Benefits of Making Business in Palau | Buy & Sell Business

1. BENEFITS OF MAKING BUSINESS IN PALAU WWW.MERGERSCORP.COM

2. At MergersCorp M&A International we help our clients confidentially buy and sell privately held businesses, aligning the interests of all parties for mutual success and satisfaction. It is our goal to make the process of either buying a new business or selling your current business as smooth and efficient as possible. We know how important confidentiality is to our sellers and we treat it with the utmost importance. WWW.MERGERSCORP.COM

3. BENEFITS OF MAKING BUSINESS IN PALAU WWW.MERGERSCORP.COM

4. Country Overview Palau is an archipelago of over 500 islands, part of the Micronesia region in the western Pacific Ocean. Koror Island is home to the former capital, also named Koror, and is the islands‟ commercial center. The larger Babeldaob has the present capital, Ngerulmud, plus mountains and sandy beaches on its east coast. In its north, ancient basalt monoliths known as Badrulchau lie in grassy fields surrounded by palm trees. Palau became independent in 1994, after being part of a United Nations trust territory administered by the US for 47 years. It relies on financial aid from the US, provided under a Compact of Free Association which gives the US responsibility for Palau's defence and the right to maintain military bases there. Carolinas is Micronesia; Guajan is Guam, with its capital, Agaña, labeled “Capital and residence of the governor of this archipelago, a dependency of the Captain-General of the Philippines.” That's because Palau was considered part of the Philippines by our First Republic.

5. Executive Summary The capital of Palau is Ngerulmud. The city became the capital of Palau in 2006 when it replaced the Koror City, the former capital of the nation. The city is located 20 km to the northeast of the former capital. Unlike most national capital cities of the world, Ngerulmud is not the largest city of the country. The country's resident population of approximately 18,000 people live on only eight of the islands. The capital of Palau is Ngerulmud, located on Babeldoab, the largest island. The International Monetary Fund characterises Palau as a „middle- income microstate‟. Palau‟s GDP per capita is comparable to that of the Commonwealth of the Northern Mariana Islands, significantly more than that of the neighbouring Federated States of Micronesia and Republic of the Marshall Islands, but around half that of Guam. Palau‟s economy is dominated by grants and tourism, and faces structural constraints similar to other small island states: a narrow economic base, remote location, small population, inadequate infrastructure, weak business climate, and exposure to climate change impacts.

6. Introduction – Doing business in Palau Palau is ranked 145 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Palau deteriorated to 145 in 2019 from 133 in 2018. The expansion of Tourism, Aquaculture, Film, Television, and Commercial Productions, and “light” Manufacturing are presented as promising growth opportunities for Palau. . As the tourism industry is the largest source of income, Palau seeks to expand this tourism base with diversified products targeting a broad range of tourist markets. The completion of the Compact-funded Babeldaob road brings access to land for development, increased production and better distribution possibilities for tourism businesses and related support businesses.

7. Conducting business in Palau The economy of Palau consists primarily of subsistence agriculture and fishing. The government is the major employer of the work force, relying heavily on financial assistance from the United States. The population enjoys a per capita income of more than twice that of the Philippines and much of Micronesia. Long-term prospects for the tourist sector have been greatly bolstered by the expansion of air travel in the Pacific and the rising prosperity of leading East Asian countries. The service sector dominates the Palauan economy, contributing more than 80% of GDP and employing three- quarters of the work force. The government alone employs nearly 30% of workers. One of the government's main responsibilities is administering external assistance.

8. Taxation in Palau The main tax rates are: 6 percent on incomes from employment, rising to 12 percent; 4 percent on the gross revenues of businesses; 4 percent on the net incomes of financial institutions; import duties varying between 3 percent to 150 percent; hotel room tax ; departure tax. That government revenue was anticipated in the budget as 57 percent of GDP. Of this, 59 percent was raised by government tax and other non-tax income, and 41 percent was grants from the United States. Income tax raised 11 percent of government revenues (excluding grants), import duties 10 percent, gross revenue tax on business 14 percent, other taxes 8 percent, and non-tax revenue (licenses, fees, trust fund income, investment income) 56 percent.

9. Trade Palau's main exports are fish and related products. Palau's main imports are oil, fish, machinery and equipment. Japan, the US, Singapore and Republic of Korea are main import partners. It is a member of the Pacific Island Countries Trade Agreement (PICTA). Palau is the 202nd largest export economy in the world. The top exports of Palau are Non-fillet Fresh Fish($18M ), Computers ($1.71M), Scrap Vessels($1.16M), Surveying Equipment ($1.01M) and Delivery Trucks ($457k), using the 1992 revision of the HS (Harmonized System) classification. Its top imports are Refined Petroleum ($30M), Cars($5.57M), Passenger and Cargo Ships ($2.94M), Beer ($2.93M) and Delivery Trucks ($2.54M). The top export destinations of Palau are Japan($19.5M ) , Turkey ($1.16M), the United States($931k), Guam ($926k) and Australia ($556k). The top import origins are the United States ($52.6M), Singapore ($22.7M), Japan ($19.4M), China($1 6.1M) and South Korea ($12.4M).

10. Banking in the Palau The National Development Bank of Palau (NDBP or the Bank) is a small development finance organization operating in the Republic of Palau, where underlying economic strength presently relies heavily on foreign aid. Such aid monies primarily flow from the United States under a Compact of Free Association, with significant contributions also from Japan and Taiwan. Five banks are operating in Palau, Bank of Guam, Bank of Hawaii, Bank Pacific, Asia Pacific Commercial Bank, and Palau Investment Bank. Out of the five banks operating in Palau, two are locally chartered bank and are required to maintain at least $1 million in capital. Palau's financial system consists of 12 commercial banks, including 3 branches of U.S.-based banks, one development bank (the National Development Bank of Palau), 11 non- bank financial institutions, and a number of small credit unions.

11. Our M&A Process NEGOTIATION & CLOSE POST MERGER INTEGRATION (PMI) INTEGRATION (PMI) POST MERGER TARGET APPRAISAL APPROACH DUE DILIGENCE Key Areas  Target & market analysis;  Initial assessment of synergies & value drivers;  Indicative valuation;  Go or No-Go decision;  Preparation of transaction documents (NDA – Non- disclosure Agreement/LOI- Letter of Intent);  Select Transaction team;  Appoint advisors;  Consider funding ability.  Initial approach letter;  Signing of NDA;  Prepare & share initial information requests;  Formulation of LOI (Letter of Intent) & possible negotiations;  Initial meeting and Q&A;  Circulate information on the Target to the Transaction team.  Set scope of due diligence;  Set up VDR (virtual data room);  Coordinating of due diligence, further meetings and Q&A sessions;  Consider points relevant to the Post-Merger (PMI) phase;  Revisit indicative valuation & prepare detailed valuation based on due diligence findings;  SPA negotiations with the seller;  Development of final structure (share/asset deal) and final valuation;  Approvals;  Signing of SPA & Close.  Consider the extent of integration;  Development of 100 Day PMI Plan;  Consider short & long term objectives;  Estimate requirements to capture synergies;  Determine resource needs & optimal allocation. Parties Involved  CFO;  Head of M&A;  Accountants;  Corporate finance advisors;  Consultants.  Senior management;  CEO, CFO, CTO;  Strategy director;  Head of M&A;  Head of Business Development;  Consultants.  Company general counsel;  Lawyers;  Senior management.  Company general counsel;  Lawyers;  Senior management/HR. 11 © Midaxo 2018 www.midaxo.com

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