May 2012\
J.E. CASCADING GRAT & INSTALLMENT SALE ANALYSIS\
CONFIDENTIAL\
Investment products: Not FDIC insured • No bank guarantee • May lose value\
Please see important information at the end of this presentation.

A sale to an IDGT is a tax-efficient way to transfer future appreciation of an asset\
Intentionally Defective Grantor Trust (“IDGT”)\
• Grantor makes arm’s length sale of assets to an irrevocable trust\
• Grantor receives a note for the fair market value of the asset plus interest at current AFR\
• Grantor pays income taxes generated by trust assets\
• After the note is paid, remaining trust assets pass to heirs gift tax free\
• Additional considerations\
– trust should be “pre-funded” by grantor to provide sufficient coverage for the note\
– having the loan guaranteed by trust beneficiaries may be beneficial\
– advisable to allocate GST exemption to trust in order to maximize benefit to heirs\
CONFIDENTIAL\
1\
How a sale to an IDGT works\
1\
2\
3\
4\
Sell asset at fair market value to the trust in\
return for a promissory note bearing interest\
at proper AFR\* based upon term of loan\
Receive payments satisfying\
terms of note\
Pay income tax on trust income and realized\
gain\
After note is paid off, remaining assets in trust\
are available, free of gift tax, for\
beneficiaries\*\*\
Grantor\
3\
Pay income\
tax on trust\
income and\
realized\
gain\
1\
2\
Receive\
payments\
Sell asset to trust for a note\
IDGT\
Beneficiaries\
4\
Remaining assets\
pass to beneficiaries\*\
To enhance the potential benefits consider funding a series of cascading GRATs – the\
remainders can be added to the IDGT\
If the cascading GRATs are successful, at the end of the cascading GRAT terms\
additional assets can be sold to the IDGT\
CONFIDENTIAL\
\* AFRs are defined as: 1) short-term - not over three years; 2) mid-term - over three, but not over nine years; 3) long-term - over nine years.\
\*\* If Grantor dies before note is satisfied, the fair market value of the note is includible in grantor’s estate.\
2\
A “Cascading GRAT” strategy enhances the benefits of a GRAT\
• The “Cascading GRAT” strategy uses a GRAT’s annuity stream to fund subsequent\
short-term GRATs\
– annual reinvestment of annuity stream enhances potential value for beneficiaries\
• Multiple short-term GRATs allow you to take advantage of\
market volatility\
– shorter terms permit market “spikes” to be captured immediately\
• Short-term GRATs enable you to better manage mortality risks\
– if grantor dies during term of trust, the assets in the GRAT are included in the estate\
– grantor has greater probability of surviving a shorter term\
CONFIDENTIAL\
3\
How a “Cascading GRAT” strategy works\
1\
Grantor transfers asset(s) to an irrevocable\
trust. Grantor may manage GRAT assets as\
trustee.\
2\
If necessary, grantor pays gift tax or\
uses gift tax exemption on transfer\
2\
3\
Grantor pays little or no gift tax, or uses\
gift tax exemption\*, on present value of\
trust remainder\*\*\
Annuity payments from existing GRATs\
fund a new GRAT\
Grantor\
transfers\
asset(s)\
Year 0\
1\
Grantor\
GRAT 1\
4\
3\
Grantor pays tax on ordinary income\
and realized gain earned by the trust\
Annuity payments funds new GRAT\
4\
Grantor pays tax on ordinary income and\
realized gain earned by the trust (but not\
on annuity amount transferred from trust\
to grantor)\
Year 1\
Annuity 1a\
GRAT 2\
5\
When trust term ends, remaining trust\
assets pass to beneficiaries free of gift tax\
– if grantor does not survive the term,\
trust assets are included\
in the estate and subject to\
estate tax\
Beneficiaries’\
Trust\
Remaining\
assets\
5\
Trust ends\
Annuity 1b\
3\
Annuity\
GRAT 3\
Annuity 2a\
Annuity payment funds new GRAT\
CONFIDENTIAL\
\*Gift tax exemption in 2012 shelters up to \$5,120,000 per individual of value transferred from gift tax.\
\*\*Calculation based on Treasury discount rate in effect at time of funding GRAT. A recent Tax Court decision (Walton v. Commissioner, 115 T.C. No. 41 (Dec. 22, 2000))\
allows GRAT to be “zeroed out,” eliminating the need to incur any gift tax.\
4\
Economic flows of Cascading GRATs\
