUM DATE INCOME & GIFT AMOUNT $96380 $863,609 9/20/99 $264 894 9/13/99 $25,191 $8,360 $84,964 SECOND-TO-DIE, WEALTH TRANSFER LIFE INSURANCE COVERAGE ON LEON & DEBRA BLACK Split-Dollar Entity: All, 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.) CARRIER - - POLICY NUMBER AMOUNT OF COVERAGE ANNUAL PREMIUM REGISTER DATE REPORTABLE INCOME & GIFT AMOUNT Prudential VO RH 958 $20,000,000 $179,595 9/13/99 $3,430 New York Life 75 500 858 $20,000,000 $196,080 4/28/99 $4,456 Pacific Life VP 6089 7390 $5,000,000 $33,218 4/28/99 $860 John Hancock 20 039 301 $30,000,000 $359,022 4/28/99 $5,445 ,4XA Equitable 49 232 123 $25 000,40 $205.244 4/28/99 $1977 Total Second-to-Die Life Insurance Coverage S100,000,000 $973,161 $19,168 EFTA_R1_02106303 EFTA02707621 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. 11 %kn., Don lferanAA itrutOL.ct l000ltc • Ilcc 11.3.3.11,,,c ,doc Bryant Group ,NconpoRAT,D EFTA_R1_02106304 EFTA02707622 SO£90 L Z0- 1. WV.I.33 LEON and DEBRA BLACK SECOND-TO-DIE SPLIT-DOLLAR PLANS AolCy ifraArl DA» ~eV Conrvcis Ant.> Premon Progign largo Concur, Prorate Reopen Proem, Paint ,ku vows Company Nam" Amery PTOOKIJO CorOP. POyMOrt NY yarn ComPalY Puhvuurn RØ Premium Amax YANA ~ay femme CO.Por A~Avy IMP Ven ram)* Vru MarormIrvi Majestic Venable Erode Protection 98 Potty 820 039 301 30.000.000 359.022 12 2051 Orents pie •14 21 2020 Ottrveror loo- 19 2018 ponep ion 22 POPSY h•Y• 2021 . Thal«. parnoni. OM, b øst Rom 120191 Qom (20201 AXA Equilrolo Surviterstep Policy II 49 232 123 25.000000 20L5.246 16 2015 cem Ace 29 2028 P.m A. 26 2025 no?••••••ip 33 OttOO 2032 OK. • Thrtrro pm,µrn KIO UCY0 120111 C10271 (2024/ 13031) New Yost UN's Survivorship VUL Policy I 75 500 854 • ThrPOO tOtOMPIO MO '0 Oafs 20.000,000 196,080 17 <3015) 2016 Y. 32 lØ 2031 Crowing 28 loon) 2027 Wreaks. 40 80361 2039 Oi4is"o• oe. Pwrfentlars Senievorthet Preferred Policy å VO 001 958 20.000.000 179.595 19 2018 O•••••••• •••) 36 2035 OSIN t0.• 32 2031 Mug, goo tog- 43 Doug. hp At Death • I vie he pun um{ ~I »OM. 1201N (2034) MOM Pacific Ute's 541.1 Estet. PrOSOKVf PolicyI VP 6089 7390 niescan roman Ado been 5,010,000 33.218 18 2017 Dolts • Ng Iir 29 (20271 2028 onto ••• 27 (2M51 2026 Ae• 35 R0331 2034 ~Aye es TOTALS: 100.010,000 973.161 INDIVIDUAL SPLIT-DOLLAR PLANS (Leon Black) FiltIlOcalte %oho". Anna, Parson, Canaan? Premiere came Paleart CO ~N Preen Can. PvFenx COgYany Ammon Progium (Whew Cargo., Amerman Carl. Yhar. POKY Iteralc Came, Porn," Ytes Roprverf Fe Veen VOW Yaps RØ UN. Amatory tae Prudential's WI pokey I V1016 844 30,000,000 502 335 25 2024 tiara Ap wt. 35 M Dtfilh Ingo hfg CO 33 Al Du L 38 Ai Drool ' Lir e I wethe pgenet.w cog wt AXA Erfuluble9 Incentive Lde Policy9 49 732 121 lo 15.000,000 5.01)0.000 264.8111 98.380 0033i 24 (2021) 25 2023 Al Nate broth A. 16 teal Aq• (20331 33 00311 29 Al DO.Ilh Poky I apt. ~Ai Ap 1.• Isel M (20311 29 not) 31 Awes Potty UMW' L it AG' "1"y‘yAr I2036; 31 (20291 29 Al Demo ' pl Poky Lepte• ""(17•Ali lugh, {amigos peg Ogg INGlootCullty UIaY firsInne Policy S 610014742 802131 (2077) an 120271 Two'. ~lb ~I ORIGINAL PROJECTIONS 98 10.00% ityPolleilical Gross Rate of Return 8 Current Charges SPLIT-DOLLAR PLANS - 2011 In Force Update 2010 PROJECTIONS 2011 PROJECTIONS 09 9.00% Hypothelervil Gross Rate o 9.00% Hypothetical Gross Rate 04 Return 8 Current Charges NOOR3899.819 AM Poles Wien of Return & Current Charges (0 6.00% Hypothetical Gross Role of Return 8 Current Charges ClAntaltrobleyatialGately TOTALS: L 50.000.000 GRANO TOTAL 150,010.0003 Mai 1133, MMI worn, mange Ile etroasecy is 38 years (Age rot tor,unWelMøere9abyWLepnYApN,rAsq\•opwSpMaØPbn,Ntipn.aWnØtneygbpateaMkAkaavuYpwanpmeeeepllrw.Wpenummyrnsn:..syteraeuHW TS ~cane mum mourn is pea Sar 39 pa nee mama» ihe mcy io iscrea Age 98 In roman. Iht KPKPPOP "W ad LIK" MP" , .