Strategic Investment Group Procedures Manual January 2012 The Information Classification of this document is INTERNAL SIG Procedures Manual Contents CONTENTS ...................................................................................................................................................................... 2 1 GLOSSARY............................................................................................................................................................. 4 2 INTRODUCTION................................................................................................................................................... 6 3 SIG OVERVIEW .................................................................................................................................................... 7 3.1 3.2 4 SIG ROLES AND RESPONSIBILITIES .................................................................................................................. 7 COMPLIANCE .................................................................................................................................................... 7 EQUITY UPSIDES ................................................................................................................................................. 9 4.1 COMPLETION .................................................................................................................................................... 9 4.1.1 Discussions with the GRG RM.................................................................................................................... 9 4.1.2 Sighting Paper ............................................................................................................................................ 9 4.1.3 Term Sheet .................................................................................................................................................. 9 4.1.4 SIG Work-in-Progress .............................................................................................................................. 10 4.1.5 Approvals.................................................................................................................................................. 11 4.1.6 Documentation.......................................................................................................................................... 13 4.1.7 Paying for equity....................................................................................................................................... 14 4.1.8 Post Completion Administration............................................................................................................... 14 4.2 GOVERNANCE / MANAGEMENT ...................................................................................................................... 16 4.2.1 Unquoted Portfolio ................................................................................................................................... 16 4.2.2 Quoted Portfolio ....................................................................................................................................... 20 4.2.3 Valuations ................................................................................................................................................. 21 4.2.4 New Money Requests ................................................................................................................................ 22 4.2.5 Insolvency Processes – Liquidation/Receivership .................................................................................... 23 4.3 DISPOSAL ....................................................................................................................................................... 23 4.3.1 Unquoted Portfolio ................................................................................................................................... 23 4.3.2 Quoted Portfolio ....................................................................................................................................... 26 4.3.3 RBEF Cases .............................................................................................................................................. 27 4.3.4 Post Completion Administration............................................................................................................... 27 5 PROPERTY PARTICIPATION FEE AGREEMENTS.................................................................................... 29 5.1 COMPLETION .................................................................................................................................................. 29 5.1.1 SIG Approval ............................................................................................................................................ 29 5.1.2 PPFA Documents...................................................................................................................................... 29 5.1.3 Completion of documentation ................................................................................................................... 30 5.1.4 Recording PPFA documents. .................................................................................................................... 31 5.2 GOVERNANCE................................................................................................................................................. 31 5.2.1 Monitoring of PPFAs................................................................................................................................ 32 5.2.2 Amendment of Terms post-completion ...................................................................................................... 32 5.3 DISPOSAL / RELEASE ...................................................................................................................................... 32 5.3.1 Disposal Before Termination “Early Termination” ................................................................................. 32 5.3.2 Contractual Early Termination................................................................................................................. 33 5.3.3 Termination on Termination Date ............................................................................................................ 33 5.3.4 Agreeing Market Value ............................................................................................................................. 33 5.3.5 Accounting for the Fee.............................................................................................................................. 33 5.3.6 Releasing the Charge (where applicable)................................................................................................. 34 5.3.7 Updating the PPFA Database .................................................................................................................. 34 5.3.8 Multiple Properties on One PPFA............................................................................................................ 34 6 OTHER UPSIDES ................................................................................................................................................ 35 6.1 MANAGEMENT OF BONDS/RECOVERY NOTES ................................................................................................ 35 6.1.1 Information on the Instruments................................................................................................................. 35 6.1.2 Holding the Instruments............................................................................................................................ 