RBS 2012 Annual Report Download - page 504

Material contracts continued
The company gave certain representations and warranties to HM
Treasury on the date of the Acquisition and Contingent Capital
Agreement, on the date the circular was posted to shareholders, on the
first date on which all of the conditions precedent were satisfied, or
waived, and on the date of the Acquisitions. The company has agreed to
give such representations and warranties again on each date (if any) a
Contingent Subscription is triggered and on each date (if any) on which B
shares are issued pursuant to a Contingent Subscription.
The company agreed to reimburse HM Treasury for its expenses incurred
in connection with the Acquisitions and agreed to do so in connection
with the Contingent B shares, if the Contingent Subscription is exercised.
The company agreed to a number of undertakings, including with respect
to: (i) restrictions on the payment of dividends or other distributions on,
and the redemption of, certain securities; (ii) expectations regarding the
repurchase of the B shares by the company; (iii) renegotiations of the
terms of the Contingent Subscription as a result of future legislative or
regulatory changes; (iv) negotiating in good faith to maintain the status of
the B shares and Dividend Access Share as Core Tier 1 capital; and (v)
restrictions in relation to the company's share premium account.
HM Treasury has agreed to waive its statutory pre-emption rights arising
out of the B shares and the Dividend Access Share in respect of any
future issue of equity securities by the company other than B shares and
has agreed to vote its B shares and the Dividend Access Share, as
applicable, in favour of each special resolution to disapply its pre-
emption rights under the B shares and/or the Dividend Access Share
then held by HM Treasury every time they arise. The pre-emption rights
arising out of the B shares and the Dividend Access Share have also
been disapplied in the Articles of Association.
HM Treasury has agreed that it shall not be entitled to exercise its option
to convert B shares into ordinary shares to the extent that it holds more
than 75 per cent of the ordinary shares of the company or to the extent
that the exercise of such option would result in it holding more than 75
per cent of the ordinary shares of the company.
HM Treasury has agreed that it shall not be entitled to vote the B shares
or the Dividend Access Share to the extent that votes cast on such B
shares and the Dividend Access Share, together with any other votes
which HM Treasury is entitled to cast in respect of any other ordinary
shares held by or on behalf of HM Treasury, would exceed 75 per cent of
the total votes eligible to be cast on a resolution proposed at a general
meeting of the company.
For as long as it is a substantial shareholder of the company (within the
meaning of the UKLA's Listing Rules), HM Treasury has undertaken not
to vote on related party transaction resolutions at general meetings and
to direct that its affiliates do not so vote.
State Aid Commitment Deed
As a result of the State Aid granted to the company, it was required to
work with HM Treasury to submit a State Aid restructuring plan to the
European Commission, which has now been approved under the State
Aid rules. The company has agreed a series of measures to be
implemented over a four year period, which supplement the measures in
the company's strategic plan.
The Group entered into a State Aid Commitment Deed with HM Treasury
which provides that the Group will comply or procure compliance with
these measures and behavioural commitments. The Group agreed to do
all acts and things necessary to ensure HM Treasury's compliance with
its obligations under any European Commission decision approving State
Aid to the Group.
The State Aid Commitment Deed also provides that if the European
Commission adopts a decision that the UK Government must recover any
State Aid (a "Repayment Decision") and the recovery order of the
Repayment Decision has not been annulled or suspended by the Court of
First Instance (now the General Court) or the European Court of Justice,
then the Group must repay HM Treasury any aid ordered to be recovered
under the Repayment Decision.
The State Aid Commitment Deed also provides for the Group's
undertakings in respect of State Aid to be modified in certain limited
circumstances. However, HM Treasury has undertaken that it will not,
without the consent of the Group, agree modifications to the Group's
undertakings with respect to State Aid which are significantly more
onerous to the Group than those granted in order to obtain the State Aid
approval.
State Aid Costs Reimbursement Deed
Under the State Aid Costs Reimbursement Deed, the Group has agreed
to reimburse HM Treasury for fees, costs and expenses associated with
the State Aid and State Aid approval.
Sale of RBS Aviation Capital to Sumitomo Mitsui Banking Corporation
On 16 January 2012, the Royal Bank and Sumitomo Mitsui Banking
Corporation (SMBC) entered into a Sale and Purchase Agreement
pursuant to which the Royal Bank agreed to sell its aircraft leasing
business, RBS Aviation Capital, to SMBC, acting on behalf of a
consortium comprising its parent, Sumitomo Mitsui Financial Group, and
Sumitomo Corporation. The sale completed on 1 June 2012 following
satisfaction of various conditions. As a result of the sale, the consortium
has acquired RBS Aviation Capital for consideration of US$7.3 billion
(£4.7 billion). The consideration was paid in cash and was subject to
certain closing adjustments.
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