rrant tfa

Armnlnt^ent of

Inspector

T h e M i n i s t e r for I n d u s t r y a n d C o m m e r c e , M r D e s m o n d T D , in e x e r c i s e of the p o w e r s c o n f e r r e d on hin by that

O'Mal^ are

section there

t h e C o m p a n i e s A c t , 1990 , b e i n g of t h e o p i n i o n circumstances s u g g e s t i n g t h a t it is n e c e s s a r y

in the as

public

i n t e r e s t , hereby appoints Mr John A . G l a c k i n u n d e r t h e said s e c t i o n to i n v e s t i g a t e m e m b e r s h i p of C h e s t v a i a Properties

Inspector on the

and r e p o r t

Ltd and K c d d l a

Investment for or the been

L t d a n d o t h e r w i s e w i t h r e s p e c t to t h e s e c o m p a n i e s p u r p o s e s of d e t e r m i n i n g the t r u e p e r s o n s w h o a r e financially i n t e r e s t e d in the s u c c e s s o r f a i l u r e

have or

(real or

a p p a r e n t ) o f t h e s e c o m p a n i e s o r a b l e to c o n t r o l influence the p o l i c y of t h e s e c o m p a n i e s .

m a t e r i a l l y :; prejudice shall the -h-uo to

Without

the g e n e r a l i t y of the f o r e g o i n g , the

investigation

extend

to the i n v e s t i g a t i o n of any c i r r u m s t a n c e s

3-ocesting which, to b e

e x i s t e n c e of an a r r a n g e m e n t o r u n d e r s t a n d : l e g a l l y b i n d i n g , is o r w a s o b s e r v e d practice a n d w h i c h is
w

or l i k e l y

o b s e r v e d in

--a ^

- -r - 3 e s o r

tr.e

investigation.

^iven under T^'I'/~ -' / v *" " u L r::

the O f f i c i a l
f

S e a l of

? r ~-dus::ry a n d ~ tnis 3th d a y of O c t o b e r

Sean

Dorian by the

A ?erson authorised
o r

i n d u s t r y a n d Comrxrca J ^ h e* 5 ? n i c atte9r t h e O f f i c i a l S--?l r Mi t i s ot t

o ; {

yST_OMWJJNE^

Mamp nf Witness

Date of Attendance 4th February 1992 23rd October 1991 1st November 1991 8th November 1991 1st July 1992

James Aylmer and Ronan King Kevin Barry

Liam Booth John Bourke

10th July 1992 27th November 1991 18th March 1992 11th June 1992

Diarmuid Bradley Eric Brunker and James Osborne Michael Buckley James J. Burke Tom Cavanagh Roger Conan Terry Cooney

5th May 1992 22nd October 1991 20th May 1992 14th November 1991 7th April 1992 29th April 1992 18th October 1991 26th February 1992

Donal Cotter Dermot Desmond

14th January 1992 11th November 1991 12th November 1991 5th December 1991 6th December 1991 5th April 1992

Patrick Doherty Vincent Doyle Colm Duignan John Finnegan

19th November 1991 12th December 1991 20th March 1992 24th October 1991 31st January 1992 6th February 1992 12th June 1992

ySlJDOaiNESSES

Name of Witness

Pate of A t t e n d a n t

LiatTi Fitzgerald Ian French Michael Gilmartin Laurence J. G o o d m a n Tom Grace padraic Hassett Conor Haughey Michael Johnson Kevin Kenny

24th April 1992 22nd October 1991 13th March 1992 22nd May 1992 18th October 1991 31st January 1992 27th April 1992 27th January 1992 13th November 1991 6th May 1992

Laurence M c C a b e Fergus McGovern

13th January 1992 22nd November 1991 11th June 1992

Sidney Mclnerney J.P. McManus John Magnier Robert Matthews

27th March 1992 14th February 1992 10th February 1992 26th March 1992 27th March 1992

Olaf Maxwell ita Meehan Gay Moloney

24th January 1992 3rd June 1992 23rd March 1992 12th May 1992 19th May 1992

Michael Moriarty and Harry Mclntyre

10th March 1992 19th March 1992

Tom Mulcahy Maura O'Connor Mark Odium Cliodhna O'Donoghue James O'Dwyer and Paul McLoughlin

7th April 1992 13th December 1991 4th December 1991 10th December 1991 28th November 1991

IIcthf WITNESSES

Name of Witness James O'Higgiris Aidan O'Hogan Dan O'Neill

Date of Attendance 27th November 1991 18th October 1991 13th February 1992 19th March 1992

Ivan O'Neill Rory O'Nuallain Seamus Pairceir Lochlann Quinn Richard Robinson and Fergus Smith Eamonn Rothwell John Russell Dr. Michael Smurfit

23rd October 1991 26th June 1992 13th January 1992 30th March 1992 2nd March 1992 5th May 1992 11th June 1991 25th October 1991 14th June 1992

Noel Smyth, Ronan Hannigan and Catherine Daniels Noel Smyth 16th October 1991 20th February 1992 21st February 1992 18th March 1992 3rd April 1992 10th June 1992 Gerard Walsh 7th April 1992 23rd April 1992 2nd July 1992

APPENDIX 3 PARAGRAPH 2.3.11

Ihicchjn f-s

I ' (:i i t *." >.i 17.1.89

Su Izano L imited (25,000 Ordinary Shares) Convoy Trust Limited (150,000 Ordinary Shares) Aurum Nominees Limited (25,000 Ordinary Shares) Aurum Nominees Limited (100,000 Ordinary Shares) AI1M Nominees Limited (100,000 Ordinary Shares), AIIM Nominees Limited (600,000 Ordinary Shares) Glen Investments Limited (1,500,000 Preference Shares) Smurfit Paribas (400,000 Preference Shares) Sulzano Limited (60,000 Preference Shares) Convoy Trust Limited (360,000 Preference Shares) Aurum Nominees Limited (60,000 Preference Shares) Sulzano Preference Shares) (40,000 Limited21.6.89 24.5.89 John Magnier Family Trusts. 12.5.89 24.5.89 Tom Cavanagh Joseph Lewis 1.6.89 Martin Naughton and Lochlann Quinn 1.6.89 15.5.89 20.1.89 Smurfit Group Pension Fund John Magnier Family Trusts 23.5.89 21.6.89 12.5.89 Joseph Lewis Lochlann Quinn and Martin Naughton Allied Irish Property Fund for Tax Exempt Pension Schemes and Charities Allied Irish Property Fund for Tax Exempt Pension Schemes and Charities 24.5.89 John Magnier Family Trusts

lorn Cavanayh

REGISTERED OWNERS

DATE OF SUBSCRIPTION

DATE OF ALLOTMENT

APPARENT BENEFICIAL OWNERS

Convoy Trust Limited (240,000 Preference Shares) Aurum Nominees Limited (40,000 Preference Shares) Padraic Ordinary Shares) (50,000 E. Hassett Pepper Canister Nominees (254,070 Ordinary Shares) NCB Group Limited (195,910 Ordinary Shares) 21.6.89 12.5.89

31.5.89 31.5.89 5.3.90 9.3.90 6.3.90 6.3.90 6.3.90 6.3.90

Tom Cavanagh Joseph Lewis Padraic E. Hassett Ornnot OcMwmd NCB Group Senior Executives

MEMORANDUM

J O H N S T O N H O O K E Y A N D O'BRIEN SITE, BALLSBRIDCE, DUBLIN A

ocatior he location of the site is second to rone. It must be considered as one of re last remaining sizeable properties left in Dublin 4 which is likely to be e-ceveloped in the next decade. Cn par with the Sweepstakes site in terms f its location but because of the existing buildings, its zoning vis a vis laming permission and its previous history is probably more difficult to levelcp. lsnninq Permission he site appears to be zoned under the 1980 Development Plan as light reus trial (see current development plan}. The change of use from licfrt TCLStrial be it offices, commercial or residential will require a material cntravention of the plan which is a political manceuver as opposed to a ecal one* ven the politics of such a manceuver is outside normal into the realm of the Corporation. Dail politics and

n terms of time scale it will take a minimum, in my view, of 18 months to - t planning permission frcm the time that the actual application has in fact e "een lodged. This will take account of two pcsitions:(a) (3 '/ The material contravention process itself; and Because of its sensitivity in Dublin 4 no doubt there will be third party objectors both from those endeavouring to preserve "light industrial" in the area and these who will just normally object to everything that is built in the Dublin 4 srea, either because of:(a) its alleged or pre-supposec ever intensification of the site, no matter what is put on it; arc

(b) because they will be perceived to be required to object because of the demise of the Johnston Mooney & O'Brien even though the Johnston Mooney & O'Brien position was considered undesirable in its then location.
s

-liil P r o p e r t y

]t s

'-3 been muted on a number of occasions that the site would be ideally ^ted as a location for a new Hotel. Given the cutbacks on the BES Schenle, e construction of several hundred bedrooms of a high quality in Dublin over the isst number of years, the planned construction of further Grade A rooms Ver the next number of years, a Hotel of itself would in my view not be a f feasible or realistic return in respect of the actual site.

ell
n

be

,
v

that I" " "' a 3 concentrating on jew.

t h e

f f'-e development an o f f e r for a function type business m i g h t wei: ^ , t w 0 u i d be the least a t t r a c t

ted ~ ^
tstr.s
10

' _ makes it inn 0 the S K of locate residential; and

in terxs of U s d e s i r a b i l i t y b e t ,

in

(a) f'combination (b) s 3 and it ^ -- I considered

^Residential.
0ffiC

of

both

of

these areas that I think should ~e

c l a s s

present time in Dublin there is no identifiable high security top individualistic site which can ccmbine both the private residence arc the corporate image. to celiver en

I would perceive that this particular location has the ability both.

