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INFORMATION MEMORANDUM September 2009

ISSUED BY Partnership Incorporations Limited as Operator

Telephone 020 7659 5350 www.pilinvests.com Authorised and regulated by the Financial Services Authority

Designed by Sugarfree  www.sugarfreedesign.co.uk

Partnership Incorporations Limited Connaught House 3rd Floor 1 Mount Street London W1K 3NB

THE FIRST DE SALES LIMITED PARTNERSHIP


IF YOU DO NOT INTEND TO PROCEED WITH MAKING AN INVESTMENT IN THE PARTNERSHIP PLEASE RETURN THIS INFORMATION MEMORANDUM TO:  MANDA INGLESON A PARTNERSHIP INCORPORATIONS LIMITED CONNAUGHT HOUSE 3RD FLOOR 1 MOUNT STREET LONDON W1K 3NB

INFORMATION MEMORANDUM

THE CONTENTS OF THIS INFORMATION MEMORANDUM ARE CONFIDENTIAL INFORMATION FOR THE PURPOSES OF THE CONFIDENTIALITY AGREEMENT YOU HAVE SIGNED AND MAY NOT BE DISCLOSED TO ANYONE.


INFORMATION MEMORANDUM 23 September 2009

ISSUED BY Partnership Incorporations Limited as Operator

PARTNERSHIP INCORPORATIONS LIMITED CONNAUGHT HOUSE 3RD FLOOR 1 MOUNT STREET LONDON W1K 3NB 0207 659 5350

THE FIRST DE SALES LIMITED PARTNERSHIP


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IMPORTANT INFORMATION GLOSSARY OF TERMS

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PART 1 PRINCIPALS AND ADVISORS

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PART 2  OPERATIONAL STRUCTURE AND CORPORATE GOVERNANCE

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PART 3 EXECUTIVE SUMMARY

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PART 4 THE PARTNERSHIP

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PART 5 PARTNERSHIP BUSINESS

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PART 6 INDUSTRY OVERVIEW

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PART 7 FINANCIAL INFORMATION

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PART 8 UK TAXATION ANALYSIS

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PART 9 RISK FACTORS

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PART 10 FAQS AND ANSWERS

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PART 11  MONEY LAUNDERING REGULATIONS AND DATA PROTECTION

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PART 12 SUBSCRIPTION DOCUMENTS

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THE FIRST DE SALES LIMITED PARTNERSHIP

CONTENTS


IMPORTANT INFORMATION

This Information Memorandum (“Memorandum”) is issued and approved as a financial promotion by PILinvests, which is the trading name of Partnership Incorporations Limited (the “Operator”), which is authorised and regulated by the Financial Services Authority (“FSA”). This Memorandum relates to an offer to subscribe for interests in The First De Sales Limited Partnership (the “Partnership”) and contains information in relation to the Partnership. The Partnership has been registered as an exempted limited partnership incorporated in the Cayman Islands under the Exempted Limited Partnership Law (2007 Revision). Potential Investors must rely on their own examination of the legal, taxation, financial and other consequences of any subscriptions to the Partnership including any risks involved. Potential Investors should note that they may become liable to pay tax on any share of taxable profits due to them before any distributions of those profits have been made by the Partnership. Any references to the UK tax treatment applying to the Partnership, the Partnership Business and to individual subscribers who may become Limited Partners, are only general indications and how investments are taxed in the UK will depend on the individual circumstances of Potential Investors and the prevailing tax legislation which is liable to change from time to time. Potential Investors should not treat the contents of this Memorandum as advice relating to legal, taxation or other matters and, if there is any doubt about the proposal discussed in this Memorandum, its suitability, or what action should be taken, Potential Investors are strongly recommended to seek their own independent advice immediately from a stockbroker, solicitor, accountant or other independent financial adviser authorised and regulated by the FSA and qualified to advise on investments in unregulated collective investment schemes.

SUBSCRIBING FOR AN INTEREST IN THE PARTNERSHIP MAY EXPOSE POTENTIAL INVESTORS TO A RISK OF LOSING ALL OF THEIR INVESTMENT The Partnership is an unregulated collective investment scheme as defined in the FSA Handbook Glossary and is established and operated by the Operator. The Partnership itself has not been

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THE FIRST DE SALES LIMITED PARTNERSHIP

authorised or otherwise approved by the FSA and as an unregulated scheme, it cannot be marketed in the UK to the general public. This Memorandum has been approved as a financial promotion for regulatory purposes by the Operator for distribution to the persons mentioned in this section and may be distributed in the United Kingdom only in circumstances in which the financial promotion is exempt from the general restriction on the promotion of unregulated collective investment schemes under section 238 of the Financial Services and Markets Act 2000 (“FSMA”). A c c o r d i n g l y, w h e re t h i s M e m o r a n d u m i s communicated by any person to any other person, it is to be communicated only to (and is directed only at) persons to whom such communication may lawfully be made, including (but not limited to): • ‘investment professionals’ who have professional experience in participating in unregulated collective investment schemes within the meaning of article 14 of the FSMA (Promotion of Collective Investment Schemes) (Exemptions) Order 2001, as amended (the “CIS Exemptions Order”); • ‘certified sophisticated investors’ within the meaning of article 23 of the CIS Exemptions Order as amended by the Financial Services and Markets Act 2000 (Financial Promotion and Promotion of Collective Investment Schemes) (Miscellaneous Amendments) Order 2005.

THE PARTNERSHIP CANNOT BE MARKETED IN THE UK TO THE GENERAL PUBLIC In addition, this Memorandum may also be communicated where it is directed at recipients in a way that may reasonably be regarded as designed to reduce, so far as possible, the risk of participation in the Partnership by persons who are not: • c ustomers of an authorised person in respect of whom that authorised person has taken reasonable steps to ensure that the investment in the Partnership is suitable, within the meaning of Category 2 of Chapter 4 rule 4.12.1R(4) of the FSA's Conduct of Business Sourcebook; • ‘professional clients’ or ‘eligible counterparties’ of an authorised person, within the meaning of Category 7 of 4.12.1R(4); or


• a person in relation to whom an authorised person has undertaken an adequate assessment of his expertise, experience and knowledge and that assessment gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the person is capable of making his own investment decisions and understanding the risks involved; within the meaning of Category 8 of Chapter 4 rule 4.12.1R(4). This Memorandum must not be relied on or acted upon by persons who are not within the above categories. The recipient of this Memorandum may not reproduce, forward or distribute copies of it to any person, except as permitted in accordance with FSMA. The Operator will ensure, so far as possible, that persons not included in the above categories are prevented from participating in the Partnership.

NEITHER THIS INFORMATION MEMORANDUM NOR THE INVESTMENTS TO WHICH IT RELATES HAS BEEN REVIEWED, AUTHORISED, RECOGNISED OR OTHERWISE APPROVED BY THE FSA OR ANY OTHER REGULATORY BODY A ‘certified sophisticated investor’ means a person who has a current certificate in writing or other legible form signed by an authorised person (other than the authorised person by whom the Memorandum is communicated) to the effect that he is sufficiently knowledgeable to understand the risks associated with participating in unregulated schemes and who has signed, within the period of twelve months before the day on which the Memorandum is communicated, a statement in the terms prescribed by article 23(1)(b) of the CIS Exemptions Order as amended by the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) Order 2001 as amended. This Memorandum is exempt from the restriction (in section 238 of FSMA) on the communication of invitations or inducements to participate in unregulated schemes unregulated schemes on the grounds that it is made to a ‘certified sophisticated investor’. No person is or has been authorised in connection with the Partnership to give any information or to make any representation not contained in this Memorandum and, if given or made, such information or representation must not be relied upon as having

been authorised by or on behalf of the Memorandum or the Operator. Neither the Operator nor any of its associates, directors, employees, partners or advisers makes any express or implied representation or warranty as to the accuracy or completeness of the Memorandum, nor is any such person under any obligation to update the Memorandum or correct any inaccuracies or omissions in it which may exist or become apparent. Notwithstanding anything to the contrary in this Important Information notice, liability for any statement, representation or warranty made fraudulently shall not be limited. St a te m e n t s a n d p roj e c ti o n s m a d e i n t h is Memorandum are based on the interpretation of law and practice in force in the United Kingdom as at the date hereof and are subject to changes in those laws and practices. The distribution of this Memorandum and the offering of interests in the Partnership may be restricted or inappropriate in certain jurisdictions. It is the responsibility of any person in possession of this document and any persons wishing to apply for interests pursuant to this Memorandum to inform themselves of and to observe, all applicable laws and regulations of any relevant jurisdictions. This Memorandum does not constitute an offer or solicitation by or to anyone in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified so to do or to anyone to whom it is unlawful to make such an offer or solicitation.

APPLICATIONS FROM ANY PERSON RESIDENT OUTSIDE THE UK OR ANY US PERSON WILL NOT BE PROCESSED Potential Investors should inform themselves as to the legal requirements and consequences of applying for, holding and disposing of interests in the Partnership and any applicable exchange control regulations and taxes in the countries of their respective citizenship or domicile. Investment in the Partnership is only available to individuals who are currently resident and/or ordinarily resident in the United Kingdom. Investment in the Partnership is not available to any individual who is a US person, namely: (a) a US citizen; (b) a US resident; and/or (c) a US green-card holder.

THE FIRST DE SALES LIMITED PARTNERSHIP

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IMPORTANT INFORMATION

Buying the units to which this communication relates may expose an investor to a significant risk of losing all of the property invested. There can be no assurance that the Partnership's investment and/ or business objectives will be achieved and results may vary substantially over time. Investment in the Partnership is not intended to be a complete investment programme for any Potential Investor. Potential Investors should carefully consider whether an investment is suitable for them in light of their circumstances and financial resources. Potential Investors’ attention is drawn to Part 9 of this Memorandum headed “Risk Factors”. Forward Looking Statements The statements contained herein that are not historical facts are “forward looking statements”. These forward looking statements are based on current expectations, estimates, intentions, beliefs, views and projections about the industry and markets in which the Partnership intends to operate and/or assumptions, which may or may not be identified in this Memorandum and which involve significant elements of subjective judgement and analysis by the Editorial Services Provider, the General Partner and/ or the Promotions Company as defined herein. Words such as “expects”, “anticipates”, “hopes”, “should”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, variations of such words and similar expressions are intended to identify such forward looking statements. Forward looking statements are provided for illustrative purposes only and are not intended to serve, and must not be relied on by any Potential Investor, as a guarantee, an assurance, a prediction or a definitive statement of fact or probability

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THE ACTUAL PARTNERSHIP RESULTS MAY BE MATERIALLY DIFFERENT FROM THE PROJECTIONS CONTAINED IN THIS MEMORANDUM All All forward looking statements may be subject to uncertainties and contingencies and there can be no assurance that any particular forward looking statement will be realised. The performance of the Partnership may be materially different as a result. Generally, investment values can go down as well as up. Past performance is not indicative of future returns which may or may not be the same as or similar to past performance. All statements of opinion and/or belief contained in this Memorandum and all views expressed and all projections, forecasts or statements relating to expectations regarding future events or the possible future performance of the Partnership represent the assessment and interpretation of the Editorial Services Provider, the General Partner and/or the Promotions Company based upon information available to them as at the date of this Memorandum. Potential Investors must determine for themselves what reliance (if any) they should place on such statements, views, projections or forecasts and no responsibility in respect of these is accepted by the Operator. No representation is made or warranty given as to the accuracy, completeness, achievability or reasonableness of any forward looking statements made herein.


NOTHING IN THIS INFORMATION MEMORANDUM CONSTITUTES INVESTMENT, TAX, LEGAL OR OTHER ADVICE BY THE OPERATOR OR THE PARTNERSHIP Potential Investors are strongly advised to conduct their own due diligence including, without limitation, investigation of the legal and tax consequences of participating in the Partnership, and the financial models of the Partnership. Before proceeding, Potential Investors should also review in detail Leading Tax Counsel’s opinion, which considers the United Kingdom taxation aspects. Compensation Scheme Potential Investors should note that subscriptions for an interest in the Partnership are not covered by the Financial Services Compensation Scheme. Complaints If any Potential Investor has a complaint about the performance of the Operator, that complaint should be addressed, in the first instance, to the Complaints Officer of the Operator at its registered office address, which appears below. The Partnership is not eligible to complain to the Financial Ombudsman Service, but a Potential Investor who is a private individual or who otherwise qualifies as an eligible complainant under the terms of the Financial Ombudsman Service has a right of complaint to the Financial Ombudsman Service.

THIS INFORMATION MEMORANDUM SHOULD BE READ IN FULL AND IN CONJUNCTION WITH THE SUBSCRIPTION DOCUMENTS All questions regarding the Partnership should be directed to the Operator. Potential Investors who do not wish to pursue this matter are asked to return this Memorandum and any accompanying documentation to the Operator at once. This Memorandum and all other information supplied may not under any circumstances be copied, distributed, published or reproduced, in whole or in part, at any time, nor may its contents (or any part of them) be disclosed to any person without the Operator’s prior written consent. English law governs the issue, communication and terms of this Information Memorandum and any disputes arising in relation to any of them will be subject to the exclusive jurisdiction of the English courts. This Memorandum is dated 23 September 2009.

Confidentiality The terms of the Memorandum, the Partnership Agreement and Leading Tax Counsel’s opinion are confidential information and by receiving this Memorandum, Potential Investors and their advisors agree to keep confidential, without limitation in time, the information contained in the foregoing documents and any information made available in connection with further enquiries.

THE FIRST DE SALES LIMITED PARTNERSHIP

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GLOSSARY OF TERMS

Advice Fees Fees payable under the Letter of Engagement for the provision of UK tax advice and support. Application Form The application form setting out certain terms and conditions of becoming a Limited Partner in the Partnership, in the form included with this Memorandum. Capital Contribution Any amount subscribed by way of capital to the Partnership by either the General Partner or the Limited Partners. Cash Payment in Sterling The only acceptable form of payment for Capital Contributions or Advice Fees. Closing 1 October 2009, being the date after which admissions to the Partnership will no longer be accepted and from which date it is intended that the Partnership will commence the Partnership Business. Consenting Limited Partner Any Limited Partner who has agreed to put himself forward to sit on the Dispute Committee. Defaulting Partner Any Limited Partner who the General Partner reasonably considers has failed to contribute to the furtherance of the Projects. Dispute Committee A committee comprising the Executive and six Consenting Limited Partners to be selected by the General Partner. Editorial Services The editorial and other services to be provided by the Editorial Services Provider, in accordance with the terms of the Editorial Services Agreement. Editorial Services Agreement The agreement entered into between the Partnership and the Editorial Services Provider on or around the date of Closing. Editorial Services Fees Fees charged by the Editorial Services Provider for the provision of Editorial Services, in accordance with the terms of the Editorial Services Agreement.

