Class Ruling CR 2008/82
Date of effect: 1 July 2007

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 2. The relevant provisions dealt with in this Ruling are: All legislative references in the Ruling are to the ITAA 1997 unless otherwise indicated. Class of entities 3. The class of entities to which this Ruling applies is the shareholders and option holders in Peplin Ltd who: Qualifications 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 9 to 22 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is the shareholders and option holders in Peplin Ltd who: | Qualifications: 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 9 to 22 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 8. This Ruling applies from 1 July 2007 to 30 July 2008. The Ruling continues to apply after 30 July 2008 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 9. The following description of the scheme is based on information provided by the applicant. The following documents, or relevant parts of them, form part of and are to be read with the description: Note : certain information has been provided on a commercial-in-confidence basis and will not be released under the Freedom of Information legislation. 10. Peplin Ltd is a public company incorporated in Australia on 7 December 1999. 11. Peplin Ltd had shares and options listed on the Australian Securities Exchange (ASX) as well as unlisted options. 12. The majority of Peplin Ltd shareholders were Australian (83% approximately). USA shareholders held approximately 16% of issued shares with the remaining 1% of shareholders being residents in a range of countries. 13. At 22 June 2007, there were in excess of 3,500 shareholders in Peplin Ltd but only 3 shareholders had a direct interest greater than 10%. 14. As at 30 July 2007 there were approximately 17.1 million listed options in Peplin Ltd. 15. Unlisted options are options that have been issued under Peplin Ltd's Employee Share Option Plan, and Directors and Officers Plans. As at 30 July 2007, there were approximately 15.04 million unlisted options on issue which, if exercised, would represent approximately 7.5% of the share capital of Peplin Ltd. 16. Peplin Ltd undertook a restructure subject to shareholder, option holder and court approvals. Under the restructure, Peplin Incorporated (Peplin US) was incorporated in Delaware USA, and became the owner of all Peplin Ltd shares. In the draft Information Memorandum dated 2 August 2007 recommending the restructure to shareholders and option holders, the Directors indicated that the proposed restructure would enhance Peplin Ltd's ability to: 17. The restructure was subject to and was implemented through two separate Court sanctioned schemes of arrangement under the Corporations Act 2001 , one involving shareholders (the Share Scheme) and the other involving holders of listed options (the Option Scheme), with holders of unlisted options entering into a private treaty. At the time of the restructure, all current shareholders and option holders were in substantially the same financial position immediately prior to and after the restructure. 18. Under the Share Scheme, shareholders in Australia, New Zealand and the USA (together representing approximately 99% of Peplin Ltd's shareholders) had their shares in Peplin Ltd transferred to Peplin US. Under an exchange ratio they received either: Fractional interests were rounded up to the nearest whole share. 19. Under the Option Scheme, each listed option holder with a registered address in Australia, New Zealand or the USA: 20. Shareholders and listed option holders who had a registered address in jurisdictions other than Australia, New Zealand or the USA are referred to as Ineligible Foreign Shareholders and Ineligible Foreign Option Holders. Although they were eligible to vote on and participate in the Share Scheme and the Option Scheme, they did not receive Peplin US shares or CDIs. Instead CDIs representing their shares or options in Peplin US were issued to a nominee. The nominee was to sell those CDIs at such a price and on such terms as the nominee determined and then distributes the proceeds to the Ineligible Foreign Shareholders and Ineligible Foreign Option Holders. 