The Royal Bank of Scotland Group plc

Transcription

1 THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek immediately your own personal financial advice from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under FSMA if you are in the United Kingdom or, if not, from another appropriately authorised independent financial adviser. If you sell or have sold or otherwise transferred all of your Ordinary Shares, London Listed Preference Shares or Cumulative Preference Shares please send this document, together with any accompanying Forms of Proxy, as soon as possible, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee. If you have sold or transferred, or otherwise disposed of, only part of your holding of Ordinary Shares, London Listed Preference Shares or Cumulative Preference Shares you should retain this Circular and accompanying Forms of Proxy and consult the stockbroker, bank or other agent through whom you made the sale, transfer or disposal. However, the distribution of such documents into certain jurisdictions may be restricted by law and therefore persons into whose possession such documents come should inform themselves about and observe such restrictions. In particular, such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations. 29APR The Royal Bank of Scotland Group plc (incorporated under the Companies Acts 1948 to 1967 and registered with Registered No. SC45551) Circular, Notice of General Meeting and Notices of Separate General Meetings Your attention is drawn to the letter from your Chairman which is set out on pages 7 and 8 of this document and which recommends you vote in favour of the Resolutions to be proposed at the General Meeting and, if appropriate, the Separate General Meetings referred to below. Please read the whole of this document. You should not rely solely on any key or summarised information set out in this document. Notice of the General Meeting to be held on 28 April 2010 at 2.00 p.m. (or as soon thereafter as the Annual General Meeting convened for 1.00 p.m. on the same day and at the same place shall have been completed or adjourned) is set out at the end of this document. Forms of Proxy for use at this General Meeting are enclosed. To be valid, a Form of Proxy in relation to the General Meeting should be completed, signed and returned in accordance with the Notes to the Notice of General Meeting (at the end of this document) and the relevant Form of Proxy. Notice of the Separate General Meeting of per cent. Preference Shareholders to be held on 28 April 2010 at 2.10 p.m. (or as soon thereafter as the General Meeting convened for 2.00 p.m. on the same day and at the same place shall have been completed or adjourned) is set out at the end of this document. A Form of Proxy for use at the Separate General Meeting of per cent. Preference Shareholders is enclosed. To be valid, a Form of Proxy in relation to the Separate General Meeting of per cent. Preference Shareholders should be completed, signed and returned in accordance with the Notes to the Notice of Separate General Meeting of per cent. Preference Shareholders (at the end of this document) and the Form of Proxy. Notice of the Separate General Meeting of per cent. Preference Shareholders to be held on 28 April 2010 at 2.15 p.m. (or as soon thereafter as the Separate General Meeting of per cent. Preference Shareholders convened for 2.10 p.m. on the same day and at the same place shall have been completed or adjourned) is set out at the end of this document. A Form of Proxy in relation to the Separate General Meeting of per cent. Preference Shareholders is enclosed. To be valid, a Form of Proxy in relation to the Separate General Meeting of per cent. Preference Shareholders should be completed, signed and returned in accordance with the Notes to the Notice of Separate General Meeting of per cent. Preference Shareholders (at the end of this document) and the Form of Proxy. This document does not constitute an offer to sell, or the solicitation of an offer to buy, the Non-US Preference Shares, the US Preference Shares, the Notes, the Ordinary Shares or the Cumulative Preference Shares referred to herein in any jurisdiction, including (without limitation) the United States, Japan, the Republic of Italy or Australia. THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS MAY NOT BE DISTRIBUTED TO ANY US PERSON (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT OR IN OR INTO THE UNITED STATES, ITS TERRITORIES AND POSSESSIONS (INCLUDING PUERTO RICO, THE US VIRGIN ISLANDS, GUAM, AMERICAN SAMOA, WAKE ISLAND AND THE NORTHERN MARIANA ISLANDS), ANY STATE OF THE UNITED STATES OR THE DISTRICT OF COLUMBIA OR IN OR INTO JAPAN. IMPORTANT NOTICE FOR HOLDERS, AND CUSTODIANS AND NOMINEES HOLDING FOR HOLDERS, LOCATED OR RESIDENT IN THE REPUBLIC OF ITALY The Non-US Tender Offer, the Exchange Offer and the US Tender Offer are not being made, directly or indirectly, in the Republic of Italy. The Non-US Tender Offer, the Exchange Offer, the US Tender Offer and the Non-US Tender Offer Memorandum, the Exchange Offer Memorandum and the Offer to Purchase and any other documents or materials relating to the Non-US Tender Offer, the Exchange Offer and the US Tender Offer have not been submitted to the clearance procedure of the Commissione Nazionale per le Società e la Borsa pursuant to Italian laws and regulations. The Non-US Tender Offer and the Exchange Offer are not being made or being made available to holders of the securities subject to the Non-US Tender Offer and the Exchange Offer who are Italian residents and/or persons located in the Republic of Italy and they may not submit offers to tender or offers to exchange in connection with the Non-US Tender Offer and the Exchange Offer and, as such, any offers to tender or offers to exchange received from or on behalf of such holders of the relevant securities shall be ineffective and void. Neither the Non-US Tender Offer Memorandum, the Exchange Offer Memorandum, the Offer to Purchase nor any other information or material relating to the Non-US Tender Offer, the Exchange Offer or the US Tender Offer or the securities subject to the Non-US Tender Offer, the Exchange Offer or the US Tender Offer may be distributed or made available in the Republic of Italy. Neither this Circular, the Non-US Tender Offer Memorandum, the Exchange Offer Memorandum nor the Offer to Purchase constitute an offer of Notes or other securities in the Republic of Italy or the solicitation of an offer to purchase or exchange securities in the Republic of Italy.

