RBS 2009 Annual Report Download - page 367

Additional information
365RBS Group Annual Report and Accounts 2009
The company also bore all costs and expenses relating to the Second
Placing and Open Offer and the preference share redemption, including
(but not limited to) the fees and expenses of its professional advisers,
the cost of preparation, advertising, printing and distribution of the
prospectus dated 16 March 2009 and all other documents connected
with the Second Placing and Open Offer and the preference share
redemption, the listing fees of the FSA, any charges by CREST and the
fees of the London Stock Exchange and Euronext.
HM Treasury is entitled to novate its rights under the Second Placing
and Open Offer Agreement to any entity that is owned, directly or
indirectly, by HM Treasury.
The company gave certain representations and warranties and
indemnities to each of HM Treasury, UBS and Merrill Lynch International
under the Second Placing and Open Offer Agreement. The liabilities of
the company are unlimited as to time and amount.
The company also gave HM Treasury the following undertakings:
(i) to extend the lending commitments made to HM Treasury in the
First Placing and Open Offer Agreement in respect of the UK
mortgage and SME lending markets. These commitments will now
also apply to the company’s lending to larger commercial and
industrial companies in the United Kingdom; and
(ii) a commitment to increase the level at which competitively priced
lending is made available and actively marketed by the Group in
the United Kingdom by £6 billion.
The company’s commitments described at (i) and (ii) above have been
superseded by the Lending Commitments Letter (see below) pursuant
to which the company has agreed, among other things, to lend £16
billion above the amount the company has budgeted to lend to UK
businesses and £9 billion above the amount the company has budgeted
to lend to UK homeowners in the year commencing 1 March 2009, with
a commitment to lend at similar levels in the year commencing 1 March
2010. For further details see the Lending Commitments Letter section
below.
Preference Share Subscription Agreement
Pursuant to a Preference Share Subscription Agreement effective as of
13 October 2008 between the company and HM Treasury, HM Treasury
subscribed for, and the company allotted and issued to HM Treasury, the
preference shares for a total consideration of £5 billion. The company
and HM Treasury agreed that applications would be made to the UKLA
for the preference shares to be admitted to the Official List and to the
London Stock Exchange for the preference shares to be admitted to
trading on the London Stock Exchange. Pursuant to the Preference
Share Subscription Agreement, the company agreed to pay the costs
and expenses of both parties in relation to the negotiation of the
Preference Share Subscription Agreement and the subscription for, and
allotment and issue of, the preference shares (including, without
limitation, any stamp duty or stamp duty reserve tax). HM Treasury was
entitled to novate its rights under the Preference Share Subscription
Agreement to any entity that is owned, directly or indirectly, by HM
Treasury.
The Preference Share Subscription Agreement was conditional on the
First Placing and Open Offer Agreement becoming unconditional in
accordance with its terms.
First Subscription and Transfer Agreements
In connection with the First Placing and Open Offer, the company, Merrill
Lynch International, UBS, Computershare and Encuentro Limited entered
into several agreements dated 4 November 2008, in respect of the
subscription and transfer of ordinary shares and redeemable preference
shares in Encuentro Limited. Under the terms of these agreements:
(i) the company and UBS and/or Merrill Lynch International agreed to
acquire ordinary shares in Encuentro Limited and enter into put
and call options in respect of the ordinary shares in Encuentro
Limited subscribed for by UBS and/or Merrill Lynch that were
exercisable if the First Placing and Open Offer did not proceed;
(ii) Merrill Lynch International or UBS, as applicable, agreed to apply
monies received from qualifying shareholders, placees or HM
Treasury under the First Placing and Open Offer to subscribe for
redeemable preference shares in Encuentro Limited to an
aggregate value equal to such monies, after deduction of the
amount of certain commissions and expenses; and
(iii) the company agreed to allot and issue the new shares to those
persons entitled thereto in consideration of Merrill Lynch
International or UBS, as applicable, transferring its holding of
redeemable preference shares and ordinary shares in Encuentro
Limited to the company.
Accordingly, instead of receiving cash as consideration for the issue of
the new shares, at the conclusion of the First Placing and Open Offer,
the company owned the entire issued ordinary and redeemable
preference share capital of Encuentro Limited whose only assets were
its cash reserves, which represented an amount equivalent to the net
proceeds of the First Placing and Open Offer. The company was able to
utilise this amount equivalent to the First Placing and Open Offer net
proceeds by exercising its right of redemption over the redeemable
preference shares it held in Encuentro Limited.
Qualifying shareholders were not party to these arrangements and so
did not acquire any direct right against Merrill Lynch International, UBS
and Computershare pursuant to these arrangements. The company was
responsible for enforcing the other parties’ obligations thereunder.
Pre-accession Commitments Letter
On 26 February 2009, the Royal Bank entered into a deed poll in favour
of HM Treasury, pursuant to which the Royal Bank gave a series of
undertakings on behalf of each member of the Group, with immediate
effect unless otherwise agreed, in relation to the provision of information
and the management of the assets, commitments and exposures (the
“Proposed Assets”) in the period prior to the Royal Bank’s proposed
accession to and participation in the UK Government’s Asset Protection
Scheme (APS).
The Royal Bank undertook to HM Treasury, among other things, to:
(i) provide all such assistance and information and data as is
reasonably requested which is pertinent to the implementation of
the APS and the Royal Bank’s potential participation in the APS;
(ii) provide, as soon as practicable, an indicative list of the assets,
commitments and exposures that the Royal Bank propose to include
within the APS with a view to agreeing such list by 30 April 2009;