RBS 2010 Annual Report Download - page 424

Risk factors continued
Any conversion of the B Shares, in combination with any future purchase
by HM Treasury of ordinary shares, would increase HM Treasury’s
ownership interest in the company, and could result in the delisting of the
company from the Official List.
On 22 December 2009, RBSG issued £25.5 billion of B Shares to HM
Treasury. The B Shares are convertible, at the option of the holder at any
time, into ordinary shares at an initial conversion price of £0.50 per
ordinary share.
Although HM Treasury has agreed not to convert any B Shares it holds if,
as a result of such conversion, it would hold more than 75 per cent. of the
ordinary shares, if HM Treasury were to acquire additional ordinary
shares otherwise than through the conversion of the B Shares, such
additional acquisitions could significantly increase HM Treasury’s
ownership interest in the company to above 75 per cent. of the
company’s ordinary issued share capital, which would put the company in
breach of the FSA’s Listing Rules requirement that at least 25 per cent. of
its issued ordinary share capital must be in public hands. Although the
company may apply to the FSA in its capacity as the competent authority
under the FSMA for a waiver in such circumstances, there is no
guarantee that such a waiver would be granted, the result of which could
be the delisting of the company from the Official List and potentially other
exchanges where its Securities are currently listed and traded.
Participation in the APS may give rise to litigation and regulatory risk.
In order to fulfil (or as a consequence of fulfilling) its disclosure
obligations under the APS by disclosing certain information to HM
Treasury (and, as a result of notices issued by it, the FSA), the Group
may incur the risk of civil suits, criminal liability or regulatory actions.
Adverse regulatory action or adverse judgments in litigation could have a
significant effect on the Group’s reputation or results of operations or
result in a loss of value in the Securities. Alternatively, in order to avoid
the risk of such civil suits or regulatory actions or to avoid the risk of
criminal liability, the Group may choose to or be required to remove
Covered Assets from the APS so as not to be required to disclose such
information to HM Treasury, with the result that such assets will not be
protected by the APS. The effect of the removal of such Covered Assets
will impact the level of protection available to the Group and may
materially reduce the protection anticipated by the Group for its stressed
losses, in which case its business, results of operations and financial
condition will suffer.
RBS Group 2010422
Additional information continued