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3 FORWARD LOOKING STATEMENTS Certain sections of this document contain or incorporate by reference forward looking statements, within the meaning of the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words may, could, will, expect, intend, believe, should, risk, seek, continue or similar expressions or variations on such expressions. Factors that could cause actual results to differ materially from those forward looking statements made by the Group or on the Group s behalf include, but are not limited to, general economic conditions in the UK and internationally; inflation; deflation; the monetary and interest rate policies of the Bank of England and other G-7 central banks; developments in the current crisis in the global financial markets, and their impact on the financial industry in general and on the Group in particular; the full nationalisation of the Group or other resolution procedures under the Banking Act; unanticipated turbulence in interest rates, foreign currency exchange rates, commodity prices and equity prices; changes in UK and foreign laws, regulation and taxes; changes in accounting standards or practices, exposure to regulatory scrutiny, legal proceedings or complaints; a change of UK Government or changes to UK Government policy; changes to the Group s credit ratings; the Group s participation in the APS and the effect of the APS on the Group s financial and capital position; the conversion of the B Shares in accordance with their terms; the ability to access the contingent B share arrangements with HM Treasury; limitations on, or additional requirements imposed on, the Group s activities as a result of HM Treasury s investment in the Group; the financial stability of other financial institutions, and the Group s counterparties and borrowers; the value and effectiveness of any credit protection purchased by the Group; the extent of future writedowns and impairment charges caused by depressed asset valuations; the ability to achieve revenue benefits and cost savings from the integration of certain of RBS Holdings N.V. s businesses and assets; changing demographic developments including mortality and changing customer behaviour including consumer spending, saving and borrowing habits and borrower credit quality; technological changes; natural and other disasters, adverse weather and similar contingencies outside the Group s control; inadequate or failed internal or external processes; people and systems; terrorist acts, other acts of war, geopolitical, pandemic or other such events; changes in competition and pricing environments; the inability to hedge certain risks economically; the ability to access sufficient funding to meet liquidity needs; the ability to complete restructurings on a timely basis, or at all, including the disposal of certain non-core assets and assets and businesses required to be disposed of as part of the State aid approval; the adequacy of loss reserves; the ability to secure new customers and develop more business from existing customers; and the success of the Group in managing the risks involved in the foregoing. Except as required by the FSA, the London Stock Exchange, the Listing Rules, the Prospectus Rules, the Disclosure and Transparency Rules or any other applicable law or regulation, the forward looking statements in this document are made as of the date of this document and RBS expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statement contained in this document to reflect any change in RBS s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. 3

4 IMPORTANT NOTICE FOR CUSTODIANS AND NOMINEES HOLDING FOR US HOLDERS The Non-US Tender Offer and the Exchange Offer referred to herein are not being made, and will not be made, directly or indirectly in or into, or by use of the mail of, or by any means or instrumentality of interstate or foreign commerce of or of any facilities of a national securities exchange of, the United States or to, for the account or benefit of, US persons (as defined in Regulation S under the Securities Act). This includes, but is not limited to, facsimile transmission, electronic mail, telex, telephone and the internet. Accordingly, copies of this document, the Non-US Tender Offer Memorandum, the Exchange Offer Memorandum and any other documents or materials relating to the Non-US Tender Offer or the Exchange Offer are not being, and may not be, directly or indirectly, mailed or otherwise transmitted, distributed or forwarded (including, without limitation, by custodians, nominees or trustees) in or into the United States or to any US person. Non-US Preference Shares and/or any of the other securities which are the subject of the Non-US Tender Offer may not be offered for tender in the Non-US Tender Offer and upper tier 2 securities may not be offered for exchange in the Exchange Offer by any such use, means, instruments or facilities or from within the United States or by US persons. Any purported offer of Non-US Preference Shares and/or any of the other securities which are the subject of the Non-US Tender Offer for tender or any purported offer of upper tier 2 securities for exchange resulting directly or indirectly from a violation of these restrictions will be invalid and any purported offer of Non-US Preference Shares and/or any of the other securities which are the subject of the Non-US Tender Offer for tender or any purported offer of upper tier 2 securities for exchange made by a US person, a person located in the United States or any agent, fiduciary or other intermediary acting on a non-discretionary basis for a principal giving instructions from within the United States or for a US person will be invalid and will not be accepted. Neither this document, the Non-US Tender Offer Memorandum nor the Exchange Offer Memorandum constitute an offer of Notes or other securities in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. The Notes have not been, and will not be, registered under the Securities Act or the securities laws of any state or other jurisdiction of the United States, and may not be offered, sold or delivered, directly or indirectly, in the United States or to, or for the account or benefit of, US persons. Each holder of Non-US Preference Shares or other securities participating in the Non-US Tender Offer and each holder of upper tier 2 securities participating in the Exchange Offer will represent that it is not located in the United States and is not participating in such Non-US Tender Offer or Exchange Offer (as applicable) from the United States, that it is participating in such Non-US Tender Offer or Exchange Offer (as applicable) in accordance with Regulation S under the Securities Act and that it is not a US person or it is acting on a non-discretionary basis for a principal located outside the United States that is not giving an order to participate in such Non-US Tender Offer or Exchange Offer (as applicable) from the United States and is not a US person. For the purposes of the above paragraphs, United States means the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia. 4