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Editorial Services Provider Inspire Editorial Services Limited a company incorporated in the Cayman Islands, whose registered office is Strathvale House, George Town, PO Box 2636, Grand Cayman, KY1-1102, Cayman Islands. Employment Contract The contract of employment between the Executive and the Partnership, to be entered into on or around the date of Closing, under which the Executive will be employed by the Partnership. Escrow Arrangement The escrow arrangement under which part of the fee paid by Subscribers will be held to the order of the Operator and the General Partner, and used to fund the external costs of defending the UK tax analysis applying to the Partnership. Executive The employee(s), to be employed by the Partnership under the Employment Contract. Extraordinary Resolution A resolution passed at a meeting of Limited Partners representing at least two-thirds of the aggregate Limited Partner Capital Contributions. First Period The first period of account starting from Closing to 31 December 2009. FSA The Financial Services Authority, the UK’s financial services regulator. FSMA The Financial Services and Markets Act 2000. General Partner De Sales Partnership Management Limited a company incorporated in the Cayman Islands, whose registered office is Strathvale House, George Town, PO Box 2636, Grand Cayman, KY1-1102, Cayman Islands. General Partner Capital Contribution Any amount contributed to the Partnership by way of Capital Contribution by the General Partner. HMRC Her Majesty’s Revenue & Customs.


Holding Company Walmgate Holdings Limited a company incorporated in the Cayman Islands, whose registered office is Strathvale House, George Town, PO Box 2636, Grand Cayman, KY1-1102, Cayman Islands, being the parent company of both the General Partner and the Editorial Services Provider.

Operator Partnership Incorporations Limited a company incorporated in England and Wales, whose registered office is 3rd Floor, Connaught House, 1 Mount Street, London W1K 3NB, authorised and regulated by the FSA to operate unregulated collective investment schemes.

Introducer A person or entity that introduces a Potential Investor.

Operating Agreement The agreement entered into as par t of the Partnership Agreement between the Operator and the Partnership, under which the Operator will provide its services to the Partnership.

Letter of Engagement The letter of engagement between De Sales Promotions Limited and each Limited Partner for the provision of UK tax advice and support. Limited Partner Any Partner of the Partnership who is not a General Partner, including the Original Limited Partner and all New Limited Partners. Limited Partner Capital Contribution Any amount contributed to the Partnership by each Subscriber by way of Capital Contribution to the Partnership. Literary Contributions The written contributions to be made by each Limited Partner towards the furtherance of each of the Projects identified by the General Partner. Loan The loan to be made by the Partnership Bank to the Holding Company, to be used to capitalise the General Partner and in-turn capital the Partnership. Loan Period The period for which the Partnership Bank will make the Loan to the Holding Company. Memorandum This information memorandum, dated 23 September 2009, issued by the Operator. New Limited Partner Any Subscriber that is admitted to the Partnership from time to time as a Limited Partner. Offer An opportunity to subscribe for admission to the Partnership, details of which are set out in this Memorandum.

Original Limited Partner Turner & Roulstone Management Limited a company incorporated in the Cayman Islands, whose registered office is Strathvale House, George Town, PO Box 2636, Grand Cayman, KY1-1102, Cayman Islands. Original Partners The Original Limited Partner and the General Partner. Partners Collectively the General Partner and all Limited Partners of the Partnership. Partnership The De Sales First Limited Partnership, a Cayman exempted limited partnership whose registered office is Strathvale House, George Town, PO Box 2636, Grand Cayman, KY1-1102, Cayman Islands. Partnership Agreement The agreement dated 9 September 2009 setting out the constitution and affairs of the Partnership entered into by the General Partner, the Operator and the Limited Partners. Partnership Bank Schroder & Co Limited a company incorporated in England and Wales, whose registered office is 100 Wood Street, London EC2V 7ER or such other bank as the General Partner may select from time to time. Partnership Bank Account The bank account of the Partnership with the Partnership Bank into which all Capital Contributions will be paid on Closing, the joint signatories to which will be the Operator and the General Partner.

THE FIRST DE SALES LIMITED PARTNERSHIP

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GLOSSARY OF TERMS

Partnership Business The profession of creative writing as set out in detail at Part 3 of this Memorandum. Partnership Capital The amount of all Capital Contributions made by the General Partner and all Limited Partners. Partnership Security Arrangements The security over the Partnership Bank Account to be granted by the Partnership to the Partnership Bank as security for the Loan made by the Partnership Bank to the Holding Company. Potential Investor A UK resident and/or ordinarily resident individual to whom this Memorandum may be lawfully communicated. Promotions Company De Sales Promotions Limited a company incorporated in the Cayman Islands, whose registered office is Strathvale House, George Town, PO Box 2636, Grand Cayman, KY1-1102, Cayman Islands. Projects The creative writing projects identified by the General Partner to be developed through the Literary Contributions made by the Limited Partners in pursuance of the Partnership Business. Second Period The second period of account starting from 1 January 2010 until 5 April 2010. Subscriber Any Potential Investor that subscribes pursuant to this Memorandum to become a Limited Partner of the Partnership. Subscription Account The segregated account with the Partnership Bank into which all Limited Partner Capital Contributions will be paid, held on trust for Subscribers pending admission to the Partnership, the signatory to which will be the Operator. Subscription Documents The documents required to be completed and submitted to the Operator for admission of a Subscriber as a Limited Partner as set out in Part 12 of this Memorandum.

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Subsequent Accounting Periods Any period of account for the Partnership following the Third Period, starting from 1 January until 31 December in the relevant year. Third Period The third period of account for the Partnership starting from 6 April 2010 until 31 December 2010. UK GAAP UK Generally Accepted Accounting Practice. Written Works The final manuscript after a Project has been developed through the Literary Contributions from the Limited Partners and has been approved by the Editorial Services Provider. Words importing the singular shall include the plural and vice-versa, words importing the masculine shall include the feminine and words importing persons shall include companies, associations or bodies of persons.


PILinvests is an alternative asset fund specialist formed in 1996 an d a leading com pany in the UK in establishing and operating unregulated collective investment schemes with in excess of £3 billion of funds under management. PILinvests will act as the Operator of the Partnership.

Cayman Counsel Turner & Roulstone Strathvale House 90 North Church Street PO Box 2636 Grand Cayman, KY1-1102 Cayman Islands www.tandr.ky

Turner & Roulstone is an innovative Cayman Islands law firm committed to delivering high quality advice and excellent levels of service to its clients, who include major American and European banks. Turner & Roulstone will ac t as Cayman Counsel to the Partnership.

UK Legal Advisors Taylor Wessing LLP 5 New Street Square London EC4A 3TW www.taylorwessing.com

Taylor Wessing is one of Europe’s leading law firms with 280 partners across 13 international offices, providing the full range of legal services to major corporations and growing enterprises. Taylor Wessing will act as UK Lawyers to the Partnership.

Bankers Schroder & Co Limited 100 Wood Street London EC2V 7ER www.schroders.com

Schroders Private Banking maintains a commitment to excellence aiming for the highest quality of service in providing innovative structured products, investment management and banking services. Schroders Private Banking will act as Bankers to the Partnership.

Leading Tax Counsel Rex Bretten QC Tax Chambers 15 Old Square Lincoln's Inn London WC2 3UE www.taxchambers.co.uk

Appointed Queen’s Counsel in 1980, G R Bretten QC advises on all aspects of United Kingdom taxation, including multi-national corporate work and the application of statutory anti-avoidance provisions and tax litigation. Rex Bretten will act as Leading Tax Counsel to the Partnership

THE FIRST DE SALES LIMITED PARTNERSHIP

PART 1  PRINCIPALS AND ADVISORS

Operator Partnership Incorporations Limited Connaught House 3rd Floor 1 Mount St London W1K 3NB www.pilinvests.com

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PART 2  OPERATIONAL STRUCTURE AND CORPORATE GOVERNANCE

The Partnership The First De Sales Limited Partnership Strathvale House George Town PO Box 2636 Grand Cayman, KY1-1102 Cayman Islands

General Partner De Sales Partnership Management Limited Strathvale House George Town PO Box 2636 Grand Cayman, KY1-1102 Cayman Islands

Status:

Incorporated: Original Partners:

Status: Incorporated: Directors: Share Capital:

Holding Company Walmgate Holdings Limited Strathvale House George Town PO Box 2636 Grand Cayman, KY1-1102 Cayman Islands

Status: Incorporated: Directors: Share Capital:

Editorial Services Provider Inspire Editorial Services Limited Strathvale House George Town PO Box 2636 Grand Cayman, KY1-1102 Cayman Islands.

Status: Incorporated: Directors: Share Capital:

Promotions Company De Sales Promotions Limited Strathvale House George Town PO Box 2636 Grand Cayman, KY1-1102 Cayman Islands

Status: Incorporated: Directors: Share Capital:

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Cayman Exempted Limited Partnership 19 June 2009 De Sales Partnership Management Limited Turner & Roulstone Management Limited

Cayman Exempt Company 19 June 2009 Alan Turner & Sharon Roulstone 100% owned by Holding Company

Cayman Exempt Company 19 June 2009 Alan Turner & Sharon Roulstone 100% owned by Wilmington Trust (Cayman) Limited

Cayman Exempt Company 19 June 2009 Alan Turner & Sharon Roulstone 100% owned by Holding Company

Cayman Exempt Company 19 June 2009 Alan Turner & Sharon Roulstone 100% owned by Wilmington Trust (Cayman) Limited


THE FIRST DE SALES LIMITED PARTNERSHIP

15

2%

2%

Executive

2 100%

3 98%

4

98.5% approx

100%

Walmgate Holdings Limited

De Sales Partnership Management Limited

The First De Sales Limited Partnership

2%

UK Resident Limited Partners

UK Tax Advice and Support

De Sales Promotions Limited

Inspire Editorial Services Limited

5

1

6

Holdings repays Partnership Bank.

Editorial Services Provider lends proceeds to Holdings.

Partnership makes payment to Editorial Services Provider for restrictive undertakings given by the Executive.

STRUCTURE CHART

6

5

4

General Partners makes its Capital Contribution to the Partnership.

Holdings capitalises the General Partner.

2 3

Partnership Bank lends to Holdings.

1

Partnership Bank


PART 2  OPERATIONAL STRUCTURE AND CORPORATE GOVERNANCE

The Partnership The First De Sales Limited Partnership (the “Partnership”) is a Cayman Exempted Limited Partnership, formed and registered on 19 June 2009 under the Exempted Limited Partnerships Law (2007 Revision). Under that law the Partnership must have at least one General Partner and one Limited Partner. The details of the General Partner are set out below. The Original Limited Partner at the date of incorporation was Turner & Roulstone Management Limited, a Cayman ordinary resident Limited Company incorporated in the Cayman Islands. The Original Limited Partner will retire from the Partnership as at the date of Closing and all those Potential Investors who wish to invest in the Partnership will become New Limited Partners. Further details of the operation of the Partnership and the Partnership Business are set out in Part 4 and Part 5 of this Memorandum. The United Kingdom taxation treatment of the Partnership is also considered in Part 8 General Partner The General Partner is responsible for the debts and obligations of the Partnership and, in consultation with the Operator, is responsible for establishing the business objectives and policies of the Partnership. The General Partner will execute documents on behalf of the Partnership where required, in accordance with the recommendations of the Operator. In addition, the General Partner is responsible for the day to day operational management of the Partnership, including the development of the Partnership Business, although Limited Partners are expected to make Literary Contributions towards the furtherance of that business. Specifically, the General Partner will determine which Projects will be developed through the Literary Contributions made by the Limited Partners. Four Projects have already been identified and it is intended that these will be developed initially. All Limited Partners are nevertheless free to suggest future Projects, although the General Partner has overall responsibility to make any final decision. De Sales Partnership Management Limited (the “General Partner”) is a Cayman Exempted Limited Company incorporated in the Cayman Islands on 19 June 2009 and is a wholly owned subsidiary of the Holding Company. The Holding Company will capitalise the General Partner with monies sufficient to enable it in-turn to provide its intended

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Capital Contribution to the Partnership. The Capital Contribution from the General Partner, together with the total of all Capital Contributions from the Limited Partners, will represent the whole of the Partnership Capital. It is intended that the Partnership Capital will be used to fund the Partnership Business, including making a payment for the giving of Restrictive Undertakings by the Executive, as discussed in Part 8 Holding Company Wa l m g a te H o l d i n gs L i m i te d (t h e “ H o l d i n g Company”) is a Cayman Exempted Limited Company incorporated in the Cayman Islands on 19 June 2009 and is the parent company of both the General Partner and the Editorial Services Company. The Holding Company will borrow funds from Schroder & Co Limited (the “Partnership Bank”) and will be required by the terms of its loan facility agreement with the Partnership Bank to use the majority of those borrowed monies to capitalise its subsidiary De Sales Partnership Management Limited (the “General Partner”), which will in-turn use those funds to provide its intended Capital Contribution to the Partnership. Editorial Services Provider Inspire Editorial Services Limited (the “Editorial Services Provider”) is a Cayman Exempted Limited Company incorporated in the Cayman Islands on 19 June 2009 and is a wholly owned subsidiary of the Holding Company. The Editorial Services Provider has contracted with the Partnership under an Editorial Services Agreement, to provide various Editorial Services to the Partnership and ultimately to seek publication either directly or through the services of a Literary Agent, of the Written Works. The Executive, which may be more then one employee, is negotiating with the General Partner to become employed under an Employment Contract, to provide various services to the Partnership. The Executive will be responsible for collating all Literary Contributions submitted by the Limited Partners towards the furtherance of each of the Projects identified by the General Partner, and will undertake an initial editorial review and consistency check, before these are submitted to the Editorial Services Provider for consideration. The Editorial Services Provider retains the right to reject any Projects that it considers to be insufficiently developed but will otherwise work with the General Partner and the Executive on behalf of the Partnership to


finalise each Project and to create Written Works. The Editorial Services Provider will then seek publication of these Written Works either directly through a publisher or by engaging a Literary Agent. The Editorial Services Provider is permitted to subcontract its services to third parties. The Editorial Services Provider will be the recipient of the payment by the Partnership for the giving of Restrictive Undertakings by the Executive discussed in Part 8 and in the Leading Tax Counsel opinion. It is the intention that the Editorial Services Provider will lend most of those monies received to its parent the Holding Company, which is required by the terms of its loan facility agreement to use those funds to repay the Loan from the Partnership Bank. Promotions Company De Sales Promotions Limited (the “Promotions Company”) is a Cayman Exempted Limited Company incorporated in the Cayman Islands on 19 June 2009 and is neither a Partner in the Partnership nor a member of the Holding Company group that includes the General Partner and the Editorial Services Provider. The role of the Promotions Company is to provide advice and support to Potential Investors (both before and after they may become Limited Partners) and their Introducers in connection with the UK taxation aspects of investing in the Partnership based upon Leading Tax Counsel’s opinion. A copy of Leading Tax Counsel’s opinion (there are in fact two separate opinions) will be made available to all Potential Investors and their Introducers prior to any Potential Investor investing in the Partnership. Subscribers engage the Promotions Company to provide this advice under a separate Letter of Engagement which is included as part of the Subscription Documents discussed in Part 12 of this Memorandum. A separate fee will be charged to Subscribers by the Promotions Company for the provision of this advice and part of that fee will be held under an Escrow Arrangement to the order of the Operator and the General Partner and will be used to fund the external costs of defending the UK tax analysis applying to the Partnership, should HMRC challenge the basis of taxation in the UK. The funds will be held under the Escrow Arrangement until such time as the General Partner and the Operator in their sole discretion determine that the funds should be released.