35 6.1.3 Managing the Instruments ........................................................................................................................ 35 GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 2 of 48 30 January 2012 SIG Procedures Manual 6.1.4 Valuing the Instruments ............................................................................................................................ 36 6.1.5 Reviewing the Instruments ........................................................................................................................ 36 6.1.6 Disposal of Instruments ............................................................................................................................ 36 6.1.7 Other ......................................................................................................................................................... 36 6.2 NON STANDARD FEE AGREEMENTS/OTHER UPSIDES ..................................................................................... 36 7 SIG MEZZANINE LOANS.................................................................................................................................. 37 7.1 7.2 7.3 8 SIG COMMITTEE ............................................................................................................................................... 38 8.1 8.2 8.3 9 TERMS OF REFERENCE.................................................................................................................................... 38 QUARTERLY MEETINGS .................................................................................................................................. 38 AD HOC APPROVAL REQUESTS ....................................................................................................................... 38 ASSET PROTECTION SCHEME ...................................................................................................................... 39 9.1 9.2 9.2.1 9.3 9.4 10 OVERVIEW ..................................................................................................................................................... 37 GOVERNANCE/MANAGEMENT ........................................................................................................................ 37 EXIT ............................................................................................................................................................... 37 INTRODUCTION ............................................................................................................................................... 39 ENGAGEMENT ................................................................................................................................................ 39 Significant Restructuring Events (FAL Connections only) ....................................................................... 39 TRAINING ....................................................................................................................................................... 40 ASSET CLASSIFICATION & VERIFICATION ...................................................................................................... 40 OPERATIONS AND REPORTING.................................................................................................................... 41 10.1 PORTFOLIO DATA ........................................................................................................................................... 41 10.1.1 Equity Code.......................................................................................................................................... 41 10.1.2 Key Documents .................................................................................................................................... 41 10.1.3 Asset Register....................................................................................................................................... 41 10.2 PORTFOLIO REPORTING .................................................................................................................................. 41 10.2.1 Work-in-Progress................................................................................................................................. 41 10.2.2 GRG Finance – MI Reporting.............................................................................................................. 42 10.2.3 Share Aggregation Reporting Unit, Group Secretariat (“SARU”)...................................................... 42 10.2.4 GBM Control Room ............................................................................................................................. 44 10.2.5 APS....................................................................................................................................................... 44 11 TRAINING ............................................................................................................................................................ 45 11.1 INTRODUCTION TO UPSIDES COURSE.............................................................................................................. 45 11.1.1 Two-day course .................................................................................................................................... 45 11.1.2 One-day course .................................................................................................................................... 45 11.1.3 Ulster Bank .......................................................................................................................................... 45 11.2 PPFA WORKSHOPS (UK ONLY)...................................................................................................................... 45 12 APPENDICES ....................................................................................................................................................... 46 13 DOCUMENT GOVERNANCE ........................................................................................................................... 48 13.1 13.2 DOCUMENT INFORMATION ............................................................................................................................. 48 VERSIONS ....................................................................................................................................................... 48 GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 3 of 48 30 January 2012 SIG Procedures Manual 1 Glossary APA Asset Protection Agency APS Asset Protection Scheme BRG Business Restructuring Group Citizens Citizens Financial Group CM Corporate Markets CRU Corporate Restructuring Unit ECM Equity Capital Markets EMEA Europe, Middle East & Africa Exco GRG Executive Committee FAL Focussed Asset List (APS) FVTPL Fair value through P & L GOC Group Hierarchy ManCo GRG Management Committee MO Minimal Overview MR Management Required NCR Non-Cash Realisation NPAP New Product Approval Process PAU Property Appraisal Unit PPFA Property Participation Fee Agreement PRisM GBM credit risk management workflow tool for proposing, recording and approving credit limits PV Potential Value RBEF Royal Bank Equity Finance RCC GRG Risk & Control Committee RER Real Estate Restructuring RJA Related Junior Asset RMP / RMPS RM Platform (Strategic) – UK (sub-GBM) and Ulster credit risk management workflow tool for proposing, recording and approving credit limits RVCF Regional Venture Capital Funds SARU Share Aggregation Reporting Unit SIG Strategic Investment Group Ulster Ulster Bank Group UPSI Unpublished Price Sensitive Information WRIL West Register (Investments) Limited GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 4 of 48 30 January 2012 SIG Procedures Manual WRN2L West Register Number 2 Limited WRNIL West Register (NorthernIreland) Limited WRROIL West Register (Republic of Ireland) Limited GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 5 of 48 30 January 2012 SIG Procedures Manual 2 Introduction Following feedback and consultation within GRG it was agreed to split the existing Policy and Procedures Manual in to two parts • Policy Manual which covers the “What we do and why we do it” • Procedures and Guidance which covers “How we do it” Due to the nature of the SIG business it is appropriate for there to be a specific Procedures Manual for the team; the GRG Procedures Manual has a brief section on Upside Instruments as GRG RMs should always contact SIG before negotiating non-traditional mechanisms. Any policies to which the SIG team must adhere will be incorporated within the GRG Policy Manual, with references/links included within this Procedures Manual as applicable. It is intended that this Manual will cover SIG globally, with reference made to local variances/requirements and/or local Manuals as necessary. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 6 of 48 30 January 2012 SIG Procedures Manual 3 SIG Overview 3.1 SIG Roles and Responsibilities SIG is a business within Global Restructuring Group (“GRG”) which sits within the Restructuring and Risk Division of the RBS Group. It is the prime function of GRG to work closely with CM/The Bank’s distressed customer base and to undertake positive and active management of this problem-lending portfolio. On transfer of a connection to GRG a strategy is devised to: • work with the customer to facilitate changes that will maximise the potential for turnaround of their situation and return them to optimum profitability, • participate in the value creation of the turnaround situation and obtain levels of reward commensurate with risks undertaken, • return accounts to their originating division / subsidiary in a ‘satisfactory’ condition or maximise debt recoveries / avoid additional losses; • ensure key lessons learned are recycled back to the mainstream Bank businesses and credit functions. SIG is a global business with teams based as follows – UK & EMEA - London, Birmingham, Edinburgh, Leeds and Manchester Ulster Bank - Dublin AsiaPacific – Sydney, Australia Americas – Stamford, Connecticut Citizens - Boston The latest SIG structure chart is attached as Appendix 1 of this manual and is saved on the GRG Intranet site. SIG’s key roles and responsibilities are as follows: • To work alongside GRG RMs in the taking of equity and other upsides (including Property Participation Fee Agreements) including negotiation of terms, structuring and documentation when these are required to secure a level of return commensurate with the level of risk. • Management of the portfolio of all equity and other upside instruments negotiated by GRG globally in the course of debt restructuring; SIG will seek to maximise return through periodic review of strategy and performance, identification of optimal exit times and timely collection of any income due i.e. dividends. This includes listed and private positions. • Management of investments made using SIGs hybrid mezzanine/equity product – note new investments are not currently being undertaken. • SIG are also responsible for managing a number of legacy equity portfolios for the bank to maximise returns, for example certain Royal Bank Equity Finance (“RBEF”) assets and a number of equity assets from the former Scottish Regional Venture Capital Funds (“RVCF”). 3.2 Compliance In August 2010 GRG Compliance confirmed that in response to the increasing number of connections in GRG which have securities traded on a regulated market (e.g. listed shares, warrants, bonds etc) SIG had been established as a public side function. This means that Chinese Walls are enforced between SIG and other parts of GRG (which have remained private side businesses) and any sharing of inside/unpublished price sensitive information (UPSI) with SIG is restricted. Where SIG’s involvement is required in a restructuring transaction involving a company/group that has securities traded on a regulated market, the originating GRG business must obtain pre-clearance from GRG Compliance before communicating with SIG. This will incorporate a “Wall Crossing” Process and full details GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 7 of 48 30 January 2012 SIG Procedures Manual ol this piocess can be lound in the GRG Compliance manual which can be accessed Via the Compliance section ol the GRG website. GRG Compliance have conlirmed that the teams SIG liaise with lor advise/approval in respect ol a transaction are considered to he "above the wall". SIG RMs should. however. keep the lollowing in mind 7 . The Need to Know Policy still applies so they should limit who they share the inlormation with; . it is recommended that the SIG RM maintain a lile note ol who the inlormation is shared with. Any questions concerning SlG's Public side status, how the llow ol inlormation must now operate within GRG or the Wall Crossing Process should he directed to GRG Compliance (see contact details oeiow). The GRG Compliance Intranet Site also includes a number ol SIG specilic guidance notes which the team should lamiliarise themselves with, including Managing lnlormation Flowsr this can be accessed via the Compliance section ol the GRG Website. GRG Compliance contacts Team mailbo GRGI The lnlomlallon Classification oi |nls dommen| ls Author: Kaie Wyeth Page ol 48 so January 2012 SIG Procedures Manual 4 Equity Upsides 4.1 Completion 4.1.1 Discussions with the GRG RM Once a connection is transferred into GRG the initial analysis and strategy review will be undertaken by the GRG RM. Where an upside instrument (eg Equity stake) is being considered as part of the restructuring the GRG RM must engage with a SIG RM to assist and advise on taking the appropriate instruments. There are regional and business variations as to when GRG RMs will involve SIG in this process; however SIG’s preference and willingness is to be involved as early as possible. Please note, if the company is listed then the appropriate SIG team member(s) will need to be “wall crossed” for compliance purposes. (See Compliance section of GRG Intranet site for further detail). The process which is followed varies from case to case and therefore the following are general guidelines to follow. Best practice is developing and evolving all of the time and good communication between SIG team members is important and is to be encouraged. Analysis of all information is undertaken in conjunction with the GRG RM with a review to reviewing and agreeing an appropriate upside for the Bank. This process, typically in smaller, bi-lateral positions will involve the preparation of an IRR model to review potential returns. The IRR Calculation Template is saved as Appendix 2. The key principles and factors to be considered in calculating the appropriate upside for the Bank are detailed on the Introduction to Upsides Course – please refer to Section 11 and Learning and Development section of the GRG Intranet site for further detail. In all cases there may be independent financial due diligence or business reviews which can assist in the initial analysis. Where appropriate the SIG deal team member may be required to meet the customer or attend a syndicate meeting to assist them in their decision making. The SIG deal team member is encouraged to work closely with the GRG RM throughout the process of negotiating, agreeing and documenting the upside instrument. There will be potential for conflict of interest, as the SIG deal member will have a focus on ensuring that the best possible terms and conditions are negotiated with regard to the equity stake and these can, occasionally, conflict with the GRG debt RMs objectives. Any issues should be resolved professionally and not in front of the customer or other lenders and stakeholders. 