5 TABLE OF CONTENTS EXPECTED TIMETABLE OF PRINCIPAL EVENTS... 6 PART I LETTER FROM THE CHAIRMAN OF RBS... 7 APPENDIX 1 TO THE LETTER FROM THE CHAIRMAN OF RBS SUMMARY OF THE PROPOSED TRANSACTION... 9 APPENDIX 2, PART A TO THE LETTER FROM THE CHAIRMAN OF RBS SHAREHOLDER APPROVALS AND CONSENTS REQUIRED FOR THE PROPOSED TRANSACTION APPENDIX 2, PART B TO THE LETTER FROM THE CHAIRMAN OF RBS EXPLANATION OF THE SHAREHOLDER APPROVALS REQUIRED FOR THE PROPOSED TRANSACTION APPENDIX 3 TO THE LETTER FROM THE CHAIRMAN OF RBS ADDITIONAL INFORMATION DEFINITIONS NOTICE OF GENERAL MEETING APPENDIX 1 PROPOSED CHANGES TO THE ARTICLES OF ASSOCIATION APPENDIX 2 PREFERENCE SHARES NOTICE OF SEPARATE GENERAL MEETING OF HOLDERS OF 200,000, PER CENT. NON-CUMULATIVE CONVERTIBLE STERLING PREFERENCE SHARES SERIES NOTICE OF SEPARATE GENERAL MEETING OF HOLDERS OF e1,300,000, PER CENT. NON-CUMULATIVE EURO PREFERENCE SHARES SERIES Page 5

6 EXPECTED TIMETABLE OF PRINCIPAL EVENTS Each of the times and dates in the table below is indicative only and may be subject to change. Time/Date (a)(b) Non-US Tender Offer, US Tender Offer and Exchange Offer commenced... 6 April 2010 Latest time and date for receipt of General Meeting Forms of Proxy p.m. on 26 April 2010 Latest time and date for receipt of Separate General Meeting of per cent. Preference Shareholders Forms of Proxy p.m. on 26 April 2010 Latest time and date for receipt of Separate General Meeting of per cent. Preference Shareholders Forms of Proxy p.m. on 26 April 2010 Expiration date of the Non-US Tender Offer and the Exchange Offer in respect of Non-Canadian Securities p.m. on 27 April 2010 Expiration date of the Non-US Tender Offer and the Exchange Offer in respect of Canadian Securities a.m. (c) on 27 April 2010 Announcement of aggregate liquidation preference/principal amount validly tendered/offered for exchange in the Non-US Tender Offer/ Exchange Offer a.m. on 28 April 2010 General Meeting p.m. on 28 April 2010 Separate General Meeting of per cent. Preference Shareholders* p.m. on 28 April 2010 Separate General Meeting of per cent. Preference Shareholders* p.m. on 28 April 2010 Announcement of whether valid tenders/offers pursuant to the Non-US Tender Offer and the Exchange Offer will be accepted... Announcement of the results of the General Meeting and each of the Separate General Meetings... As soon as reasonably practicable after the conclusion of the General Meeting and Separate General Meetings As soon as reasonably practicable after the conclusion of the General Meeting and Separate General Meetings Expiration date of the US Tender Offer... Midnight (d) on 3 May 2010 Settlement of the Non-US Tender Offer*... 4 May 2010 Announcement of the results of the US Tender Offer... 4 May 2010 Settlement of the US Tender Offer... 6 May 2010 Settlement of the Exchange Offer May 2010 General notes: (a) The times and dates set out in the expected timetable of principal events above and mentioned throughout this document may be adjusted by RBS, in which event details of the new times and dates will be notified, where appropriate, to Shareholders. (b) References to times in this document are to London times unless otherwise stated. (c) Reference is to Toronto time. (d) Reference is to New York time. * Please note that if either (or both) of the Separate General Meetings are adjourned, such adjourned meeting(s) will be reconvened on 29 April 2010 at The Royal Bank of Scotland Group plc, RBS Gogarburn, Edinburgh EH12 1HQ at 2.00 p.m. in the case of the Separate General Meeting of per cent. Preference Shareholders and 2.10 p.m. in the case of the Separate General Meeting of per cent. Preference Shareholders. In the case of such adjournment, the settlement date of the Non-US Tender Offer is expected to be 5 May

7 PART I LETTER FROM THE CHAIRMAN OF RBS Dear Shareholder 29APR Gogarburn PO Box 1000 Edinburgh EH12 1HQ 8 April 2010 Tender Offers for Preference Shares and other securities and related Exchange Offer I am writing to you to provide you with further information on the important capital management transaction we announced on 25 March 2010 and launched on 6 April As I will outline below, this transaction is of financial significance to the Group. The proposed transaction aims to generate core tier 1 capital for the Group through repurchases of existing tier 1 securities and the exchange of certain upper tier 2 securities for senior debt securities to be issued by RBS plc. In total, the Group will seek tenders of up to approximately 4 billion of tier 1 securities for cash (the Tender Offers ) and will seek offers to exchange approximately 4.19 billion of upper tier 2 securities for approximately 3.19 billion new senior debt securities to be issued by RBS plc (the Exchange Offer ). These transactions will generate a profit for the Group, and thereby increase the Group s core tier 1 capital (the Proposed Transaction ). In many respects, these Tender Offers and the Exchange Offer primarily concern the holders of the tier 1 and upper tier 2 securities that are targeted by the Proposed Transaction. However, some elements of the transaction also affect Ordinary Shareholders, and you will have the opportunity to discuss and vote on these elements at a General Meeting, which we propose to hold immediately following the Annual General Meeting on 28 April In accordance with the 2006 Act, the implementation of the Tender