RBS 2009 Annual Report Download - page 366

Additional information continued
RBS Group Annual Report and Accounts 2009364
The company also bore all costs and expenses relating to the First
Placing and Open Offer and the preference share issue, including (but
not limited to) the fees and expenses of its professional advisers, the
cost of preparation, advertising, printing and distribution of the First
Placing and Open Offer prospectus and all other documents connected
with the First Placing and Open Offer and the preference share issue,
the listing fees of the FSA, any charges by CREST and the fees of the
London Stock Exchange and Euronext.
The company gave certain undertakings to HM Treasury in relation to
such matters as mortgage lending, lending to SMEs and Board
remuneration. These undertakings were aimed at ensuring that any
State aid involved in the potential acquisition of new shares and the
company’s potential participation in the Credit Guarantee Scheme to be
promoted by HM Treasury as part of its support for the UK banking
industry was compatible with the common market under EU law. These
constraints will cease to apply when, broadly, it is determined that RBS
is no longer in receipt of State aid.
The undertakings the company gave to HM Treasury included the
following:
(i) no bonus would be awarded to any director for 2008 and any
bonuses earned by directors in respect of 2009 will be paid in
restricted shares, remuneration will seek to reward long-term value
creation and not encourage excessive risk taking (short-term
indicators will be taken into account only where fully consistent with
long-term value creation and not encouraging excessive risk taking)
and directors who are dismissed will receive a severance package
which is reasonable and perceived as fair;
(ii) to work with HM Treasury on the appointment of up to three new
independent non-executive directors;
(iii) to maintain its SME and mortgage lending availability to at least
2007 levels until the end of 2011 with the active marketing of
competitively priced loan products;
(iv) to increase its support to shared equity projects until the end of
2009 in order to assist those in difficulties with their mortgage
payments to stay in their homes, either through individual bank
schemes or paid into a central fund run by industry; and
(v) to publish an annual report, for each year until 2011, on its lending
to SMEs and establish transparent public reporting on both SME
and mortgage lending as agreed with HM Treasury.
The undertakings relating to SME and mortgage lending have been
superseded by the Lending Commitments Letter outlined in the Lending
Commitments Letter section below. In addition, the company agreed to
limit its activities to the higher of: (i) the annual rate of growth of UK
nominal GDP in the preceding year; and (ii) the average historical
growth of the balance sheets in the UK banking sector during the
period 1987-2007, unless there is evidence that the thresholds are
exceeded for reasons unrelated to the provision of the aid.
Sale of Bank of China Investment
On 14 January 2009, pursuant to (i) a placing agreement entered into
between the company, RBS China Investments S.à r.l. (a Luxembourg
incorporated subsidiary of the company) and ABN AMRO Bank N.V.,
Hong Kong Branch, (ii) a placing agreement entered into between the
company, RBS China Investments S.à r.l., ABN AMRO Bank N.V., Hong
Kong Branch and Morgan Stanley & Co. International plc, and (iii) a
share purchase agreement entered into between RBS China Investments
S.à r.l., Primestar Resource Holdings Limited and Orientmax Capital
Limited, the company (through RBS China Investments S.à r.l.) sold its
entire 4.26 per cent. investment in Bank of China for HKD 18.4 billion.
Second Placing and Open Offer Agreement
Pursuant to a placing and open offer agreement dated 19 January 2009
entered into between the company, UBS, Merrill Lynch International and
HM Treasury, (i) the company agreed to invite qualifying shareholders to
apply to subscribe for new shares at the issue price of 31.75 pence per
new share by way of the Second Open Offer, (ii) UBS and Merrill Lynch
International were appointed as joint sponsors, joint bookrunners and
joint placing agents and agreed to use reasonable endeavours to
procure placees to subscribe for the new shares on such terms as may
be agreed by the company and HM Treasury at not less than the issue
price of 31.75 pence per new share on the basis that the new shares
placed will be subject to clawback to the extent they are taken up under
the Second Open Offer and (iii) HM Treasury agreed that, to the extent
not placed or taken up under the Second Open Offer and subject to the
terms and conditions set out in the Second Placing and Open Offer
Agreement, HM Treasury will subscribe for such new shares itself at the
issue price of 31.75 pence per new share.
Pursuant to the terms of the Second Placing and Open Offer
Agreement, the aggregate proceeds of the Second Placing and Open
Offer (net of expenses) were used in full to fund the redemption on
Admission (as defined in the Second Placing and Open Offer
Agreement) of the preference shares held by HM Treasury at 101 per
cent. of their issue price (£5.05 billion) together with the accrued
dividend on the preference shares (from and including 1 December
2008 to but excluding the date of Admission (as defined in the Second
Placing and Open Offer Agreement)) and the commissions payable to
HM Treasury under the Second Placing and Open Offer Agreement.
In consideration of the provision of its services under the Second
Placing and Open Offer Agreement, the company paid to HM Treasury
(i) a commission of 0.5 per cent. of the aggregate value of the new
shares at the issue price of 31.75 pence per new share, payable on the
earlier of Admission (as defined in the Second Placing and Open Offer
Agreement) and the second business day after the day on which the
Second Placing and Open Offer Agreement is terminated and (ii) a
further commission of 1 per cent. of the aggregate value of the new
shares subscribed for by placees at the issue price of 31.75 pence per
new share payable on the date of Admission (as defined in the Second
Placing and Open Offer Agreement).
The company paid to each of HM Treasury, UBS and Merrill Lynch
International all legal and other costs and expenses (properly incurred
in the case of UBS and Merrill Lynch International) and those of HM
Treasury’s financial advisers, incurred in connection with the Second
Placing and Open Offer, the redemption of the preference shares or any
arrangements referred to in the Second Placing and Open Offer
Agreement.