Summary of Coverage

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. 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 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 $ 5,000,000 $ 96,380 $584,170.30 $7,141,943.83 $576,482.80 $7,100,334.51 $1,180,138 $10,461,330 Total - Individual Life Insurance Coverage $50,000,000 $863,609 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.) 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 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 2 6 . 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 taken from sources which we believe to be reliable. but 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, 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 atm ocrsioreorRaertocancosenominaC ea 0* the AM &Rat& Odes re deed th AXA Adrian, LLC. 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•I I 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. C.\It ICIER Prudential All • uitable Security Life of Denver POLICY AMOUNT W. ANNUAL REGISTER REPORTABLE NI MUER COVERAGE PREMIUM DATE. INCOME & GIFT AMOUNT Total - Individual Life Insurance Cavern: e SECOND-TO-DIE, WEALTH TRANSFER LIFE INSURANCE COVERAGE ON LEON & DEBRA BLACK $30,000,000 $15 000 000 $5.000.000 $50,000,000 $502,335 9/13/99 $264 894 $96.380 S863,609 9/13/99 9/20/99 $51,413 $25 191 $8,360 ) 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 CARRIER NUMBER COVERAGE -- — — Prudential $20,000,000 ANNUAL PREMIUM $179,595 REGISTER DATE 9/13/99 REPORTABLE INCOME Se GIFT AMOUNT $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 Insurance Covera: e $100,000,000 $973,161 S19,168 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 1140611 mais.doe Bryant Group iNcor,p0RATi. EFTA01127281 SPLIT-DOLLAR PLANS - 2011 In Force Update LEON and DEBRA BLACK ORIGINAL PROJECTIONS 2010 PROJECTIONS 09.00% HypMµtical Gross Rate of Return 8 Current Charges 2011 PROJECTIONS 1:8 10.00% Hypothetical Gees* Rate of Return 8 Currant Chug.* 40 9.00% Hypofµlkal Grose Rate q 8 .00% Hype:Mlles, Gross Rota of Return & Current Charges of Return & Current Charges SECOND-TO-DIE SPLIT-DOLLAR PLANS Protium Company ~Sim CØ Preis." ~any Warren Conpany 9/..e Deals Payne< Preen." peen*. Permeni Menem c—n. Pv roaren taseee Peprael ~ea Gem). es Yen Pobes Pena Cmerage Pitmen yews Rowntel Yee% ~Very Ute RecOMM We lateenesl the Kieneoclea liefeslIc Variable lets» Policy 30.000,000 159022 12 2011 Dent Sr 21 2020 Ots 100. 19 2018 Deem. Age 22 2021 Reel Am Protection 98 IIMM , Trains peernuse port la wee OM/ 12019) (2010 an MA II laba tu hip IL Pc4Icy 25.000,000 205.2/6 16 2015 Leal em 9) 29 2028 0~9 09T le 26 2025 Deem a 33 2032 Omni* os %Men ~men Imo 55 Jae (20111 (202/) (2091) (X01) Policy • Thieen oetontre ores '0 Ja. 20,000,000 106.060 17 <2015/ 2016 Clatre, 16 32 (030) 2031 0~2 Am 28 12020) 2027 De. asPea 40 (2038) 2039 Ølro. "M. Prudential' Preferred Polley 20.000.000 179.595 19 2018 Dittos - lø 36 203S ~se Are 32 2031 Men em co- 43 AI Clealh Mee 3 Me Ø. • Tree, peMsere ~bee/ (017) 0034) (2020) (2041/ Pacific tifo's Sate Estate Pretense Peaty 5.010.000 33.218 18 2017 0Ø'e Pee 07 29 2028 Denis Am. 27 2506 oats-% ks 35 2034 Deemer 00 • Theeen menus pod »do» (2018) (2027) (3329 (2CO3) Sep limn July MI 1 Pee( Vases ben Peon Jae 2911 Pcrlotv Velma TOTALS: , 100.010,000 1 I 9rJ.161J