Offers requires approval by Ordinary Shareholders and Non-Tendering Cumulative Preference Shareholders at a general meeting of the Company. While approval is not required for the Exchange Offer, it will not proceed if Ordinary Shareholders and Non-Tendering Cumulative Preference Shareholders do not approve the implementation of the Tender Offers. In addition, Shareholders will need to approve, and holders of two of the classes of preference shares targeted by the Proposed Transaction (the London Listed Preference Shares ) will need to sanction, certain amendments to RBS s Articles to enable those preference shares to be included in the Proposed Transaction. For this purpose, Separate General Meetings of the holders of those two classes of preference shares will be held on 28 April 2010 immediately following the General Meeting. It is, therefore, important that you should understand why we are undertaking this transaction and why we believe it to be in the best interests of the Group and its shareholders. The Proposed Transaction is advantageous as it will improve the quality of the Group s capital base by strengthening its core tier 1 capital. Against this, our broader tier 1 capital is expected to fall as a result of the Proposed Transaction, reducing our overall tier 1 ratio. In the past, the Group focused principally on its overall tier 1 ratio, but over the last two years investors and regulators have placed increasing emphasis on core tier 1 capital, which they see as having greater capacity to absorb losses in stressed conditions. The Group s strategic targets now centre on the core tier 1 ratio and, by further strengthening this ratio, the Proposed Transaction will further enhance our capital base. This robust capital base, as we have previously stated, puts us on a strong footing to meet the further economic challenges we anticipate in 2010 and to take account of potential changes to regulatory rules on the quantity and quality of capital. In addition, the Proposed Transaction will generate financial benefits for the Group. The Tender Offers and the Exchange Offer are expected to result in an increase in earnings per Ordinary Share and tangible net asset value per Ordinary Share. The proposals will also give effect to certain undertakings made by the Group in December 2009 to HM Treasury and the EC to improve the Group s regulatory capital position. 7

8 Full details of the Proposed Transaction are set out in the Tender Offer Memorandum, the Offer to Purchase and the Exchange Offer Memorandum. Copies of these documents, together with the Conditional Repurchase Agreement and the Argon Conditional Repurchase Agreement, will be available for inspection from the date of this Circular until the General Meeting at 36 St. Andrew Square, Edinburgh EH2 2YB and at the General Meeting. A summary of the key terms of the Proposed Transaction is set out in Appendix 1 to this Letter. In addition, copies of the Articles (as proposed to be amended), which include the memorandum of association of the Company as appended, will be available for inspection at the following addresses during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of posting of this document until the date of the General Meeting: (i) the registered office of the Company; and (ii) the offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ, and they will also be available for inspection at the General Meeting and the Separate General Meetings for at least 15 minutes prior to and during such meetings. The Notice of General Meeting and Notices of Separate General Meetings are attached to this document. Further information in relation to the required Shareholder approvals is set out in Appendix 2 to this Letter. Additional information required to be provided to you by the Listing Rules in relation to the Proposed Transaction is set out in Appendix 3 to this Letter. Importance of the Resolutions In order for the Proposed Transaction to proceed, Resolution 1, a special resolution, must be passed by Ordinary Shareholders and Non-Tendering Cumulative Preference Shareholders. Resolutions 2 and 3 (as the case may be), both special resolutions, must be passed by Ordinary Shareholders, Cumulative Preference Shareholders and the relevant class of London Listed Preference Shareholders at the General Meeting and class consent must be obtained from the appropriate class of London Listed Preference Shareholders at the relevant Separate General Meeting if the Proposed Transaction in relation to the relevant class of London Listed Preference Shares is to proceed. The purpose of the Proposed Transaction is to improve the quality of the Group s capital base by strengthening its core tier 1 capital. If the Resolutions are not passed as described above, the Group s core tier 1 capital will not be so strengthened at this time. HM Treasury currently holds per cent. of the issued Ordinary Shares of RBS. These Ordinary Shares are managed by UKFI. Whilst the board of UKFI have not yet had the opportunity to formally consider the Proposed Transaction and resolve on whether to vote UKFI s Ordinary Shares in favour of the Resolutions at the General Meeting, HM Treasury have indicated to the Board that it supports the Proposed Transaction. Directors recommendation The Board considers that the Proposed Transaction is in the best interests of the shareholders as a whole and accordingly unanimously recommends that Shareholders vote in favour of the Resolutions to be put to the General Meeting and, if appropriate, the Separate General Meetings as they intend to do, or procure, in respect of their own beneficial shareholdings. The Board is making no recommendation to the holders of any of the securities targeted by the Proposed Transaction in relation to participation in the Proposed Transaction. This document does not constitute an offer to sell, or the solicitation of an offer to buy, securities in any jurisdiction, including (without limitation) the United States, Japan, the Republic of Italy or Australia. Yours sincerely, 15NOV Philip Hampton Chairman 8