~$ 1. lo SPADOW Piån deli" ugh alb ~wog In* meal prawn pet. nay be ecnorveaci • Pm poky wags io polg, you 32 Mots Aori 791 roam 11p2o 10•0140 anymphAni IBM PPONIPII POkaled WOOS poet" Pays; rifle» ~Wily borong ho pow, hut, pa ~rya 00~1,» L.C.1% sywrnoylflperiny (Ago MI LMpran),ØTa PIWYOty•OnOt. ither charges io the SWOON« Phis Peron nay lari powdered • The ~Mery frock" year 39 PAM Age tiN bum wen ihe weeded "umpteen an! prong he «Mane met hugooh CorgAllh, Wen he Puhl olug~ olio. (1~ lh SpliGobar Plan errson maybe conirees0 • The ',Maud smog oft~b pad 1.31 yen IMnpaYYn11ØybLwM1agV 1 1a warm:nee contra» ~Leone roe 51 •KKOPIt DIM SCJI ,Dolai Peale ~sr. such is rwe»no ~Jr, rarbe, " no. tr, ..yerro • 75•rotce tro••• ~Kt 315KParaP•99 Mk , " ~Ob. sPeen°4 PO~P. rofoi nfro•• a'ne" innrv' thronvicg roro plaro ~owe. Oro dlr.?» 101he SpADOS Plan clouoo ru. -onto*, c •mimnrororninim - EFTA02707623 8.00% Gross Rate of Return Assuming 800% Nyootheital Gross Rate 9 Return 8 Curren Policy Chows SECOND-TO-DIE SPLIT-DOLLAR PLAN MR. & MRS. LEON BLACK S100,010,000 COMBINED Second-To-Die Death Benefit Coverage - 5 SVUL Policies Based Upon a 1973.161 Normal Annual Premium Payment Ye. Ns A96 her Ace 1999 al 44 2000 49 45 2001 50 46 2002 51 47 2003 52 48 2005 63 49 2005 54 50 2006 55 51 2007 56 52 2008 57 53 2009 58 54 2010 59 55 2011 60 56 2012 61 57 2013 62 58 2014 63 59 2015 64 60 2016 66 61 2017 66 62 2018 67 63 2019 68 64 2020 89 65 2021 70 66 2022 71 67 2023 72 ea 2024 73 69 2025 74 70 2026 75 71 2027 76 72 2028 77 73 2029 78 74 2030 79 75 2031 80 76 2032 81 77 2033 82 78 2034 83 79 2035 84 80 2036 86 01 2037 86 82 2038 87 83 2039 88 84 2040 69 85 2041 90 86 2042 91 87 2043 92 88 2044 90 89 2045 94 90 IVPV of Corporals Cash Row • 6.00%4 CONTINUE CURRENT SPLIT-DOLLAR PLAN A ON AMY] Premium • Recovery Trim Death BeneM Governor EXECUTIVE Arena] Gift. Meaning Trusi Death Proceeds 968.500 99.889.018 4.661 967.740 99.699.252 5.421 966.850 90,443.309 6.311 965.777 99,179697 7.384 964,535 99.617.969 8,626 963.035 99.668.704 10,126 963.035 100.780.647 10.126 959,427 101,714.915 13,734 957.201 100.927,298 15.960 955,429 96,531,757 17,732 953.867 99.570.544 19294 955.300 101,213.274 17.861 954,468 101.415.687 18.693 963,784 101,867.381 19.377 953.073 102.369,722 20.068 952.297 102.930.414 20.864 951,602 103.556.668 21.559 950.488 104.267.144 22.873 949.482 105.045.370 23.879 948,267 105.891919 24.894 946.983 106.825.414 26.178 945.170 107,828,121 27.991 (7,198,970) 108.286,697 20.561 592.632 108.781.288 21,507 590.820 106.743,502 23.319 589,661 108.187,069 24.478 587.976 107.632.300 26.163 586.630 107.078,888 27.509 584.266 106.527,841 29,873 581,303 106,979.755 32,636 577.348 105,435,624 36.791 573.363 104,895.480 40.776 566,545 104.362,152 47.594 (6.173,393) 104,019,842 33,365 370.368 103,682,692 38,525 (774.052) 103,345,751 38.735 330,903 103614.848 