LCP Proudreed PLC - Irish Stock Exchange

Real Estate as security for certain of its undertakings under the Proudreed Tax Deed of Covenant and,
in the case of LCP Real Estate, L.C.P. Commercial Limited will grant an equitable mortgage over its
shareholding in LCP Real Estate as security for certain of its undertakings under the relevant Tax Deed
of Covenant (as to which see further the sections entitled ‘‘Summary of Principal Documents –
Commercial Mortgage Loans’’ and ‘‘Tax Deeds of Covenant’’ below).
It is possible that further asset transfers to the Borrowers from members of their respective Borrower
Groups (excluding the Borrowers) may take place in the future. No tax on chargeable gains or stamp duty
land tax should arise on intra group transfers, but a subsequent degrouping of the transferee could in
certain circumstances (as outlined above) give rise to a primary or secondary liability to tax in the
transferee or the transferor (respectively). The Tax Deeds of Covenant will include provisions to ensure
that the Borrowers are appropriately protected in respect of such liabilities potentially arising on further
asset transfers.
In addition, each Tax Deed of Covenant obliges the LCP Covenantors or Proudreed Covenantor, as the
case may be, to provide cash collateral (save to the extent provided out of monies available to the relevant
Borrower not standing to the credit of the relevant Borrower Accounts) if the total contingent degrouping
charge in a Borrower on any additional transfer exceeds from time to time the difference between the
market value of the Secured Properties in that Borrower’s Property Portfolio and the total outstanding
obligations of that Borrower under its Commercial Mortgage Loan or if an event occurs that might
reasonably be expected to trigger a degrouping charge. The LCP Covenantors or Proudreed Covenantor,
as the case may be, shall be required to cash collateralise the relevant Borrower’s contingent liabilities,
such cash being required to be deposited into the relevant Contingent Tax Security Account to pay tax
or be held until such time as there is no reasonable prospect that such collateral will be required to meet
the degrouping charges in the Borrower.
The disposal of certain capital assets, including properties by the Borrowers to third parties may give rise
to a liability for UK corporation tax on chargeable gains. Should any such tax liability arise as a result of
a disposal, that tax liability could, indirectly, adversely affect the ability of the Issuer to meet its
obligations under the Notes.
These factors may mean that, should any tax liability arise on enforcement of security as described above,
the ability of the Issuer to repay the Notes could be adversely affected to a greater extent than if there
were a higher base cost in the securitisation estate.
Withholding tax in respect of the Notes and the Hedging Agreements
In the event that any withholding or deduction for or on account of tax is required to be made from
payments due under the Notes (as to which see the section entitled ‘‘United Kingdom Taxation’’ below),
neither the Issuer nor any Paying Agent nor any other person will be obliged to pay any additional
amounts to Noteholders or, if Definitive Notes are issued, Couponholders or to otherwise compensate
Noteholders or Couponholders for the reduction in the amounts they will receive as a result of such
withholding or deduction. If such a withholding or deduction is required to be made, the Issuer will have
the option (but not the obligation, unless the Borrowers have exercised their rights to prepay the
Commercial Mortgage Loans in such circumstances, and in certain circumstances subject to the consent
of the Borrowers) of redeeming all outstanding Notes in full at their Principal Amount Outstanding
(together with accrued interest). For the avoidance of doubt, neither the Note Trustee nor Noteholders
nor, if Definitive Notes are issued, Couponholders, will have the right to require the Issuer to redeem the
Notes in these circumstances.
If the Issuer or a Hedging Provider is obliged to pay such an increased amount as a result of its being
obliged to make such a withholding or deduction (any such amounts as are payable by the Issuer forming
part of the Hedging Subordinated Amounts, the payment of the On-going Facility Fee in respect of which
will rank junior to payments under the relevant Commercial Mortgage Loan in the Obligor Priority of
Payments), it may terminate the transactions under the Hedging Agreements (subject to the relevant
Hedging Provider’s obligation to use its reasonable endeavours to transfer its rights and obligations under
the Hedging Agreements to a third party Hedging Provider such that payments made by and to that third
party Hedging Provider under the Hedging Agreements can be made without any withholding or
deduction for or on account of tax and, in a case where the Issuer wishes to exercise its right to terminate
the transactions under the Hedging Agreements, subject to the Ratings Test being satisfied notwithstanding
such termination). If a transaction under the Hedging Agreements is terminated, the Issuer may be
unable to meet its obligations under the Notes, with the result that the Noteholders may not receive all
of the payments of principal and interest due to them in respect of the Notes.
54