9 APPENDIX 1 TO THE LETTER FROM THE CHAIRMAN OF RBS SUMMARY OF THE PROPOSED TRANSACTION The Proposed Transaction consists of three separate elements: (i) the Non-US Tender Offer; (ii) the US Tender Offer; and (iii) the Exchange Offer. The Non-US Tender Offer Under the proposed terms of the Non-US Tender Offer, the Company and NatWest will, subject to certain terms and conditions, make an invitation to eligible holders to tender for cash certain tier 1 securities issued by members of the Group and, in the case of the Argon Notes, issued by Argon, including certain preference shares issued by RBS (the Non-US Preference Shares, being those securities set out in Appendix 2, Part A to the Notice of General Meeting set out on pages 22 to 26 of this document). The Non-US Tender Offer is subject to the Non-US Tender Offer Priority and the Non-US Tender Offer Cap. The Non-US Tender Offer Cap means that tenders of securities in the Non-US Tender Offer with an aggregate liquidation preference and principal amount in excess of 2 billion will, save as described in this paragraph and the Non-US Tender Offer Memorandum, not be accepted. If tenders of securities are received in the Non-US Tender Offer in excess of such amount, (i) the order in which such tender offers will be accepted is set out in the Non-US Tender Offer Priority; and (ii) all tenders of the series of securities in relation to which the Non-US Tender Offer Cap is reached will be accepted provided that in accepting all the tender offers received for that series of securities the Non-US Tender Cap is not exceeded by more than 100,000,000. If the acceptance of all such tender offers received in respect of the series of securities in relation to which the Non-US Tender Offer Cap is reached would result in the Non-US Tender Offer Cap being exceeded by more than 100,000,000, tenders of securities of that series of securities shall be accepted on a pro rata basis up to the Non-US Tender Offer Cap. Tenders of securities in respect of any series of securities ranking after such series in the Non-US Tender Priority will not be accepted. The US Tender Offer Under the proposed terms of the US Tender Offer, the Company and NatWest will, subject to certain terms and conditions, make an invitation to eligible holders to tender for cash certain tier 1 securities issued by members of the Group, including certain preference shares issued by RBS (the US Preference Shares, being those securities set out in Appendix 2 Part B to the Notice of General Meeting set out on pages 22 to 26 of this document). The US Tender Offer is subject to the US Tender Offer Priority and the US Tender Offer Cap and the applicable series offer limits. The US Tender Offer Cap means that tenders of securities in the US Tender Offer with an aggregate liquidation preference and principal amount in excess of US$3.2 billion will, save as described in this paragraph and the Offer to Purchase, not be accepted. If tenders of securities in the US Tender Offer in excess of such amount are received, (i) the order in which such tender offers will be accepted is set out in the US Tender Offer Priority; and (ii) all tenders of the series of securities in relation to which the US Tender Offer Cap is reached will be accepted provided that in accepting all the tender offers received for that series of securities the US Tender Offer Cap is not exceeded by more than US$150,000,000. If the acceptance of all such tender offers received in respect of the series of securities in relation to which the US Tender Offer Cap is reached would result in the US Tender Offer Cap being exceeded by more than US$150,000,000, tenders of securities of that series of securities shall be accepted on a pro rata basis up to the US Tender Offer Cap. Tenders of securities in respect of any series of securities ranking after such series in the US Tender Priority will not be accepted. In addition, for reasons related to US securities laws and stock exchange rules, for all of the series or classes of securities included in the US Tender Offer, a limit has been imposed on the amount of tenders for securities of each series which will be accepted (the applicable series offer limits ). The Exchange Offer Under the terms of the Exchange Offer, RBS plc will, subject to certain terms and conditions, make an invitation to eligible holders to exchange certain upper tier 2 securities issued by members of the Group 9

10 for new senior debt securities to be issued by RBS plc. The Exchange Offer does not require approval by Ordinary Shareholders and Non-Tendering Cumulative Preference Shareholders but will not proceed if Resolution 1 is not passed by Ordinary Shareholders and Non-Tendering Cumulative Preference Shareholders. Consideration The consideration payable by the Group for the Preference Shares in the Tender Offers will be as follows: (i) eligible holders of those Non-US Preference Shares in respect of which an offer to tender for cash is accepted will receive the relevant purchase price in cash as listed in Appendix 2, Part A to the Notice of General Meeting set out on pages 22 to 26 of this document; and (ii) eligible holders of those US Preference Shares in respect of which an offer to tender for cash is accepted will receive the relevant purchase price in cash as listed in Appendix 2, Part B to the Notice of General Meeting set out on pages 22 to 26 of this document. In addition, holders of any Non-US Preference Shares or US Preference Shares accepted for repurchase will receive an additional cash payment equivalent to the dividend which would have been payable on such Preference Shares if the date of their repurchase had been a dividend payment date and if such dividend had been payable in respect of the period from (and including) the immediately preceding dividend payment date (whether or not such dividend was in fact paid) for such Preference Shares. For the avoidance of doubt, the payment of such amount shall not amount to the actual declaration and payment of a dividend. Preference Shares in respect of which an offer to tender for cash is accepted will be cancelled by RBS. Timetable It is expected that the Non-US Tender Offer and the Exchange Offer will expire on 27 April 2010 and that the US Tender Offer will expire on 3 May Subject to the necessary Shareholder approvals being obtained, the settlement date for the Non-US Tender Offer, being the date on which any securities which are accepted for repurchase will be purchased