EFTA01111220.pdf

RAICH ENDE MALTER & CO., LLP Certified Public Accountants 1375 BROADWAY NEW YORK, NEW YORK 10018 TEL: FAX: 212-944-5404 MEMORANDUM TO: EILEEN ALEXANDERSON FROM: THOMAS TURRIN, CPA RE: Foreign Disclosures — Phaidon acquisition September 28, 2012 Eileen, Leon's return will be most affected by the foreign disclosures since the various family trusts will own Phaidon. As you know, all of the Black Family trusts are "intentionally defective grantor trusts". All of the income and other tax attributes of the various family trusts are reported on Leon and Debra's joint personal income tax returns. Likewise, the various disclosures of investment and ownership of non-US investee entities will be reported directly on Leon and Debris personal returns. The summary of foreign disclosures (below) is based on the information that we have been discussing with Gregor Lindsay of PWC London and Brad Okun of Paul Weiss. Once the deal closes, we will review the foreign disclosure requirements in detail with tax counsel — most likely with Brad Okun at Paul Weiss. Form 926 — Return by a US Transferor of Property to a Foreign Corporation - This form reports the amount of the investment in the non-US investee, date of transfer, and other details of the investee entity. This filing is required for the year of initial investment and in years in which further contributions of capital are made (only if such investment is in excess of $100,000). This filing is only required in a year in which an investment is made in excess of $100,000. Form 5471 — Information Return of US Persons with Respect to Certain Foreign Corporations (Annual Filing) - Bidco UK will be a "controlled foreign corporation" (CFC) since it is 100% owned by the various grantor trusts as well as the LDB 2011 LLC. Leon, as grantor, will include form 5471 in his return annually for all years the trusts own Phaidon. The 5471 form discloses details of the foreign corporation including its balance sheet, income statements, ownership details, earnings and profits, dividends paid (if any), and other information relating to the investment in the CFC. Continued... EFTA01111220 MEMO Eileen Alexanderson September 28, 2012 Page 2 of 2 Form 5471 — Continued - Form 5471 will also report any "Subpart F' income, should there be any. Subpart F income would be investment income earned by the CFC, such as dividends, interest, capital gains, and royalty income. Subpart F income is taxable income in the year such investment income is generated. It is not anticipated that there will be any material amount of Subpart F income generated by Phaidon. Form 8858 - Information Return of US Persons With Respect to Foreign Disregarded Entities (Annual - There are a number of non-US entities in the ownership structure (below the UK LLP) as well as the subsidiaries of Bidco UK that will "check the box" to be considered "disregarded entities" for US tax purposes. A US owner of a foreign disregarded entity is required to file an information return annually. The information return (form 8858) discloses the details of the entity's operations and ownership, including a summarized balance sheet, income statement as well as earnings and profits. Form 8865 - Information Return of US Persons With Respect to Foreign Partnerships — This filing may apply to the UK LLP, which is a foreign limited partnership. Form 8865 discloses the owners, amount of investment by US persons and other detailed financial data of the foreign partnership. I will discuss with tax counsel as to the ultimate tax status of the UK LLP and the applicability of this filing as the structure is finalized. This filing may not be necessary if the UK LLP is transparent (a disregarded entity), in which case Form 8858 would apply. Form 90-22.1 — Foreign Bank Accounts (Annual Filing) — Since Leon will be considered a more than 50% shareholder in the foreign corporation, he will be required to file an annual form 90-22.1 — Report of Foreign Bank and Financial Account. . FATCA — Foreign Account Tax Compliance Act - Form 8938 (Statement of Foreign Financial Assets) will include reference to the various foreign disclosure forms being filed with Leon's personal tax return. Form 8938 will also include (beginning with year 2011) reference to foreign disclosure filings for foreign investments made through Apollo entities. Check the Box Elections — Form 8832 — Non-US entities - There are several "check the box" elections that will need to be made by various entities in the ownership structure. The check the box elections will apply to Topco UK and Midco UK as well as to entities below UK Bidco. The check the box elections as well (as the section 338g election) must be timely made. It may be practical to ask PWC London to prepare these elections, since they may be handling the various foreign entities. You should have copies of the various signed elections as part of the closing binder. I am available to discuss this memo at any time. EFTA01111221