Operator PILinvests (the “Operator”) has been appointed to act as Operator of the Partnership under the Operating Agreement and the term of that appointment shall be for the duration of the Partnership unless terminated: • by service of a written notice by the Operator to the General Partner such notice to be served no later than six months before the date of such expiry; or • the termination, winding up or the dissolution of the Partnership pursuant to the Partnership Agreement; or • the Operator ceasing to be an authorised person under the FSMA or ceasing to be permitted by the FSA to act as operator of an unregulated collective investment scheme or to carry on any other relevant regulated activity; or • the passing of an Extraordinary Resolution by the Partnership to remove the Operator on grounds that the Operator is in material breach resulting in material loss, only if capable of remedy, is not remedied within 20 Business of notice requiring such remedy. The Operator will not hold a direct or indirect participation in the Partnership or have a relationship of any description with another party which may involve a conflict with the Operator’s duty to the Partnership. The Operator will not supplement the Capital Contributions of the Partnership. PILinvests is an alternative asset fund specialist and a leading company in the UK in establishing and operating unregulated collective investment schemes. Since 1996, PILinvests has launched over 100 funds and has been retained as the operator or adviser on transactions in excess of £8 billion. PILinvests is the trading name of Partnership Incorporations Limited which is a limited liability company incorporated under the laws of England & Wales, authorised and regulated by the FSA (registration number 180410) with registered number 03011126 and registered office at 3rd Floor, Connaught House, 1 Mount Street, London W1K 3NB. The Operator will not act as principal in any transaction of the Partnership but will establish and operate the Partnership as an unregulated collective investment scheme. It will deal with all FSA matters and oversee the Partnership accounting and administration. It will ensure that all financial records are maintained in a professional manner and that annual accounts are prepared

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PART 2  OPERATIONAL STRUCTURE AND CORPORATE GOVERNANCE 18

to 31 December each year and distributed to the Partners. The annual accounts will be subject to an audit and Limited Partners’ capital investment in the Partnership will be independently valued as at the date of each annual audit. The Operator will approve transfers, communicate with Partners and oversee all distributions of profits payable to the Partners. The Operator will oversee the preparation and issuance to the Limited Partners of adequate information, at least once annually. This statement will cover the performance of the Partnership Business and the proportion of any profits attributable to each of the Partners, where applicable. The Operator will also be appointed to act as liquidating trustee to liquidate the Partnership assets at termination. The Operator will not hold money on behalf of the Partnership or be the custodian of investments in or outside the UK. The Partnership Bank Account will be held at Schroder & Co Limited (the “Partnership Bank”) and the Operator will be joint signatory in conjunction with the General Partner. Schroder & Co Limited is not an associate of the Operator. Capital Contributions will be paid into the Subscription Account and will be transferred on Closing to the Partnership Bank Account. The Operator will not contribute Partnership Capital to the Partnership and will not be a Partner. The Partnership will not contain units in a collective investment scheme either operated or advised by the Operator or by an associate of the Operator or in a collective investment scheme which is not a regulated collective investment scheme. The Operator will not undertake stock lending activities with or for the Partnership nor will the Partnership invest in contingent liability investments.

THE FIRST DE SALES LIMITED PARTNERSHIP

The Operator does not accept liability for any loss of investment within the Partnership. The Partnership Agreement contains an indemnity to be given by the Limited Partners for the General Partner and the Operator and each of their associates, officers, agents, advisers and employees against all claims, liabilities, costs, damages and expenses (including legal fees) to which they may be or become subject by reason of their activities on behalf of the Partnership so long as such activity giving rise to the claim does not involve gross negligence, fraud, wilful default or a conscious and material breach of the Partnership Agreement. This indemnity will be limited to the extent of the Partnership assets. The UK Legal Advisers and Cayman Counsel are acting for the General Partner and the Operator and no one else. Such advisers will not be responsible to anyone other than the General Partner and Operator for providing the protection afforded to clients or customers of such advisers or for providing advice in relation to the Memorandum. The Promotions Company is providing advice to Limited Partners directly pursuant to the terms of the Letter of Engagement, and not the Partnership. Consequently, neither the General Partner nor the Operator has any responsibility or liability for any advice provided by the Promotions Company under the Letter of Engagement.


This Executive Summary is subject to the full terms and conditions of the Offer as set out in this Memorandum. Subscribers are advised to consult their own professional advisers before completing the Subscription Documents. Potential Investors must also read the tax opinion settled by Leading Tax Counsel, which will be made available prior to Closing, and must confirm that they have reviewed this as part of the application process.

is considered that the arrangement will constitute a “notifiable arrangement” for the purposes of Part 7 of the Finance Act 2004 and the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543) and as a result, the arrangement will be notified to HMRC at the relevant time by the Promotions Company, in its capacity as “promoter” of the arrangement as stated in the Letter of Engagement.

The Opportunity The First De Sales Limited Partnership has been structured to provide an expected tax advantage to UK resident and/or ordinarily resident individuals (regardless of their domicile) who join the Partnership as Limited Partners. This expected or potential tax advantage is only relevant to UK resident and/or ordinarily resident individuals in relation to the calculation of their UK tax liabilities. Individuals who may also pay taxes in another jurisdiction, either because they are deemed also to be resident in that other place or because they may have income or gains arising in that other place, must take care to ensure that the potential tax advantage in the UK does not impact upon their tax position in that other jurisdiction.

Whilst it is the case that one of the main benefits that might be expected to arise from the arrangement is the obtaining of a tax advantage, the Partnership will nevertheless carry on a commercial business activity, with a view to realising a profit. Any profits that do arise will be distributed to the Partners in accordance with the terms of the Partnership Agreement.

Further details of the UK taxation analysis applying to the Partnership and the expected tax advantage are set out in Part 8 of this Memorandum and in Leading Tax Counsel’s opinion. There is no guarantee that the expected or potential tax advantage will materialise and the taxation analysis set out in this Memorandum is likely to be challenged by HMRC. It

PART 3 EXECUTIVE SUMMARY

An investment in The First De Sales Limited Partnership is a speculative investment and carries a high degree of risk. The Partnership will constitute a tax avoidance scheme and the UK tax analysis applying to the Partnership and the Limited Partners cannot be guaranteed. Your attention is drawn to the Important Information notice at the start of this Memorandum and also to the Risk Factors discussed in Part 9.

Full details of the Partnership Business are set out in Part 5 of this Memorandum. However, in outline, the Partnership Business will be to exploit the knowledge, experience and expertise of the Limited Partners for profit, through the creation of a variety of Written Works. It is intended that the General Partner will identify a number of Projects, which may relate to a variety of different genres or fields, which it considers may potentially be more profitable for the Partnership or which might align more closely with the personal experiences of the majority of or a particular group of Limited Partners. The Offer This Memorandum relates to and describes an Offer to participate in the Partnership Business as

THE FIRST DE SALES LIMITED PARTNERSHIP

19


PART 3 EXECUTIVE SUMMARY

described in Part 5. The Partnership intends to raise capital both from Subscribers under the Offer and from the General Partner and apply the proceeds in the furtherance of the Partnership Business including the development of the identified Projects and making a payment for the giving of Restrictive Undertakings by the Executive, as discussed in Part 8 and in Leading Tax Counsel’s opinion. The Partnership is negotiating employment terms with the Executive, which may be more than one employee, and it is the intention of the General Partner that their employment will commence on or around the date of Closing . The role of the Executive is discussed more fully in Part 5 and Part 8 below. The Partnership is also negotiating the engagement of the Editorial Services Provider, to provide editorial and other services to the Partnership in order to develop each Project with a view to creating Written Works, for which it will then seek publication either directly through a publisher or by engaging a Literary Agent. The Editorial Services Provider retains the right to reject any Projects that it considers to be insufficiently developed but will otherwise work with the General Partner and the Executive on behalf of the Partnership to finalise each Project and to create Written Works The Commitment The business intention of the Partnership is to diversify and maximise exposure to profit over time, by defining a wide range of Projects across different genres and fields. The Literary Contributions of the Limited Partners and their continued suggestion for future Projects, are therefore of paramount importance. The wider intention of the individual Limited Partners who subscribe capital to the Partnership, is anticipated to be the enjoyment of the expected tax advantage as set out in Part 8 and in Leading Tax Counsel’s opinion. These two intentions are mutually inclusive. The success of the taxation analysis applying to the Partnership and therefore the ability for the individual Limited Partners to be able to claim the anticipated tax relief, is strengthened immeasurably by the success of the Partnership Business. S u b s c r i b e r s s h o u l d t h e ref o re t re a t t h e i r participation in the Partnership as participation in a real commercial business activity, albeit not an

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THE FIRST DE SALES LIMITED PARTNERSHIP

activity which would require a full-time or even necessarily a regular part-time commitment. Nevertheless, where individual Limited Partners do not adhere to any relevant deadlines set by the Executive and the General Partner or where no Literary Contributions are made, the Executive may provide a report to the General Partner, who may then designate those concerned as Defaulting Partners. In accordance with the provisions of the Partnership Agreement, Defaulting Partners may be expelled from the Partnership and, as a result may lose their entitlement to any share of Partnership profits and or losses. It is therefore vital that all Limited Partners accept a degree of responsibility for the success of the Partnership Business and inturn the success of the wider intention, namely the potential tax advantage The General Partner and the Executive The General Partner and the Executive are required to act in the best interests of the Partnership and do all that they can towards the furtherance of the Partnership Business. Whilst the General Partner does not itself have previous journalistic or authorship experience, it will employ the Executive who does have such experience and skills. The General Partner will be provided with management and administrative expertise through its Services Agreement with Turner & Roulstone Management Limited. Editorial Services Provider The Partnership will enter into an Editorial Services Agreement with Inspire Editorial Services Limited (the “Editorial Services Provider”) to supply or procure the supply of Editorial Services to the Partnership, for which it will receive both fees and royalties. In accordance with the terms of the Editorial Services Agreement, the Literary Contributions made by the Limited Partners will be compiled and edited for consistency by the Executive on behalf of the General Partner before being submitted to the Editorial Services Provider for review, editing and ultimately for publication through a literary agent or directly through a publisher. Partnership Capitalisation The Partnership will be capitalised by the Capital Contributions of the Limited Partners and the General Partner. Each Capital Contribution must be funded by way of a Cash Payment in Sterling. Payment of the full amount of a Limited Partner’s Capital Contribution must accompany the submission of the Subscription Documents submitted by a Subscriber. All funds will be held by the General Partner in the


Subscription Account on trust for the Subscriber pending his admission to the Partnership. Payment of the General Partner Capital Contribution will be made on the date of Closing. All a m o unts subs crib e d by way of C a pital Contribution will be used by the Partnership in the furtherance of the Partnership Business including all payments to service providers under their various contracts (the Operator and the General Partner), the remuneration of the Executive and the payment made to the Editorial Services Provider for the giving of restrictive undertakings by the Executive. It is anticipated that a significant proportion of the Capital Contributions will be unconditionally contracted to be spent prior to the date of Closing or will be used to recoup Partnership expenditure incurred prior to the date of Closing. Terms The Offer is made on the terms set out in this Memorandum and the Subscription Documents only. The Offer is open to and is made only to UK resident and/or ordinarily resident persons. The Offer is unlikely to be suitable for persons who are unable to make a commitment to the Partnership for a period of at least 3 (three) years and will not be suitable for persons who can show no commitment to creating and submitting Literary Contributions towards the furtherance of the Partnership Business.

Applying to join the Partnership Subscribers can apply to join the Partnership by completing the Subscription Documents and paying a sum equal to the Capital Contribution and Advice Fees payable to the Promotions Company. Any Subscriber completing and signing the Subscription Documents agrees to be bound by the terms of both this Memorandum and the Partnership Agreement. The General Partner, under the oversight of the Operator, has sole discretion to admit a Subscriber to the Partnership as a Limited Partner and may refuse to accept any person, for any reason and is not obliged to state his reasons. Closing The Offer described in this Information Memorandum is intended to close on 1 October 2009. However, the date of Closing may be extended or withdrawn at any time by the Operator for any reason, without notice. There can be no assurance that the Partnership’s business objectives will be achieved and, as with any commercial business activity, actual results may vary substantially from the projections set out in Part 7 of this Memorandum. It may be that the Partnership Business does not generate any profit that can be distributed to Partners. It may also be that Partners lose all of the Capital Contribution, although provided that they do not participate in the management or control of the Partnership business, they should not be exposed to any risk of incurring additional liability.

THE FIRST DE SALES LIMITED PARTNERSHIP

21


PART 4  THE PARTNERSHIP

The following section considers a number of important terms on which the Partnership will operate and the circumstance under which Limited Partners will make Capital Contributions. Potential Investors should read the full terms of the Partnership Agreement set out in the separate pack which accompanies this Memorandum. Partnership Structure The First De Sales Limited Partnership (the “Partnership”) is a Cayman Exempted Limited Partnership, formed and registered on 19 June 2009 under the Exempted Limited Partnerships Law (2007 Revision) (the “Law”). The Partnership was originally incorporated under the Law by the Original Limited Partner (Turner & Roulstone Management Limited) and the General Partner (De Sales Partnership Management Limited) as Original Partners of the Partnership. The Original Limited Partner will retire from the Partnership at the date of Closing. The General Partner will continue to act as General Partner of the Partnership until such time as it may retire or be replaced, in accordance with clause 6 of the Partnership Agreement. The Original Partners adopted a simple partnership agreement upon first incorporation of the Partnership. A more comprehensive and detailed partnership agreement (the “Partnership Agreement”) was subsequently adopted on 9 September 2009 and a copy of that Partnership Agreement is enclosed with this Memorandum. Potential Investors should read the terms of the Partnership Agreement before deciding whether to subscribe for an interest in the Partnership. Under the Law the Partnership must have at least one general partner and one limited partner at all times and at the date of Closing, the Original Limited Partner will retire and will be replaced by the Subscribers under this Memorandum as New Limited Partners. Partnership Name, Office and Status As stated above, the name of the Partnership is The First De Sales Limited Partnership and all

22

THE FIRST DE SALES LIMITED PARTNERSHIP

Partnership Business will be carried on under that name. The use of that name is proprietary and none of the Partners may use that name for any purpose other than for the purpose of their interest in the Partnership. The registered office and principal place of business of the Partnership is Strathvale House, George Town, PO Box 2636, Grand Cayman, KY1-1102, Cayman Islands. Whilst the Partnership was incorporated in the Cayman Islands and whilst the principal place of business of the Partnership is also in the Cayman Islands, the Partnership Business will be carried on at least in part, in the place where the Limited Partners reside i.e. in the UK. A C a y m a n E xe m p te d L i m i te d P a r t n e rs h i p incorporated under the Law, will be fiscally transparent in the UK. This has the effect for UK taxation purposes of treating each Partner as though he were carrying on part of the Partnership Business on his own account, such that his share of any profits or any losses arising from that business are treated as though they belonged to him as an individual. In other words, despite being a separately incorporated legal entity, the Partnership does not have a separate legal personality from the Partners carrying on that business, for the purposes of UK taxation. Further details of the relevance of the place where the Partnership Business is carried on are set out in the UK Taxation Analysis section at Part 8 of this Memorandum and in Leading Tax Counsel’s opinion. Part 8 also explains the fiscally transparent nature of the Partnership.