INDIVIDUAL SPLIT-DOLLAR PLANS (Leone 009) 1Nsley Pc4Icy eels LelrtymYuaaggb4ea MAE hr• Ule Polity I ~Me prersuir woo eo <NM Policy .Teemve mein. -Yd ti dele TOTALS: GRAND TOTAL: MOM Path erve Boroa: Canner Peewee, 30,000,000 502,335 15,000000 284.894 5,000,000 03.390 60,000,000f 150,010,000 MAN lane Prone" heels Yeas 6*** Peas*, Cameo. ReCOMY Um 25 2024 12023) 24 2023 25 At Doan 0023) lan' Apr Ile Tens ele 06 Poorer Pamnam Yens Catpeny Rocommy 35 Al Death (M53) 33 0031) 29 0027) AI Death Poky tapes Tasse. Wt Lees A- O lele:41 Ip tase. (202?) Peen" Payne& Years 33 (2001) Correany ~Turn Rs" I senen Recovery Yen AA 0401h 1 I.:air*. I 38 MO) CoeMe llN 29 Al Death "are:~ 11 Polity lapse I' 1; 91 I (2039) 31 (24031 Cenmery Peonern Recomm ~sm. we At 0/611) T**/▪ * Al Death 29 Pay le** • "`",;A" (X1271 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 nitene Øle 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 HIS lien Year Age Age 1999 48 44 2000 49 45 2001 50 46 2002 51 47 2003 52 44 2001 63 49 2005 54 50 2006 55 51 2007 56 52 2086 57 63 2009 58 54 2010 69 65 2011 60 56 2012 6i 57 2013 62 58 2014 63 59 2015 64 60 2016 65 61 2017 66 62 2016 67 63 2019 68 64 2020 69 65 2021 70 66 2022 71 67 2023 72 68 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 63 79 2036 84 80 2036 85 81 2037 86 62 2038 87 83 2039 88 84 2040 89 85 2041 90 86 2042 91 87 2043 92 88 2044 93 89 2045 94 NPV of Corporate Cash Flow 0 6.00'.: CONTINUE CURRENT SPLIT-DOLLAR PLAN A ION Anus' Prerrium • Recovery 968.500 967.740 966.850 965.777 964.535 963.035 963.035 959,427 957,201 955.429 953.867 955.300 954.468 953.784 953.073 952,297 951,602 950.488 949.482 948.267 946.983 945.170 (7.I98.970) 592.632 590,820 589.661 587.076 586,630 584.266 581,303 577.348 573.363 568,546 (6.173.393) 370.368 (774.052) 330,903 324.539 317.024 305.471 (7.409.648) 129.587 121.122 - - 17,219,807) • Taal Death Benefit Coverage EXECUTIVE Annuli: Gift • Incorrusg Gus: Death Proceofts 99,889.018 4,661 99,699,252 5.421 99.443.309 6.311 99.179.897 7.384 99.617.969 8,626 99.668.704 10,126 100.780.647 10,126 101.714.915 13734 100927.298 15,960 98.531.757 17.732 99.570.544 19.294 101.213.274 17,861 101.415,687 18,693 101,867,381 19,377 102.369,722 20.088 102930.414 20,864 103.556.668 21.559 104.267,144 22,673 105.045.370 23,679 105.891.419 24.894 106.825,414 26.178 107,828.121 27.991 108,286,697 20.561 108.781.288 21,507 108.743.502 23.319 108.187,059 24,478 107.632.300 26,163 107,078,888 27.509 106.527,841 29.873 105.979.755 32.836 105,435,624 36,791 104.895.480 40.776 104,362.152 47.594 104.019.842 33.365 103,682.692 38.525 103.345.751 38.735 103.014.848 44,772 102.690.309 51,136 102,373,285 58.651 102.067.814 70.204 101.935.862 47.643 101,806.275 50.008 101.685.153 58.473 101.685.153 68,456 101.685.153 79,866 • (101.685,153) 9.408.104 Leon's GM Amocnl 2012 8 Triodafter. 1,178,543 Total GO Arnow/. 