RBS 2009 Annual Report Download - page 370

Additional information continued
RBS Group Annual Report and Accounts 2009368
The company has the right, in certain circumstances, to withdraw from
the APS permanently all or part of a Covered Asset. In addition, the
company contractually has the right to terminate the APS exercisable at
any time provided that the FSA has confirmed in writing to HM Treasury
that it has no objection to the proposed termination. An exit fee and,
potentially, a refund of HM Treasury’s net payments under the APS are
payable by the company upon such termination. The Scheme
Conditions also contain various provisions and restrictions on the
management and administration of the Covered Assets and certain
related assets. The company is obliged to manage such assets in
accordance with the asset management objective, which is to maximise
the expected net present value of such assets (discounted at an HM
Treasury rate), including by minimising losses and potential losses and
maximising recoveries and potential recoveries. The company also has
monitoring and reporting obligations under the Scheme Conditions
which are aimed at the transparency in respect of the Covered Assets
to enable HM Treasury to manage and assess its exposure under the
APS. In addition, the company has to establish a separate governance
structure for the purposes of the APS. Further, the Scheme Conditions
and the Accession Agreement also contain requirements for the
development of a remuneration policy for the Group and specific
remuneration requirements for certain officers and employees of the
company.
HM Treasury has the right to appoint one or more step-in managers to
exercise extensive step-in rights in relation to all or some of the Covered
Assets upon the occurrence of certain specified trigger events.
Certain Scheme Conditions are subject to modification at any time with
retrospective effect at the discretion of HM Treasury without the
company’s consent. The modification rights arise broadly and subject to
certain conditions where the operation, interpretation or application of
such Scheme Conditions conflicts with any of the overriding general
principles set out in the Scheme Conditions.
There are material restrictions on the form and substance of
announcements or public statements (including any required by law or
the rules of any securities exchange) made by the Group in relation to
the APS or to HM Treasury in connection with the APS without HM
Treasury’s consent.
In connection with its participation in the APS, the company has agreed
to a number of behavioural commitments in respect of lending for
businesses in the UK, personal current accounts in the UK as well as to
develop and implement a capital optimisation exercise designed to
increase the Group’s Core Tier 1 capital.
Second Subscription and Transfer Agreements
In connection with the B share Issue which took place on 22 December
2009, the company, HM Treasury and Aonach Mor Limited entered into
several agreements, in respect of the subscription and transfer of
ordinary shares and redeemable preference shares in Aonach Mor
Limited. Under the terms of these agreements:
(i) the company and HM Treasury acquired ordinary shares in Aonach
Mor Limited and entered into put and call options in respect of the
ordinary shares in Aonach Mor Limited subscribed for by HM
Treasury that would have been exercisable if the B share issue had
not proceeded;
(ii) HM Treasury applied monies paid under the B share issue to
subscribe for redeemable preference shares in Aonach Mor Limited
to an aggregate value equal to such monies; and
(iii) the company alloted and issued the B shares to HM Treasury in
consideration of HM Treasury transferring its holding of
redeemable preference shares and ordinary shares in Aonach Mor
Limited to the company.
Accordingly, instead of receiving cash as consideration for the issue of
the B shares, at the conclusion of the B share issue the company
owned the entire issued ordinary and redeemable preference share
capital of Aonach Mor Limited whose only assets are its cash reserves,
which represent an amount equivalent to the proceeds of the B share
issue. The company is able to utilise this amount equivalent to the B
share issue net proceeds by exercising its right of redemption over the
redeemable preference shares it holds in Aonach Mor Limited.
The Tax Loss Waiver
On 26 November 2009, the company entered into three agreements
(together comprising the Tax Loss Waiver) which provide the right, at the
company‘s option, subject to HM Treasury consent, to satisfy all or part
of the annual fee in respect of the APS or the Contingent Subscription
arrangement, and the exit fee payable in connection with any
termination of the Group’s termination in the APS (but not the refund of
the net payments it has received from HM Treasury under the APS), by
waiving the entitlement to certain UK tax reliefs that are treated as
deferred tax assets. The Tax Loss Waiver contains undertakings
designed to prevent the Group from engaging in arrangements which
have a main purpose of reducing the net cost to the Group of any
waiver of tax reliefs pursuant to the Tax Loss Waiver.