21. Under the private treaty with unlisted option holders, all such option holders had their options in Peplin Ltd cancelled. Under an exchange ratio they received one option to acquire a Peplin US share under a Stock Option Plan adopted by Peplin US for every 20 options they held in Peplin Ltd. 22. The implementation date was 16 October 2007. This was the date on which the shares were exchanged and listed and unlisted options were cancelled and reissued. | Exchange of shares: 23. CGT event A1 happened when a shareholder disposed of a Peplin Ltd share to Peplin US under the scheme described in this Ruling (subsection 104-10(1)). 24. The event happened when all the shares in Peplin Ltd were transferred to Peplin US on the Implementation Date (subsection 104-10(3)). 25. A shareholder made a capital gain from the CGT event A1 happening if the capital proceeds for a Peplin Ltd share exceeded its cost base (subsection 104-10(4)). 26. A shareholder made a capital loss if the capital proceeds were less than the share's reduced cost base (subsection 104-10(4)). 27. Where a Peplin Ltd share was exchanged for a Share CDI, the capital proceeds for each Peplin Ltd share was the market value of the Share CDI (paragraph 116-20(1)(b)). 28. The 5 day volume weighted average price for a Share CDI for the period 17 October 2007 to 23 October 2007 was $0.90. The Commissioner accepts $0.90 as being the market value of the share CDI on the Implementation Date. 29. Where a Peplin Ltd share was exchanged for an interest in a share in Peplin US, the capital proceeds for each Peplin Ltd share was the fraction of the market value of the Peplin US share which accorded with the exchange ratio (paragraph 116-20(1)(b)). 30. No publicly traded market existed for Peplin US shares on or around the Implementation Date. However, under the exchange ratio 20 Peplin Ltd shares could be converted to one Peplin US share. The Commissioner accepts $18.00 as being the market value of a Peplin US share on the Implementation Date. The Commissioner therefore accepts $0.90 as the fraction of the market value of the Peplin US share which accords with the exchange ratio (one-twentieth of $18.00). | Cancellation and reissue of listed and unlisted options: 31. CGT event C2 happened when an option holder's option was cancelled under the scheme described in this Ruling (paragraph 104-25(1)(a)). 32. CGT event C2 happened when the option was cancelled on the Implementation Date (paragraph 104-25(2)(b)). 33. An option holder made a capital gain if the capital proceeds from the cancellation of the option were more than its cost base (subsection 104-25(3)). 34. An option holder made a capital loss if the capital proceeds were less than the option's reduced cost base (subsection 104-25(3)). 35. The capital proceeds for each listed option cancelled under the scheme described in this Ruling was the market value of the Option CDI with which it was replaced (paragraph 116-20(1)(b)). 36. An option CDI represents a one-twentieth interest in a Peplin US option. 37. The value of an Option CDI on the Australian Securities Exchange as at 16 October 2007 was $0.33. The Commissioner accepts $0.33 as being the market value of an Option CDI on the Implementation Date. | Availability of roll-over: 38. A Peplin Ltd shareholder or option holder may choose scrip for scrip roll-over under Subdivision 124-M provided: | Cost base and reduced cost base of replacement assets: 39. If a shareholder chooses scrip for scrip roll-over, the first element of the cost base and the reduced cost base of each Share CDI will be the cost base and the reduced cost base of the Peplin Ltd share that was disposed of under the scheme described in this Ruling and for which roll-over was chosen (subsections 124-785(2) and (4)). 40. If a shareholder chooses scrip for scrip roll-over, the first element of the cost base of the share in Peplin US will be a reasonable attribution of the cost bases and reduced cost bases of the Peplin Ltd shares that were exchanged under the scheme specified in this Ruling, in accordance with the exchange ratio, and for which roll-over was chosen (subsections 124-785(2) and (4)). 41. If an option holder chooses scrip for scrip roll-over, the first element of the cost base and the reduced cost base of each Option CDI will be the cost base and the reduced cost base of the listed option that was cancelled under the scheme described in this Ruling and for which roll-over was chosen (subsections 124-785(2) and (4)). 