Protecting the Value of Equity Holdings

2 Equity Derivatives Situation: Joe Investor (”Investor") owns a significant number of shares in ABC Corp (“ABC”), and may face these challenges: 1) How to protect against a decline in the price of ABC; 2) How to "monetize" ABC in the most tax efficient manner. The solution may be either a Equity Collar / Loan or a Variable Forward Sale.

3 Equity Derivatives ABC Price History:

4 Equity Collar

5 Equity Derivatives Solution: Equity Collar Hedge: An Equity Collar is a hedging technique that protects the Investor against a price decline by a specific maturity date. Monetize: Borrow and Invest: An investment purpose loan secured by the Equity Collar will transform the Investor’s single stock holding (ABC) into a diversified investment portfolio.

6 Equity Derivatives ABC Investor Total Return Current Price = $87.63 Future Price = $ ??

7 Equity Derivatives ABC Investor Total Return Equity Collar Current Price = $87.63 Future Price = $ ??

8 Equity Derivatives ABC Investor Total Return Equity Collar Current Price = $87.63 Future Price = $ ?? Future Price < $78.87

9 Equity Derivatives ABC Investor Total Return Equity Collar Current Price = $87.63 Future Price = $ ?? Future Price < $78.87 Future Price > $131.45

10 Equity Derivatives ABC Investor Total Return Equity Collar Current Price = $87.63 Future Price = $ ?? Future Price < $78.87 Future Price > $ Secured Loan Collateral Pledge

11 Equity Derivatives ABC Investor Total Return Equity Collar Current Price = $87.63 Future Price = $ ?? Future Price < $78.87 Future Price > $ New Investments Secured Loan Collateral Pledge Investment Purpose Loan = $43.82 Investment Returns

12 Equity Derivatives Indicative Equity Collar Pricing *: Term: 3 years Up-front Premium:$0 Floor: 90% of “average execution price” Ceiling:150% of “average execution price” Loan Advance:50% of share value * Pricing is indicative and for discussion purposes only. The ability to execute an Equity Collar is dependent on the stock’s trading activity and liquidity.

13 Equity Derivatives Equity Collar Benefits: Hedge against ABC falling below the Floor. Retain price appreciation on ABC up to the Ceiling. Properly structured Collars are non-taxable transactions. Investor retains voting rights and dividends.

14 Equity Derivatives Equity Collar Considerations: Future price appreciation is limited. Tax, legal and insider issues must be considered.

15 Equity Derivatives Equity Collar Timeline and Mechanics: Beginning of Transaction: (1) Investor pledges underlying shares to Collar provider. (2) Investor purchases Floor (Put) and sells Ceiling (Call). Maturity of Transaction: (1) Cash settlement of the collar. (2) Underlying shares returned to the Investor.

16 Variable Forward Sale

17 Equity Derivatives Solution: Variable Forward Sale Hedge, Monetize and Invest: A Variable Forward Sale (“VFS”) is an alternative to the Equity Collar. On the closing date the Investor sells his shares and receives cash, which is used to create a diversified investment portfolio. At maturity, the Investor delivers the shares previously sold. The number of shares delivered is a function of ABC’s share price at maturity.

18 Equity Derivatives ABC Investor Total Return Current Price = $87.63

19 Equity Derivatives ABC Investor Total Return Variable Forward Sale Current Price = $87.63

20 Equity Derivatives ABC Investor Total Return Variable Forward Sale Current Price = $87.63 Sale Proceeds = $69.59

21 Equity Derivatives ABC Investor Total Return Variable Forward Sale Current Price = $87.63 Sale Proceeds = $69.59 New Investments Investment Returns Investment = $69.59

22 Equity Derivatives ABC Investor Total Return Variable Forward Sale Current Price = $87.63 Sale Proceeds = $69.59 New Investments Investment Returns Investment = $69.59 Settle shares at maturity

23 Equity Derivatives Indicative Variable Forward Sale Pricing *: Term: 3 years Up-front Advance:79.42 % of “average execution price” Min.value at Mat.:100% of “average execution price” Max.value at Mat.:130% of “average execution price” * Pricing is indicative and for discussion purposes only. The ability to execute a Variable Forward Sale is dependent on the stock’s trading activity and liquidity.

24 Equity Derivatives Variable Forward Sale Benefits: Hedge against ABC falling below the Floor. Retain price appreciation on ABC up to the Ceiling. Properly structured VFS are non-taxable transactions. Investor retains voting rights and dividends. Greater up-front proceeds vs. the Equity Collar / Loan

25 Equity Derivatives Variable Forward Sale Considerations: Future price appreciation is limited. Tax, legal and insider issues must be considered. At maturity, Investor no longer owns shares delivered.

26 Equity Derivatives VFS Timeline and Mechanics: Beginning of Transaction: (1) Investor delivers shares to Collar provider. (2) Investor purchases Floor (Put) and sells Ceiling (Call). (3) Cash settlement, net of imputed interest, to Investor. Maturity of Transaction: (1) Investor and VFS provider “settle” shares. (2) Shares not owed to VFS provider are returned to Investor.