EFTA01127971.pdf

• M&A Tax Services Phaidon structuring Strawman structure Strictly private and confidential Draft 27 August 2012 pwc EFTA01127971  Draft Overview • The following pages set out a proposed strawman structure for the acquisition of the Target. We understand that FHS Services SAGL is not being acquired by the target and we await details from the seller as to how this entity will be removed from the Group prior to acquisition. • The use of the proposed structure allows some flexibility in how the acquisition may be financed which may be achieved through a mixture of debt and equity. If debt is introduced into the structure we would expect that interest on the debt can be offset in total or in part against the operating income ofPPL through the use of UK group relief to surrender tax losses between UK group companies. The level of interest deductibility will be subject to the UK transfer pricing rules, refer to page 4 for further details. Objectives The key objectives of the structure will be to: To ensure tax efficient offset of interest costs on shareholder debt against operating profits; • Allow for flexibility for investing into the structure and allow for Section 338g election to be made for US tax purposes treating the acquisition as an asset deal rather than a stock transaction allowing step up in tax basis for the acquisition; • Provide for tax efficient repatriation of profits to UK Bidco from operating group; • Allow for future disposal of PPL without UK tax cost subject to availability of UK substantial shareholding exemption. Phaidon structuring • Strawman structure 27 August 2012 PwC 2 EFTA01127972  yi * Draft Mr Black Black Family Trust General Partner Acquisition LP Equity Acquisition (UK) debt Mateo (UK) Equity &den (UK) I PPL LiAdt64 b^‘-- (UK) MRL PP Inc PP GmbH PP Sad PP SRL PP KK (UK) (US) (Germany) (France) (Italy) (Japan) PR Inc (US) VA4— Phaidon structuring • Strawman structure 27 Augt‘g1c PwC e EFTA01127973  Draft Steps • The acquisition structure is formed through a Scottish Limited Partnership (SLP) owning 3 newly formed UK companies (Top®, Midco and Bidco). UK Topco and UK Mid® will be disregarded for US tax purposes. • UK Top® will be funded by equity. UK Topco will then subscribe for equity in UK Mid® and the SLP with provide shareholder debt to UK Midco. UK Mid® will then subscribe for equity in UK Bidco with UK Bidco then uses the proceeds to purchase the target. • The debt requires to be on suitable arm's length terms for UK transfer pricing purposes. As such the level of debt, the terms and the rate of interest require to be equivalent to what a 3rd party would be prepared to provide. Our understanding is that the intention would be to put a sustainable level of debt into the structure based on the anticipated performance of the business. • Acquisition debt from the SLP to UK Mid® provides for tax relief for interest with interest income not being subject to US federal income tax due to the election to disregard UK Topoo and UK Midco. UK withholding tax requires to be managed on payments of interest from UK Mid® to the SLP however it should be possible to structure this in a tax efficient manner. • To the extent that the interest expense creates tax losses in UK Bidco, the losses may be available to offset taxable profits of PPL through the surrender of UK group relief. UK Topco and UK Midco should have no net interest cost or income for UK tax purposes. • Allows for a Section 338g election for US tax purposes to provide a step up in the PPLs assets to FMV. The subsequent depreciation and amortisation on the assets reduces US E&P in PPL. • UK Bid® will be able to receive dividends from subsidiaries free of UK corporation tax whilst a future disposal of the shares of PPL may qualify for the UK substantial shareholding exemption to exempt any gains from UK corporation tax. • Consideration could be given to disregarding the target and its subsidiaries for US tax purposes. • UK Bidco will be a "controlled foreign corporation" for U.S. federal income tax purposes. Asa result, Mr. Black (and any other U.S. person that holds at least to% of Bidco (looking through Acquisition LP, UK Topco, UK Midco and any other foreign intermediary)) will have to include his pro rata share of Bidco's "subpart F income" -- a category that generally includes dividends, interest, royalties and foreign currency gains. • A portion of any gain on exit (to the extent of earnings and profits are accumulated while Mr. Black held the company) will be recharacterized as dividend income rather than capital gain. Such dividends should constitute "qualified dividend income," which under current law is taxed at a maximum U.S. federal income tax rate of t5%. Phaidon structuring • Strawman structure 27 August 2012 PwC 4 EFTA01127974