4.1.2 Sighting Paper A Sighting Paper must be prepared by the SIG RM and approved by either the Global Head of Strategic Investments or the Head of SIG prior to agreeing Heads of Terms and adding the case to WIP in eVenture. This is intended to be an initial review of the position / approach to the deal to agree that an Equity Upside is appropriate. Once approved a WIP entry should be created in the Deal Log section of eVenture and the approved paper saved in to the system against a Journal. The Template is attached as Appendix 4 and is also saved on the SIG Shared Drive in London under SIG Forms and Procedures. 4.1.3 Term Sheet Within bi-lateral situations the GRG RM will agree the terms for an Upside with SIG and then prepare a term sheet which should be signed off by SIG prior to it being negotiated with the client. In multi-banked positions, negotiations are often dealt with by a Steering Committee consisting of the key lenders who act on behalf of all the institutions in the syndicate. All syndicate members will potentially be asked for their views on appropriate terms before they are prepared, usually by the lawyers acting on behalf of the lenders. Once a term sheet has been agreed by the syndicate then the steering committee will deal with the client to negotiate terms before reverting to the institutions for final approval. Where possible a copy of the Term Sheet should be filed in eVenture; as a minimum there should be a confirming e-mail from the SIG RM confirming their agreement to the terms of the Upside. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 9 of 48 30 January 2012 SIG Procedures Manual 4.1.4 SIG Work-in-Progress 4.1.4.1 Adding a New Deal Once the Sighting Paper has been approved and it is expected that the equity upside will progress the SIG RM is responsible for entering the Deal in to the Deal Log section of eVenture and ensuring that it is updated going forward. SIG Operations in London will e-mail a reminder weekly on a Thursday that Deal Log must be updated by midday Friday as they will then run the Work in Progress Reports from the system for circulation to the SIG executive. For those members of the team without access to eVenture, SIG Operations in London will e-mail an extract from the previous week’s report for them to update and return; SIG Operations in London will then update eVenture accordingly. In order to meet various reporting requirements there are a number of fields which MUST be inputted as a MINIMUM for all Deals when added to the system, but the SIG RM should look to complete as much detail as possible. These are as follows – • • • • • Name (Project Name if Listed) GRG Dept GRG RM If APS If Listed • • • • • CIS Code (see below *) Upside Type Estimated Timescale for completion Stage Status * The CIS Code should be inputted for the borrower (parent company if a group of borrowers) that is being restructured, although this may change in due course if a newco is incorporated in which we will hold our equity stake. Full details of how to create and update records in eVenture as well as saving documents/adding Journals etc.can be found in the eVenture Instruction Manual which is attached as Appendix [ ] and saved on the SIG Shared Drive in London at SIG/SIG Forms & Procedures/eVenture. 4.1.4.2 Journals/Documents that must be attached to eVenture There are a number of Journals/documents that are to be attached to deals going forward, as eVenture has the ability to store them for future access if required & is intended to be the key data source for the team. It is good practice for these to be attached as they are obtained / the deal progresses as all Journals /documents attached to the entry in Deal Log will pull through to the Investment record when this is created post completion. The required Journals / documents are • SIG Approved Heads of Terms / confirmation of SIG Approval of Upside Terms • IRR template (if applicable) • Credit Paper & Approval / confirmation from the GRG RM that the appropriate Credit Approval has been obtained • APS Approval / confirmation from the GRG RM that the appropriate Credit Approval has been obtained (if applicable) • Approved Provision Form (if a debt write off has been approved as part of the restructure) • Webform Approval (if there are APS covered assets & it is a FAL connection) • Any Due Diligence reports i.e. IBR • Internal sign off e-mails/templates - Legal (General), Legal (Competition), Tax, Accounting, Regulatory, GRG Finance • Confirmation as to whether or not customer is FSA regulated or has FSA regulated subsidiaries within its Group • Pre-Completion Memo and Checklist signed off by either the Global Head of Strategic Investments or the Head of SIG When attaching Journals please also refer to the following – • Page 16 of the Instruction Manual which details how to add Journals; • The SIG Journal Guidance (Appendix 3) which details which Journal Topic should be used. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 10 of 48 30 January 2012 SIG Procedures Manual 4.1.4.3 Quoted Cases To ensure that there is no danger of non-wall crossed members of the SIG team having access to Unpublished Price Sensitive Information (“UPSI”) the following guidelines must be followed – • The Project Name should be input in both the Name and Project Name fields • Approvals must be recorded but NO documents are to be attached that make any reference to the underlying company/business name • All documents, e-mail approvals etc should be saved in a folder under the SIG Restricted Deals section of the SIG shared drive. This can be requested via SIG Operations and access will be limited to those members of the SIG team who have been wall crossed by GRG Compliance. For listed cases the “wall-crossed” SIG RM(s) should liaise with SIG Operations to create a folder under the SIG Restricted Deals section of the SIG shared drive – only wall-crossed members of the team will be granted access to the folder in which they can save all relevant documents, e-mails etc. Detail of the Work-in-Progress reporting process can be found in Section 10. 4.1.5 Approvals 4.1.5.1 General It is expected that all Equity Upsides will need approvals for Tax, Accounting, Legal (Merger & Competition), Regulatory and Finance, however, the teams to be approached will vary based on the location of the SIG team / jurisdiction of the customer. There are also additional reporting requirements / approvals required for some SIG teams. In order to cover these regional variations, Equity Checklists have been created for UK & EMEA, Ireland, AsiaPacific and Americas which are saved as Appendix 5 . Note, SIG in Citizens have their own Procedures Manual which details their approval process. All approvals obtained should be saved in to eVenture as an audit trail. 4.1.5.2 Credit and APS The GRG RM is responsible for obtaining Credit approval to the proposed restructure of which the negotiated upside will form a key element, although SIG may be required to complete the Equity Case within the credit paper (currently Real Estate Restructuring Proposals >£20m and Large Corporate Restructuring Proposals >£50m). The GRG RM will also obtain any necessary APS approvals which will also include specific details regarding the upside. No further APS approvals require to be obtained by SIG at this stage. The SIG RM must obtain copies of the approvals or confirmation from the GRG RM that these have been obtained, which should be added to eVenture. 