Management and Control Under the Law, Limited Partners may not take part in the conduct of the business of the Partnership. In broad terms this means that Limited Partners may not take responsibility for the management and control of the Partnership or its business and must not contract with third parties who are not Partners, on behalf of the Partnership or the General Partner. The management and control by the Limited Partners is also prohibited under the terms of the Partnership Agreement. Limited Partners who contravene the Law on this point risk losing their Limited Liability status although one Limited Partner cannot lose the Limited Liability status of another Limited Partner or the Partnership as a whole. The General Partner will be solely responsible for the management and control of the Partnership from the Cayman Islands, in accordance with the provisions of the Partnership Agreement. The Operator will have authority and responsibility to operate the Partnership as a collective investment scheme for the purposes of FSMA, in accordance with the provisions of the Operating Agreement (please refer to Schedule 3 of the Partnership Agreement). The General Partner and Operator cannot resign from or be removed from the Partnership except in accordance with the terms of the Partnership Agreement or Operating Agreement Target Partnership Equity The target Partnership equity (the total of all Capital Contributions) is £150,000,000 (£150 million pounds Sterling). The minimum Partnership equity is £100,000,000 (£100 million pounds Sterling) and there is no maximum. Therefore, the Partnership will close at the date of Closing provided subscriptions for investment in the Partnership reach at least this lesser amount. All financial projections set out in Part 7 of this Memorandum are based upon the target Partnership equity amount of £150m.

Participations in the Partnership Potential Investors are invited to subscribe for participations in the Partnership by making a Limited Partner Capital Contribution. All Limited Partner Capital Contributions will be matched at the date of Closing by the General Partner, which will make its General Partner Capital Contribution in the above ratio. Therefore, assuming the Partnership achieves its target Partnership equity of £150m, this equity will have been provided in the form of Capital Contributions made as follows:

Capital General Partner £147m Limited Partners £3m Any returns of Partnership Capital will be made in the same proportions. The General Partner is liable for all expenses, liabilities, debts and obligations of the Partnership. Limited Partners are only liable for the expenses, liabilities debts and obligations of the Partnership to the extent of their Capital Contribution. There should be no circumstances in which Limited Partners are therefore required to make additional Capital Contributions to the Partnership. Clause 7.2 of the Partnership Agreement provides however, that the Limited Partners as a class may pass an extraordinary resolution that additional C apital Contributions are re quire d for th e furtherance of the Partnership Business and should be made by the Limited Partners. Only in these circumstances, will there be any requirement for additional Limited Partner Capital Contributions to be made and this will be a matter for the Limited Partners to decide upon, should the need arise. There are no circumstances under which the General Partner will or could be required to make any additional General Partner Capital Contribution. Partners will not receive interest on their Capital Contributions for any reason.

Whatever the final total Partnership equity (i.e. no less than £100m but with no maximum) the Capital Contributions made by the General Partner and the Limited Partners will be in the following ratios:

A register of Partners and their Capital Contributions will be maintained by the General Partner. This register is not publicly available for inspection and may only be inspected by the Partners, in person at Capital the registered office of the Partnership. Whilst it is General Partner 98% not intended, it should nevertheless be expected that Limited Partners 2% through the course of the Partnership Business, the identity of each Limited Partner may become known to other Limited Partners.

THE FIRST DE SALES LIMITED PARTNERSHIP

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PART 4  THE PARTNERSHIP

Term of the Partnership and Return of Capital Contributions The Capital Contributions made by the General Partner and the New Limited Partners should provide sufficient working capital to meet the running costs of the Partnership for at least the period from the date of Closing to 31 December 2011 unless the Partnership is dissolved, liquidated or terminated earlier in accordance with the provisions of clause 16 of the Partnership Agreement. Once made, Capital Contributions cannot be returned to Partners until the Partnership is dissolved, liquidated or otherwise terminated and Limited Partners have no right or power to cause the dissolution or winding up of the Partnership in any circumstances. Upon termination the Partnership assets will be realised in an orderly manner, and as quickly as possible by the Operator. Returns of capital may then be made to the Partners out of those realised assets, in proportion to their Capital Contributions. Therefore, 98% of any realised assets of the Partnership after deduction of costs will be returned to the General Partner with 2% returned to the Limited Partners as a class. It is prudent for Limited Partners not to expect to receive a return of all or any part of their Limited Partner Capital Contribution, therefore. Transfer of Participations Participations are not generally transferable by the Limited Partners, except for transfers on death or by operation of law. Limited Partners may not therefore, sell, transfer or assign their interest in the Partnership, in any circumstances, without the prior consent of the General Partner. The Partnership is an unregulated collective investment scheme and there is currently no secondary market for interests in Cayman Islands Limited Partnerships, in any event.

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THE FIRST DE SALES LIMITED PARTNERSHIP

Accounts and Reports to Investors At 31 December each year the General Partner will arrange for the preparation of audited accounts of the Partnership prepared in accordance with UK GAAP. The first audited accounts of the Partnership will cover the period from the date of Closing to 31 December 2010. The audited accounts will include an independent valuation of the Partnership assets and the interests of all Limited Partners and will be distributed to all Partners not later than nine months following each 31 December year end. In addition, the General Partner will provide a status report to the Limited Partners and the Operator on the Partnership's activities during the previous six months to 30 June each year. The first status report will cover the period from Closing until 30 June 2010. These will not be audited accounts and will not include a valuation of Limited Partners’ interests. Status reports will be distributed to all Partners not later than three months following each 30 June period end. Meetings There will be an annual general meeting of the Partnership, which all Limited Partners will be entitled to attend. In addition, it is anticipated that after the date of Closing and prior to 5 April 2010, Limited Partners will be invited and encouraged to attend one of a series of “workshops” to be held at locations throughout the UK. These workshops will include presentations by the Executive and the General Partner, discussing the Partnership Business and related practical matters.


Partnership Business As stated above, the purpose of the Partnership is to engage in the profession of creative writing for monetary reward, drawing upon the professional and personal experience, knowledge and expertise of the Limited Partners. Each Limited Partner is expected to contribute towards the furtherance of that business and there may be repercussions for those that do not. As with any new business venture, the success or otherwise of the Partnership Business is in the hands of the individuals involved. In this case, that success rests entirely with the Limited Partners and it is hoped that the business results will be reflected in the commitment shown by all of them. Over time, the direction of the Partnership Business may evolve and change to reflect the particular experience, knowledge and expertise of the individual Limited Partners. However, the General Partner has determined that direction initially and will at all times, have the sole right to determine which Projects should be developed by the Partnership. Nevertheless, the aims and wishes of the Limited Partners will of course, be considered by the General Partner, who will be pleased to receive suggestions for future Projects. Project Based Approach The Partnership Business will therefore be driven by the General Partner adopting a Project based approach. In each period of account a number of Projects will be identified by the General Partner and individual Limited Partners will be required to submit Literary Contributions towards all or some

of those Projects. The General Partner intends to minimise exposure to risk and maximise exposure to profit over time, by defining a wide range of Projects across different genres and fields.

PART 5 PARTNERSHIP BUSINESS

The purpose of the Partnership is to engage in the profession of creative writing. In addition, the basis on which the Partnership is structured should confer a UK tax advantage on Potential Investors who become Limited Partners. The following section discusses the Partnership Business in more detail, whilst Part 8 considers the UK Taxation Analysis.

Initially four Projects have been identified by the General Partner. The first of these will be an ongoing or continuing Project, which is expected to generate a steady stream of modest income for the Partnership. The other three are specific Projects with an initial scope and delivery schedule, although these may also be subject to change or may be dropped altogether in favour of other Projects with greater resonance amongst the Limited Partners as a class. The four initial Projects are: 1 Journalistic Articles which draw on the professional experience of the Partners. 2 Simple World Cuisine. 3 Speech Writing for Every Occasion. 4 A series of pre-school books for very young children. Further information on each of these four initial Projects, their scope and delivery and the basis for selection is set out in the Industry Overview section of this Memorandum at Part 6. Aside from the first of these, which as stated will be ongoing, the development of any Project is likely to be a relatively lengthy process. Principally for this reason, the General Partner has directed that the three remaining Projects will be the primary focus for the Partnership during the First Period, the Second Period and the Third Period, together covering the period from the date of Closing to 31

THE FIRST DE SALES LIMITED PARTNERSHIP

25


PART 5 PARTNERSHIP BUSINESS

December 2010. Thereafter it is intended that the General Partner will identify a minimum of two Projects to be undertaken in each Subsequent Period i.e. in each accounting year, whilst the first Project will continue throughout.

General Partner to be developed in the period from date of Closing to 31 December 2010. Thereafter, each Limited Partner must submit at least one Literary Contribution towards the Projects identified by the General Partner in each Subsequent Period.

As stated, it is hoped that the individual Limited Partner will want to suggest their own Projects to the General Partner, perhaps to be developed individually or as a small group of Limited Partners with similar interests and experience. It is the intention of the General Partner that the Executive will issue a questionnaire shortly after the date of Closing to help build a profile of the Limited Partners as individuals and as a group, so that some further suggestions can be made as to the Projects which should be identified and developed going forward.

Defaulting Partners and Expelled Partners All Literary Contributions will be compiled and co-ordinated by the Executive, who will act as Administrations Manager and liaise with the General Partner and Editorial Services Provider. The Executive will be required to work with the Limited Partners to ensure that all Literary Contributions are delivered on time and to develop consistency of brand and content. The Executive is required always to act in the best interests of the Partnership and this may mean reporting to the General Partner in any case where a Limited Partner has failed to submit a Literary Contribution on time or where any Literary Contribution is inadequate.

The Commitment Shortly after Closing and following receipt of completed Limited Partner Questionnaires, the General Partner will instruct the Executive to circulate a brief summary of the three longer term Projects, together with a detailed scope and delivery paper in relation to the first ongoing Project. Limited Partners will be asked to nominate which of these Projects they wish to be involved with and it is hoped that they will want to be involved with a number of them. For example, a Limited Partner may suggest that he could write a review or an article or a paper, for publication in a trade or hobby journal that draws on his personal interests or professional experience. Of course any such article must be submitted for monetary reward as the overriding business purpose is to generate a profit and the Executive will therefore be required to co-ordinate and manage submission to the appropriate publication. In addition, the Limited Partner in question, might also make a contribution towards both the Simple World Cuisine and Speech Writing Projects. It might be that the individual concerned also has a particular interest in Motor Sport, Musical Theatre or Movies and wishes to suggest and contribute towards a Project in one or more of these areas. There is nothing to prevent Limited Partners from contributing written material to self-nominated Projects but the General Partner will continue to have absolute discretion as to which Projects should be developed. Each written contribution is defined in the Partnership Agreement as a Literary Contribution and each Limited Partner is obliged to submit a Literary Contribution towards at least one of the Projects identified by the

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THE FIRST DE SALES LIMITED PARTNERSHIP

Once again, the General Partner has absolute discretion to determine whether a particular submission by a Limited Partner is sufficient either to discharge that Limited Partner's obligation discussed above or to pass across to the Editorial Services Provider. Where it is decided by the General Partner that a Limited Partner has failed to submit a Literary Contribution on time or it is inadequate, the General Partner may ask that Limited Partner to revise or redraft his Literary Contribution, as the case may be. If agreement cannot be reached between the General Partner and the particular Limited Partner, then the General Partner may issue a written warning, stating the nature of the failure and the remedy sought. The Defaulting Partner will be given 30 days to remedy the failure identified in the written warning or will be issued with a further written warning. No written warning can be given until six months following the date of Closing. In the event that the Defaulting Partner is issued with two written warnings in the Third Period or any Subsequent Period and fails to remedy any failures identified, the General Partner may then give notice of its intention to expel the Defaulting Partner from the Partnership. The Defaulting Partner has a right of appeal in respect of any written warning or notice of expulsion to the Dispute Committee, which will consist of the Executive and six other Limited Partners but will exclude the Defaulting Partner and the General Partner. The Dispute Committee will be convened to decide the outcome of the


appeal by a simple majority vote and its decision will be binding on both the Defaulting Partner and the General Partner. Where the notice of expulsion issued by the General Partner is upheld or where the Defaulting Partner does not appeal, the Defaulting Partner shall be immediately expelled from the Partnership. An Expelled Partner will not receive back any part of his Capital Contribution until such time as the Partnership is dissolved, liquidated or terminated and shall not be entitled to any share of Partnership profits or losses for the period in which he is expelled or any subsequent period. An Expelled Partner will also automatically give up his right to any part of the Advice Fees held under the Escrow Arrangement to fund the external costs of defence, as set out in the Letter of Engagement with the Promotions Company. For the avoidance of doubt, a Limited Partner admitted to the Partnership as at the date of Closing, who fails to submit an adequate Literary Contribution by the dates stipulated in the Partnership Agreement, will find that he is expelled from the Partnership under the process described above. A Limited Partner expelled prior to 31 December 2010 will not be entitled to any return of his Limited Partnership Capital Contribution until such time as the Partnership is dissolved, liquidated or terminated and will not have any part of any Partnership loss arising in the First Period or profits and losses arising in any other period, allocated to him. Retirement and Replacement of Partners The General Partner can only resign from the The General Partner can only resign from the Partnership upon giving 90 days written notice to all Limited Partners and the Operator. During that notice period the Limited Partners must appoint a substitute General Partner by Extraordinary Resolution, otherwise the Partnership will be dissolved, on the basis that under the Law it must at all times include at least one general partner and one limited partner. Limited Partners may retire from the Partnership at any time with the prior agreement in writing of the General Partner, but not prior to 31 December 2013. From that date onwards Limited Partners may retire at any 31 December year end upon giving 90 days written notice to the General Partner. Transfers of Limited Partners’ participations are subject to the prior written consent of the General Partner

and subject to further conditions set out in the Partnership Agreement. Upon resignation a Limited Partner may nominate a substitute Limited Partner to replace him and may look to recoup the current value of his Capital Contribution from that substitute or must give up all rights to his Capital Contribution which will automatically transfer to that substitute Limited Partner. Restrictive Covenants As stated, individual Limited Partners are expected to act in the best interests of the Partnership at all times and to do all that they can towards the furtherance of the Partnership Business. It is expected therefore, that individual Limited Partners will not undertake any activity that might cause harm to the Partnership Business and this would include writing articles or seeking publication of Written Works for profit, on their own account. The Partnership Agreement therefore provides that Limited Partners may not carry on any business which may directly compete with the Partnership Business. However, Limited Partners may engage in activities which might otherwise compete with the Partnership Business where: (a) the consent of the General Partner has been obtained prior to engaging in such activity; or (b) the activity carried on is reasonably required to be performed by the Limited Partner in the furtherance of any employment or other selfemployment; or (c) the activity is carried on in a capacity as a Limited Partner of any other limited partnership of which the General Partner is the general partner; or (d) the activity is carried on unpaid or otherwise not for profit; or (e) such activity generally commenced prior to the date of Closing. The Partnership Agreement also provides that each Limited Partner will assign the copyright in all Literary Contributions submitted by him, to the General Partner for no consideration and with full title guarantee, and waive all moral rights. Nevertheless, the General Partner may in its discretion recognise the Limited Partner as the author of a particular Literary Contribution which is put forward for publication, provided that the Limited Partner has given his prior written consent to such recognition. All Written Works will be published collectively by the Partnership under the 'De Sales' brand name.