44.772 324,539 102,690,309 51,136 317.024 102,373.285 58.651 305,471 102.067,814 70,204 (7.406646) 101.935.862 47,643 129.587 101.806,275 50.008 121.122 101,685,153 58,473 - 101.685.153 68.458 • 101,685,153 79.866 (7.219.807) (101,685,153) 9,408,100 Leon's GM Amount ANOTHER TRUST PURCIASWSIFIIIBLIollir " TERMINATES THE SPLIT-DOLLAR PLAN CORPORATION Annual Premium . Recovery Trust Osalh Bonen: Corner 968,500 99.889.018 967.740 99,699,252 966.850 99.443,309 965,777 99,179,897 964,535 99.617.969 963.035 99.668.704 963.035 100.780.647 959.427 101,714,915 957.201 100.927.298 955.420 98.531,757 953.867 99.570,544 955.300 101.213.274 954.468 101,415,887 (11,677.665) 100.010.000 100.010.000 100,010,000 100.010.000 100.010.000 100.010.000 100.016= 100.010.030 106016000 100,010.= 103.010.000 100,010,000 100.010.630 100.010,000 100.010.000 100.010,000 • 100.010.000 100,016000 100610600 100.010.000 100,010.000 100.010.000 100.010.000 100.010,000 100.010.000 100,010.000 101.063,258 102,614.407 104,254.279 105,984,401 107,805,796 109,717,955 EXF Cu -II VF Annual GM+ Incoming Trust (hoar Proceeds 9681 5.421 6.311 7.384 8,626 10.128 10,126 13,734 15.960 17.732 19.204 17,861 18,693 614.139 614.139 614,139 570.587 289.313 207,695 80,500 (109,717,955) 9.554,801 Leon's GM Amount 20126 Therea/19 1,178,643 RAUB Premium Payments: 2,990,492 Total Gin Amount 1,334,473 Total GM Amount 3,146,422 EXOCUTMIs Internet Rate of R011.1171' Executive's imams, Rate ot Itreluns 17.43% 12.26% Company recovers 511,677.665 of Ole S12.495.235 Spit.Dotat Advance. 2 In Vie even' One trusl has sutrtimi cash 10 meal the weal= payments. addtionat gifts may NOT be needed. 2 2e Is Os 806 PUN Content . • :os 3 EFTA_R1_02 06306 EFTA02707624 8.00% Gross Rate of Return Assuring 9.00'2 Hypothetical Gross Rate of Return & C.rintro Poky C:! INDIVIDUAL SPLIT-DOLLAR PLAN MR. LEON BLACK $50,000,000 COMBINED Individual Death Benefit Coverage - 3 VUL Policies Based Upon a $663,609 Normal Annual Premium Payment Year Age 1999 48 2000 49 2001 50 2032 51 2003 52 2034 53 2005 54 2006 55 2007 56 2038 57 2009 58 2010 59 2011 60 2012 61 2013 62 2014 83 2015 64 2016 65 2017 66 2018 67 2019 68 2020 69 2021 70 2022 71 2023 72 2024 73 2025 74 2026 76 2027 78 2028 77 2029 78 2030 79 2031 80 2032 81 2033 82 2034 83 2035 84 2038 85 2037 86 2038 87 2039 88 NPV of Co:parer* Cash Flow 0 6.00%: CONTINUE CURRENT SPLIT-DOLLAR PLAN CORPORATION EXECUTIVE Trust Death 8enek Annual Premium + Coverage Recovery Annual GM • Incoming Trust Death Proceeds 821,004 50,014,178 42,605 819,621 48,961,588 43,988 818242 48,466,260 45.367 816.807 48.529,954 46.802 814.613 48.342.621 48,996 811.444 48.318,209 52.165 811.444 48,283,943 52.165 801.954 48.696,486 61.655 797,040 47.238.285 66.5643 790.702 46.399.128 72.907 783.973 47,129.584 79.636 789,957 46.932.191 73.652 783.131 46,897,480 80,478 777.169 40872.328 86,440 770,687 46,851,150 92.922 762,118 46$51,734 101,491 752,689 46,869,569 110,720 742.214 46.936.950 121.395 730,594 47,019,778 133.015 717,818 47.118,029 145,791 704.233 47.221057 159.376 689.262 47.296,829 174,347 672,848 47,328,701 190,763 648,065 47,306.100 215.524 621,140 47210,548 242.469 590,917 47.043,260 272,692 556.699 46.849,180 306,910 518,663 46,679,170 344.946 489.574 46.189.596 374,035 393,344 42,540,144 373,885 362,999 42.177.146 404.230 229.364 