4.1.5.3 Group Tax Tax advice will be region specific, and in AsiaPacific will be obtained from the team in the country where the upside is being taken / the exposure will sit – details have been incorporated within the various Equity Checklists (see Appendix 5) or within the Citizens Procedures Manual. In multi-jurisdictional cases it may be necessary to seek external advice to assist Group Tax in their review and sign-off. It should be confirmed as early as possible if this is required as this will have an impact on the timing of sign-off. The UK team have provided guidance which outlines which company should be used to hold the equity stakes and when Group Tax sign-off is and isn’t required as there is an agreed self-certification process for the smaller, simpler transactions – attached as Appendix 6a. If a case meets the self-certification criteria then the SIG RM will complete a Self Certification Form (see Appendix 6b - and forward this to Group Tax. If sign-off from Group Tax is required then a Deal Form (see Appendix 6c)should be completed by the SIG RM and sent through accordingly. 4.1.5.4 Group Legal General Transactions only need to be referred to GRG Group Legal Team for clearance if one or more of the following characteristics is present: GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 11 of 48 30 January 2012 SIG Procedures Manual • The Bank is acquiring listed securities; • The customer: o Is subject to potentially onerous lease obligations; o Operates a defined benefit pension scheme; o Is FSA regulated or has FSA regulated subsidiaries; o (or any of its subsidiaries) is domiciled outside of England or Wales or Scotland; or o Has operations in the US • There are potential environmental issues with the customer’s assets or businesses; or • There are specific points of concern which you wish to raise with GRG Group Legal Further information, including GRG Group Legal contacts can be found on the GRG Group Legal guidelines document attached as Appendix 7a. Competition Whenever RBS acquires any equity stakes it is essential to remember merger control i.e. competition law as the implications of failing to make the necessary filings could mean, in a best case scenario, completion of the deal can be significantly delayed, and in the worst case scenario, the Group may also be liable for very high fines. This could include UK and/or European Merger Control issues, irrespective of where in the world the transaction is being undertaken. Filings for merger control may also be required even when there are no competition law issues (i.e. overlaps between the target and other RBS businesses.). Even if technical filings are missed the consequences can be very serious. Specialist competition law advice from Group Legal, Regulatory and Competition is essential if either: • The target is large (turnover >€250m or, >€100m if target is active across EU not just in the UK) or RBS is taking joint control over a target (of whatever size) with one or more other large banks/companies; or • RBS is acquiring either (i) a majority shareholding or (ii) a minority shareholding coupled with strategic veto rights over the target’s business plan, budget and/or appointment of senior management Even smaller targets and/or minority shareholdings (of more than about 10%) only (with no strategic veto rights) should be checked for competition law issues. Each case will be different but usually you will need to provide Group Legal, Regulatory and Competition with an indication of the target’s turnover in all the countries where it is active and if there are any product overlaps with other Group businesses (Group Secretariat, SARU can assist on this last point). If, however, a deal is documented on SIG UK standard form equity documents (and the veto and voting rights remain as per the standard documents) and the equity stake is less than 20%, this will not need to be referred to the Regulatory and Competition team. This does not apply if we are aware of a significant product overlap between the target company and another company in which the Group has a significant shareholding. A flowchart has been produced by the Group Legal, Regulatory and Competition team to assist in determining whether a matter should be referred to them – this incorporates key contacts and is attached as Appendix 7b. 4.1.5.5 Accounting Accounting approval will be provided by different teams, based on location and originating division which are detailed on the Equity Checklists (Appendix 5) / Citizens Procedures Manual. They must be engaged in all transactions to provide advice on the accounting treatment of the equity stake. Within the UK, a GRG Template should be completed and e-mailed to either the GBM or CBD team depending on the originating division of the case. This is attached as Appendix 8. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 12 of 48 30 January 2012 SIG Procedures Manual 4.1.5.6 Regulatory Advisory All cases are to be reierred to the appropriate Regulatory Advisory to obtain approval ior regulatory capital treatment. The appropriate contact/team is detailed on the Equity Checklists (Appendix 5) or Manual. 4.1.5.7 GRG Finance Once the other approvals detailed above have been obtained, a iinal sign oil is required irom GRG Finance in London (except ior Citizens cases which require local sign oil as detailed in their Procedures Manual); in sign of! irom APACIBUC iinance is also required beiore the transaction can complete. Note - ii the approvals require a change in structure then the terms must be re-negotiated with the client until requirements oi the relevant approving authorities are met. Sign on by GRG Finance is obtained by providing SIG Finance in London with copies oi the relevant templates and email responses irom the teams above 7 these should be sent to their team mailbox SIG Finance". At least three business days should be allowed ior GRG Finance to provide iinal sign GRG Finance will also liaise with Group Treasury to ensure that any |ritra>>Group Limit that is required has been correctly applied ior. 4.1.5.8 Share Aggregation Reporting Unit Although Group Policy is to inlorm SARU once an equity stake has been taken, we should advise them oi transactions in listed cases prior to completion to ensure that they have made all necessary enquiries within the Group, and have all the iniormation required at completion to make the required regulatory Timescales ior such can be incredibly tight i.e. 24 hours and the Bank could receive signilicant lines ii the are 7101 met. Ke Comacls are 7 Team mail box -- Share Aggregation Unit 4.1.5.9 SIG Fre-Completion Approvals Once approval has been obtained irom all other internal teams, a Pre>>COmpielion Memo and Pie- Completion Checklist need to be completed and lorwarded to either the Global Head oi Strategic Investments or the Head oi SIG ior approval 7 this must be obtained beiore a transaction can complete. These should be provided either in Hard or Sort Copy, accompanied by evidence oi the various approvals. The approved Memo and Checklist should then be saved in eVenture. Following a recommendation by the SIG Deal RM, the approver should also coniirm the Portiolio Category ior the position and when it's iirst Investment Review is to be scheduled. The SIG Pro-Completion Memo is saved as Appendix 9. and the Pre>>Compielion Checklists (which are Region specific) as Appendix 10. 