THE FIRST DE SALES LIMITED PARTNERSHIP

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PART 5 PARTNERSHIP BUSINESS

Warranty as to Literary Contributions In addition, the Partnership Agreement provides that each Limited Partner warrants to the General Partner in respect of each Literary Contribution he makes, that: (a) he is the sole author; and (b)  he is the sole owner of the copyrights assigned to the General Partner as above; and (c)  it is original and has not previously been published in any form anywhere in the world; and (d)  it does not breach anyone else’s copyright; and (e)  it is neither libellous, obscene, improper nor blasphemous; and (f) it is not in breach of the Confidential Relationships (Preservation) Law (1995 Revision) of the Cayman Islands,, and (g)  that all statements which purport to be facts are true; and (h)  that any instruction contained in it will not, if followed accurately, cause any injury etc. Editorial Services Provider On or about the date of Closing, the Partnership will enter into an Editorial Services Agreement to supply or procure the supply of editorial and publishing services. In accordance with the terms of the Editorial Services Agreement, the Literary Contributions made by the Limited Partners will be compiled and edited for consistency by the Executive on behalf of the General Partner before being submitted to the Editorial Services Provider for review, editing and ultimately for publication through a literary agent or directly through a publisher. In accordance with the terms of that Editorial Services Agreement, the Editorial Services Provider will offer the following services: 1  Reader's Report Service – brief initial review and report on Literary Contributions. 2  E ditor's Report Service – detailed review including guidance on recommended revisions. 3  C ontent-Editing and Line-Editing Service – considering style, structure and format. 4  Critique Service – a detailed written assessment of the strengths and weaknesses. 5  C opy-Editing Service – considering style, consistency, grammar and word choice. 6  Proofreading Service – typographical errors, punctuation, ligatures and kern pairs. The Partnership will not be obliged to take all of the Editorial Services and may select which services it considers appropriate. The Editorial Services

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THE FIRST DE SALES LIMITED PARTNERSHIP

Provider may use external sources to deliver some or all of the services it has committed to provide to the Partnership. Neither the Editorial Services Provider nor any external source will provide any services that could amount to co-authoring or re-writing any of the Literary Contributions. All Literary Contributions will then go through an approval process, whereby the Editorial Services Provider will either approve the Literary Contribution as a Written Work or return it to the Partnership on the basis it is not considered to be suitable for publication. Before any Written Work is submitted to a publisher or literary agent it will receive final approval from the General Partner. The Executive The General Partner has identified one or more candidates it regards as suitable to become an employee of the Partnership and to undertake the role of Administrations Manager and Coordinator (the “Executive”). The General Partner is negotiating employment terms with the Executive and intends that their employment will commence on or around the date of Closing. The identity of the individual(s) concerned will remain confidential until the date of Closing. It will be the Executive’s role to act as the first point of communication and liaison between the Limited Partners and the Partnership. The Executive will provide updates on the progress of the various Projects and the completion of Written Works and may also need to liaise with individual Limited Partners to ensure their Literary Contributions are received in good order and in good time to meet any relevant deadlines. The Executive will generally assist the General Partner in collating and reviewing all Literary Contributions submitted by the Limited Partners and will also apply a first editorial review to all individual submissions to ensure consistency of brand and content, together with continuity, as appropriate before liaising with the Editorial Services Provider. The General Partner will ensure the Executive is appropriately resident and domiciled and the relevance of his residence status is considered in detail in the UK Taxation Analysis section of this Memorandum at Part 8 and in Leading Tax Counsel’s opinion. The Executive will provide restrictive undertakings to the Partnership, which are discussed in more detail in Part 8 and in Leading Tax Counsel’s opinion.


Profits and Losses As set out in Part 4, the General Partner will arrange for the preparation of audited accounts of the Partnership as at 31 December each year and interim status reports as at each 30 June. Each set of audited accounts will show a net profit or loss, which will be allocated to the Partners in accordance with the terms of the Partnership Agreement as follows:

First Period Second Period Third Period Subsequent Periods

All profits and losses attributable to the Limited Partners in any accounting period will be allocated between them in proportion to each Limited Partner’s Capital Contribution as it relates to the total of all Limited Partner Capital Contributions. Profits an d los ses will n ot be allocated to any Limited Partner who has been expelled from the Partnership.

General Partner Profits 100% 100% 50% 50%

Losses 0% 0% 50% 50%

Limited Partners Profits 0% 0% 50% 50%

Losses 100% 100% 50% 50%

THE FIRST DE SALES LIMITED PARTNERSHIP

29


PART 6 INDUSTRY OVERVIEW

This part of the Memorandum is intended to give the General Partner’s overview of certain aspects of the UK book industry. It is not exhaustive and Potential Investors should carry out whatever further research they deem appropriate. The UK Book Industry The UK book industry has grown significantly in recent years both in terms of numbers of titles and overall sales. Whilst the number of stockholding bookshops has decreased in the last two decades, through a decline in specialist booksellers and small independent bookshops, the retail square footage devoted to books has grown enormously. The large US and UK bookstore chains, such as Waterstones and Borders have opened more branches on UK high streets and supermarkets and other non-traditional outlets have increased their sales and range of books. In addition, the growth in online shopping and the vast range of titles on offer through resources such as Amazon has contributed significantly to this rise. The new book superstores (both high street and online) and the widening of general access to the internet, together with next day delivery from wholesalers, widespread use of EPoS/e-commerce and print on demand (POD) have all extended stock range enormously. However, price discounting has been widespread, though chiefly focused on bestsellers from the major publishers. By some measures, book prices have continued to rise at above the level of inflation, although the actual average selling price has gone down. Nevertheless, consumer spending on books has increased significantly over the last two decades, as has the choice available. The number of new and revised titles published in the UK levelled off in 1996/97 (at about 100,000 per annum) but since then has continued to grow steadily year on year. By 2007 the number of new and revised titles published annually had reached 115,420 (virtually identical to 2006), increasing to 120,947 in 2008 or 10,000 different titles per month on average.

30

THE FIRST DE SALES LIMITED PARTNERSHIP

As at October 2008, there were a staggering 2,321,191 titles available (i.e. in print) from UK publishers. Source: Nielsen BookScan

UK Book Sales Also, by 2008 the total turnover of the UK book publishing industry had reached almost £4bn (with book sales approaching £3bn and other income from book publishing of around £1bn). If the sales of learned journals are included in the total, turnover would be nearly £5bn. UK publishers sold an estimated 855m units in 2008, with an invoiced value of £2.990bn. These figures were almost identical to those recorded in 2007, albeit with value down marginally (-0.2%) from £2.996bn. Of these total sales, the largest proportion of book sales relates to the total consumer market (retail market) discussed below, with most of the rest representing sales to public libraries, university and higher education libraries, the School Library Service and of course, the British Library. Source: The Publishers Association/Office of National Statistics

The UK retail book industry therefore represents a market worth close to £3bn and the intention of The First De Sales Limited Partnership, to attempt to secure just a small piece of this market, could prove extremely profitable. Arguably the Partnership’s target market is even wider than this on the grounds that the first identified Project (journalistic articles which draw on the professional experience of the Partners) is not reflected in the above numbers in any way.


Figure 1.1: T  otal (Home and Export) Value Sales of UK Publishers 2006-2008 (£bn) Source: UK book publishing industry statistics yearbook 2008. The Publishers Association 2009.

Figure 1.2: Total (Home and Export) Volume Sales of UK Publishers 2006-2008 (£bn) Source: UK book publishing industry statistics yearbook 2008. The Publishers Association 2009

The total consumer market (retail market) also saw value sales decline in 2008 by -1.5% to £1.77bn (from £1.8bn in 2007), while volume sales declined by -0.4% to 236.8m units. However, against the

backdrop of the current economic climate, such a modest downturn would appear to show the resilience against recession of the UK retail book industry overall.

Figure 1.3: T  otal Consumer Market (value and volume) 2006-2008 (£bn) Source: Nielsen BookScan 2009 & The Publishers Association 2009.

THE FIRST DE SALES LIMITED PARTNERSHIP

31


PART 6 INDUSTRY OVERVIEW

Figure 2.1: Top 5 Titles of 2008 (by volume sales)

Rank Title 1 The Tales of Beedle The Bard 2 The Guinness World Records 2009 3 At My Mothers’ Knee… 4 No Time For Goodbye 5 A Thousand Splendid Suns

Author J K Rowling Paul O’Grady Linwood Barclay Khaled Hosseini

Figure 2.2: Book Sales by 4 Main Categories 2004 - 2008

Category Adult Non-Fiction: Trade Adult Fiction Children’s, Young Adult & Educational Adult Non-Fiction: Specialist

Therefore, whilst JK Rowling’s The Tales of Beedle the Bard may have been the bestselling book of 2008, the one that generated the most money was The Guinness World Records 2009, even though it sold 165,165 fewer copies. Comparing this bestsellers list against book sales by value across the four main categories, these five 2008 bestsellers fall into the top two categories. As these two tables demonstrate, most people’s general definition of the UK retail book industry (namely, the Adult Fiction category) has, across the last five years, represented one quarter of all retail book sales and is represented by three out of the five best sellers in 2008. Whereas, the Adult Non-Fiction: Trade category accounts for almost one half of all retail sales on average over the last five years and is represented by the other two 2008 best sellers, included the highest grossing title.

THE FIRST DE SALES LIMITED PARTNERSHIP

Volume 856, 268 691, 103 664, 474 643, 225 610,1 8 1

Value £3,415,782 £6,981,543 £6,625,703 £3,359,703 £5,714,228

Source: Nielsen BookScan 2009.

2004 2005 2006 2007 2008 Avg % £756 £773 £806 £833 £807 47% £404 £4 1 1 £422 £460 £454 25% £244 £280 £274 £320 £315 17% £18 1 £180 £191 £186 £197 11%

Book Genres and Titles The retail market in the UK and worldwide is extremely diverse covering a vast range of genres and sub-genres, as evidenced by the 10,000 titles per month publication rate. In any given year, the bestsellers list can be largely predicted, although the consistency of repeat volume sales year on year of one of the titles in the 2008 list might be surprising to some.

32

Source: Nielsen BookScan 2009.

The General Partner does not expect the Limited Partners of The First De Sales Limited Partnership to create Written Works that would fall within the Adult Fiction category. Instead, two of the four initial Projects identified by the General Partner fall into the Adult Non-Fiction: Trade category and it is expected that this category will remain the primary focus for future Projects. The Children’s, Young Adult and Educational category is the focus for the fourth Project identified by the General Partner. It is considered that the preschool and picture books sub-category would no less constitute the creative writing requirement at the heart of the UK tax analysis for the Partnership and the Limited Partners, and would offer an opportunity for Written Works in this area to be completed sooner and thereby generate revenue earlier than other Projects. In summary therefore, whilst the second and third identified Projects (Simple World Cuisine and Speech Writing for Every Occasion) will take some time to compile and complete as Written Works, the first Project (Journalistic Articles) should provide an opportunity to generate revenue almost immediately. Similarly, the fourth identified Project (pre-school books for very young children), whilst falling within a densely populated sub-category, should offer an opportunity to generate revenue


more swiftly, although the lead time from completion of a Written Work to generation of revenue, is still reasonably lengthy. Life Cycle of a New Title It typically takes nine months from a title being prioritised for presentations to key customers to reach its publication date. Assuming Literary Contributions begin to be submitted by Limited Partners from the beginning of the Third Period (i.e. after 6 April 2010), it would be unlikely that any titles are published before the end of that Third Period. It would therefore seem prudent to assume that revenue will not begin to be generated from the publication of books until after 31 December 2010. However, it is not unreasonable to assume that some modest income can begin to be generated from the publication of journalistic articles much sooner and it is anticipated by the General Partner that the first revenues from this source will begin to be received during that Third Period. As the following table illustrates, it is also the case that the “retained share” of revenues generated from the publication of journalistic articles will exceed the share (royalties) received from the publication of books.

Thus the writer (the Partnership) will typically receive royalties of 8% of the retail book price. The Trade Discount is the weighted average of UK trade discounts and export discounts, including discounts to wholesalers. Typically wholesalers give around 35% discount to bookshops, whose overheads may amount to 30% - 33%, giving a net profit of 2% to 5%. Note also that books are often discounted to the consumer and this must be funded from the Trade Discount.