The location of the site close to tansdewne Read and to the R . O . S . which at certain times of the year become the focal points of corporate entertainment and corporate conference centres. If the high spec security conscious, one off properties limited to 20 cr so numbers on a site of circa two acres in B a l l s b n d c e can be sold as corporate packages then it -must be possible at this stace to raise spprcximately ,CCQ.C0 in respect of each unit involved.

owner occupiers of between 3,000 Proposal 1. Residential I would divide a portion at the rere end of the site into approximately 2 acres which would have views cn to Herbert ^ P a r k V . d to the Dodder (when cleaned up). I would make the site a totally secure area with access available only to the 20 or so residences who would be entitled to occupy same. L r ^ n n ^ T ^ K ^ ' n : " 6 2 0 c r S r ^ e r c e s ^ u l d be the effective town house of the Chief Executive of each of the top 20 or sc companies in Ireland, and could also be the foca^ point in respect C S o a n ^ r ' 6 h e ? t e r t a i n i n ^ that that Chief E x S S ve t h r o u g h h i s Company may wish to pursue. u ^ U u S e d e n ^ S l L r a o f Ihe'too V P Ballsbridge area to entertain ? L Aer Lingus, a " ? B . B of ?! The seoure location in '
5

t h e

8 n i M

c o n t i n u o

properties would be "sly use the

C O r

P o r a t e client.; e . g . Guinness,

a prestige

area of a property to be used by

^ e s e companies for location and entertainment privately of v i s i t s guests, or persons from other likesize corporations, must b e ^ 9 f Interest rather than the use of Hotel accommodation in the immediate vicinity. rqually the fact that the location is central and secure and has a limited number of selected individualistic units all individually and architecturally designed to suit the needs of the individual would in my view command substantial monies but more importantly would fund the entire site from the outset as shewn in the enclosed figures* In addition, it gives the opportunity for the corporation in question to take a participation in the overall property and thereby afford an opportunity to reduce considerably the cost of acquiring such an important property in the first instance. Assume that 20 corporations could be attracted to taking up the proposal, what they would effectively get would be as follows. Assuming a cost of 5CQ,CGC.CG for each of the 20 units each of the people involved would be given say a 1.5S overall share in the Company and in addition, would be given a house not more than 2,COO square feet up to a certain specification including a certain level of fit out which would cost probably in the region of IR200,G00.Q0 or 100.00 per foot to complete. The specification for 100.CO per foot would be extremely high, and it may well be that if the specification was reduced to 75.00 per foot the square footage of the actual unit could increase to 3,000 square feet, a matter of detail to be considered with each individual occupier. The 1.5S of the overall profit in the scheme could work out quite handsomely depending on the planning permission that was achieved in respect of the 61 units themselves. The effect is to try and bring abcut a ccst efficient prcposal to ensure that the initial capital to purchase the site is available and that a substantial amount of profit is available to the developers for obtaining and building cut the proposed development. Office development At present there space on the site. is approximately 26C,CCQ square feet of covered

The planners would not alicw any such reintersificaticn of the site as heretofore, however it would net be unreasonable to assume that circa in the region of 150,CCD square feet of offices would be available on the site. Cn the basis of that number and because of their size assume the following figures were realistic:(a) Because of the height of the existing buildings, the RD5 and the buildings immediately next door it is unlikely that buildings higher than three or four storeys at the maximum would probably be allowed on site. five storeys may be allowed, but I

Obviously in some circumstances would believe this is unlikely.

Working on the premise that most of the offices involved were 81 f-r-* office units then the specification for those offices/shcwrccms w c t j y be on the basis that they were sold and possibly even M pre-soia" 0 individual end users. ' * The market that one is endeavouring to sell to are the smaller end the market which is not really serviced at this time, i * professionals, the accountants, solicitors, computer ard* 'A service industries who require somewhere m the rec cn nf s-J o r 2,000 and 5,000 square feet. The proposal would be to either pre-sell to the end user or the space in question. to f L r d

W W V W ^ .

~ s . vi

o \

500,000.00 each = 10 million. Total: 33,1 25,CCQ.CO. Less cost of residential construction 20 x 2,CCQ x 100.CO = i million. Cost of construction of 150,000 square feet of offices to include tenant specification at 70.00 per foot = 10.5 million. Add 50,000 square feet of car parking at 25.00 per foot = 1.25 million. Add stamp duty marketing and legal, 10% of gross receipts = 3,812,SCO.CO. Acd financing costs on a cash flow that will peak at say 15 million for nine months at 12% = 1.35 million. Total receipts: Total costs: 8alance 38,125,C00.CO. 20,912,500.00 17,212,500.CO

Net cost divisible as to:(a) (b) 70% for the developer; 30% for the individual investors.

Investors return would be:(a) House plus 1.5$ of overall profit =

Obviously the figures that are set out here can be argued as to:(a) ^
< c >

the planning permission that ore is likely to receive; this'natire;^ ^ ^

l s

l n V e S t

"

t o

invest in a project o
f

s u f f i c i ! n t i y

^ W t h ? ! ^ ' ^ ' ^ ' , , " r ' i f k h C y a " sufficient strength that eacTjf'the 2 5 > ^ " zu investors be required at thi

S U 9 s e 3 t

t h a t

t h e

stage to issue a 250,000.00 each.

promissory note

for 50fo of the agreed price, i.e

The 250,000.00 advanced by them would be underwritten by say NCB to be returned to them in the event of planning permission not being obtained and the transaction not being proceed with as proposed. If on the other hand the transaction is proceeded with then on receipt of planning permission the further 25C,CC0.C0 is payable. The first 250,000.00 can be by way of promissory note which the developer cculd disccunt so that the actual holding of the site is not covered by a Bank lean and therefore the costs of holding same in the hands of the developer is kept to a minimum. Equally it may well be possible to enter into such ecually agreeable arrangements with sharing the profits with any number of funds who wish to become involved, or indeed any number of individuals who wish to become involved by pre-selling to them by way of agree promissory notes payable into the future and using the land as security for the finance, keeping the ccst of the finance in the hands of the developer to a minimum. In most large developments the holding of the land bank at a large cost is what eventually forces the developer to take decisions which he might normally not have taken had his finance been institutionally backed or available to him on attractive rates. Obviously the above recuires considerable refinement both in terms of proposals for the property, a proper marketing package to be constructed, a detailed site survey, an architectural report on the planning that will be available and a view frcm a town planner as to what is likely to be grantee with the greatest of ease and with the least amount of fuss. Nay 17, 1989

Fre>e>$one,

I n v e s t m e n t s

Ltd.

STRICTLY CONFIDENT! a r 1 Mr P a t r i c k D o h e r t v , Pa luce Garden T e r r a c e , eri^ing'to::, LONDON.

7:h Floor Victor,- Hou<* Prospcc: Hiii Douglas lsie of Man

August ly^L-.

L o-r Pat. F .rtr.cr v: cut >1:sci;ss:c:;> cr. your plans for developing the j -.r.r.stor v.;. c . ~y .V O'erlen site?. I am prepared to maee a of :R"2 million to Chestvale for tr.e purchase cf tr.e s i t e . or. t;;c fr,::cv;ing terms anc c o r c i t i c r ? : -

BORROWER: TERM: SECURITY:

V U ^ v a l e l.imiteci PairiCr: i enerty .Uer-'iVaDie r y :-;isi August Promissory .ote : y ! -tr:c.< ' I r:-.?rty for 1Rx 3 r ' o " . . " - -1st Aorost 11'?:. oelr.C tr.e i:^: million n:v<i::ccc :tcre arc : R 1 mm.icm m m r m . t e e ^ mof:t. i r e first m:;;;::. : r r m : t a f t e r :.;;!> ft-..: p.fter repayment of the : : s . i.e. ill12 mi*!: or.. is to oe tim f e r r e o 'or the aocormt of F r e e z o n e . ;!,> - - - v - ^ s o r v note '-v:I: r e returned en muaon. fm: : vmer.' of tr.e ' -

P R O F I T SHARE:

contc

0 0 6 o J

f r e a 3 0 0 0

I n v e s t m e n t s

L t d .

Tth Fie Proipt:: : Do J?ia< isle of V

CONDITIONS:

1.

I, Colin Probots or Free zone v i i have no further rights on ny p r o f i t s received from the d e v e l o p m e n t . My funds will be held in s e p a r a t e deposit accounts and nil interest or: tnoso will be for :nv b e n e f i t and will not be :?:ch;do.? in the calculation of the pfcrrt s h a r e or guaranteed profit under the p r o m i s s o r y n o t e . The development of the site *.v;I; 00 the sole responsibility of a no all decisions relating o the purchase, design. d e v e ! o p m e : . i and disposal will :>e your sole r e s p o n s i b i l i t y . All financial a s p e c t s relating to this development should 00 advised to Mr Desmond, who is authorised to a c t on behalf in relation to givinc .-in opinion the financial s t r u c t u r e tec: ::pprov:ng profit shace calculation.

