RBS 2010 Annual Report Download - page 363

In the event that the non-cumulative convertible preference shares are
not redeemed on or before the redemption date, the holder may convert
them into ordinary shares in the company at the prevailing market price.
Under existing arrangements, no redemption or purchase of any non-
cumulative preference shares may be made by the company without the
prior consent of the UK Financial Services Authority.
On a winding-up or liquidation of the company, the holders of the non-
cumulative preference shares will be entitled to receive, out of any
surplus assets available for distribution to the company's shareholders
(after payment of arrears of dividends on the cumulative preference
shares up to the date of repayment) pari passu with the cumulative
preference shares and all other shares of the company ranking pari
passu with the non-cumulative preference shares as regards participation
in the surplus assets of the company, a liquidation distribution per share
equal to the applicable redemption price detailed in the table above,
together with an amount equal to dividends for the then current dividend
period accrued to the date of payment, before any distribution or payment
may be made to holders of the ordinary shares as regards participation in
the surplus assets of the company.
Except as described above, the holders of the non-cumulative preference
shares have no right to participate in the surplus assets of the company.
Holders of the non-cumulative preference shares are not entitled to
receive notice of or attend general meetings of the company except if any
resolution is proposed for adoption by the shareholders of the company
to vary or abrogate any of the rights attaching to the non-cumulative
preference shares or proposing the winding-up or liquidation of the
company. In any such case, they are entitled to receive notice of and to
attend the general meeting of shareholders at which such resolution is to
be proposed and are entitled to speak and vote on such resolution (but
not on any other resolution). In addition, in the event that, prior to any
general meeting of shareholders, the company has failed to pay in full the
three most recent quarterly dividend payments due on the non-
cumulative dollar preference shares (other than Series U), the two most
recent semi-annual dividend payments due on the non-cumulative
convertible dollar preference shares and the most recent dividend
payments due on the non-cumulative euro preference shares, the non-
cumulative sterling preference shares, the Series U non-cumulative dollar
preference shares and the non-cumulative convertible sterling preference
shares, the holders shall be entitled to receive notice of, attend, speak
and vote at such meeting on all matters together with the holders of the
ordinary shares. In these circumstances only, the rights of the holders of
the non-cumulative preference shares so to vote shall continue until the
company shall have resumed the payment in full of the dividends in
arrears.
The Group has undertaken that, unless otherwise agreed with the
European Commission, neither the company nor any of its direct or
indirect subsidiaries (excluding companies in the RBS Holdings N.V.
Group, which are subject to different restrictions) will pay external
investors any dividends or coupons on existing hybrid capital instruments
(including preference shares, B shares and upper and lower tier 2
instruments) from 30 April 2010 for a period of two years thereafter ("the
Deferral Period"), or exercise any call rights in relation to these capital
instruments between 24 November 2009 and the end of the Deferral
Period, unless there is a legal obligation to do so. Hybrid capital
instruments issued after 24 November 2009 will generally not be subject
to the restriction on dividend or coupon payments or call options.
30 Reserves
On 1 January 2008, the merger reserve comprised the premium on
shares issued to acquire NatWest less goodwill amortisation charged
under previous GAAP. No share premium was recorded in the company
financial statements through the operation of the merger relief provisions
of the Companies Act 1985.
UK law prescribes that only the reserves of the company are taken into
account for the purpose of making distributions and in determining the
permissible applications of the share premium account.
The Group optimises capital efficiency by maintaining reserves in
subsidiaries, including regulated entities. Certain preference shares and
subordinated debt are also included within regulatory capital. The
remittance of reserves to the company or the redemption of shares or
subordinated capital by regulated entities may be subject to maintaining
the capital resources required by the relevant regulator.
Paid-in equity represents notes issued under the company's euro medium
term note programme with an initial par value of US$1,600 million and
CAD600 million that are classified as equity under IFRS. The notes
attract coupons of 6.99% and 6.666% respectively until October 2017
when they change to 2.67% above the London interbank offered rate for
3-month US dollar deposits and 2.76% above the Canadian dollar offered
rate respectively. Paid-in equity of US$1,036 million was repurchased in
April 2009 and CAD279 million was repurchased in May 2010 as part of
the liability management exercises.
Under the arrangements for the placing and open offer in December 2008,
the company issued shares in exchange for shares in Encuentro Limited.
No share premium was recorded in the company financial statements
through the operation of the merger relief provisions of the Companies
Act 2006. The subsequent redemption of these shares gave rise to
distributable profits of £14,273 million which were transferred from
merger reserve to retained earnings.
Under the arrangements for accession to APS in December 2009, the
company issued B shares in exchange for shares in Aonach Mor Limited.
No share premium was recorded in the company financial statements
through the operation of the merger relief provisions of the Companies
Act 2006. The subsequent redemption of some of these shares gave rise
to distributable profits of £12,250 million (2009 - £9,950 million) which
were transferred from merger reserve to retained earnings.
At 31 December 2010, 1,717,095,004 (2009 - 138,695,912) ordinary
shares of 25p each of the company were held by Employee Share Trusts
in respect of share awards and options granted to employees.
361RBS Group 2010
Financial statements