Example\
Pre-tax annual return of asset\
Value of initial transfer to GRAT \$50,000,000 Year Return\
IRS discount rate 1.60% 1 15.00%\
Number of GRATs 4 2 15.00%\
Length of strategy 5 years 3 15.00%\
Annuity rate 51.20% 4 15.00%\
Escalating annuity percentage 0% 5 15.00%\
Term of individual GRATs 2 years --- ---\
Future IRS discount rate 1.60%\
Note: Assumes grantor survives all GRAT terms\
Note: Model does not include income taxes; the ongoing\
income taxes generated by the trust are paid by the grantor,\
income tax implications should be carefully considered\
Note: Model assumes all annuity payments are made in cash\
GRAT First Year\
GRAT Second Year\
GRAT # FMV Appreciation Annuity FMV Appreciation Annuity\
1 50,000,000 7,500,000 (25,601,587) \*\* 31,898,413 4,784,762 (25,601,587)\
2 25,601,587 3,840,238 (13,108,825) \*\* 16,333,000 2,449,950 (13,108,825)\
3 38,710,413 5,806,562 (19,820,960) \*\* 24,696,014 3,704,402 (19,820,960)\
4 32,929,786 4,939,468 (16,861,096) \*\* 21,008,158 3,151,224 (16,861,096)\
--- --- --- --- --- --- --- ---\
Beneficiary's trust reinvests remainders\
Grantor reinvests annuities\
Year Balance Inflows FMV Balance Inflows FMV\
1 0 0 0 0 0 0\
2 0 11,081,587 11,081,587 \*\* 0 0 0\
3 12,743,825 5,674,124 18,417,950 \*\* 0 0 0\
4 21,180,642 8,579,456 29,760,099 \*\* 0 36,682,056 36,682,056\
5 34,224,114 7,298,286 41,522,399 42,184,364 16,861,096 59,045,460\
CONFIDENTIAL\
Numbers have been rounded for convenience, are only estimates for illustrative purposes and should not be relied upon. Corporate insiders should consult with\
securities counsel as to any reporting issues under Section 16 of the Securities Exchange Act of 1934 associated with receiving shares in-kind.\
Note: Above example is for illustrative purposes only. These materials should not be construed as providing legal, tax or accounting advice. GRATs involve complex tax\
and, in the case of insiders, securities laws issues that should be discussed with your own advisors and company counsel. Annuity will be paid for full term to the\
grantor or, in case of the grantor’s death, to the grantor’s estate. Calculation is based on 2000 Tax Court ruling in Walton v. Commissioner (115 T.C. No. 41\
(Dec. 22, 2000).\
5\
Economic flows of IDGT\*\
Example - Initial Funding\
Total assets transferred to trust \$69,285,714\
Valuation discount 30%\
Valuation of assets for gift tax purposes \$50,000,000\
Seed capital/coverage \$5,000,000\
Trust term\
20 years\
Lifetime gift tax exemption applied \$5,000,000\
Gift tax paid \$0\
Applicable interest rate (AFR) 2.89%\
Annual interest payment on note \$1,300,500\
Note face value (year 20 balloon payment) \$45,000,000\
Additional funding in year 5 from cascading GRATs\
Assumed assets in trust at the end of year 5 \$91,799,393\
Additional assets from GRATs \$41,522,399\
Additional note (9:1 leverage) \$373,701,591\
Initial note outstanding face value \$45,000,000\
Total outstanding notes \$418,701,591\
Remaining note term\
15 years\
Lifetime gift tax exemption applied \$0\
Gift tax paid \$0\
Applicable AFR 2.89%\
Annual interest payment on notes \$12,100,476\
Assumptions\
\- The arithmetic return of assets = 15%; of which ordinary income/short term capital gains = 15%\
\- Income tax rate used for majority of analysis = 48.4% (Federal = 39.6%, New York City = 8.33%, Medicare = 3.8%)\
\- Capital gains tax rate used for majority of analysis = 28.8% (Federal = 20%, New York City = 8.33%, Medicare = 3.8%)\
\- Income and capital gains tax rates adjusted in early years to reflect current law\
\- Assumes note payments are satisfied using yield first, then seed capital, and finally other assets. If a valuation discount is specified, a pre-disount value is used\
CONFIDENTIAL\
Year\
Return (asset and seed\
capital)\
Interest and principal\
payments on note\
Trust Value (prediscount)\
0 69,285,714\
1 * 10,392,857 \*\* 1,300,500 \*\* 78,378,071\
2 * 11,756,711 \*\* 1,300,500 \*\* 88,834,282\
3 * 13,325,142 \*\* 1,300,500 \*\* 100,858,924\
4 * 15,128,839 \*\* 1,300,500 \*\* 114,687,263\
5 * 17,203,089 \*\* 1,300,500 \*\* 705,971,667\
