RBS 2013 Annual Report Download - page 524
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Additional information
522
Material contracts continued
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 in respect of any such
future issue. 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 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 was then approved under the State Aid
rules. The company agreed a series of measures which supplemented
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 take all measures 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.
The Group is currently in discussions with HM Treasury and the
European Commission in relation to certain amendments to the terms of
the State Aid approval and therefore expects to enter into a new version
of the State Aid Commitment Deed in the near future
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 England & Wales and NatWest Scotland branch based
business
On 27 September 2013, the Group agreed a £600 million pre-IPO
investment with a consortium of investors led by Corsair Capital and
Centerbridge Partners, in relation to its RBS England and Wales and
NatWest Scotland branch based business which centres around 314
branches in the UK. Following completion of the operational and legal
separation of the business into a standalone bank to be branded Williams
& Glyn, an exercise that is already well underway, the Group will pursue
an Initial Public Offering (IPO). The pre-IPO investment took the form of a
£600 million bond, which was issued by the Royal Bank on 21 October
2013, which will be exchangeable for a significant minority interest in
Williams & Glyn at the time of IPO. The bond will convert into Williams &
Glyn shares at the IPO price, subject to a minimum ownership level which
will be linked to the tangible book value of Williams & Glyn prior to the
IPO, and in any case no more than a stake of 49%. To the extent the
maximum ownership level is reached, the bond will be partially redeemed
in cash such that the investors will receive a total value of £600 million of
cash and shares at the IPO price. At the IPO, subject to RBSG's consent,
the investors will have the option to acquire up to 10% additionally at the
IPO price, subject to their pro forma ownership being no more than 49%
in aggregate. The Royal Bank Markets division provided a £270 million
secured financing package to the investor-consortium in relation to the
investment.