2.

3.

4.

1 'crmot my ;n the

This loan agreement is confidential to the mirt;e> : em with the foregoing, please sign the a t t a c h e d copy : r together with the promissory note, as confirmative : * to the above terms and conditions.

Commmionert for Oaths Incorporating Louii J. Noonan A Co.

Our Rcf. Your Ref. Date.

DubUfl 2. Tti: (01)615514. Hilts Solkitofi, Teiw: 30677. D.DX 34. Greet Queen Street, FAX So. 613979. London. VAT NO. F4645 234 J. rekpfcone0l-242MJI Tetn 669774

Tenter. Greenbtait. Fallon * Kapu*

Chryiter Building. New York 10174.

405 Lexington Avenue. Telephone (212) 5714J0Q Tele* 9641711 TGFK HYK
T

^Hi,, - Colm,,,

NS/ph August 11, 1989 Eric Brunker, Esq., A 4 L Goodbody, Solicitors, Earlsfort Centre, Hatch Street, Dublin, 2 . RE: Your Clients - United Property Holdings, Our Client - Chestval* Properties Limited*

Noel Smyth & Partn

Dear Sirs, We act, as you are aware, for Chestvale Properties Limited, who have acreec purchase from your Clients, their interest in the site known as the Jchrstcnj Mooney and O'Brien Site at Ballsbridge, Dublin, containing 5.5. statute measure, or thereabouts. We confirm that we are today assuming your responsibility for the cicsirc c*j the sale in relation to this matter with the Liquidator thereof, ? ' . Tern Gra:?| -r and we will be paying ever to him the sum of IR4 million. The balance of the consideration amounting satisfied by Loan Paper, guaranteec by fourteen days from the date hereof. in total to IR2.3 million tc :e a Bank will be put m place with:-

We confirm that our Clients have acceptec facilities frem Trinity Bark*.: guarantee the said paper in accordance with the terms previously aqreec arc consideration of your closing the sale today, WE NOW UNDERTAKE w i t h >cu ^ follows (a) To hold the deeds and other documents of title relating to the crcpe::;known as the Johnston Mooney and O'Brien Site, containing 5.5 acres, statute measure or thereabouts, in trust for United Property Hcldir.cs. subject to a First Charge being placed cn the property by the Earners who are providing facilities to the Purchasers m this matter. Charge shall not in any event exceed IRIi. million. In addition we shall use our best enceavcurs to procure that Chest vs.e Cu u Properties Limited will put in place on or before the 25th of Au.' S 1969, the necessary guaranteed Loan Paper as final p o r t i c n of ^ consideration herein.

(b)

We confirm that we hold the irrevocable instructions from Chestvale P r e v i a Limited to give the necessary Undertakings as herein.

{/

& ASSUMTA KENNY NOEL SMYTH 4 PARTNERS.

L

\
July 26, 1989. 22 Fitzwilliam Trus , agreed to purchase ^

PROPOSAL

Fitzwilliam Square, D u b l i n , 2 , ("The Borrc.^fn ^ I . f c s e l f Q r t h r o u g h a subsidiary n o m i n e e Cc-sny appendix 1 of the details attached hereto, f0'r J

p r i c e ^ r sum of IR6.3 m. S S f r i c e is to be satisfied as f o l i c m.

a . On completion of the payment of I R W

b . Four years on the anniversary of the completion IR2.3 m . The IR2.3 m payment i s to Loan paper which debar. be s a t i s f i e d by t h e i s s u e o f this stage of w i l l carry an i n t e r e s t coupon o f 1 point tele,

Guaranteed

PROPERTY The Property is as described a prime development site at 4 , previously occupied by Johnston Mooney and O'Brien. PLANNING POSITION The site as described mixed uses. in appendix 1 is

B a l l s b r i d g e , Dublin,

owned objective 0 1 - to provide for

On the square footage of 5.5 acres available Planning P e r m i s s i o n would in theory be allowed for 80?i of the gross site which amounts to 193,600 square feet. There are four and five storey buildings on the site at the present time ari given the height of the adjacent buildings taken a rrean o f 4 . 5 , total site coverage on this criteria could be as high as 464,GCO square f e e t . There is on the site at the present time a covered space of 2 4 0 , 0 0 0 square feet approximately, the details of which are also contained in appendix 1 . ^ H t H ^ S " * *
b

re

exFensive
P

fc0
W V

r e f u r b i s h than to d e m o l i s h and as
d

intention of the Borrower.

"

'

that

would

be tte

^ " s n e a v a n ^ ^ ^ therefore bet^ a . Office space b. Mixed

us.s ana Se3iie

[Qr
b &

t h e alI

, office permission on a 2/1 ratio of Wed a n d t h e allowability would ..p.

tlal

i!2:SSS Z l l l
f a U s i n t

2 S "

X S s r T r

t h

0Pfi' OSALS_ -tffHTTTont portion of the property f? ?nn 000 approximately 100,000.
f0C 1 2 a 9r

on which
ffiCeS

an spplication

would be *oucht

SS

'

^sving a net square footsoe of

This would be located on circa 1 acre - see appendix 2 for stack up. 2, The residential site at the rear and side over-looking Herbert Park and the Dodder Raver. Application would be sought here for 45 exclusive Townhouses. Security, privacy, and location being the main selling features. The area occupied by this portion of development would amount to 3.25 acres - see appendix 3 for stack up. j, The middle portion of the site on which application would be sought for a Hotel or a Private Club, Restaurant, Bar, Function Rooms, Shops, Commercial Development, and multi-storey Car Park. Area occupied 1.25 acres - see
appendix 4 - n o s t a c k up.

BORROWING REQUIREMENT The Borrower would recuire of IR6.3 m .

to bcrrow IRI4.1 m against the total consideration

The IR6.3 m is to be satisfied as stated above as to:a. IR4 m in cash; b. IR2.3 m in guarantees. The 1R4 m required m cash would be satisfied as to:-

s. IR1.2 m of Eorrcwers own equity in cash; b. Bank Borrowing of IR2.S m . In respect of the IR2.3 m Guarantee, IR1 m would be provided by way of direct Guarantee to the Vendors by the Borrower (and a separate Bank Guarantee on other assets of the Borrower) and the remaining IR1.3 m would be required by way of a Bank Guarantee, agreeing this security. The total Borrowing requirement in cash is IP2.8 m . The total exposure to the Bank however assuming the Guarantee being available would be IR4.1 m . TERHS The Borrower would offer a first Fixed and Floating Charge over the Company holding the property and would subcrcinate the IR1.2 m cash introduced to the Company to the Banks loan. The Borrower would recuire a -crstorium cn the interest for 12 months on the IR2.8 m but on the proposal as set out hereuncer would be m a position to substantially reduce the Earls ccn-.ru tment including the Bank Guarantee at the er d of that period of time. ^ is submitted that the Banks exposure at the end of 12 months to the Borrower wculd then be as follows:-

, , Original loan Add interest at say 12X Loan note <0 5/ Add interest at 1?o below debir say ?< TOTAL:

-eoo,cr 3V V ' 'n 117,QC

"S^TT^e

site values listed above the following is the submission -y _ air nwer as to their value. Appendix 2 shows the net value of the site J III8 m! In appendix the rent per square foot at 18 and the yield at 85 are certainly achievable. The gross building costs of 100 per square foot are certainly for a very high specification. On the other hand fees and interest during the construction are taken at their maximum and the area to be occupied for the offices would be 1 acre. Appendix 3 shows the residential site being offered for sale at the end of U months at say IR4 m leaving in those figures, a cross margin for the builder of 40? based on a house price of 250,000 per unit. This is also eminently achievable given area's as:the value of house prices in such

a. Richview in Clonskea. b . Shrewsbury Lawn. c . The prices that have been paid recently for residential sites in Grand Canal Basin (IR1.2 m for an acre and IP2 m refused by Rehills for their site which is less than 1.8 acres) Appendix 4 which is the balance of the site which is valuable but has no value attributed to it although it is an area of 1.25 areas. It would be eminently suitable as a Hotel site for further residential, for a Commercial Restaurant, Pub or Shops but again taking the conservative view of the site no value has been attributed to same. In 'addition the site may be used for portion of a multi-storey Car Park. Cepercirg on the water table applicable, it would be the intention to build an underground Car Park to service the 100,000 square feet of offices which would be approximately 200 car W e e s a t i s f i e d t h a t * multi-storey or undercround Car Park were f f . r i n 0 m e fr m t h e s a l e o f s u c h f S S InT ?! ^ . *e sufficient to "wash its face and would not impinge further on the value or prof 1 tability of the site. REPAVHENT The repayment of the loan would take to phases.