42. If an option holder chooses scrip for scrip roll-over, the first element of the cost base and the reduced cost base of each option in Peplin US will be a reasonable attribution of the cost bases and reduced cost bases of the unlisted Peplin Ltd options that were cancelled and replaced under the scheme described in this Ruling, in accordance with the exchange ratio, and for which roll-over was chosen (subsections 124-785(2) and (4)). | Acquisition date of replacement assets: 43. If roll-over is not chosen (or is not available), the acquisition date of the replacement assets (Share CDIs, shares in Peplin US, Option CDIs and options in Peplin US) is the date that they were issued to each Peplin Ltd shareholder and option holder (section 109-5 and section 109-10). 44. If roll-over is chosen, for the purpose of determining if a capital gain made on any later disposal of the replacement assets is a discount capital gain, the acquisition date of the replacement assets is the date of acquisition of the original Peplin Ltd shares that were disposed of and Peplin Ltd options that were cancelled under the scheme described in this Ruling (item 2 of the table in subsection 115-30(1)). Commissioner of Taxation 26 November 2008 45. The tax consequences and relevant legislative provisions that arise concerning the scheme that is the subject of this Ruling are outlined in the Ruling part of this document. 46. The significant tax consequence is the availability of scrip for scrip roll-over under Subdivision 124-M. It enables a shareholder or option holder to disregard a capital gain from a share or an option that is disposed of as part of a corporate takeover or merger if the shareholder or option holder receives a replacement share or option in exchange. It also provides special rules for calculating the cost base and reduced cost base of the replacement share or option. 47. Subdivision 124-M contains a number of conditions that determine whether scrip for scrip roll-over is available under an arrangement. The main conditions and exceptions that are relevant to the circumstances of the restructure of Peplin Ltd are: 48. Under the scheme the conditions for roll-over under Subdivision 124-M are satisfied. 49. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: Exchange of shares: 23. CGT event A1 happened when a shareholder disposed of a Peplin Ltd share to Peplin US under the scheme described in this Ruling (subsection 104-10(1)). 24. The event happened when all the shares in Peplin Ltd were transferred to Peplin US on the Implementation Date (subsection 104-10(3)). 25. A shareholder made a capital gain from the CGT event A1 happening if the capital proceeds for a Peplin Ltd share exceeded its cost base (subsection 104-10(4)). 26. A shareholder made a capital loss if the capital proceeds were less than the share's reduced cost base (subsection 104-10(4)). 27. Where a Peplin Ltd share was exchanged for a Share CDI, the capital proceeds for each Peplin Ltd share was the market value of the Share CDI (paragraph 116-20(1)(b)). 28. The 5 day volume weighted average price for a Share CDI for the period 17 October 2007 to 23 October 2007 was $0.90. The Commissioner accepts $0.90 as being the market value of the share CDI on the Implementation Date. 29. Where a Peplin Ltd share was exchanged for an interest in a share in Peplin US, the capital proceeds for each Peplin Ltd share was the fraction of the market value of the Peplin US share which accorded with the exchange ratio (paragraph 116-20(1)(b)). 30. No publicly traded market existed for Peplin US shares on or around the Implementation Date. However, under the exchange ratio 20 Peplin Ltd shares could be converted to one Peplin US share. The Commissioner accepts $18.00 as being the market value of a Peplin US share on the Implementation Date. The Commissioner therefore accepts $0.90 as the fraction of the market value of the Peplin US share which accords with the exchange ratio (one-twentieth of $18.00). | Cancellation and reissue of listed and unlisted options: 31. CGT event C2 happened when an option holder's option was cancelled under the scheme described in this Ruling (paragraph 104-25(1)(a)). 32. CGT event C2 happened when the option was cancelled on the Implementation Date (paragraph 104-25(2)(b)). 33. An option holder made a capital gain if the capital proceeds from the cancellation of the option were more than its cost base (subsection 104-25(3)). 34. An option holder made a capital loss if the capital proceeds were less than the option's reduced cost base (subsection 104-25(3)). 35. The capital proceeds for each listed option cancelled under the scheme described in this Ruling was the market value of the Option CDI with which it was replaced (paragraph 116-20(1)(b)). 