Price of a Book - Who Gets What? Source: The Author (Tim Hely Hutchinson) September 1998

%

£10.00

Manufacturing Costs 15% £1.50 Royalties 8% £0.80 Distribution/Marketing 8% £0.80 Publisher’s Overheads 9% £0.90 Trade Discount 55% £5.50 Publisher’s Net Profit 5% £0.50

THE FIRST DE SALES LIMITED PARTNERSHIP

33


PART 7 FINANCIAL INFORMATION

The Financial Information provided in this part of the Memorandum is based upon the Partnership achieving the target Partnership equity (the total of all Capital Contributions) of £150,000,000 (£150 million pounds Sterling). The minimum Partnership equity is £100,000,000 (£100 million pounds Sterling) and there is no maximum. The Partnership will not close at the date of Closing unless this minimum Partnership equity is achieved. The following illustration is based on a number of assumptions including the achievement of target Partnership equity. The actual financial position of the Partnership will vary according to a number of factors including: 1 T  he total amount of Capital Contributions made by Limited Partners, which will be matched in the ratio 98:2 by Capital Contributions from the General Partner. 2  Certain pre-Closing and post-Closing fees and costs are fixed and will therefore represent a greater percentage if total Capital Contributions do not reach £150m and a lesser percentage if this amount is exceeded. 3  T he fees and costs that will be paid to Inspire Editorial Services Limited under the Editorial Services Agreement are estimated and the actual fees and costs could differ significantly from these amounts depending upon the level of editorial input required. In broad terms, where the total of all Partnership C a pital Co ntrib u tio n s exce e ds £ 15 0 m , th e pre-Closing fees and set-up costs and the annual post-Closing fees and costs, many of which are fixed, will represent a lesser percentage of total Partnership Capital Contributions than illustrated above. This would have two major benefits for the Partnership Business. Firstly, the resultant increase in the level of working

34

THE FIRST DE SALES LIMITED PARTNERSHIP

capital (residual Partnership Capital Contributions) could enable the Partnership to fund all of its annual post-Closing fees and costs for a longer period. On this basis, the Partnership could continue to develop its creative writing business without necessarily generating a profit, for a longer period, albeit it is the aim of the General Partner that the Partnership Business does ultimately generate a profit. Secondly, additional working capital would provide the Partnership with additional financial resources to utilise a wider range of services from the Editorial Services Provider and thus develop further Projects or seek a greater level of editorial input for the initial Projects, as required. As set out in Part 5, the Editorial Services Agreement provides for a range of possible services to be provided by Inspire Editorial Services Limited. The fees shown as payable to the Editorial Services Provider in the above illustration are estimated and are weighted to take account of the development of four initial Projects in the period from Closing to 31 December 2010 and only two subsequent Projects in the period to 31 December 2011. However, the basis for remuneration of the Editorial Services Provider is to be calculated by reference to the number of hours expended as well as the seniority and expertise of personnel providing the services, as well as costs payable to any third parties. The Editorial Services Provider will also receive a royalty of 5% of the net publication revenue actually received by the Partnership.


Use of Capital Contributions As stated, based upon achieving the target Partnership equity, the Capital Contributions made by the General Partner and the Limited Partners will be made in the following ratios: General Partner Limited Partners

% 98% 2%

£ £147m £3m

It is intended by the General Partner that these Capital Contributions will be used as follows (all amounts and percentages are estimated and are those which would apply based upon the target Partnership equity of £150m. All amounts are inclusive of VAT where appropriate): Pre-Closing fees and set-up costs: UK/Jersey legal fees Cayman legal fees UK Tax Counsel Operator and related FSA fees Printing and associated costs Contingency Total Post-Closing fees and costs: Closing to 31 December 2010 UK/Jersey legal fees Cayman legal/General Partner fees Operator and related FSA fees Executive remuneration and costs Editorial Services Provider (estimated) Contingency Total Payment made to Inspire Editorial Services Limited for the giving of restrictive undertakings by the Executive.

%

0.2%

£ 55,000 56,000 80,500 30,500 29,000 49,000 300,000

17,500 150,000 187,500 125,000 200,000 70,000 750,000 0.5%

98.5%

147,735,000

To 31 December 2011 Cayman legal/General Partner fees Operator and related FSA fees Executive remuneration and costs Editorial Services Provider (estimated) Contingency Total

0.3%

100,000 125,000 85,000 100,000 40,000 450,000

Contingency

0.5%

750,000

Total

100%

150,000,000

THE FIRST DE SALES LIMITED PARTNERSHIP

35


PART 7 FINANCIAL INFORMATION

Anticipated revenue streams As described above, the General Partner does not consider it unreasonable to assume that Literary Contributions will not begin to be submitted by Limited Partners until after 6 April 2010. The General Partner anticipates that thereafter, Limited Partners will begin to submit Journalistic Articles which draw on their personal and professional experience and that it will be possible to generate a modest but regular source of income from these articles. Assuming an average Limited Partner Capital Contribution of £15,000 it is estimated that there would be a total of 200 individual Limited Partners. The General Partner hopes that each Limited Partner could generate an annual income for the Partnership of £1,000 from the publication of Journalistic Articles, which would then translate as £50,000 per quarter, with three quarters falling in the Third Period to 31 December 2010. Working on a six month editorial schedule and the nine month lead time for publication described in Part 6, the General Partner expects that Simple World Cuisine and Speech Writing for Every Occasion will each have a publication date agreed before the end of the Third Period with publication occurring and income being generated in the period ending 31 December 2011. Once again, it is difficult to predict how successful these titles will be or whether they will be “overtaken” by other Projects nominated by the Limited Partners. However, for the purposes of this illustration the General Partner has assumed that each title will generate net revenues of at least £100,000 in each of the periods ended 31 December 2011 and 2012.

The General Partner envisages that the first and second books in a series of pre-school books for very young children will not require a six month editorial schedule and as a result, will be published and generating income before the end of the Third Period ending 31 December 2010. The General Partner considers that income from these books will be more modest but will have greater longevity and hopes that the first and second books will generate an income of £50,000 in each of the periods ending 31 December 2010, 2011 and 2012, to be joined in 2011 by the third and fourth books in the series, generating a similar level of income. Finally, the General Partner expects the fifth and sixth Projects to be identified by the General Partner for development in the year ending 31 December 2011, to begin generating revenue during 2012. The General Partner hopes that the Partnership Business will have found a specific direction or possibly a series of directions by that time, driven by the Limited Partners' own personal and professional experiences and expertise. It is feasible that the fifth and sixth Projects will have a more personal scope and a more profitable outcome. However, for the purposes of this illustration the General Partner has assumed that the revenues generated by these fifth and sixth titles, will not exceed Simple World Cuisine and Speech Writing for Every Occasion. Taking each of these titles together and projecting income receipts over the period to 31 December 2012, the following picture emerges (the fees and costs are as set out above, with all pre-Closing fees and set-up costs treated as incurred on the date of Closing):

Period to 31 December 2010 2011 2012 Income £ £ £ Journalistic Articles 150,000 200,000 200,000 Pre-school books 1 and 2 50,000 50,000 50,000 Pre-school books 3 and 4 50,000 50,000 Simple World Cuisine 75,000 75,000 Speech Writing for Every Occasion 75,000 75,000 Project 5 75,000 Project 6 75,000 Total 200,000 450,000 600,000 Expenditure 148,785,000 450,000 500,000 Net Loss/Profit 148,585,000 Nil 100,000

36

THE FIRST DE SALES LIMITED PARTNERSHIP


It should be noted that the loss shown in the above illustration as arising in the First Period, which arises largely as a result of the payment made to Inspire Editorial Services Limited for the giving of restrictive undertakings by the Executive, is equal to around 99% of the total of all Capital Contributions made to the Partnership. The final percentage that this loss represents compared to all Capital Contributions, cannot be guaranteed but the General Partner expects this to fall within the range 98% to 99%. Pre-Closing Prior to Closing all monies paid by Subscribers will be held in the Subscription Account pending transfer to either the Partnership Bank Account (Limited Partner Capital Contributions) or the Promotions Company (Advice Fees). Should the Partnership fail to close for any reason, all monies will be returned promptly by the Operator to Subscribers. The Partnership will not close if either the total Partnership Capital would amount to less than ÂŁ100m or if the General Partner advises the Operator that since the date of issuing this Memorandum there has been a change in law prior to the date of Closing, which would adversely affect the UK tax analysis applying to the Partnership or the Limited Partners, as set out in Part 8. As described in Part 8 of this Memorandum, Subscribers must accept that there is some risk, however small, of a change in law being announced on or immediately prior to the date of Closing, which might adversely affect the UK tax analysis applying to the Partnership or the Limited Partners. Any such announcement is likely to take effect from midnight on the day it is announced i.e. as though it were effec tive throughout the day on which the announcement was made. This would have the effect of potentially changing the UK taxation analysis applying to any transactions entered into on the date of Closing, even where those transactions had occurred prior to the announcement being made. Subscribers are required to subscribe irrevocably and unconditionally on these terms and, subject to the above factors not affecting Closing, will commit to the subscription of their Limited Partner Capital Contribution occurring automatically, as at the date of Closing.

Post-Closing At the date of Closing, all of the Limited Partner Contributions subscribed by the Limited Partners, together with the General Partner Capital Contribution will be transferred to the Partnership and held in the Partnership Bank Account controlled jointly by the General Partner and Operator. Once the charge in favour of the Partnership Bank has been extinguished (see below), Partnership Capital will then be available to be used to meet the pre-Closing set up fees that have already been incurred and to pay other costs and fees that become payable on Closing. In addition, at the date of Closing, all Advice Fees payable to the Promotions Company in accordance with the terms of the Letter of Engagement will also be transferred out of the Subscription Account to the Promotions Company. The change of law risk discussed above, applies equally to these Advice Fees and Subscribers are deemed to accept this risk and subscribe on these terms. A l l of t h e i n co m e a n d c a p i t a l re ce i p t s of the Partnership arising after the date of Closing will also be transferred to the Partnership Bank Account controlled by the General Partner and the Operator. This account will service Partnership running expenses. The Partnership Bank Account will also be charged in favour of the Partnership Bank for an amount broadly equal to the amount payable to Inspire Editorial Services Limited for the giving of restrictive undertakings by the Executive, for the duration of the Loan Period, under the Partnership Security Arrangements. The charge restricts any dealings with the balance of the Partnership Bank Account until the charge is extinguished. However, it is the General Partner’s intention and understanding that the Loan Period will be intra-day, such that any monies borrowed from the Partnership Bank by the Holding Company will be repaid to the Partnership Bank on the same day, and that the charge provided by the Partnership in favour of the Partnership Bank will be extinguished contemporaneously. The General Partner and the Partnership Bank anticipate that the Loan will be made to the Holding Company on the morning of the date of Closing and will therefore be repaid to the Partnership Bank later that same day.

THE FIRST DE SALES LIMITED PARTNERSHIP

37


PART 8 UK TAXATION ANALYSIS

The summary that follows represents only a general guide for Potential Investors considering whether to become Limited Partners in the Partnership. It is based on Leading Tax Counsel’s opinion, the law as it currently stands and HMRC practice as at the date of issue of this document, and is applicable only to Potential Investors who are UK tax resident and/or ordinarily resident. This summary does not constitute advice to any person that may be reviewing the Offer set out in this Memorandum. None of the Principals and Advisers listed in Part 1 of this Memorandum offers any guarantee that the tax analysis set out below will be agreed with HMRC. Any Potential Investor reviewing the Offer is strongly recommended to seek their own independent financial and tax advice and should review (and will be required to confirm that they have reviewed) Leading Tax Counsel’s opinion. Overview The First De Sales Limited Partnership has been structured to provide an expected tax advantage to UK resident and/or ordinarily resident individuals (regardless of their domicile) who join the Partnership as Limited Partners. This expected or potential tax advantage is only relevant to UK resident and/or ordinarily resident individuals in relation to the calculation of their UK tax liabilities. Individuals who may also pay taxes in another jurisdiction, either because they are deemed also to be resident in that other place or because they may have income or gains arising in that other place, must take care to ensure that the potential tax

38

THE FIRST DE SALES LIMITED PARTNERSHIP

advantage in the UK does not impact upon their tax position in that other jurisdiction. There can be no guarantee that the expected or potential tax advantage will materialise and by subscribing to the Partnership Potential Investors accept that the taxation analysis set out in this Memorandum is likely to be challenged by HMRC. It is considered that the arrangement will constitute a “notifiable arrangement” for the purposes of Part 7 of the Finance Act 2004 and the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543) and as a result, the


arrangement will be notified to HMRC at the relevant time by the Promotions Company, in its capacity as “promoter” of the arrangement. Whilst it is the case that one of the main benefits that might be expected to arise from the arrangement is the obtaining of a tax advantage, the Partnership will nevertheless carry on a commercial business activity, with a view to realising a profit. Any profits that do arise will be distributed to the Partners in accordance with the terms of the Partnership Agreement. Full details of the Partnership Business are set out in Part 5 of this Memorandum. However, in outline, the Partnership Business will be to exploit the knowledge, experience and expertise of the Limited Partners for profit, through the creation of a variety of Written Works. Whilst the Partnership Business will be carried on with a view to the realisation of profit, it is nevertheless expected that the accounts for the First Period will show a substantial loss. That loss will arise as a result of a statutory deduction as a business expense, for the payment made to the Editorial Services Provider for the giving of restrictive undertakings by the Executive. The Partnership will be transparent for UK tax purposes and therefore no tax liability should arise within the Partnership itself. Instead, a proportionate share of any profit or any loss arising as above, would be attributable to each Limited Partner in respect of the tax year ending 5 April 2010 and subsequent tax years. The amount of loss attributed to each Limited Partner will be the proportion of the total loss, as the individual Limited Partner’s Capital Contribution represents as a proportion of all Limited Partner Capital Contributions (the “Limited Partner Percentage”). Any subsequent profits will be allocated between each Limited Partner and the General Partner, in accordance with the terms of the Partnership Agreement and between the Limited Partners as a class on the basis of each individual’s Limited Partner Percentage. Limited Partners will be responsible for reporting their share of profits to HMRC and paying any tax that may be due, whether or not his share of those profits is actually distributed to him. Loss Relief It is anticipated that UK tax relief for losses allocated to each Limited Partner in the tax year ending 5 April 2010, may be claimed against his or her personal income for the tax years 2006-07 to 2009-10 inclusive, or against chargeable gains (after income

has been exhausted) for the tax years 2008-09 and 2009-10. The basis on which claims for loss relief may be made are set out in Part 4 of the Income Tax Act 2007 (“ITA 2007”) and are generally described as sideways loss relief. The foregoing summary of sideways loss relief is a combination of various claims made in accordance with the provision of various sections contained in ITA 2007. The general rule is that a claim under one section of the legislation must be fully exhausted before a claim under another section may be made in respect of the same loss. Potential Investors must therefore take care to ensure that they have the ability to access the desired combination of income and gains and should take professional advice in this regard. There is otherwise no limit or other restriction under current UK legislation as to the availability of sideways loss relief for individuals in the circumstances envisaged in this Memorandum. Potential Investors may therefore wish to take into account their personal levels of income and chargeable gains, when considering the amount of investment they may wish to subscribe to the Partnership. Potential Investors may expect to subscribe 2% of the amount of their income and chargeable gains they are seeking to shelter, by way of Limited Partner Capital Contribution. Restrictions on Sideways Loss Relief As well as containing the provisions under which sideways loss relief may be claimed, Part 4 ITA 2007 also contains restrictions on the availability of sideways loss relief. These restrictions include: 1  Limiting the amount of sideways loss relief that may be claimed by a limited partner or a nonactive partner (an average of less than 10 hours per week engaged in the trade), to £25,000 in any one tax year. 2  Limiting the amount of sideways loss relief that may be claimed by a limited partner or a member of a limited liability partnership (“LLP”), to the amount the partner has contributed to the partnership by way of capital. Limited Partners will not be expected to commit to a minimum of 10 hours per week actively engaged in the Partnership Business and will only contribute 2% of the amount they are seeking to shelter from UK taxation, by way of Limited Partner Capital Contribution. Therefore, were these restrictions to apply to the Partnership, any loss arising in the