Phase 1

m3"""2;Uac1rel:0"5ed

">"

for at least

<,5 T o s e

on th.t

portion

t*. , u . M c h

'

... rn. .. On receipt of that monies they ^ owing p u r p o s e s . fC<i '

would be

lodged i n

t-u.
c n & 8

an><

to the

\ Discharge the interest, l't Discharge the c a p i t a l . retained in the Bank under lien and hypothecation to cover the P- t, c ' galance exposure in respect of the proposed Guarantee. c G nks Phase 2 "pTenning P e r m i s s i o n will be sought for the office content at the same time th-t the residential content is being pursued. At this time also an application will be lodged for the middle site either for Commercial, Hotel or indeed further residential development. At that point in time we will know whether or not a multi-storey Car Park is appropriate or whether the Car Parking requirements can be handled by means of an Underground Car Park. It is largely dependent on:a. The water table on the site. b. The costings which we estimate at the present an underground Car P a r k . time look very favourable to

A detailed underground survey has yet to be completed which would indicate to us the viability of underground Car Parking. For this reason the middle site is not taken into any of the figures or calculations. It is anticipated that it will take in the region of 18 months to obtain the necessary Planning Permission required for the office contents. The application for Permission cn the offices which covered by the zoning of "nixed uses" will take a lcrcer period to negotiate. However, given the huge area being set aside for residential development and given the removal of the existing structure with its replacement by a more attractive and modern building should lend handsome weight to the overall Application and Planning and Development of the s i t e . It would not be possible to plan and develop the site piecemeal and therefore within a short period of time after acquisition it will be necessary to draw very finite lines around the site and the proposals fee same. STAHP DUTY AND EXPENSES t We have n e g o t i a t i o n s opened with the Liquidator at the present mitigation o f the Stamp Duty involved and we are satisfied that we a position to save the entire Stamp Duty. legal and other expenses resources. will te discharged by . time on the shall be m

the Borrowers from their own

5 L

SHYTH & P A R T N E R S

31 n{
L
:-'

.ip,,,^. S l c t r oiio.

22 FitzWJUm Squirt, AiiocUte Offica Dublin 2. Td: (01) 615525. T m m , Greenblatt, Fallon & HIIU o c l * . Telex: 30677. D.D.E. 34. $ U i < Chryiler Building. Greit Quern Siren. <03 Lexington Avenue, PAX No. 61397?. London. t N w York 10174. VAT No. F4645234J.
Telephone 01-2421431 Trie* 669774 Telephone (212) 573 4300 Telex 96*711 TGFK N Y K

Kaplan

Nod U. Smyth Airjmpu Xenny Hugh CTNciB Cathal O S U v t ^uifn Bo nan Htnnig*n T. Cobnan Bcrmln^hj

NS/r^ Auouat 11, 1989

Noel Smyth & Partners

Messrs. Ansbacher and Company Limited, Bankers,

52 Lower Leeson Street, Dii)Jin, 2.

Attention of Ms, P a u l i n e 0 ' T o o l e .

Dear Pauline, We confirm that we act Tor Chest vale Properties Limited who hsve agreed to purchase the Johnston fecney d O'Brien Site in the sum of IR6.3 million, to be satisfied as to (a) IR4 million on ecrr.pletion of the sale today and (b) JR2.3 million tc be paid over by way of loan paper guaranteed over a four year period. I refer to the copy documentation which 1 have enclosed with my date from Lombard & Ulster Bank and also from Trinity Bank. Mr. Cer.rot Desmond, Chief Executive for tcmbard &. Ulster has now conditions in relation thereto as between himself and there should be no imped:rrent for the draw down of the
that the facilities

letter of even-

I sr informed by r,

of National City Brokers been approved and the Lombard 4 Ulster so that loan.

I confirm separately that I have had negotiations with Irish Intercontinental, whom I believe may be in a position to offer the same facilities to Chestvale next week.

In the meantime I confirm that we are hopeful of closing the sale today and therefore require bridging facilities in the sum of IR3 million. In consideration of the Bank advancing to our Client, Chestvale Properties
Limited, the sum not exceeding IR3 million. HEREBY UNCERTAKE to hold the Ceecs and other documents of title in r e l a t i o n to the property known as the Johnston Mooney & O'Brien s i t e , containing circa 5.5 acres or thereabouts, statute measure, Ballsbricce, in the County of Dublin, TO HOLD the same in trust for the Bank pendinc the draw cown and completion of a loan facility with loirbsrd & Ulster Bank, or in the alternative such other Financial Institution C h e s t v a l e Properties Limited micht agree and to ensure that the said f a c i l i t i e s are drawn down w i t h i n 30 days from the date hereof.

"Iso UNDERTAKE to remit discharge of the following:, '

(c !

We

the

proceeds of such draw down as received in

The principal sum as advanced by the eank in the sum of IR3 million;
Interest accrued thereon;

The Bank's fee in respect of the facility in this regard.

i As ' n e s t e d I am enclosing h e r e w i t h a copy of the form of ^ e r n e x * * * ;0n the 22nd of November 1988, wherein the property was purchased for ^ 0 0 , 7 0 0 by United Property' Holdings. That contract was revised because it

3 AQ

Property Holdings over a four year period by Guaranteed Loan Notes. : < that the amount that will be paid on completion today will be I R u satisfied as to IR1 million which was lodged yesterday by Nations] c<t Brokers to the account of Noel Smyth A Partners in the Bank, which we now w-s to draw down and the balance of IR3 million bridging finance from y o u r B s r ^ If there is anything further you matter, please let me hear. require in relation to the above rrenticr.

I confirm that we are closing the sale this morning at 11 a.m. and therefore will contact you as soon as I get to the office with a view to having th necessary documentation signed up and the draw down take place. Yours sincerely,

/-BgnTT A P P L I C A T I O N

908/21

DATE:

2 2 n d

A u g u s t , 1989

REVIEW:

11th S e p t e m b e r , 1989

A.

LOAN^ETAILS Name Address Shareholders . : : Chestvale Properties Limited. c/o 22 Fitzwilliam Square, Dublin 2 . Dermot Desmond, John Magnier and J . P . McManus.

B.

SANCTION DETAILS Loan Required Client Business purpose of Loan Amount property developer. Bridging complete Mooney 4 Dublin 4 finance to enable the company to the purchase of the J o h n s t o n O'Brien site at B a l l s b r i d g e , as follows: 6,300,000 IRE 3,300,000 IRE 3,000,000
aaaaaaaaaaaaa

3,000,000

Cost Own Funds IR1,G00,000 Bank Guarantee (Trinity Bank) IRS2.300,000 Bridging Required Period and Source of Repayment Interest Rate Payment of Interest Bank Charge

To 11th September 1989 repayable from refinancing from Lombard 4 Ulster B a n k . DIBOR 1 month plus 2 1/2% p . a . Interest will be charged and payable in full on maturity. IR15,000 payable on acceptance.

Security 1. Solicitor's personal Undertaking from Noel S m y t h , M e s s r s . Noel Smyth & Partners undertaking as follows: A. To hold the deeds and other documents of title in t h Q P r P e r t '/ *nown as the J o h n s t o n M o o n e y A o n t a i f t i n i ' f * approximately S.5 a c r e s or thereabouts, statute measure, B a l l s b r i d a e . in the County of Dublin in trust for the Bank plidiSg the
f l ftuSS ank^of * n ^ c u im. uiscer l institution the ,? Borrower S t y w n ? h . Lombard financial Banx, or in as alternative the nd to ensure that the said f a c i l i ? f within 30 days from the date hereof* *

B.

S.35JS,srjSio&r: d r a w d o w n
(I)

aa
t h e B a n k

*
- * in

s
iu
t e

ormS^i^o"advanced
" , ,
a t a c c r u e d i n

b y

thereon,

( 1 U >

S l . X J d f

2.

Promissory Note executed.

C.

TOTAL

CREDIT EXPOSURE IRE 3,000,000 Nil IRE 3,000,000

Banking Leasing

D.

C O N T I N G E N T LIABILITIES None.

E.

FUNDS WITH US None.

F.

GENERAL COMMENTS AND RECOMMENDATIONS This application for bridging finance on behalf of Chestvale Properties Limited is made to us by Ncel Smyth. The company have contracted to purchase the Johnston Mooney & O'Brien site in Balisbridge for the sum of IRE6.3 million satisfied as to IRE4.0 million on completion and IRE2.3 million by way of Guarantee over a 4 year period. The company have been approved by Lombard A Ulster Bank for a facility of IRE3.75 m i l l i o n . They require Ansbacher to bridge this facility for a period of 30 days. The remainder of the purchase will be satisfied by a Bank Guarantee from Trinity Bank which has been approved for IRE2.3 million (we have sight of both the Trinity Bank and Lombard A Ulster terms). The Bank will be secured by a solicitor's personal Undertaking from Noel Smyth to hold the Deeds and other Documents of Title in relation to the Johnston Mooney 4 O'Brien site, Balisbridge pending the drawdown and completion of the loan facility with Lombard * Ulster Bank within 30 days. Sanction is recommended.

ttTfiK EVALUATED AND FACILITIES APPROVED/RECOMMENDED ASSOCIATE DIRECTOR MANAGING DIRECTOR

I
DATE
DATE

llLlLzi

33

"

r. i/n

BOUB*

A.C.A.