1.334,473 ExeCutve8 Internal Rate of Return: 17.43% ANOTHER TRUST PURCHASES THE POLICIES & TERMINATES THE SPLIT-DOLLAR PLAN A ION Areval Pritornitill • Recovery Trust Death Bens: Coverage 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 99.668,704 963,035 100,780647 950.427 101,71-1.915 957.201 100.927.298 955.429 98,531.757 953.867 99,570.544 955,300 101,213,274 954.468 101.415,687 (11.677,665) 100010,000 100.010.000 100.010.000 100.010,000 100.010,000 100.010,000 100010.000 103,010,000 103,010.000 100.010.000 100.010.000 100,010.000 190,010,000 100010.000 100.010,000 100.010.000 100.010.000 100.010.000 100.010.000 100.010.000 100,010.000 100,010.003 100.010.000 100,010.000 100.010.000 100.010,000 101,063,258 102,614.407 104,254.279 106.984,401 107.805.796 109,717.955 • 009.717.065 EXECUTIVE Arnual Incoming Trust Dealt Proceeds 4,661 5.421 6.311 7,384 8.626 10.126 10,126 13,734 15.960 17,732 19.294 17.861 18.693 614,139 614.139 814.139 570.567 289.313 207.695 80.500 3,554.801 Leon's Gill Amount Firma Prangwn Payments 2,990.492 Total GM Amon, 3,146.422 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 9,81 may 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 Year His Age 1999 4B 2000 49 2001 50 2002 51 2003 52 2004 53 2005 54 2006 55 2007 56 2008 57 2009 58 2010 59 2011 60 2012 61 2013 62 2014 63 2015 64 2016 65 2017 66 2018 67 2019 68 2020 69 2021 70 2022 71 2023 72 2024 73 2025 74 2026 75 2027 76 2028 77 2029 78 2030 79 2031 80 2037 81 2033 82 2034 83 2035 84 2036 85 2037 86 2038 87 2039 88 NPV of Corporate Cash Flow COO:: CONTINUE CURRENT SPLIT-DOLLAR PLAN CORPORATION EXECUTIVE Annual G414 Incoming Trust Death Proceed Trust Death Sena Annual Premom Coverage Recovery 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 80,478 777.169 46.872.328 86,440 770,687 46,851.150 92,922 762.118 46,851.734 101,491 752.889 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 47,221.657 159,376 689.262 47,296.829 174,347 672.846 47.328.701 190,763 648.085 47,306.100 215,524 621,140 47,210.548 242.469 590.917 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 404230 229.364 41.947.781 438,479 204.926 41.742.855 476.152 177,132 41.565.723 517,941 145,114 41,420.609 563.498 108,752 41.311,857 613.095 68.658 41.243.199 692.588 24.882 41,218,337 843.782 (20.460.853) (41.218.337) 9.101.879 ANOTHER TRUST PURCHASES THE POLICIES 8 TERMINATES THE SPLIT-DOLLAR PLAN CORPORATION EXECUTIVE Annual Gift + hcomng Tryst Death Proceeds Annual Premium . Recovery 821,004 819,621 818,242 816,807 814.613 811.444 811.444 801,954 797,040 790.702 783.973 789.957 783.131 (6.718.901) Trust Death Benefit Coverage 50,014,178 48.961.588 48,466,260 48.529,954 48.342.621 48.318,209 48283.943 48,696,486 47,238.285 46.399.128 47,129,584 46.932.191 46.897,480 52.175.103 52.405.417 52,638,439 52.873.112 53.147,660 53.424.398 53,713.743 54,033,057 54.356,256 54.681.898 55.1307.819 55.007.819 55.007.819 55.007,819 55.1307,819 55,007,819 55.007.819 55.007,819 55.007,819 55.007,819 55.007,819 55.007,819 55.007,819 55.007.819 55,007,819 42.605 43.988 45.367 46.802 48,996 52.165 52,165 61.655 66.569 72,907 79.636 73,652 80.478 871,885 871.885 871.885 871.885 871.885 871.885 871.885 871.885 871.885 871.885 795,142 369.550 104,656 104,656 104,656 104.656 104.656 104,656 104,656 104.656 104,656 104.656 104,656 104,656 104,656 (55 007.819 4,426,369 2012 & Thereafter Leon's GUI Amount Future Premium Payments' Leon's Gift Amount 9 Li 7,996,488 11244,063 Total Gdt Amount: 8,763,473 Total Gift Amount. 12,011,048 Executvos Internal Rate ot Return: Executive's Internal Rate of Return. 10.38% 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 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, 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