in the Non-US Tender Offer, is expected to be 4 May Subject to the necessary Shareholder approvals being obtained, the settlement date for the US Tender Offer, being the date on which any securities which are accepted for repurchase will be purchased in the US Tender Offer, is expected to be 6 May Subject to the necessary Shareholder approvals, the settlement date for the Exchange Offer, being the date on which any securities which are accepted for exchange will be exchanged in the Exchange Offer, is expected to be 17 May Further details of the expected timetable for the Proposed Transaction are set out in the Expected Timetable of Principal Events and in the Tender Offer Memorandum, the Exchange Offer Memorandum and the Offer to Purchase (as the case may be). Offer and Distribution restrictions in relation to Italy The Non-US Tender Offer, the Exchange Offer and the US Tender Offer are not being made, directly or indirectly, in the Republic of Italy. The Non-US Tender Offer, the Exchange Offer, the US Tender Offer and the Non-US Tender Offer Memorandum, the Exchange Offer Memorandum and the Offer to Purchase and any other documents or materials relating to the Non-US Tender Offer, the Exchange Offer and the US Tender Offer have not been submitted to the clearance procedure of the Commissione Nazionale per le Società e la Borsa pursuant to Italian laws and regulations. The Non-US Tender Offer and the Exchange Offer are not being made or being made available to holders of the securities subject to the Non-US Tender Offer and the Exchange Offer who are Italian residents and/or persons located in the Republic of Italy and they may not submit offers to tender or offers to exchange in connection with the Non-US Tender Offer and the Exchange Offer and, as such, any offers to tender or offers to exchange received from or on behalf of such holders of the relevant securities shall be ineffective and void. Neither the Non-US Tender Offer Memorandum, the Exchange Offer Memorandum, the Offer to Purchase nor any other information or material relating to the Non-US Tender Offer, the Exchange Offer or the US Tender Offer or the securities subject to the Non-US Tender Offer, the Exchange Offer or the US Tender Offer may be distributed or made available in the Republic of Italy. Neither this Circular, the Non-US Tender Offer Memorandum, the Exchange Offer Memorandum nor the Offer to Purchase constitute an offer of Notes or other securities in the Republic of Italy or the solicitation of an offer to purchase or exchange securities in the Republic of Italy. 10

11 APPENDIX 2 PART A TO THE LETTER FROM THE CHAIRMAN OF RBS SHAREHOLDER APPROVALS AND CONSENTS REQUIRED FOR THE PROPOSED TRANSACTION General Meeting and Separate General Meetings A notice convening a General Meeting of the Company to be held on 28 April 2010 and notices convening Separate General Meetings to be held on 28 April 2010 are set out at the end of this document and the Resolutions proposed to be passed at the General Meeting and the Separate General Meetings are set out in the notices. The General Meeting is being held for the purpose of considering and, if thought fit, passing: (i) one resolution related to both the Non-US Tender Offer and the US Tender Offer. This is the first resolution, Resolution 1, and is a special resolution and is for Ordinary Shareholders and Non-Tendering Cumulative Preference Shareholders to approve the terms of the off-market purchase by the Company of the Preference Shares prior to 27 October Tendering Cumulative Preference Shareholders will not be entitled to vote any of their Cumulative Preference Shares in relation to Resolution 1. This is because the 2006 Act provides that a resolution to approve an off-market repurchase of shares will not be effective if any member of the company holding shares to which the resolution relates: (a) exercises voting rights carried by any of those shares in voting on the resolution; and (b) the resolution would not have been passed if he had not done so. The Conditional Repurchase Agreement (which is one of the repurchase agreements to be approved by Resolution 1) relates to the repurchase of tendered Cumulative Preference Shares. Accordingly, all Cumulative Preference Shares held by a Tendering Cumulative Preference Shareholder will be deemed to be shares to which Resolution 1 relates in order to ensure that the 2006 Act requirements are complied with; and (ii) two further resolutions, both special resolutions, relating to the Non-US Tender Offer in respect of the London Listed Preference Shares: (a) the second resolution, Resolution 2, is for per cent. Preference Shareholders, Ordinary Shareholders and Cumulative Preference Shareholders to approve the deletion from the Articles of the limit on the amount which the Company can pay on the purchase of such per cent. Preference Shares; and (b) the third resolution, Resolution 3, is for per cent. Preference Shareholders, Ordinary Shareholders and Cumulative Preference Shareholders to approve the deletion from the Articles of the limit on the amount which the Company can pay on the purchase of such per cent. Preference Shares. A more detailed explanation of each of these Resolutions is set out in Appendix 2, Part B to this Letter. The Separate General Meetings are being held to seek the consent of the per cent. Preference Shareholders and the per cent. Preference Shareholders to the variation of their rights arising out of the amendments to the Articles as set out in the Notice of Separate General Meeting applicable to that class of London Listed Preference Shares. Forms of Proxy relating to the General Meeting and each Separate General Meeting are enclosed. London Listed Preference Shareholders will each receive two Forms of Proxy, one relating to the General Meeting and one relating to the relevant Separate General Meeting. To be effective, Forms of Proxy must be completed and received at the Company s transfer office at Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY by 2.00 p.m. on 26 April 2010 in the case of Forms of Proxy relating to the General Meeting, 2.10 p.m. on 26 April 2010 in the case of Forms of Proxy relating to the Separate General Meeting of per cent. Preference Shareholders and 2.15 p.m. on 26 April 2010 in the case of Forms of Proxy relating to the Separate General Meeting of per cent. Preference Shareholders. 11