Cooimora Stud, Fethard,

C o . Tpp#fary\

faxtranshissioii

Tci: 052-31298 ^ S i . g g J

To; Of: To:

ASSUMPTA KENNY Noel Smyth Fax No: to: of Pages (including this Page) : & Partners

Dace:

5th S e p t e m b e r

1969

01-613979

Cop es Number

Message

(If

any):

Re: Land

Purchase

F o l l o w i n g zhe m e e t i n g w i t h N o e l and y o u r s e l f , I h a v e p r e p a r e d s e m e c r y p t i c n o t e s cf t h e c a m e p l a n . I a n c o n t a c t i n g t h e o w n e r to c l e a r i t , b u t w o u l d y o u c o n f i r m w i t h T e r r y C o o n e y t h a t h e is h a p p y v i - h the s c e n a r i o o u r l i n e d in t h e p a g e .entitled S t r u c t u r e . The page entitled Additional Information w h a t I need o n the other areas. A d d i t i o n a l c o i n t s c o n f i r m otner matters. summarises

Regard?,

Structure

chestvale Properties Irish Registered and Resident Company. Acquires Site Seeks planning permission Gives an option for sal. to Company II at cost plus 5Z and receive, a

payment for the option. On receiving planning permission. pays Company II to abandon optica. Y t s a Capital Gains tax clearance ctrtificatt on jo it receive full disposal proceeds without either 15Z or 32M withholding. Has the following income and expenditure as a dealing Company. Income Expense Sale of Site Option fee Interest Planning Costs Cost of Site Abandonment Fee Admin. Costs. (Borrows a* ouch as possihla! (Will get a tax deduction - not capital, .

2. Structure & Banking The Irish Company will be owned by Offshore Ltd which is owned by L. The Irish Company will borrow 3.M. on a back-to-back arrangement with the bankers of Offshore Ltd and an Irish bank (IIC or 301). Renegotiate with United Properties to give thea a second charge on property instead of a guarantee. 3. Company II Incorporated in Cyprus, owned by a Trust or guarantee Company (LIC only), Ireland has a tax treaty with Cyprus, as it has not a permanent establishment not taxable in Ireland. Probably also a dealing company, but if it is a capital gain company,
0 n th * a b ^ n m e n t of the option. Chestvale has no exposure to deduct tax on paying abandonment fee. j While there was an initial suggestion that CompaJy II would be cleared

III

J S T ;

"

d* t w s

if*

3,

Additional Points
(a) (b) Terry Cooney will do accounts and tax. Back-to-back borrowing will give a better utilisation of funds. H i g h Irish rate offset by favourable back-to-back. Site will realise aiscellaneous, market trading, parking and other inccne. Cut"' Present financing 3.M. with Ansbacher will have to be t a k e n ^ i Fergal McCabe and Mitchell Murray Smith do planning with John Finegan.

(c) (d) (e)

Noel Smyth &

Solicitors,
22 F i t r w i l l i a a Square, DUBLIN 2 .

17th January, 1990. FROM DER.MOT F ~<vc, EXECLTM C H i ^ V Dear Noel, Re: TTnderta c ^ m r irrevocable instructions to you
^ T^fr^ridertaking g i v e the Letter w* Ansbacher & C o . , Bankers. as a t t a c h e d

and

to

hereto to

Messrs.

I confirm my irrevocable instructions to you to undertake to oay out of the monies which are received from the net proceeds of sale, on the sale of the Johnston Mooney & O'Brien Site to Telecom Eireana, either through:(i) (ii) the sale of the property properties Limited; or directly from Chestvale

the sale of the shares in Chestvale Properties Limited by Delion Investment Dealings Limited or any associated Company.

I also confirm that your undertaking extends to repay the said IR1500,000 facility out of the IR2 million which are liened and hypothecated in the Bank in support of and guaranteeing the Chestvale facilities at this time, so that in the event of there being insufficient proceeds from the sale of the Johnston Mooney k O'Brien site, that you are authorised to utilise part of the monies liened and hypothecated, when released, to discharge your undertaking to Ansbacher in this matter. I also confirm that it is in order for you. and I now irrevocably authorise you, to u~k a ccpy of t h l i available to the Bank. hereby J.

I understand that the Bank may be prepared to waive their right to register the undertaking g L n in r e U t i ^ n to herein! * Cn8ide"tio of undertaking as issued by you Yours si;

DERMOT F. DESMOND

fEKRT HOUSE, <* I* MOUNT ST. DUBLIN 1 TELEPHONE: S

M W y

Fax

,101Un

FAX 610840 / 761032. TELEX

January 17, 1990

Gay Moloney, Esq., Messrs. Ansbacher and Company Limited, Bankers, 52 Lower Leeson Street,
Dublin, 2 .

RE:

Chestvale Properties Limited & Johnston Hooney & O'Brien.

Dear Gay, We act for M r . Dermot Desmond of Ferry House, 48/53 Upper Mount Street, Dublin, 2, whom I understand has been approved by the Bank for a loan in the sum of IR5Q0,000. I confirm that we hold Mr. Oesmond's irrevocable instructions that on the completion of the sale of the Johnston Mooney & 0 f 8rien site at Balisbridge, Dublin, 4 , that we are to pay to the Bank the sum of IR500 f QQ0 together with accrued interest in relation to same, out of the net proceeds of sale. I confirm that we hold instructions at the present time to sell the said property to Telecom Eireann in the sum of IR9.4 million and I am enclosing herewith photocopy of a letter in that respect to Telecom Eireann with a note thereon confirming that the transaction is to proceed. In consideration therefore of the Bank advancing to our Client, Mr. Dermot Desmond, the sum of IR500 y 0CQ WE HEREBY UNDERTAKE that on the completion of the sale of the property to An Bord Teleccm that after the discharge of the Mortgage in favour of the Bank, in the sum of IR4,750,000, to pay out of the net proceeds of sale, the sum of IR50Q,QQQ, plus interest accrued thereon. The sale with Telecom is due to complete in April of this year, and as soon as a contract has been executed and exchanged, I will confirm to you what the exact date of completion. Yours sincerely,

N a SMYTH fOEL SMYTH 4 PARTNERS.

UNITED

PRCPStTlZS
_
Sfflyril o n

Hi is m e m o r a n d u m covers a meeting held at the office of W i L3th September 1939 at 5.00 p.m.

The purpose of the meeting was to have Dermot Desmond and his tax advisors meet with mysalf, Terry Cooney and Noel Smyth to discuss the transaction vith respect to tna purchase of the JH&O'B site, the financing and also the tax planning. Dermot Desmond did not attend the Meting but indicated that he was at the end of a telephone. After waiting for some time, it became evident that Kavin Kenny, who is his tax advisor and in the NC3 offices, was not ccaing to the meeting and he was telephoned. He arrived approximately thirty minutes after the meeting* had started* Background It would appear that Kevin Kenny gave tax advice to United Properties to the effect that it could mitigate its tax liability if it dropped down thy Jtt&O'D site into a subsidiary company And sold shares in the subsidiary company for a consideration which included a guaranteed loan note. However, for this schema to have worked, there were a number of considerations: 1. United Properties would have to have bought the property in its own name, which it never did. 2. It would have to have established a subsidiary company and effected a contractual transfer and the question of who and when stamp duty would be paid would become an issue.

3. It would have to have found a purchaser willing to buy the shares in the subsidiary company. This would be difficult, because the purchaser would be buying shares in a company and the company's asset base in the property, would be 4,M. instaad of 6.3 M . The only type of purchaser which this would suit would be one who would be certain that they would, ia turn, be able to sell oa shares in the company on the same basis as tSey had bought them and/or a purchaser who wished to holi-the property for investment purposes whereby a sale and a loss of a tax deduction on the sale would not be a relevant issue. 4. Even if a purchaser to buy the shares were obtained, a discount factor would have to be introduced to compensate the purchaser for the inherent loss of the tax deduction and/or the inherent restriction of marketability of the property.
5%

Even under the scheme proposed. United Properties would eventually have to pay Capital Cains Tax 3 352 when the loan note would mature.
1

 th. above had happened or been agreed to by any of :ha ? r ^ v o L d in tSa purchaaLig conpany. it vas clear that S u - a patties invoivea m cn y n e g o t i a t e d transact
SinC

transaction would appear to be as follows : U

,, * ..

<

It will have to pay CapitJ^ains jax ^ a c it d e e s t h a f a c c this tax will be payable irrespective not receive any money for three years. ,,, , , _ f ii rax on the interest income it 2. It will also have to pay full tax 4 t r a d i n c o o p a a y > it w i U receives on the bond and, as it not. have any losses to set against this tax. 3. If it borrows money to fund the payment of the tax, it should also fail to get a tax deduction on the interest on the borrowing, although it may be able to manoeuvre itself into a position to get this. Possible Solutions It would appear therefore that ail parties would have to accept that a new deal will have to be restructured, as the present deal leaves all parties to the transaction extremely unhappy. As far as Chestvale is concernedt the existence of the guaranteed note will make it extremely difficult to finance the balance of the transaction and extreme confusion now surrounds the entire deal. In addition to that, an amount of money has been subscribed as capital into Chestvale for the purposes of financing the transaction and a bank has lent a substantial amount of money on a facility which has expired. It is therefore in the intarests of all parties to conduit this transaction satisfactorily, as quickly as possible, before it explodes into becoming a major problem. A number of scenarios were discussed with a view to achieving a result : Option Mo. 1 If all parties to the transaction were to accept that the transaction should be structured as originally intended, it might still be possible to do that. However, the purchaser of the property would have to get a substantial discount on the 2.3 M. to take into account (a) the restriction of marketability of the property and the fact that the purchaser does not intend to hold l S n% C a r 3 ' a n d ( b ) liability on the cr y s c * l l i s * ^ ^ purchaser's hands as soon as the property nas been sold.