THE FIRST DE SALES LIMITED PARTNERSHIP

39


PART 8 UK TAXATION ANALYSIS

first year of the Partnership’s Business allocated to the individual Limited Par tner, would be restricted to the cash amount he has contributed to the Partnership, subject to an overall maximum allowable loss of £25,000. Profession of Creative Writing However, the legislation and the Inland Revenue guidance notes that accompanied the publication of ITA 2007 make clear that the above restrictions apply only to “trades” an d do n ot apply to “professions”. Historically, the business sections of UK tax legislation have included a general description of “trade, profession and vocation” when discussing business activity. Indeed, for the most part, the current business sections continue to include this description. As discussed below, the distinction between trades and professions used to have some relevance but as the Inland Revenue’s own internal manuals confirm, the distinction has in general terms now become redundant. It is clear however, that Chapter 3 of Part 4 ITA 2007 refers only to trades and makes no reference to professions. Thus the sideways loss relief restrictions apply only to trades and, as the guidance notes confirm, do not apply to professions. During both the First and Second World Wars the Government imposed an excess profits duty with the object of levying a charge to tax on excessive profits made by wartime profiteering. However, on each occasion there was an exemption from charge for professions but no exemption for trades. A number of tax cases followed, which considered the question of profession versus trade in the context of excess profits duty. IRC v Maxse (1930) 12 TC 41 One such case was IRC v Maxse (1930) 12 TC 41, which also considered this question and whether the business of Mr Maxse could qualify for the exemption from excess profits duty discussed above. Mr Maxse was a journalist who owned, edited and published a monthly political magazine called the National Review, for which he wrote a considerable part of the contents. The case was first found in favour of Mr Maxse by the Commissioners of the Inland Revenue but that decision was overturned in favour of the Revenue by the High Court. In finding against the taxpayer at the High Court the Judges nevertheless concluded that the business of creative writing, in this case as a journalist did constitute

40

THE FIRST DE SALES LIMITED PARTNERSHIP

a profession, although on balance Mr Maxse’s business was that of publisher, which was a trade. The Court of Appeal finally held that Mr Maxse carried on both a separate profession of journalist and editor alongside his trade as magazine publisher and that a reasonable allowance for his services should be made in calculating the profits of the magazine under the excess profits duty rules. HMRC comment on the Maxse case in their Business Income Manual - internal guidance for their own Inspectors of Taxes and their consideration of the case is primarily focused on the Court of Appeal’s conclusion that a single “business activity” can consist of both a profession and a trade. Nevertheless, it would seem clear that the Partnership Business of creative writing should constitute a “profession” for tax purposes, with the result that none of the sideways loss relief restrictions in Chapter 3 of Part 4 ITA 2007 should apply. A more detailed consideration of the “profession” of creative writing is set out in a separate opinion from Leading Tax Counsel. The Maxse case and the basis on which the sideways loss relief restrictions should not apply to the Partnership Business are discussed in detail in the original tax opinion settled by Leading Tax Counsel. Both opinions (referred to in this Memorandum as Leading Tax Counsel opinion) will be made available to all Potential Investors, who will be required to confirm that they have been considered as part of the application process. Restrictive Undertakings Whilst the legislation that considers sideways loss relief is set out in ITA 2007, business relief for expenditure etc. is considered in a separate act, namely the Income Tax (Trading and Other Income Act) 2005 (“ITTOIA 2005”). The general provisions for the deduction of business expenditure are that “In calculating the profits of a trade [this applies equally to professions], no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade...”. In practice, this is generally interpreted as meaning expenses which are incurred wholly and exclusively may be deducted in computing profits. In addition the legislation goes on to consider types of expenditure which are specifically prohibited from being claimed as business deductions, including business entertaining expenses and expenditure involving crime.


However, in addition to specifying items which are prohibited, ITTOIA 2005 also provides that certain other items of expenditure are expressly allowed as a deduction when computing business profits, even though that expenditure might not have been incurred “wholly and exclusively” for business purposes or might otherwise have constituted a prohibited business deduction. One of these provides for a deduction for payments made for restrictive undertakings and makes the payment deductible as business expense by the payer, whether or not it would be deductible under normal principles i.e. overriding the “wholly and exclusively” test. The relevant legislation makes no reference to the motive of the payer or to the quantum of the payment, merely that the payment must be made for the giving of restrictive undertakings by an employee of the payer. A restrictive undertaking or restrictive covenant is generally a clause or a series of clauses in a contract of employment or other agreement, which restricts an employee in terms of his conduct during the course of his employment or after it comes to an end. Typically, such undertakings or covenants will restrict the employee from competing with his ex-employer after the employee has ceased employment or will prevent him from soliciting clients or staff and so on. A separate taxing act then considers the position of the employee as the giver of the restrictive undertakings to the payer. Provisions in the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”) attempt to ensure that employee will always suffer tax in the UK on the payment made by his employer, regardless of who the payment is made to. Therefore, the legislation anticipates that an employee giving restrictive undertakings to his employer might not be the recipient of the payment. It is intended by the General Partner that the Executive would not be UK resident and ITEPA 2003 does not generally subject non-UK resident individuals to UK taxation in respect of their foreign employment income. Tax would be payable in the UK however, on foreign earnings received by any non-UK resident individual, where those earnings relate to the performance of duties in the UK. Even where only part of the total earnings from the foreign employment relate to the performance of duties in the UK, ITEPA 2003 would tax that part, provided those duties were not merely incidental to the duties as a whole. T h e E xe cu tive w ill b e e m ploye d to a c t as administrations manager for the Partnership and

co-ordinate the Literary Contributions of the Limited Partners and part of the duties of his employment will require the Executive to meet with the Limited Partners in the UK. There is little doubt that those duties will be performed in the UK and the General Partner would also argue that they cannot be regarded as incidental to his other duties, on the grounds that the Limited Partners and the Literary Contributions they make, are the entirety of the Partnership Business. On that basis, the General Partner considers that the Executive will meet all of the required conditions under ITEPA 2003 to have the restrictive undertakings payments treated as earnings of his employment but will not suffer UK tax on any part of the payment, as he will not be UK resident and the payment is not made to him. The Partnership’s ability to deduct the payment as a business expenses is not impaired by the fact that the Executive will not actually suffer UK tax on the payment, provided it is nevertheless treated as his earnings, which should be the case for the reasons stated. On the date of Closing therefore, the Limited Partners and the General Partner will contribute capital to the Partnership. The General Partner will have been capitalised by its parent the Holding Company, which will have borrowed funds for this purpose from the Partnership Bank. The Partnership will immediately use almost all of the funds received as Capital Contributions to make a payment for the giving of restrictive undertakings by the Executive. The payment will be made to the Editorial Services Provider, which will in-turn lend all or almost all of those proceeds to its parent, the Holding Company. The Holding Company is required by the terms of its facility agreement with the Bankers to repay its borrowings from the Partnership Bank and these transactions will all take place during the course of a single day, being the date of Closing. The statutory basis under which the payment made to the Editorial Services Provider for the giving of restrictive undertakings, may be claimed as a business expense but may not be taxed on the Executive, is also considered in greater detail in Leading Tax Counsel’s opinion, which Potential Investors are required to consider fully before applying to join the Partnership. Other Business Expenditure Not all of the expenses of the Partnership will necessarily be allowable for tax purposes. Whilst the

THE FIRST DE SALES LIMITED PARTNERSHIP

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PART 8 UK TAXATION ANALYSIS

General Partner considers that the payment made to the Editorial Services Provider for the giving of restrictive undertakings by the Executive, will be allowable as a statutory deduction, other costs, for example any costs incurred in the establishment of the Partnership, are likely to be disallowed for tax purposes. As a result, the accounting and tax profit/loss may differ. National Insurance Each Limited Partner will be a self-employed person and may have a liability for Class 2 and/or Class 4 National Insurance Contributions (“NICs”). Class 4 NICs are chargeable on self-employed earnings at a rate of 8% between the lower profits limit and upper profits limit and at 1% above the upper profit limit. Contributions are chargeable on taxable profits from self-employment taking account of carried forward losses. Relief for assumed carried forward losses arising as a result of the payment for the giving of restrictive undertakings, should mean that Class 4 NICs will not have a significant impact for any Limited Partner. However, the rules are complex and Potential Investors should consult their professional advisers. Transfers If a Limited Partner disposes of an interest in the Partnership, whether by sale, on death, or in any other circumstance, tax liabilities may arise. Subject to certain exemptions and reliefs that may be available, individuals whose estates are subject to inheritance tax may be liable to inheritance tax on certain lifetime transfers of Partnership interests and transfers on death. VAT The General Partner will register the Partnership for VAT. Tax Registration Requirements Limited Partners may, depending on their personal circumstances, be required to submit certain tax registration forms, including, without limitation, form CWF1 (Becoming self-employed and registering for National Insurance contributions and/or tax), to HMRC. Potential Investors should seek the advice of their own professional tax advisers on the extent of any required registrations. Defending the UK Taxation Analysis It is the intention of the General Partner that the taxation analysis of the Partnership and the Limited Partners will be defended against any challenge from HMRC. A significant proportion of the Advice Fee paid to the Promotions Company by Subscribers will be set

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aside and held under an Escrow Arrangement to fund the external costs of providing this defence. Those monies will be under the control of the General Partner and the Operator and will not be under the control of the Promotions Company. They are to be used to pay the external costs of tax counsel, accountancy and taxation advice related to the UK tax analysis received from other firms who may be appointed by the General Partner (for the avoidance of doubt not the payment of annual audit and independent valuers' fees), legal advice and other professional advice, as approved by the Operator. The monies held through the Escrow Arrangement will be capped at £1.5m. However, those funds could prove to be insufficient to cover all of the external costs of defence meaning that such defence would cease or require further finance from Limited Partners. There is no certainty that any such defence may succeed. In accordance with the terms of the Letter of Engagement, the Promotions Company is to provide advice, support and assistance in connection with Limited Partners’ claims for sideways loss relief and any questions that might arise from HMRC in this regard. In due course, it is anticipated that HMRC will raise enquiries into the entries shown on each Limited Partners’ self assessment tax return in connection with the Partnership and the claim for sideways loss relief. The Promotions Company is to provide advice and support in connection with all enquiries that relate to the Partnership and the individual Limited Partner’s claim for loss relief. Potential Investors should review the terms of the Letter of Engagement for further details in this regard. The UK taxation aspects of the Partnership summarised above have been considered in detail by Leading Tax Counsel in two separate opinions, which will be made available to all Potential Investors prior to their participation in the Partnership. Leading Tax Counsel has concluded that the arrangement is “more than likely to succeed” in conferring the anticipated tax benefits (sideways loss relief) for Limited Partners investing in the Partnership. Leading Tax Counsel considers that as a tax avoidance scheme, the UK taxation aspects of the Partnership summarised above and the availability of sideways loss relief is likely to be subject to challenge by HMRC but the technical analysis of the legislation on which the arrangement is based, together with the likely application of current case law, provides a sound basis for resisting any such challenge.


PART 9 RISK FACTORS

Potential Investors should consider the following risk factors, in relation to the Partnership, which individually or in aggregate could have a material adverse effect on the Partnership and/or Limited Partners’ participations in the Partnership. The information set out below does not purport to be an exhaustive summary of the risks affecting the Partnership and Potential Investors should consult with their professional advisor before determining whether to invest in the Partnership. Investment in the Partnership is not intended to be a complete investment programme for any investor. Potential Investors should carefully consider whether an investment in the Partnership is suitable for them in light of their own circumstances and financial resources. In particular, Potential Investors should consider the following: 1  Admission to the Partnership is only suitable for persons who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses which may arise including the loss of their entire Limited Partner Capital Contribution and Advice Fees paid to the Promotions Company. . 2 There is a risk that a Subscriber will not be admitted into the Partnership. The final decision as to admittance rests with the Operator and the General Partner, either of whom could deny admission for any reason.

3 The Partnership has no previous operating history. Consequently, Subscribers may be unable to properly determine the likelihood of whether or not the Partnership will be profitable. The business of the Partnership is highly competitive and involves risk and uncertainty. Accordingly, there is no guarantee that the Partnership will be able to source suitable opportunities that match its business strategy. There can be no assurance that the Partnership's business objectives will be achieved and results may vary substantially over time. Although the Partnership will be operated so as to reduce such risks, there is significant risk that a Limited Partners will not get back all or any part of their Capital Contributions to the Partnership and may incur additional liabilities.

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PART 9 RISK FACTORS

4 The Partnership Business is dependent on the skills and experience of the directors of the General Partner, the Executive and the Editorial Services Provider and may be adversely affected if their services or the respective services of any of their key personnel cease to have an active involvement in the affairs of the Partnership. Potential Investors may not have sufficient opportunity to evaluate fully for themselves relevant economic, financial and other information regarding the Partnership Business and will be dependent on the judgment and abilities of the General Partner, the Operator, the Executive and the Editorial Services Provider. 5 Limited Partners who do not make Literary Contributions towards the furtherance of the various Projects identified by the General Partner risk being expelled from the Partnership in accordance with the terms of the Partnership Agreement. 6 The key personnel and other directors and employees of the General Partner, the Operator and/or the Editorial Services Provider and their affiliates who are involved in the operation and/or management of the Partnership will also spend time on matters other than the Partnership. 7 The Partnership is managed and controlled in the Cayman Islands which uses the US Dollar as its currency, whereas the Partnership Business will, at least in part, be based in the UK where the Limited Partners are based. There is potentially a risk of exposure to foreign exchange movements. 8 The success of the Partnership Business and as a result the success of the UK taxation analysis, depends in no small measure, upon the commitment shown to the Partnership Business by the Limited Partners as a class. Subscribers do not know and may never come to know, the names of their fellow Limited Partners and cannot judge the commitment of those others to the Partnership Business. Limited Partners are subject to expulsion from the Partnership for failure to adhere to the commitment requirements outlined in this Memorandum and Partnership Agreement.