36. An option CDI represents a one-twentieth interest in a Peplin US option. 37. The value of an Option CDI on the Australian Securities Exchange as at 16 October 2007 was $0.33. The Commissioner accepts $0.33 as being the market value of an Option CDI on the Implementation Date. | Availability of roll-over: 38. A Peplin Ltd shareholder or option holder may choose scrip for scrip roll-over under Subdivision 124-M provided: | Cost base and reduced cost base of replacement assets: 39. If a shareholder chooses scrip for scrip roll-over, the first element of the cost base and the reduced cost base of each Share CDI will be the cost base and the reduced cost base of the Peplin Ltd share that was disposed of under the scheme described in this Ruling and for which roll-over was chosen (subsections 124-785(2) and (4)). 40. If a shareholder chooses scrip for scrip roll-over, the first element of the cost base of the share in Peplin US will be a reasonable attribution of the cost bases and reduced cost bases of the Peplin Ltd shares that were exchanged under the scheme specified in this Ruling, in accordance with the exchange ratio, and for which roll-over was chosen (subsections 124-785(2) and (4)). 41. If an option holder chooses scrip for scrip roll-over, the first element of the cost base and the reduced cost base of each Option CDI will be the cost base and the reduced cost base of the listed option that was cancelled under the scheme described in this Ruling and for which roll-over was chosen (subsections 124-785(2) and (4)). 42. If an option holder chooses scrip for scrip roll-over, the first element of the cost base and the reduced cost base of each option in Peplin US will be a reasonable attribution of the cost bases and reduced cost bases of the unlisted Peplin Ltd options that were cancelled and replaced under the scheme described in this Ruling, in accordance with the exchange ratio, and for which roll-over was chosen (subsections 124-785(2) and (4)). | Acquisition date of replacement assets: 43. If roll-over is not chosen (or is not available), the acquisition date of the replacement assets (Share CDIs, shares in Peplin US, Option CDIs and options in Peplin US) is the date that they were issued to each Peplin Ltd shareholder and option holder (section 109-5 and section 109-10). 44. If roll-over is chosen, for the purpose of determining if a capital gain made on any later disposal of the replacement assets is a discount capital gain, the acquisition date of the replacement assets is the date of acquisition of the original Peplin Ltd shares that were disposed of and Peplin Ltd options that were cancelled under the scheme described in this Ruling (item 2 of the table in subsection 115-30(1)). Commissioner of Taxation 26 November 2008


Appendix: 45. The tax consequences and relevant legislative provisions that arise concerning the scheme that is the subject of this Ruling are outlined in the Ruling part of this document. 46. The significant tax consequence is the availability of scrip for scrip roll-over under Subdivision 124-M. It enables a shareholder or option holder to disregard a capital gain from a share or an option that is disposed of as part of a corporate takeover or merger if the shareholder or option holder receives a replacement share or option in exchange. It also provides special rules for calculating the cost base and reduced cost base of the replacement share or option. 47. Subdivision 124-M contains a number of conditions that determine whether scrip for scrip roll-over is available under an arrangement. The main conditions and exceptions that are relevant to the circumstances of the restructure of Peplin Ltd are: 48. Under the scheme the conditions for roll-over under Subdivision 124-M are satisfied.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | Appendix 2 - Detailed contents list


Related rulings: TR 2006/10
Legislative references: ITAA 1936 6(1) ITAA 1997 104-10 ITAA 1997 104-10(1) ITAA 1997 104-10(3) ITAA 1997 104-10(4) ITAA 1997 104-25 ITAA 1997 104-25(1)(a) ITAA 1997 104-25(2)(b) ITAA 1997 104-25(3) ITAA 1997 109-5 ITAA 1997 109-10 ITAA 1997 115-30 ITAA 1997 115-30(1) ITAA 1997 116-20 ITAA 1997 116-20(1)(b) ITAA 1997 Subdiv 124-M ITAA 1997 124-785(2) ITAA 1997 124-785(4) TAA 1953 Copyright Act 1968 Corporations Act 2001
Subject references: arrangement capital proceeds CGT event company cost base interests option option holder ordinary share original interest replacement interest resident roll-over scrip for scrip roll-over share shareholder