41.947,781 438.479 204,926 41.742,855 476,152 177,132 41.565,723 517,941 145,114 41.420.609 563,498 106,752 41,311,857 613.095 68.658 41.243,199 692,588 24,862 41.218.337 843,782 (20.460.853) (41,218,337 9,101,879 ANOTHER TRUST PURCHASES THE POLICIES & TERMINATES THE SPLIT-DOLLAR PLAN CORPORATION EXECO1WE' Annual Gilt • Incoming Trust Death Proceeds Annual Premium + Recovery Trust Death Berets Coverage 821,004 50,014.178 42,605 819,621 48,961.588 43.988 818.242 48,466.260 45.367 816,807 48,529.954 46,802 814,613 48.342.621 48,996 811,444 48,318.209 52,165 811,444 48.283,943 52,165 801,954 48.696.486 61.655 797.040 47.238.285 66,569 790,702 46,399.128 72,907 783,973 47,129.584 79.636 789,957 46.932.191 73.652 783.131 46.897.480 80.478 (6,718,901) 1 52.175.103 871.885 52.405.417 871,885 52.638.439 871.885 52.873.112 871.855 53,147.660 871,885 53.424.398 871,885 53,713.743 871,885 54,033,057 871,885 54,356.256 871,885 54.681.8913 871,885 55.007.819 795,142 55.007.819 369,550 55,007,819 104,656 55,007,819 104,656 55,007.819 104,656 55,007.819 104,656 55.007.819 104,656 55.007.819 104,656 55.007.819 104.656 55,007,819 104,656 55.007.819 104,656 55.007.819 104,656 55,007,819 104,656 55,007.819 104,656 55,007.819 104,656 (55,007.819 4,426,363 Leon's Gift Amount Leon's GM Amount 01 2012 & The ta/ler 7,996,488 Future Premium Payments: 2 11,244,063 Total Gilt Amount. 8,763,473 Total Gil Amount: 12,011,048 Esecutryal Mama) Rate of Return. ExeanNies !Memel Rate of Return 10.38% 7.73% I Company narawer$ 56.718,901 of the 310.459.932 SW-Dollar Advance. 2 in the event the trust has sulfdlenl cash to meet the premium payments. additional gills may NOT be needed. 4 kic/vessl Sidra Pun Gnaw sin o Ilt.• ?Oil Ss EFTA_R1_02106307 EFTA02707625 Review of $150 mil Life Insurance purchased through Bryant Group Rationale for the $50mi1 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 IV 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 full 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 $14.2 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. EFTA_R1_02106308 EFTA02707626 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 Gotshal 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. EFTA_R1_021 06309 EFTA02707627 Background 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 (@ $1.8millyr) 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 $165mi1-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 Catnmon 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 AIF 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. EFTA_R1_02106310 EFTA02707628 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 S 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 EFTA_R1_02106311 EFTA02707629 McDermott Will&Emery New York Date: December 5, 2011 MEMORANDUM 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, AIF 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 30967272.1.088835.0011 EFTA_R1_02106312 EFTA02707630 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 30967272-1.088835.0011 2 EFTA_R1_02106313 EFTA02707631 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. DMJW09672724.088835.00I1 3 EFTA_R1_02106314 EFTA02707632 Termination of Split-Dollar Aureements. 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. ONI_US 30967272-1.088835.0011 4 EFTA_R1_02106315 EFTA02707633