12 Action to be taken by Ordinary Shareholders and Cumulative Preference Shareholders You will find enclosed with this document a Form of Proxy identified by a blue corner in respect of the Resolutions to be proposed at the General Meeting and which is for use by the holders of Ordinary Shares and Cumulative Preference Shareholders. If you are a person nominated under section 146 of the 2006 Act to enjoy information rights, please read Note 3 to the General Meeting Notice. Whether or not you intend to be present at the meeting, the completed Form of Proxy should be returned in the pre-paid envelope as soon as possible, but in any event no later than 2.00 p.m. on 26 April In addition, it is possible to appoint and instruct your proxy electronically by following the instructions on the enclosed Form of Proxy. Completion of a Form of Proxy will not prevent you from attending and voting at the General Meeting if you so wish. To appoint more than one proxy (each of whom must be appointed to exercise rights attached to the different shares held by you), see Note 2 on the reverse of the Form of Proxy. Action to be taken by per cent. Preference Shareholders You will find enclosed with this document a Form of Proxy identified by a purple corner in respect of Resolution 2 to be proposed at the General Meeting and a Form of Proxy identified by a brown corner in respect of the resolution to be proposed at the Separate General Meeting of per cent. Preference Shareholders. If you are a person nominated under section 146 of the 2006 Act to enjoy information rights, please read Note 3 to the General Meeting Notice and Notice of Separate General Meeting of Preference Shareholders. Whether or not you intend to be present at the General Meeting or the Separate General Meeting, completed Forms of Proxy should be returned in the pre-paid envelope as soon as possible, but in any event no later than 2.00 p.m. on 26 April 2010 in respect of the Form of Proxy identified by a purple corner and 2.10 p.m. on 26 April 2010 in respect of the Form of Proxy identified by a brown corner. In addition, it is possible to appoint and instruct your proxy electronically by following the instructions on the enclosed Forms of Proxy. Completion of a Form of Proxy will not prevent you from attending and voting at the General Meeting or the Separate General Meeting of per cent. Preference Shareholders. To appoint more than one proxy (each of whom must be appointed to exercise rights attached to the different shares held by you), see Note 2 on the reverse of the Forms of Proxy. Action to be taken by per cent. Preference Shareholders You will find enclosed with this document a Form of Proxy identified by a grey corner in respect of Resolution 3 to be proposed at the General Meeting and a Form of Proxy identified by a pink corner in respect of the resolution to be proposed at the Separate General Meeting of per cent. Preference Shareholders. If you are a person nominated under section 146 of the 2006 Act to enjoy information rights, please read Note 3 to the General Meeting Notice and Notice of Separate General Meeting of Preference Shareholders. Whether or not you intend to be present at the General Meeting or the Separate General Meeting, completed Forms of Proxy should be returned in the pre-paid envelope as soon as possible, but in any event no later than 2.00 p.m. on 26 April 2010 in respect of the Form of Proxy identified by a grey corner and 2.15 p.m. on 26 April 2010 in respect of the Form of Proxy identified by a pink corner. In addition, it is possible to appoint and instruct your proxy electronically by following the instructions on the enclosed Forms of Proxy. Completion of a Form of Proxy will not prevent you from attending and voting at the General Meeting or the Separate General Meeting of per cent. Preference Shareholders. To appoint more than one proxy (each of whom must be appointed to exercise rights attached to the different shares held by you), see Note 3 on the reverse of the Forms of Proxy. Only those per cent. Preference Shareholders (i) who, in accordance with Article 52(C), have deposited their per cent. Preference Shares at the registered office of the Company or with a bank named or approved by the Company for that purpose on or before 23 April 2010, (ii) who, in accordance with Article 52(D), at the time of the General Meeting and Separate General Meeting, are in possession of a certificate issued by the Company entitling such per cent. Preference Shareholders (or their duly appointed proxies) to attend and vote at the General Meeting and relevant Separate General Meeting, and (iii) whose per cent. Preference Shares remain so deposited until after the General Meeting and relevant Separate General Meeting (and any adjournments thereof), shall 12

13 be entitled (in person or by proxy) to attend and vote at the General Meeting and relevant Separate General Meeting (or any adjournments thereof). General At the General Meeting and each Separate General Meeting, the Company will disclose, for each Resolution, the total of the proxy votes received and any votes cast at the meeting, the proportion for and against each Resolution, and the number of votes withheld. Votes withheld will not be counted in the calculation of the proportion of votes for and against a resolution. Voting at the General Meeting and each Separate General Meeting in respect of each Resolution will be conducted by way of a poll. The Directors believe it is important that the intentions of all members who register a vote are fully taken into account. Voting on a poll is more transparent and equitable, since it allows the votes of all shareholders who wish to vote to be taken into account, and it reflects evolving best practice. Shareholders who attend the General Meeting or a Separate General Meeting will still be able to ask questions relevant to the business of the relevant meeting prior to voting on the Resolutions. Only Shareholders on the Company s register of members at the relevant time (or, in the case of the per cent. Preference Shareholders, those per cent. Preference Shareholders who have deposited their per cent. Preference