1. Tax Methodologies

2. FVM - Full Value Methodology What is it? – The determination of the percentage of stock owned by any person is made on the basis of the relative fair market value of the stock owned by such person to the total fair market value of the outstanding stock of the corporation. – Changes in percentage ownership as a result of fluctuations in value are taken into account if a testing date occurs, regardless of whether a particular shareholder actively participates or is otherwise party to the transaction that causes the testing date to occur; essentially, all shares are “marked to market” on each testing date.

3. Example of FVM – Date 1 Date 1 ShareholderPreferredCommonPreferredCommonValue - $Value - % NumberOf sharesPer shareValue A1$20.00 20% B2$40.00$80.0080% C0 $100.00100%

4. Example of FVM – Date 2 Date 1 ShareholderPreferredCommonPreferredCommonValue - $Value - % NumberOf sharesPer shareValue A1$20.00 80% B1$2.50 10% C1$2.50 10% $25.00100% Shareholder B sold 1 share of Common stock to Shareholder C Between Dates 1 and 2 (both within the same testing period), FMV of the common stock falls. As a result, even though only one (1) share of common stock changes hands (B sells one share to C), an ownership change is triggered (A goes from 20% to 80% ownership and C goes from zero to 10%).

5. HCP – Hold Constant Principle What is it? – The corporation determines the ownership interest of each of its 5-percent shareholders by reference to shares held by the 5-percent shareholder on the testing date, when the percentage interest represented by each share of stock (a “tested share”) is the percentage interest represented by that share on the date acquired by the 5- percent shareholder (“acquisition date”). – In general, formulations of the HCP treat all shares of a loss corporation as performing the same as the tested share between (a) the latter of the tested share’s acquisition date and the other shares’ issuance date, and (b) the testing date in question.

6. HCP – Hold Constant Principle Alternate 1 – This methodology calculates the percentage interest represented by a tested share on a testing date, beginning with the value of the tested share on the testing date, and then making adjustments based on the changes in relative value of the tested share to the value of all the stock of the loss corporation that have occurred since the tested share’s acquisition date.

7. HCP – Hold Constant Principle Alternate 2 – Tracks the percentage interest represented by a tested share from the date of acquisition forward, adjusting for subsequent dispositions and for the subsequent issuance or redemption of other stock – The increase in percentage ownership represented by the acquisition of a tested share during the testing period is established on the date the tested share is acquired. This increase is reduced (but not below zero) for subsequent dispositions of shares by the owner. To the extent the particular shareholder is not engaging in acquisitions or dispositions, the percentage ownership calculation “rolls over” from one testing date to another.

8. HCP – Alternate 1 vs. Alternate 2 Under Alternative 1, the corporation generally determines the relative value of shares of its stock at the beginning of the testing period, or an earlier date, this may not be necessary under Alternative 2. Thus, Alternative 2 may involve fewer calculations on a particular testing date than Alternative 1.

9. Example of HCP – Date 2 Date 1 ShareholderPreferredCommonPreferredCommonValue - $Value - % NumberOf sharesPer shareValue A1$20.00 20% B1$2.50 10% C1$2.50 10% $25.0040% Shareholder B sold 1 share of Common stock to Shareholder C Applying the HCP, A would be treated as still owning 20% of the corporation, while C increases its ownership by 10%. The loss corporation experiences a 10% shift as a result.