4.1.6 Documentation During the approval process. all documents will also be negotiated and any material revisions irom the term sheet must be approved by the relevant approving authorities above. SIG will take iull responsibility ior ensuring the equity documents iully reilect the transaction proposed. It is standard practice ior external lawyers to be used in respect oi equity documents; although they may be the same iinn that has been engaged by the GRG debt team, a separate Instruction Letter is required ior the equity to ensure that we obtain the appropriate duty oi care. A SIG Instruction Letter can be iound on the Legal section oi the GRG Intranet site 7 this template is to UK law but should be used as a basis ior internal legal teams in other regions/jurisdictions. This template is attached as Appendix 11. For BRG equity positions in the UK. standard Subscription Agreement and Articles oi Association are used. There are diflerem versions ior England and Scotland and the latest versions are attached as Appendix i2a and Appendix 12b respectively. These have already been signed on internally by Group Legal, Group Tax etc ior use in simple bi-Iateral lending scenarios. Only SIG team members are allowed to negotiate and agree amendments to these documents subject to the iootnotes arid/or in conjunction with external lawyers. GRGI The lrilormaimn Ciasslilcaucm oi this dommenl ls Autbor: Kate Wyeth Page 13 0148 so January 2012 SIG Procedures Manual For larger, more complex cases then bespoke equity documents are usually prepared by the GRG appointed lawyers. The GRG standard equity documents include a number of “protective” as opposed to “participative” shareholder rights, designed to allow the Bank to “protect” the value of the shareholding negotiated as part of the restructure without having any impact or, as importantly for internal accounting and consolidation purposes, involvement in the day to to day running of the business. This includes the right to appoint a Director, but not an ability to control the Board of Directors. These rights should look to be incorporated where possible in bespoke equity documentation agreed with lawyers. The equity documentation must only be executed by an authorised SIG signatory; documents will be signed under the relevant Power of Attorney/authority for the vehicle receiving the equity. The investment holding vehicle to be used will be advised by Tax/Finance but the expectation is that the majority of positions will be taken in the name of the following companies – UK/EMEA/AsiaPac West Register (Investments) Limited – for equity stakes where the bank has written off debt West Register Number 2 Limited (previously known as West Register Trading Limited) – for equity stakes where there has been no debt write of, warrants, options, convertible shares, PPFAs Ulster Bank West Register (Republic of Ireland) Limited – for equity stakes taken in Republic of Ireland West Register (Northern Ireland) Limited – for equity stakes taken in Northern Ireland GRG Americas RBS Investments USA Corp Citizens RBS Citizens, N.A The current Power of Attorney for West Register (Investments) Limited and West Register Number 2 Limited are attached as Appendix 13a and 13b respectively and the GRG Divisional Power of Attorney’s can be obtained from the GRG Secure Intranet Site. Where documents are being made available to the market or to other parties (apart from Articles of Association or Subscription Agreement) in which reference is made to RBS in any way or in which RBS gives any warranties or representations these must be sent to GRG Legal for comment and review before they are executed/made available externally. 4.1.7 Paying for equity Where debt is being written off, this is regarded as the consideration for our equity. However, in the smaller (typically BRG) cases it may be necessary to purchase the equity, which is normally at par value. SIG Finance in London should be contacted to arrange transfer of funds / issuance of a cheque to settle the sum due for UK & EMEA cases – other SIG teams should liaise with their local finance contact(s). 4.1.8 Post Completion Administration 4.1.8.1 eVenture Once the documentation has been executed and the transaction completed the SIG Deal RM is responsible for updating eVenture to show that the transaction has completed. Full details on how to complete a transaction in the Deal Log section and create an Investment in the Investment are provided in the eVenture Instruction Manual (page 25) which is attached as Appendix [ ], however, the SIG RM should review the newly created Investment record to - ensure that all approvals and signed documents are attached to the system – all Journals should be clearly labelled so they can be easily identified check the accuracy of the data which has pulled through from Deal Log (and make amendments as necessary) ensure that the following fields have been completed GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 14 of 48 30 January 2012 SIG Procedures Manual o o o o o o o o o o o o o Reporting (Legal) Name Company Registration Number Summary of Business i.e. Business activity Portfolio Category (as confirmed in the Pre-Completion sign-off) Voting % Economic % RBS Holdco Debt Write Off – RBS Debt Retained – RBS Monitoring Fee Entitlement Dividend Entitlement CIS Code Sector Final signed copies of documentation should also be saved in to eVenture – this should be final/execution versions initially with signed copies once received. Members of the team who do not have access to the eVenture will complete a Database Input Form (attached as Appendix 14a) and forward it to SIG Operations in London with supporting documents/approvals; SIG Operations will then update eVenture accordingly. The following Contacts should also be added to eVenture (and linked to the Investment) as a minimum (please refer to the eVenture Instruction Manual (page 48) attached as Appendix xx regarding how this is done) – - The Company and the MD/CEO - The GRG RM 4.1.8.2 Notifying Share Aggregation Unit The SIG Deal RM is also responsible for completing a Capital Structure Template (see Appendix 14b ) and forwarding this to SIG Operations in London who will then forward it to Share Aggregation Unit to notify them of the new shareholding. This should be completed as soon as possible after the deal has completed but no later than 5 working days after. Note - If we have taken a stake in a listed company then SARU must be advised within 24 hours as filing deadlines can be extremely tight, although they do vary by jurisdiction. 4.1.8.3 Share Certificates / Documents It is SIG policy to obtain and hold original share certificates where possible so these should be obtained in all cases where it is the practice of the Company to issue certificates. Certificates for UK and EMEA positions should normally be held in the SIG safe in London, with those for Americas, Citizens, Ulster and Asia Pacific held in local vaults/safes. Where an equity stake is obtained in a Company which does not normally issue certificates i.e. Luxcos then a certified copy of the Shareholder Register should be obtained. For listed securities it is SIG policy for the securities to be held with a Custodian/broker where possible. SIG’s global custodian is Charles Stanley based in London, although US/Citizens positions will be held in local DTC accounts. The SIG Deal RM should contact either SIG Operations in London or a member of the Quoted Portfolio team to obtain the necessary account details to take receipt of the stock when it is being delivered electronically. Where this is not possible the certificate should be sent to SIG Operations in London for safe keeping. If original documents are received these should be held in a fire proof safe, filed against the Equity Code; it is, however, acceptable for original documents to be held by SIG/GRG’s lawyers subject to SIG receiving a Bible of Documents (which should ideally be in electronic/CD ROM format). 