Gains Tax 3 60Z on the 2.3 M . and

does not aeea c A e H J u ^ S i S ?

t h i 3

^ ^

- 2

Option N o . 2

m i s involves a rurtner vdcutiwu *x

instead of interest payable on the note, the note would be issued on a deep discount basii, which would avoid interest which is currently taxable. ^ However, the disccunt would also have to take into account the inherent tax liability which the purchaser is taking over and this is only a slightly bectar variation of Option N o . 1. Both of those options with the guaranteed note make the financing of che balance of the property very difficult and leave the purchaser with a very sick tax situation. Potion No* 3 ,

This entailed United Properties retaining an interest in the property, valued at 2-3 M . and a restructuring so that che new purchaser's interest would be adjusted. This could all be achieved by United Properties' acquiring an interest in Chestvale which would be valued at 2.3 M . and it was agreed that Kevin Kenny would 30 back and discuss this proposal with Dermot Desmond a n d , if Dermot agreed to it, Kevin Kenny and Terry Cooney would work out the mechanism by which it would be achieved and report back to both sides for their approval on an agreed route. The advantages of this route are : 1. it will reduce the financing requirements. 2 . It will avoid United Properties having to pay any tax currently. 3 . It will enable more stable and long term tax planning to be put into place. 4 . It w i l l avoid the purchaser taking over a structure which is very tax inefficient. 5. It will avoid the possibility that, while United Properties m a y end up with a tax liability, the purchaser may end up with a loss and neither will be offsecable against the other. 6 . It will make the ant-re proposal bankable. 7 . It will immediately clear up a degree of confusion which cannot otherwise be solved and which it is not in the interests of any parties to leave hanging around.

SUMMAgg

* narties co realist that, whatever the S t ^ S ^ S spelt o l n t e d Properties. the beneficial o ^ J? S S S i ^ h S . BO? agreed to any transaction involving a purchaa. of shires and have not been adequately involved m the transaction at an early stage with respect to its structuring and agreement. The legal
owner or ur.o jhqw a United Properties lawyers.

I caa.;ot therefore sufficiently emphasise for all concerned how much of a mess this transaction is in and what the financial consequences for all concerned would be if Che whole matter is not concluded satisfactorily before something happens which will put a solution out of the reach of everybody involved.

6
A

o
MEMBfeH UH AH . riu* Supieto
89 South v

Arthur Young & Company

Ry Fax September 28, 1989 Mr. Terry Cooney Bastow C h a r l e t o n & Co. Marine House Clanwilliam Court Dublin 2
Rp: Chesjvak Properties L t d .

Cofk. IM .. fi .

Also

United Property Holding C o m p a n y Dear Terry, I refer to our recent discussion at Noel Smyth's office and our long telephone conversation on Monday. The serious tax consequences of a direct sale of the site by UPH h a v e been discussed at length. However a share-for-share sale would substantially mitigate U P H ' s l a x exposure. A .share-for-share transaction has the disadvantage that the purchaser does not get the benefit of the uplifted value of the site in a subsequent corporation tax computation. In our discussions we looked at various alternatives for reducing the overall tax exposure and the following was the one that seemed to have the most favourable chance of success. Stage 1 - Relevant Facts The site currently either has been or is about to be conveyed into Chestvale Properties Ltd. The vendor is the liquidator of JMOB. Chestvale will be capitalised at say 1,000 1 ordinary shares, ail of which are held by U P H . A non-resident person (or persons) is interested in acquiring the site for 6.3m. S t a g e 2 - P n n e r - f o r - P a p e r Sale Incorporate a Cyprus holding company CC\pro'). It will make a paper-for~ paper bid for the shares in Chestvale and will offer a loan note, on terms to be agreed, to UPH in consideration of the transfer bv UPH of its shares in Chestvale. Schedule 2 of the Capital Gains Tax Act 1Q7S r*nrc * mv H ^ m l

w o i uuut an inuucuiuie ouvo, to a deterred 35%

N o e l M . C . 8arry PacJrai^ E. Benr.ett Larry P. O ' D w y e r Denis F O ' H o q a n Patrick

ey John J. Hy-'ano Kev.n J. Kenny rr. <r uoraon J. Howe Qnan W. Wdte'*

2.

S e c t i o n 63 Finance Act 1982 restricted the benefits of Schedule 2 to transactions 'effective for bona fide commercial reasons not forming part of any arrangement or scheme of which the main purpose or one of the main purposes is the avoidance of liability to tax . We considered that Section 63 cannot be invoked by the Revenue as the purpose of the sale of the shares in Chestvale is unquestionably a bona fide commercial sale. The method of the transaction is unquestionably structured to be tax efficient. That however is not the p o i n t - the purpose of the transaction is commercial. The Finance Act 1982 also introduced the ring fence in relation to gains on the disposal of development land. Whether or not the JMOB premises is development land as defined in the Act is of course a moot point. Even if it were, I do not consider that the relief under Schedule 2 would be jeopardised. The reason is that there is no specific reference to Schedule 2 in Sections 3640 of the Finance Act 1982. "Development land" is defined as extending to shares that derive the greater part of their value from development land. The shares in Chestvale could very clearly therefore come within the ambit of the Finance Act 1982 rules. However that Act does not exclude the operation of Schedule 2 and consequently in my opinion relief should be available on the share-for-share transaction. Stage 3 - T r a n s f e r of Residence of Chestvale With stage 3 the residence of Chestvale is moved from Ireland to Cyprus. This is to be accomplished by appointing Cypriot directors to Chestvale and arranging for all directors' meetings and major decisions to be made in Cyprus. Chestvale will accordingly be managed and controlled in Cyprus for the purposes of Cyprus taxation and Irish taxation. Chestvale will apply for planning permissions etc. on the site and at the appropriate time dispose of the site for its new market value. That market value presumably will be higher than the uplifted value of 6.3m. I r e l a n d / C y p r u s Double Taxation Agreement

On the sale of the property Chestvale will contend that it has no liability to Irish taxation for the following reasons: 1. It is a trader in property, having purchased the site as a speculation with the intention of turning it over at a quick profit. It has no permanent establishment in Ireland.

2.

It is resident in Cyprus for the purposes ot the Ireland/Cypru, Tax Treaty [in this connection see Article 3, 1 ( 0 . ( 0 a resident of Cyprus is defined by the Treaty as "any company whose business is managed and controlled in Cyprus"].

The Treaty exempts from Irish taxation the business profits of a Cyprus company which does not have a permanent establishment m Ireland. To come within this definition it is vital that Chestvale be a dealer in property and secondly that it does not have a permanent establishment in Ireland. The definition of 'permanent establishment' in Article 4 of the Treaty follows along the normal lines and includes 'a place of management', ' a branch' and "a building site or construction or assembly project". The 'building site' aspect of this definition is unusual in that most treaties apply the permanent establishment test only to building sites extending beyond a specified duration (usually one or two years). It is essential that Chestvale should have no presence whatever in Ireland and all applications for planning permissions etc. should originate from Cyprus. Also the site must be sold before any construction takes place. Article 12 of the Treaty states that 'gains' from immovable property may be taxed in the country in which such property is located. T h e heading to Article 12 reads 'capital gains' and this would seem to be somewhat different from 'business profits' as referred to in Article 6 (however para 7 of Article 6 states that the other provisions of the Treaty are to operate in priority to Article 6). The heading 'capital gains' and the word 'gains' in die Article seem to indicate that Article 12 is confined to gains which would be treated as capital gains by the laws of the country in which the property is situated. This view is reinforced by Article 13 of the OECD Model Treaty. Article 12 (Treaty) is a word-for-word reproduction of Article 13 ( O E C D ) . The following extract from 'Principles of International Double Taxation Relief (Davies) puts Article 13 in context: "The OECD commentary absents that there is a considerable variation in the tcix treatment of capital g ains in different countries. As a consequence Article 13 is drafted in f u r l , -,,de terms so as to include all forms of taxes levied on capital wins. The Article docs not give a definition of u hat is meant by a capital win. and the method of computing the gain is left to domes tic laws." So, it seems that Article 12 onlv r e f e r s m nmfi., e which would be treated as c S S f f from i m m o v a b l e property taxation. t a E m k i m s and not as profits liable to income

ra^jtal P a i n s T a x C i e n r n n c p

rprt;f,vnt0

4.