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9 An investment in the Partnership will generally be illiquid and is unsuitable as a short term investment. Limited Partners cannot freely transfer their interests in the Partnership. There is currently no market for interests in the Partnership and it is not anticipated that one will develop. Limited Partners will therefore be unable to liquidate or realise their investment in the case of an emergency or otherwise. 10 The Partnership is a Cayman Exempted Limited Partnership. The Partnership Agreement and the Law limits the basis on which Limited Partners can commit the Partnership to expenditure or participate in the conduct of the Partnership. In order to preserve their limited liability status, Limited Partners will have no authority to act on behalf of the Partnership or to participate in the management of the Partnership. Any Limited Partner breaching these terms or the Law, may lose their limited liability status and become personally liable for any resulting loss. 11 A Limited Partner may be asked to make additional Capital Contributions to the Partnership following the making of an Extraordinary Resolution by the Limited Partners, in accordance with the provisions of the Partnership Agreement. The Partnership will incur obligations to pay costs. The Partnership will also incur obligations to pay the management fees and all operating, legal, accounting, auditing, marketing, travel and other fees and expenses. These expenses will be payable regardless of whether the Partnership makes a profit. 12 There is a risk of change in UK tax law and/or UK or Cayman partnership law. Such changes may have an adverse impact on an interest in the Partnership or on the anticipated UK taxation treatment of losses arising to a Limited Partner. The regulatory and tax environment are evolving and may be subject to modification by government, judicial or regulatory action, which may adversely affect the value of the Partnership Business. The effect of any such change on the Partnership is impossible to predict.


13 The Partnership is not authorised or regulated by the FSA. Limited Partnerships are unregulated collective investment schemes and suitable only for certain classes of investor. Potential Investors should note that most of the protections under FSMA do not apply to investments in the Partnership and that compensation under the Financial Services Compensation Scheme will not be available. The Partnership is not eligible to complain to the Financial Ombudsman Service but a Potential Investor who is a private individual or who otherwise qualifies as an eligible complainant under the terms of the Financial Ombudsman Service has a right of complaint to the Financial Ombudsman Service. All Potential Investors are strongly recommended to seek their own professional advice on the suitability of this investment. 14 The Offer and Financial Information set out in this Memorandum is based on various assumptions and do not constitute forecasts and are subject to variation. Future profitability and performance is not guaranteed. 15 A third party could take action against the Partnership or that the Partnership could be joined in an action taken by a third party in relation to a Written Work, including claims related to intellectual property infringement. 16 A Potential Investor's investment may fail as a result of default by a third party such that income due to the Partnership may not be received by the Partnership. In such event Limited Partners may not receive their expected share of Partnership profits sufficient to meet all the costs and expenses of being a Limited Partner. 17 The financial illustrations provided in this Information Memorandum are for information purposes only. There is no assurance that the position of any Limited Partner will be as illustrated or as to the actual amount of Partnership profit or loss, if any.

18 Past and current performance does not imply that future trends will follow the same or similar pattern. No representation is or can be made as to the future performance of the Partnership or that the Partnership will or can receive the level of returns contained in the Financial Information. The assumptions are assumptions only and these may or may not be realised. No guarantees as to the performance of the Partnership Business, investment performance income distribution or capital gains are given, either expressly or by implication in this Memorandum. 19 Limited Partners may become liable to make tax payments before any distributions have been made by the Partnership. In some circumstances, depending on the pattern of profits and losses, tax may be payable that exceeds the distributions that the Partnership will be able to make. 20 There can be no certainty that HMRC will agree with the UK taxation analysis set out in Leading Tax Counsel’s opinion and summarised in this Memorandum. As a result a Limited Partner may find that his own tax position is not as described in this Memorandum. In any event, each Limited Partner’s tax position will depend upon his particular circumstances. The Partnership is a tax-transparent structure and therefore each Potential Investor will have to consider his own tax position and must take his own advice in this matter. 21 Whilst all reasonable steps have been taken to ensure that the Partnership’s expenditure will attract the tax reliefs as described in this Memorandum, this will be dependent on HMRC subsequently accepting the Partnership accounts and tax computations. HMRC have the right to enquire into any loss relief claim made by any Limited Partner and can be expected to do so. 22 The Partnership may be subject to an extended tax enquiry period and HMRC may ultimately seek to challenge the efficacy of the taxation analysis through litigation, which would result in a stated case being taken through the Inland Revenue tribunal process and ultimately to the new Supreme Court.

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PART 9 RISK FACTORS

23 The professional costs of defending against any such HMRC litigation are being set aside out of the fees paid to the Promotions Company through the Escrow Arrangement. However, those funds set aside in the Escrow Arrangements could prove to be insufficient to cover all of the external costs of defence meaning that such defence would cease or require further finance from Limited Partners. There is no certainty that any such defence will succeed. 24 The information in this Memorandum and the Subscription Documents is based upon current taxation legislation and HMRC’s practices and publications. Any changes to the taxation environment, in the levels or basis of taxation or in HMRC’s practices or in the treatment of the Partnership, may affect the value of an interest in the Partnership and returns to Limited Partners. Such changes may be applied retrospectively. 25 The tax position described in this Memorandum may cease to apply if a Limited Partner ceases to be resident or ordinarily resident for tax purposes in the UK.

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THE FIRST DE SALES LIMITED PARTNERSHIP

26 The arrangements as set out in this Memorandum fall within The Ta x Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 and will be disclosed accordingly to HMRC. 27 The descriptions in this Memorandum relating to taxation are intended to be a brief description of some of the tax consequences of investing in the Partnership. Potential Investors are reminded that a more complete analysis of the UK taxation analysis applying to the Partnership and Limited Partners is available in Leading Tax Counsel’s opinion, which must be reviewed by every Potential Investor. 28 The use of bank debt at any point during the life of the Partnership increases the risk profile of the Partnership and is subject to economic conditions outside of the control of the Partnership. Whilst a bank may be prepared to offer loans to the Partnership, the General Partner or the Holding Company, they cannot comment on the merits of this investment nor on its suitability for any particular Potential Investor.


Is the amount of the loss guaranteed? There can be no guarantee that any loss will arise, if for example there is a change in UK tax law on or immediately prior to the date of Closing. However, it is anticipated that the quantum of the loss allocated to each Limited Partner will be between 98% and 99% of the amount anticipated. Potential Investors may wish to take this minor discrepancy into account when deciding how much to invest. How much will I also pay in fees for tax advice and support? The amount payable for Advice Fees is set out in the Letter of Engagement and is based on a number of factors determined by the Promotions Company, including the amount of income and/or chargeable gains the Potential Investor is seeking to shelter and the effective rate of tax that will apply to that Potential Investor (for example where the shelter amount relates wholly to chargeable gains taxable at 18% or to dividend income taxable at an effective rate of 25%). The final amount of Advice Fees payable by each Potential Investor is subject to agreement between his/her Introducer and the Promotions Company. What is my total exposure? Subject to complying with the terms of the Partnership Agreement and the conditions set out in this Memorandum, Limited Partners should only be exposed to a risk of losing their Limited Partner Capital Contribution and their Advice Fees. What is the minimum amount I can Subscribe? £5 ,0 0 0 by way of Limite d Pa r tn e r C a pital Contribution (being 2% of the minimum anticipated loss to be allocated to each Limited Partner of £250,000) plus Advice Fees payable to the Promotions Company.

What is the maximum amount I can Subscribe? There is no maximum. Potential Investors should anticipate making a Limited Partner Capital Contribution no greater than 2% of the amount of the income and/or chargeable they are seeking to shelter through the generation of Partnership losses. Can two parties jointly acquire an interest in the Partnership (e.g. husband and wife)? No, but each may subscribe separately provided that they each meet the minimum requirements as set out above. Can I retire or transfer my interest in the Partnership to someone else at any time? No As set out in the Partnership Agreement, retirement is subject to the written approval of the General Partner prior to 31 December 2013 and thereafter may only be made at each 31 December year end and upon giving 90 days written notice or with the prior written approval of the General Partner. On resigning a Limited Partner can assign his interest.

PART 10 FAQS AND ANSWERS

How much cash do I need to put in as Partnership Capital? The minimum Limited Partner Capital Contribution is £5,000 being 2% of the minimum anticipated loss to be allocated to each Limited Partner of £250,000. There is no maximum subscription but Potential Investors should anticipate making a Limited Partner Capital Contribution no greater than 2% of the amount of the income and/or chargeable they are seeking to shelter through the generation of Partnership losses.

Can I redeem my interest in the Partnership at any time? No. Redemption of a Limited Partner’s interest in the Partnership will not be possible until the dissolution or winding up of the Partnership in accordance with the Partnership Agreement, and only then if there are assets available for distribution to Limited Partners at that point in time. What happens if I become, or another Limited Partner becomes, bankrupt? The bankruptcy of a Limited Partner should not affect either the continuation of the Partnership or the individual interests of the other Limited Partners. Will I ever be asked for more money? It is not intended by the General Partner that additional financial demands will be made from Limited Partners. The only circumstances in which Limited Partners can be required to introduce further capital is where the Limited Partners themselves decide to do so, upon the passing of an Extraordinary Resolution.

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PART 10 FAQS AND ANSWERS

What happens if I die? The deceased Limited Partner’s estate takes over the deceased’s interest in the Partnership. Subscribers should check to ensure that their executors have the power to hold and make decisions relating to this type of interest. As a matter of English law, any debts of a deceased person form part of his or her estate. Can I choose in which specific Projects the Partnership undertakes? No. The General Partner has sole discretion to determine which Projects are to be developed by the Partnership, although Limited Partners are encouraged to make recommendation as to new Projects that might be developed. What happens to my Cash Payment in Sterling if my offer for Subscription is not accepted? If it is not possible to admit you to the Partnership, your Cash Payment in Sterling will be returned by the Operator. Monies held in the Subscription Account will not bear interest. If you give instructions for any return payment to be made by electronic transfer, any bank charges in respect of the transfer will be deducted from the amount remitted. What happens if there is a change in UK tax law? If there is a change in law prior to the date of Closing, which adversely affects the UK taxation analysis applying to the Partnership and/or the Limited Partners, the General Partner will not close the Partnership and the Operator will return to Subscribers all of their Limited Partner Capital Contribution and Advice Fees. Thereafter, Advice Fees will not be returned in any circumstances and any Capital Contributions will only be repayable in accordance with the Partnership Agreement. Should I seek advice before subscribing to the Partnership? Yes. You are strongly recommended to seek your own independent advice from a stockbroker, solicitor, accountant or other independent financial adviser authorised and regulated by the FSA and qualified to advise on investments in unregulated collective investment schemes.

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The only acceptable KYC documents for this purpose are set out below and no other KYC documents will be accepted: •

A  certified copy of your current passport or photo driving license which must show a legible and clear photo. A  certified copy of a recent bank statement, utility bill, HMRC Self-Assessment Statement of Account or Local Authority council tax bill showing your name and your home address (this document should be less than 3 months old as at the date of Closing (or in the case of a Local Authority council tax bill should be dated March 2009).

Data Protection Any details or information relating to Investors submitted to the Operator or the General Partner will be retained on databases at the registered offices of the two businesses under the provisions of the Data Protection Act 1998. Subscribers’ details will be used principally for communicating with them in their capacity as Limited Partners and paying any distributions, as well as for any regulatory purposes. Neither the General Partner nor the Operator will send the Subscribers’ details to any third party except for the purpose of running the Partnership and managing any future HMRC enquiry, to the police for preventing crime, to any relevant regulatory authority if required by law or unless they are specifically requested to do so by any court of competent jurisdiction.

KYC documents must be certified as a true copy of the original by your solicitor, accountant or tax advisor (who should be qualified as either ACA, ACCA, CIMA or CIoT) or by a FSA approved person such as a registered independent financial advisor. Potential Investors should liaise with their Introducer regarding the provision of KYC documents. Introducers may also be able to certify the KYC documents for Potential Investors if they fall within one of the categories listed above.

THE FIRST DE SALES LIMITED PARTNERSHIP

PART 11 MONEY LAUNDERING REGULATIONS AND DATA PROTECTION

Verification of Identity In order to comply with the requirements of the Money Laundering Regulations 2007 the Operator will require verification of the identity and home address of any Potential Investor and any authorised intermediary acting for a Potential Investor prior to the date of Closing. These verification documents are generally referred to as know-your-client or KYC documents.

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PART 12 SUBSCRIPTION DOCUMENTS

Application Procedure Included with this Memorandum are various Subscription Documents which must be completed in full and returned to the Operator, together with all anti-Money Laundering KYC information as described in Part 11 using the prepaid envelope provided. In addition, all Advice Fees and Capital Contributions must be paid by telegraphic transfer. Documents and monies must be received prior to the date of closing It is intended that the transactions described in this Memorandum which give rise to the loss, will take place on the date of Closing and will begin early on that day. Potential Investors will be denied participation in the Partnership where any one of these elements is not fully completed and in place by the day before the date of Closing.

The procedure for completion of the Subscription Documents is as follows:

Application Form 1 Complete the Application Form in BLOCK CAPITALS and sign it in accordance with these instructions. The Application Form must be completed IN FULL. 2 You must tick the relevant boxes to confirm your status as UK resident and/or ordinarily resident. You must also confirm that you have reviewed Leading Tax Counsel’s opinion. 3 The email address you provide will generally be used to contact you on all matters relating to the Partnership, once it has closed. You will receive correspondence from time to time by post from the Operator and/or the General Partner. 4 You must provide your Unique Taxpayer Reference Number (UTR – available from your tax district) and your National Insurance Number (NINO). 5 This form must be witnessed by any UK resident person who is 18 years of age or over, other than your spouse and children. 6 This Application Form includes a power of attorney for the Operator to undertake certain responsibilities on your behalf. You should read all of the legal statements.

Bank Mandate 1 You should complete the form with your Bank Branch details, account number and sort code and sign it etc. where shown. Please include a reference number in the format shown. 2 The form should be sent to your Bank Manager with instructions regarding the deadline for making payment.

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ENQUIRIES REGARDING THIS INFORMATION MEMORANDUM SHOULD BE DIRECTED TO: AMANDA INGLESON PARTNERSHIP INCORPORATIONS LIMITED CONNAUGHT HOUSE 3RD FLOOR 1 MOUNT STREET LONDON W1K 3NB aingleson@pilinvests.com 0207 659 5350

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PARTNERSHIP AGREEMENT

Telephone 020 7659 5350 www.pilinvests.com Authorised and regulated by the Financial Services Authority

Designed by Sugarfree  www.sugarfreedesign.co.uk

Partnership Incorporations Limited Connaught House 3rd Floor 1 Mount Street London W1K 3NB

THE FIRST DE SALES LIMITED PARTNERSHIP

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Brochure for DeSales Fund launch 2009

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