Shares with the Company or a bank named or approved for such purpose by the Company and obtained a certificate from the Company entitling such per cent. Preference Shareholders to attend and vote at the General Meeting and relevant Separate General Meeting) will be entitled to attend and vote at the General Meeting and the Separate General Meetings. If you hold your Ordinary Shares, Cumulative Preference Shares and/or London Listed Preference Shares through one of the clearance systems or through an intermediary or other form of nominee arrangement, you should contact the clearance system, intermediary or nominee (as relevant) in connection with voting at the General Meeting and the Separate General Meetings. The quorum for the Separate General Meetings (other than an adjourned meeting) is at least two persons present holding or representing by proxy one-third in nominal amount of the relevant class of London Listed Preference Shares. In the light of these quorum requirements, London Listed Preference Shareholders are particularly requested to complete and return a Form of Proxy for the Separate General Meetings. If the Separate General Meetings (or either of them) convened for 28 April 2010 are not quorate, such meeting(s) will be adjourned to 29 April 2010 at The Royal Bank of Scotland Group plc, RBS Gogarburn, Edinburgh EH12 1HQ at 2.00 p.m in the case of the Separate General Meeting of per cent. Preference Shareholders and 2.10 p.m in the case of the Separate General Meeting of per cent. Preference Shareholders. The quorum for an adjourned meeting is any one shareholder of the class present in person or by proxy. 13

14 APPENDIX 2 PART B TO THE LETTER FROM THE CHAIRMAN OF RBS EXPLANATION OF THE SHAREHOLDER APPROVALS REQUIRED FOR THE PROPOSED TRANSACTION Resolution 1 Approval of the off-market repurchase of Non-US Preference Shares and US Preference Shares The proposed repurchase of the Non-US Preference Shares pursuant to the Non-US Tender Offer and the proposed repurchase of the US Preference Shares pursuant to the US Tender Offer are to be effected by way of off-market purchases which require the prior approval of Ordinary Shareholders and Non- Tendering Cumulative Preference Shareholders by special resolution Resolution 1. The Proposed Transaction is conditional on the passing of Resolution 1. Tendering Cumulative Preference Shareholders will not be entitled to vote any of their Cumulative Preference Shares in relation to Resolution 1. This is because the 2006 Act provides that a resolution to approve an off-market repurchase of shares will not be effective if any member of the company holding shares to which the resolution relates exercises the voting rights carried by any of those shares in voting on the resolution and the resolution would not have been passed if he had not done so. The Conditional Repurchase Agreement (which is one of the repurchase agreements to be approved by Resolution 1) relates to the repurchase of tendered Cumulative Preference Shares. Accordingly, all Cumulative Preference Shares held by a Tendering Cumulative Preference Shareholder will be deemed to be shares to which Resolution 1 relates in order to ensure that the 2006 Act requirements are complied with. The 2006 Act also requires that the terms of any off-market purchase are available for inspection at the Company s registered office for not less than 15 days ending with the date of the General Meeting and at the General Meeting. Accordingly, the Conditional Repurchase Agreement and the Argon Conditional Repurchase Agreement will be available for inspection from the date of this Circular at 36 St Andrew Square, Edinburgh EH2 2YB. The Tender Offer Memorandum and the Offer to Purchase will also be available for inspection from the date of this Circular at 36 St Andrew Square, Edinburgh EH2 2YB. It is a term of the Tender Offers in relation to the Preference Shares that any Preference Shares in respect of which an offer under the Tender Offers is accepted by RBS must be transferred on trust to BNY Corporate Trustee Services Limited (as indicated in the Non-US Tender Offer Memorandum and the Offer to Purchase) for the purposes of the Conditional Repurchase Agreement. Under the terms of the Conditional Repurchase Agreement, BNY Corporate Trustee Services Limited has the right to require the Company to purchase, by way of an off-market purchase, any Preference Shares held by it as trustee for the holders of such Preference Shares. Under the Non-US Tender Offer the Company will make an invitation to holders of the Argon Notes to tender Argon Notes for cash. Pursuant to the Argon Conditional Repurchase Agreement, following the acquisition by the Company of any Argon Notes for which such a tender offer has been accepted, the Company will deliver the Argon Notes it has acquired to Argon and will receive the corresponding number of Argon Preference Shares. No cash will be payable under the Argon Conditional Repurchase Agreement as the consideration payable by Argon to RBS for the delivery of the Argon Notes will be equal to the consideration payable by RBS to Argon for the delivery of the Argon Preference Shares. The consideration for the delivery of the Argon Notes and the Argon Preference Shares under the Argon Conditional Repurchase Agreement will be equal to the consideration payable by RBS for Argon Notes in respect of which a valid tender offer is accepted under the Non-US Tender Offer. The purchase price for the Argon Preference Shares (being equal to the purchase price payable under the Non-US Tender Offer for the Argon Notes) is set out in Appendix 2, Part A of the Notice of General Meeting (set out on pages 22 to 26 of this document). Amendments to the Articles and Class Consents Resolutions 2 and 3 The Articles impose a limit on the price at which the London Listed Preference Shares may be purchased by the Company. The Non-US Tender Offer for the London Listed Preference Shares may be made at prices in excess of such limits and so it is proposed that the Articles be amended to remove these limits to allow the purchase of the London Listed Preference Shares at the prices set out in Appendix 2, Part A of the Notice of General Meeting (set out on pages 22 to 26 of this document). In order to amend the 14