Capital gains tax withholding of 15% applies to property transactions in excess of 100.000 ( p a n 11 Schedule 4 CGT Act 1975). L practice d would be extremely difficult to obtain a clearance certificate from the Revenue irrespective of the merits of any technical arguments founded upon the Ireland/Cyprus Treaty. It would therefore we considered be important to attempt to avoid the withholding. The simplest manner of accomplishing this is to ensure that the method of payment is other than cash. We discussed payment to be made in redeemable preference shares or gilts, etc. Under Schedule 4 para 11 (7) the person acquiring the asset must notify the Revenue of the transaction within three months. That is merely a procedural matter whereby information is provided to the Revenue. Interest As a further insurance for the scheme we considered structuring a loan between Cvpro and Chestvale whereby Chestvale will pay interest on the loan related to the profitability of the transaction. There is no rule of income tax law that I am aware of whereby such interest would not be be deductible (assuming of course that it can be justified to be computed on an arm's length basis). For corporation tax purposes the interest would not be deductible in view of Section 84 CTA 1976. Under Section 84 as originally enacted interest on a participating loan is non tax deductible. However by virtue of the ment introduced by the Finance Act 1984 interest is deductible so long as it is paid to another company which is within the charge to corporation tax. Cvpro would not be within such a charge and consequently for corporation tax purposes the participating loan interest would be regarded as a distribution. Cypro however will be liable to income tax, and not corporation tax (assuming that it does not have a trading branch in Ireland). Applying income tax principles therefore I do not see why the interest should not be deductible. This adds a layer of insurance to the scheme in that the profit on the transaction is extracted via the participating interest. Should Chestvale for any reason be taxable, then the quantum of the taxable profits should be substantially reduced. Crucial to this approach is the requirement that Chestvale does not have a 'branch' in Ireland. Tran^fgr o f R e s i d e n c y There is no rule of law wherebv an Irish company cannot transfer its management and control out of Ireland. I mention this specifically as such a transaction is prohibited in the U.K.

5.

Dfffp Discount Bond It would be preferable, from the tax standpoint, to structure the loan not- as discounted bond. In effect no interest will be paid on the note, and the imputed interest will be roiled up and the entire amount payable at maturity the loan note. The advantage to UPH is the avoidance of corporation tax (an surcharge) on the interest. Action We agreed that this letter would be written and issued to the parties i n v o l v e d so they can decide in principle whether the plan is to go ahead. If the decision is 'yes' then it will be necessary to review the tax strategy both from the Irish and Cyprus standpoints. At this stage the strategy outlined i n this letter should be considered as preliminary rather than definitive. Yours sincerely,

Kevin Kenny

C . C . : Dermot Desmond, NCB Kevin Barry, NCB Noel Smyth, Noel Smyth & Partner John Bourke

f NITED PROPERTY HOLDING

STAGE I

pn

MPANV

STAGE 2

UPH

UPH

Loan Note 2.3

1000 Ord. Shares

SI
CHESTVALE PROPERTIES SITE Irish Resident

CYPRUS HOLDING COMPANY

CHESTVALE PROPERTIES

1000 Ord. Shares

SITE

- ' A

r/

STAGE 3

Cyprus Resident

I, Paul Jospeh Valentine Dougherty of 7th Floor, Victory House Prospect Hill , Douglas, Isle of Man ACKNOWLEDGE AMD DECLARE that I hold One Share of One Pound each fully paid in Freezone Investments Limited registered in my name as Nominee and Trustee for Mr Colin Probets, PO Box 365, St Peter Port, Guernsey (hereinafter called "t Owner") AND I UNDERTAKE AMD AGREE not to transfer deal with or disp of the said Share save as the Owner may from time to time direct AM FURTHER to give full effect to the trust hereby declared I HEREBY DEPOSIT with the Owner the certificate for the said Share together with a transfer thereof executed by me in blank AMD I EXPRESSLY AUTHORISE AMD EMPOWER the Owner at any time to complete such transf by inserting therein the name or names of any transferee and the dc of the transfer and to complete the same in any other necessary particular AMD I EXPRESSLY DECLARE that this authority is irrevocat by me AMD I FURTHER UNDERTAKE AMD AGREE to account to the Owner for all dividends and profits which may be paid to me from time to tiim upon the said share and for all other monies or profit which may b payable to or receivable by me (whether in cash or other benefits rights) in respect thereof AMD I FURTHER UNDERTAKE to exercise my voting power as Holder in the said Share at the direction of the C PROVIDED that the Owner shall indemnify me at all times and in all respects against any costs of any nature whatsoever arising from t allotment of, my continued registration as a holder of, or the transfer of the said Share

Given under my hand this

day of

I, Alan Lloyd Gough of 7th Floor, Victory House, Prospect Hill . Douglas, Isle of Man A C K N O W L E D G E ^ DECLARE that ! hold One Share ct One Pound each fully paid in Freezone Investments Limited registered in my name as Nominee and Trustee for Kr Colin Probets, PO Box 365, S: Peter Port, Guernsey (hereinafter called "the Owner") AMD I UNDERTAKE^ AMD AGREE not to transfer deal with or dispose of the said Share save as the Owner may from time to time direct AND RiRTHER to give full effect to the trust hereby declared I HEREBY PLPCSIT with the Owner the certificate for the said Share together with a transfer thereof executed by me in blank AMP I EXPRESSLY AUTHORISE AND EMPOWER the Owner at an> time to complete such transfer by inserting therein the name or names of any transferee and the date of the transfer and to complete tht same in any other necessary particular AND I EXPRESSLY DECLARE that this authority is irrevocable by me AMD I FURTHER UNDERTAKE AMD AGREE to account to the Owner for all dividends and profits which may be paid to me from time to time upon the said share and for all other monies or profit which may be payable to or recei vable by me (whether in cash or other benefits or rights) in respect thereof AND I FURTHER UNDERTAKE to exercise my voting power as Holder in the said Share at the direction cf the Owner PSCV'OEO t*at the Owner shall indemnify me at all times arc -n all respects against any costs of any nature whatsoever arising from t e allotment of, my continued registration as a holder of, or tre transfer of the said Share

Given under my hand this

day of

1988,

Si qneci.

AjWKA^w

rySL/597 THIS A G R E E M E N T m a d e the I ^ ^day of

BETWEEN:COLIN PROBETS of South Grange de B e a u v o i r , Ivy G a t e s , R o h a i s , S t . P e t e r P o r t , Guernsey, Channel Islands. ( h e r e i n a f t e r c a l l e d "the G r a n t o r " w h i c h expression shall include his heirs and legal personal r e p r e s e n t a t i v e s ) of t h e O n e AND DERMOT DESMOND of F e r r y H o u s e , 4 8 / 5 3 L o w e r Mount Street, Dublin 2 ( h e r e i n a f t e r c a l l e d "Mr D e s m o n d " which expression shall include his h e i r s , legal p e r s o n a l representatives and assigns) of the O t h e r WHEREAS: (A) through allotted INVESTMENT The Grantor or is legally to and/or 100% the of time beneficially the entire of entitled and Part Part

nominees share LIMITED

otherwise for

issued

capital

being

FREEZ0NE

(hereinafter

r e f e r r e d to as " t h e

Company").

(B) Desmond defined)

The for and

Grantor

is

desirous of the

of

granting Shares

an (as

option

to

Mr

the

purchase

Option

hereinafter

in the m a n n e r hereinafter

appearing.

NOW T H I S

INDENTURE WITNESSETH

as

follows:-

SECTION 1^00 - D E F I N I T I O N S .

1.01

The

following

words

where

used

in

this

s h a l l h a v e the f o l l o w i n g m e a n i n g s : -

the O p t i o n P r i c e

h a s the m e a n i n g a s c r i b e d Clause 2.02 hereof;

t o it in

the O p t i o n

Shares

m e a n s all s h a r e s

for t h e

t i m e being either

and from time to t i m e h e l d l e g a l l y or b e n e f i c i a l l y n o m i n e e s or o t h e r w i s e b y in the c a p i t a l of t h e being the entire

through t h e Grantor

Company, and allotted

issued

s h a r e c a p i t a l of t h e

Company;

IRE a n d I r i s h P o u n d s

m e a n s the l a w f u l c u r r e n c y b e i n g of the R e p u b l i c o f

f o r the tise Ireland.

1-02.

Further

Definitions.

(a) shall include Any

Any reference any

to any p r o v i s i o n

of

any or any

legislatic: extensi: legislatic

modification to any

re-enactment prevision to the of

thereof. unless

reference

the c o n t e x t c l e a r l y

indicates

contrary Ireland.

shall be

r e f e r e n c e to l e g i s l a t i o n of the R e p u b l i c of

(b)
;ind

Words and

such

as

"hereunder",

"hereto",

"hereof", unLess

"herein"

o t h e r w o r d s c o m m e n c i n g w i t h "here" indicates arid n o t to to the c o n t r a r y any particular

shaLL

the c o n t e x t of this

clearly

r e f e r to the w h o l e Section or Clause

Agreement

thereof.

(c) to a Section, to a

Save

as

otherwise paragraph Clause

provided or

herein

any

reference be a (as

Clause, Section,

sub-paragraph or

shall

reference

paragraph

sub-paragraph

the c a s e m a y b e ) o f t h i s A g r e e m e n t and any r e f e r e n c e to a paragraph or or sub-paragraph of shall be or a

in a C l a u s e to a

reference in

paragraph the

sub-paragraph is contained

the C l a u s e it

paragraph from the

which

reference

unless

appears

context

that a r e f e r e n c e

to s o m e o t h e r p r o v i s i o n is

intended.

