RBS 2011 Annual Report Download - page 448

446 RBS Group 2011
Material contracts continued
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.
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.
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;
(iii) provide, as promptly as practicable, information and data relating to
the Proposed Assets reasonably requested for due diligence
purposes and to provide certain other information concerning the
Group's business and the financial performance and risk of the
Proposed Assets;
(iv) provide access to the Group's premises, books, records, senior
executives, relevant personnel and professional advisers on
reasonable terms;
(v) consult with HM Treasury regarding the management and operations
of the Proposed Assets and to ensure that the management of the
Proposed Assets is in accordance with usual business practices and
also without regard to the possible benefits under the APS;
(vi) develop and, subject to market conditions, implement a liability
management plan which is designed to enable the Group to meet
certain Core Tier 1 capital targets for 2009; and
(vii) use best endeavours (giving regard to reasonable operational
requirements) to maintain regular, adequate and effective monitoring,
reporting, risk management and audit controls and procedures in
order, among other things, to ensure that risks relating to key
business processes which affect the Proposed Assets are identified,
assessed and reported and are managed and mitigated
appropriately.
In addition, the Royal Bank agreed in principle that, if and only if the
Royal Bank accedes to the APS, it would not claim, and would disclaim,
certain UK tax losses and allowances arising to members of the Group in
respect of any accounting period ending on or after 31 December 2008,
provided that this undertaking would not apply in respect of any such tax
benefits arising in the earlier of (a) the first accounting period beginning
more than five years after the relevant accession date and (b) the first
accounting period beginning after the relevant accession date in which
the Group becomes profitable.
The company's commitments described in this section have been
superseded by the Scheme Rules and the Accession Agreement (for
details of the Accession Agreement see page 448), with the exception of
acommitment to inform the Department for Business, Innovation and
Skills prior to making significant reductions in the level of lending being
made available to certain borrowers or counterparties, which will apply
until 28 February 2011, in line with the duration of the commitments
under the Lending Commitments Letter described below.
Lending Commitments Letter
On 26 February 2009, the company entered into a deed poll in favour of
certain UK Government departments under which it undertook to support
lending to creditworthy borrowers in the UK in a commercial manner with
effect from 1 March 2009. On 18 May 2009, the company entered into an
amendment to this deed poll which took effect from 29 May 2009 and on
20 November 2009, the company executed a further amendment to this
deed poll. This lending commitment was a pre-requisite to the company's
participation in the APS and other Government backed schemes, the
objective of which was to reinforce the stability of the financial system
and support the recovery of the economy.
Pursuant to this lending commitment, the company agreed to increase its
lending in the 12 months commencing 1 March 2009 from its UK banking
operations to UK businesses by, in aggregate, £16 billion above the
amount previously budgeted.
Additional information continued