6 * 105,895,750 \*\* 12,100,476 \*\* 799,766,941\
7 * 119,965,041 \*\* 12,100,476 \*\* 907,631,507\
8 * 136,144,726 \*\* 12,100,476 \*\* 1,031,675,757\
9 * 154,751,364 \*\* 12,100,476 \*\* 1,174,326,644\
10 * 176,148,997 \*\* 12,100,476 \*\* 1,338,375,165\
11 * 200,756,275 \*\* 12,100,476 \*\* 1,527,030,964\
12 * 229,054,645 \*\* 12,100,476 \*\* 1,743,985,132\
13 * 261,597,770 \*\* 12,100,476 \*\* 1,993,482,426\
14 * 299,022,364 \*\* 12,100,476 \*\* 2,280,404,314\
15 * 342,060,647 \*\* 12,100,476 \*\* 2,610,364,485\
16 * 391,554,673 \*\* 12,100,476 \*\* 2,989,818,682\
17 * 448,472,802 \*\* 12,100,476 \*\* 3,426,191,008\
18 * 513,928,651 \*\* 12,100,476 \*\* 3,928,019,183\
19 * 589,202,878 \*\* 12,100,476 \*\* 4,505,121,585\
20 * 675,768,238 \*\* 430,802,067 \*\* 4,750,087,756\
Return to grantor (nominal) * \*\* \*\* 606,711,231 \*\* \*\*\
Net trust amount * \*\* \*\* \*\* \*\* 4,750,087,756\
\* Analysis assumes that at the end of year 5 the \$41,522,399 cumulative remainder of cascading\
GRATs from the previous page is used as seed capital for another note at 9:1 leverage used to\
purchase \$373,701,591 of assets at a 30% discount using today’s long-term AFR of 2.89%\
\*\
6\
A sale to an IDGT results in greater value for heirs than if the asset were held\
outright\
Cash flow example:\
Scenario 1\
Scenario 2: Sell asset to IDGT\
Year Hold asset Grantor Cost of taxes Trust\
0 Asset held/sold to trust\* \$64,285,714 \$64,285,714\
Coverage 5,000,000 5,000,000\
Gift tax on coverage -\
5 Assets from initial funding 100,544,702 7,570,535 (37,615,685) 130,589,853\
Assets from cascading GRATS 72,558,032 59,045,460 (28,009,827) 41,522,399\
Assets held/sold to trust\*\* 533,859,416 533,859,416\
20 Value of assets 2,066,664,527 763,711,690 (3,447,134,919) 4,750,087,756 1\
Estate tax\*\*\* (1,136,115,490) (420,041,430) 1,895,924,205 -\
Net wealth to beneficiaries 930,549,037 343,670,261 (1,551,210,713) 4,750,087,756\
Total value to beneficiaries \$930,549,037 \$3,542,547,303\
Value added by IDGT \$2,611,998,266\
1\. Assets do not receive a step up in basis upon death\
\* Value shown is prior to assumed valuation discount of 30%, the value of assets for gift tax purposes is assumed to be \$45,000,000\
\*\* Value shown is prior to assumed valuation discount of 30%, the value of assets for gift tax purposes is assumed to be \$373,701,591\
\*\*\* In scenario 1 an estate tax exemption of \$1,000,000 is applied. This is the lesser of the \$5,000,000 gift tax exemption applied to scenario 2 and the \$1,000,000\
applicable estate tax exemption in year 20\
CONFIDENTIAL\
Assumptions: The arithmetic return of asset years 1-20=15%;of which ordinary income/short term capital gains = 15%;interest rate paid to grantor = 2.89%;\
annual interest payment=\$1,300,500; valuation discount = 30%; transfer tax rate (for transfers at the end of year 20) = 55%.\
Numbers have been rounded for convenience, are only estimates for illustrative purposes and should not be relied upon. Corporate insiders\
should consult with securities counsel as to any reporting issues under SEC Section 16 of the Securities Exchange Act of 1934 associated\
with receiving shares in-kind.\
Note: These materials should not be construed as providing legal, tax, or accounting advice.\
On June 7, 2001, President Bush signed into law the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA") which significantly changed estate, gift, and\
generation-skipping transfer taxes. On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Jobs\
Creation Act of 2010, which institutes estate, gift, and GST taxes at 35% with a \$5MM exemption for 2011 and 2012 (adjusted for inflation), after which rates and exemptions\
will return to pre-EGTRRA levels.\
NOTE: Analysis assumes that at the end of year 5 the \$41,522,399 cumulative remainder of cascading GRATs from page 5 is used as\
seed capital for another note at 9:1 leverage used to purchase \$373,701,591 of assets at a 30% discount using today’s long-term AFR\
of 2.89%\
7\
Important information\
CONFIDENTIAL\
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