1.03 captions to

Headings the of

and

Captions. in this

The

Section are

headings inserted

and for

Clauses

Agreement

convenience of or

reference the

o n l y and s h a l l n o t b e c o n s i d e r e d or interpretation of

a part this

affect

construction

Agreement.

1-04 respects hereunder)

Governing (including be the

Law.

This

Agreement hereof and and

shall

in

all

formation and

performance in

governed the

by

construed

interpreted

accordance with

laws cf the R e p u b l i c of

Ireland.

SECTION 2.CO

CHANT OF

OPTION

2.01. hereby

Option.

' In

consideration to

of

the (the

sum

ol

ISI

paid by Mr Desmond acknowledged)

the G r a n t o r hereby

receipt to M :

of

vb

, ^

is h e r e b y

the G r a n t o r

grants

D e s

or h i s n o m i n e e an o p t i o n to p u r c h a s e the O p t i o n

Shares.

2.02. his

Option to

Price.

The

price

payable of

by the

Mr

Desmond/,

nominee)

the G r a n t o r

upon

exercise

o p t i o n here:

g r a n t e d s h a l l b e the sum of IRE 1 . 0 0 .

2.03. Desmond

Specified

Events.

The

option

hereby at

granted

to I

(or h i s n o m i n e e ) s h a l l b e e x e r c i s a b l e

a n y time with:

t e n y e a r s from the d a t e h e r e o f .

SECTION 3.00 - EXERCISE O F O P T I O N

3.01 granted notice

Exercise

of

Potion. (or h i s

The

exercise shall on be

of by

the

cpti::

to M r D e s m o n d in w r i t i n g

nominee)

irrevocably ana shall

s e r v e d by Mr D e s m o n d following

the G r a n t o r

be governed by

provisions:-

(a) u p o n the e x e r c i s e of the o p t i o n h e r e b y parties hereto shall each be bound to complete

created* sale a : n

the

p u r c h a s e of the O p t i o n

Shares;

(b) fourteenth registered

completion after of the

shall the

take

place of

at the

p.m.

on at as

the the may

day office

exercise
o r

option place

Company

at s u c h and

other

be a g r e e d b e t w e e n

the parties hereto;

(c) Desmond

upon

completion

the

Grantors

shall

deliver

to

Mr

(or h i s

nominee)

(i) Shares other

duly

completed by the

and

signed

transfers

of

the

Option such to Mr

accompanied deeds (or and his

share

certificates

therefor

and

documents nominee)

as m a y b e n e c e s s a r y the unencumbered and

to t r a n s f e r and

Desmond

legal

beneficial

ownership of the said shares;

(ii) The person an specified by

resignation Mr Desmond under seal

as D i r e c t o r o f t h e C o m p a n y o f each to such resignation that such to

any

include

acknowledgement

the e f f e c t

resigning

p a r t y h a s n o c l a i m w h a t s o e v e r against the C o m p a n y ;

(d) shall shall there be held

upon at to be

completion which the

board

meeting

of

the

Company to

transfers be and

hereinbefore and, if the

referred

(subject shall

stamping) submitted and

approved

appropriate, resignations

accepted

hereinbefore

r e f e r r e d to;

( e

Mr

Desmond

(or

his

nominee)

sh*.

payment Option

to

the

GraUor

upon

completion

of

the

amount

,f

Price.

SECTION 4.00 - POWER O F A T T O R N E Y

4.01. A p p o i n m ^ i i M ^ to d e l i v e r to M r D e s m o n d or h i s

I f

t h e

G r a n t o r

f 5ll of transf..

nominee

such time

forms and in

as are h e r e i n b e f o r e as is hereinbefore Mr Desmond

r e f e r r e d to at s u c h required as h i s the

such maniirrevocably to execute of transfer transfers ::

Grantor with form

hereby power forms such his for

appoints complete

attorney

full or of

and d e l i v e r

in h i s n a m e

such

so t h a t u p o n the e x e c u t i o n and r e g i s t r a t i o n respect make of the O p t i o n of the Shares Mr Desmond Option Price

(or

n o m i n e e ) shal herein to th

payment

provided

Grantor.

SECTION 5.00 - GRANTOR'S COVENANTS A N D W A R R A N T I E S

5.01. D e s m o n d as

Warranties. follows:-

The

Grantor

hereby

warrants

to J

(a) remain fully

the paid

Option and free

Shares from ana

are any

and

at

all

times

sha

lien, p l e d g e ,

mortgage

other encumbrance whatsoever;

(b) either Grantor legally or in

the

Option

Shares to and

are

and

at

all

times

shall

b the

transferred the

in the

legal o w n e r s h i p of of the Grantor

beneficial

ownership

through

nominees.

5.02. Desmond that

Covenants. the nominal

The

Grantor of

hereby the

covenants will

with not

Mr be

capital shares the

Company

increased, be issued

nor will or

further

in the c a p i t a l of t h e prior written consent

Company of Mr

allotted,

without

Desmond.

SECTION 6.00 - ASSIGNMENT

6.01. the and parties

Assignment. hereto that

It

is

hereby

agreed together

and

confirmed all

by

this Agreement thereto

with

rights Desmond

obligations

attaching

may be

assigned

by Mr

w i t h o u t t h e n e c e s s i t y of serving any notice on the

Grantor.

IN W I T N E S S and y e a r

whereof

these presents have been entered WRITTEN.

into

the

day

first herein

SIGNED by the

SEALED

and

DELIVERED PROBETS

said COLIN

in t h e p r e s e n c e

of:-

S I G N E D S E A L E D and D E L I V E P E D b y the said DERMOT i n the p r e s e n c e DESMOND

of:-

J/SL/110

THIS AGREEMENT made BETWEEN:-

the

DERMOT DESMOND o f F e r r y H o u s e , 48/53 L o w e r Mount Street, Dublin 2 ( h e r e i n a f t e r c a l l e d "Mr Desmond" which expression shall include his successors assigns)

and of the One Part

-andof ( h e r e i n a f t e r c a l l e d "the A s s i g n e e " w h i c h e x p r e s s i o n shall i n c l u d e i t s s u c c e s s o r s and a s s i g n s ) of the O t h e r Part

WHEREAS:-

A.

Pursuant

to

an

option made to Mr

agreement the 15th

(hereinafter day an of June to

referred 1988 purchase for

"the Colin the the a

Option Probets Option Option

Agreement") did Shares Price grant (as (as

Desmond ana and

Option

therein therein

hereinafter hereinafter 1988.

defined) defined)

during

p e r i o d o f t e n y e a r s f r o m 15th J u n e

B.
b

Mr Desmond has agreed all rights and

to sell and the A s s i g n e e h a s a g r e e d of Mr Desmond pursuant IR1.00. to

to the

uy

obligations

Option Agreement

to t h e A s s i g n e e for the sum of

NOW THIS INDENTURE

WITNESSETH:-

SECTION 1.00 - DEFINITIONS.

1.01

The

following

words

where

used

in

this

Agree**:,

s h a l l h a v e the f o l l o w i n g

meanings:-

the Company

means Freezone I n v e s t m e n t Limited, a limited l i a b i l i t y c o m p a n y in the Isle of M a n ; incorporated

the Option Price

means

IRE1.00;

the Option

Shares

m e a n s all s h a r e s f o r t h e t i m e and from time to t i m e h e l d legally or b e n e f i c i a l l y n o m i n e e s or o t h e r w i s e b y in the c a p i t a l of t h e

being

either

through the Grantor

Company, allotted

b e i n g the e n t i r e i s s u e d a n d share c a p i t a l of t h e

Company;

IRE a n d I r i s h P o u n d s

m e a n s the lawful c u r r e n c y b e i n g of the R e p u b l i c o f

f o r t h e time Ireland.

1.02.

Further

Definitions^

(a) shall include Any

Any

reference

to a n y p r o v i s i o n o f a n y re-enactment provision of or any

legislation extension legislation shall be a

any

modification to any

thereof. unless the

reference clearly

context

indicates

to the c o n t r a r y Ireland.

reference

t o l e g i s l a t i o n o f the R e p u b l i c of

(b) and " h e r e i n " the c o n t e x t of this and

Words

such

as

"hereunderH,

"hereto",

"hereof", unless whole Clause

o t h e r words commencing with "here" indicates and not to

shall

clearly

to t h e c o n t r a r y r e f e r to t h e any particular Section or

Agreement

thereof.

(c) to a Section, to a

Save

as

otherwise paragraph Clause

provided or

herein

any

reference be a (as

Clause, Section,

sub-paragraph or

shall

reference

paragraph

sub-paragraph

the c a s e m a y b e ) o f to a paragraph or or

this Agreement sub-paragraph of the

and a n y r e f e r e n c e shall Clause it be or a

in a C l a u s e to a

reference in

paragraph the

sub-paragraph is contained

paragraph from the

which

reference

unless

appears

context

that a r e f e r e n c e

to s o m e o t h e r p r o v i s i o n is

intended.

1.03 captions to

Headings the of

and

Captions. in this

The

Section are

headings inserted

and for

Clauses

Agreement

convenience

reference

only and shall not be c o n s i d e r e d

a part

0 36 (n