4.1.8.4 Operations Post Completion Checklist SIG Operations (London) will raise a Post-Completion Checklist to ensure that key data fields are being completed in eVenture /verified to documents, key documents are held and the position advised to other parts of GRG/RBS as necessary. A template checklist is saved as Appendix 15 but in summary Operations will – GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 15 of 48 30 January 2012 SIG Procedures Manual • Allocate an Equity code • Advise Share Aggregation Reporting Unit (SARU) • Advise SIG Finance in London of the new position and if applicable complete a Monitoring Fee & Other Income Advice Template to advise details of Monitoring Fees and Dividend Entitlement (attached as Appendix 16) • Obtain confirmation from GRG APS Compliance as to whether the equity is related to APS covered assets; confirming e-mail will be attached to an APS Verification journal • Ensure original share certificates and (as a minimum) copy key legal documents are obtained and filed, with copies saved in to eVenture • • Obtain a copy of the approved Provision Form for all cases where there has been a debt write off Verify key data fields to documents, credit papers etc. 4.1.8.5 Take-on Self Audit In addition to the Post Completion Checklist which is completed in all cases, each quarter SIG Operations will complete a full check that all key processes have been followed and approvals obtained for a sample of new deals. A template checklist (incorporating guidance notes) is saved as Appendix 17 but the checks that will be made via reference to eVenture are as follows – • Deal keyed as completed in Deal Log and Investment Record created • Term Sheet / SIG Agreement to Terms filed • Wall Crossing obtained if applicable • Credit paper and approval filed or e-mail confirmation of credit approval for upside from GRG RM • APS approval filed or e-mail confirmation of approval from GRG RM (if applicable) • FSA – confirmation held as to whether or not customer is FSA regulated or has FSA regulated group companies • Internal approvals (or confirmation that not required) – Tax, Legal (General), Legal (Competition/Merger), Accounting Advisory, Regulatory Advisory, GRG Finance, SIG PreCompletion filed • Signed key legal documents filed and that are signed in accordance with SIG/GRG Power of Attorney and, if applicable, witnessed • Portfolio Category recorded in accordance with Pre-completion approval • Evidence of holding i.e.Share Certificate, Register Extract, Custodian statement/confirmation A summary of each quarter’s findings will then be presented to the Global Head of Strategic Investments. 4.2 Governance / Management 4.2.1 Unquoted Portfolio 4.2.1.1 General In the majority of cases the SIG Deal RM/team will continue to manage the position post completion. Should SIG Senior Management agree that it would be more appropriate for the position to be managed by another member of the team then the Deal RM/team will ensure that the Portfolio RM is fully briefed on the position. This will include the background to the restructure, details of the Company etc. and if appropriate an introduction to the management team. It remains the responsibility of the Deal RM to ensure eVenture is fully updated with all documents/approvals attached as detailed above. 4.2.1.2 Portfolio Categorisation Portfolio categorisation is confirmed as part of the Pre-Completion process. There are four categories for unquoted cases - 2 are Active Management and 2 Passive Management. The four categories are – • • Potential Value Management Required GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 16 of 48 30 January 2012 SIG Procedures Manual • • Minimal Overview Company Secretarial The factors which determine the category are largely judgemental and will be at the discretion of the Deal RM/team, the Portfolio RM/Team (if applicable) and SIG Senior Management. They will be reviewed as part of the Investment Review process to ensure they remain appropriate. Active Management The factors below would typically indicate that case should be classified as “Potential Value” or “Management Required” and be actively managed • • • • • • • Material Potential Value forecast from the investment Material influence in the company High profile Investment Material debt write off Significant equity stake RBS has significantly changed management team Major part of Steering Committee or main bank shareholder The Portfolio RM/team would then seek to manage the investment as actively as possible within the confines of the legal documents which will outline the influence that SIG as shareholders can exert. Whilst not exhaustive, the RM should:• • • • • • • • Regularly meet with management to discuss performance; Participate in discussions over strategy with management and other shareholders / stakeholders; Meet with Non Executive Directors to obtain an independent view on the company; Critically appraise all financial and non financial information; Review value enhancing opportunities such as acquisitions, disposals; Where appropriate attend Board Meetings as an observer – this will be determined on a case by case basis; Be fully involved in discussions regarding realisation of value; Continuously review management performance Passive Management If the factors listed above are absent then the case would typically be classified as Minimal Overview. Where even less monitoring is believed to required i.e. where the SIG position is very small, SIG cannot influence strategy/outcomes and there is likely to be minimal/no value the Company Secretarial category will be used. These positions will be monitored for receipt of annual accounts and income only. 4.2.1.3 Shareholder Consents / BAU processes As part of the BAU process, shareholders may be asked for their consent to allow management to undertake certain corporate actions e.g. acquisitions, repayment of debt, issue of shares etc. Where consent is sought the Portfolio RM should consider the request and if appropriate (subject to any confidentiality positions) discuss the consent with the GRG RM to ascertain what the position of the debt holders is. In considering the request, the RM should undertake a full appraisal of the impact of the request. Decisions over consents may also require APA approval and appropriate procedure in relation to that must also be followed – refer to Section 9. Material requests /significant changes should be discussed / agreed with the original approver of the transaction (i.e. person signing off the Pre-completion paperwork) or another senior SIG member. Evidence of the discussion/approval must then be added to eVenture. Any change’s to SIG’s equity stake requires sign-offs as detailed on the Equity Checklist – Acquiring additional equity or Disposing of Equity (in full or part) – Appendix 5 or the Citizens Manual as appropriate. Where documents are being made available to the market or to other parties (apart from Articles of Association or Subscription Agreement) in which reference is made to RBS in any way or in which RBS gives any warranties or representations these must be sent to GRG Legal for comment and review before they are executed/made available externally. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 17 of 48 30 January 2012 SIG Procedures Manual Changes to SIG Equity Stake / Company Capital Structure If there is a change to the Company’s Capital Structure or the SIG Equity stake then Share Aggregation Unit need to be advised as detailed in Section 1.5.8.2 – a Capital Structure template (Appendix 14b) or Database Input Form (Appendix 14a) should be completed as appropriate, forwarded to SIG Operations and saved in eVenture. eVenture It will be at the discretion of the RM as to when to add Journals for meeting notes, correspondence etc. but Journal entries must be recorded for the following – Changes to the Capital Structure / SIG stake Consents/Approvals including APA, credit and shareholder consents 4.2.1.4 Investment Reviews The Unquoted Investment Review process is managed by SIG Operations in London who will schedule meetings of the SIG Unquoted Investment Review Committee, maintain a schedule of reviews held and due and provide the Global Head of Strategic Investments with quarterly MI highlighting the number of cases not yet reviewed for the first time and the number of overdue cases. The SIG Unquoted Review Committee consists of Global Head of Strategic Investments Head of SIG Head of Realisations, SIG SIG Team Leaders (including AsiaPac and Americas) and other senior team members as approved by the Global Head of Strategic Investments from time to time. The Committee will consist of a Chairman plus 2 other members - the Global Head of Strategic Investments, the Head of SIG and the Head of Realisations, SIG can act as Chair. The full Terms of Reference is attached as Appendix 18. It is SIG policy that all cases globally must be reviewed as a minimum once per year. The timing of the original review will be agreed as part of the Pre-Completion sign-off process and will thereafter be agreed by the committee on a case by case basis as they are reviewed. For Potential Value, Management Required and Minimal Overview cases, the review will consider Company performance and strategy, Management, Investment Strategy and Exit Strategy (including timings). The Portfolio category will also be reviewed to consider if it is still appropriate together with 5 Key Performance Indicators (see below). The majority of the portfolio will be reviewed using the Short Form Review Paper which is attached as Appendix 19a. For a small number of the larger, more complex cases, a Long Form Review Paper is required – the current list of cases together with the Template are attached as Appendix 19b. Papers are to be prepared and circulated a minimum of 24 hours prior to the Committee Meeting and must be saved into eVenture. Committee meetings will be minuted by a member of the SIG Operations team in London. The Minutes will detail key areas and issues, and Action Points as well as confirming the Key Performance Indicators and the timing of the next review. Draft minutes will be circulated to the presenting RM/team for review before they are circulated to the Chairman for approval. SIG Operations in London will maintain a file of the approved minutes and will ensure that a scanned copy is saved in to eVenture. An abbreviated review process is to be implemented for the Company Secretarial positions in due course. Key Performance Indicators Five Key Performance Indicators will be graded on a Red, Amber and Green scale for all positions, except those designated Company Secretarial. The review paper should include the previously agreed rating and, if felt applicable by the Portfolio RM, revised ratings which will be reviewed/confirmed by the Committee Chairman. A guide to this RAG status is below - GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 18 of 48 30 January 2012 SIG Procedures Manual 3 Fully aware of key issues, strategy defined 2 Aware of issues, Analysis being undertaken 1 Analysis of position required Status Headings Investment Hypothesis From an RBS Perspective Strategy Understood, market understood, buyer identities and rationale understood Rating 3 Full Analysis of above factors required 2 1 Management Team Right management team, performing strongly Management may require change Management change required 3 2 1 Financing Structure Recognition the business has an appropriate financial structure 3 Recognition that financing structure is inappropriate – potential restructure required Is the Business Diligenciable? The business is in a position where clean DD can be carried out by a third party Recognition that work needs to be done to the business before DD can be undertaken Exit Analysis Exit options fully evaluated and understood and plan in place Exit options not analysed and further work required 4.2.1.5 2 1 3 2 1 3 2 1 Income Monitoring Fees • • • • • Any entitlement to Monitoring Fees must be recorded on eVenture by the Deal RM/Team. SIG Operations will confirm the terms by checking the legal documents saved on eVenture as part of their Post Completion checks and complete a Monitoring Fee and other Income template. For UK cases this will be forwarded to SIG Finance in London who are responsible for invoicing the customer and monitoring receipt (Note – SIG Finance will always liaise with the Portfolio RM before issuing any invoice) SIG Finance will advise any non-receipt to the Portfolio RM who will chase receipt/agree action to be taken as applicable Outside the UK there are currently no positions with an Entitlement to Monitoring Fees – should these arise in future then the Portfolio RM will liaise with their local finance/operations functions to agree and implement an appropriate process. Dividends • • • Entitlement to Dividends needs to be determined by reference to the legal docs and must be recorded in eVenture by the Deal RM/Team. SIG Operations in Londonwill confirm the terms by checking the legal documents saved on eVenture as part of their Post Completion checks and complete a Monitoring Fee and other Income template. This will be forwarded to SIG Finance in London for information purposes. Contractual right – o RM to diarise for receipt of Company’s Audited Accounts o If not received, check if filed/chase Company as applicable o Once obtained accounts, if agree that dividend is due, confirm calculation of amount due, file calculation on file and advise SIG Finance (for UK cases) / local finance team (for Non-UK cases) of amount due o SIG Finance / local finance team will then confirm receipt of funds in due course GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 19 of 48 30 January 2012 SIG Procedures Manual • Declared by Board – o Typically SIG will have had to provide consent to a dividend being issued and should advise SIG Finance (for UK cases) / local finance team (for Non-UK cases) of the amount and timing as applicable o SIG Finance / local finance team will then confirm receipt of funds in due course A Journal should be added to eVenture confirming the income type i.e. dividend and the amount received together with any supporting documents for audit purposes. 4.2.2 Quoted Portfolio 4.2.2.1 General All positions in quoted companies are to be managed by the Quoted Portfolio Team which is based in London. The Deal RM should ensure eVenture is fully updated with details of the holding and the governing documentation only. When briefing the team they should also confirm where the securities are held (if not with Charles Stanley – see section 5.1.8.3 above). Note – it is key to the team’s ability to sell these positions that they are not provided with any information which is not publicly available. Any papers/e-mails etc received by the Deal RM should be saved in a restricted folder on the SIG shared drive under SIG Restricted Deals (Section 5.1.3 above refers). Once the Quoted Portfolio Team have been advised of a new listed equity stake or warrant they must add it to the SIG Portfolio in both Bloomberg and Thomson Reuters to ensure that they receive any alerts, updates and news flows going forward. It must also be added to the Public Dividends report - see income section below. 4.2.2.2 Corporate Actions As part of the BAU process, shareholders may be asked for their consent to various corporate actions or to vote at Shareholder/Annual General Meetings. All such requests should be given due consideration before being communicated to the Company. Decisions over consents may also require APA approval and appropriate procedure in relation to obtaining that approval must also be followed – refer to Section 9. Material requests / significant changes should be discussed at the weekly SIG Quoted Investment Review Committee meetings – see below. It will be at the discretion of the RM as to when to add Journals for meeting notes, correspondence etc. but Journal entries must be recorded for the following – Changes to the Capital Structure / SIG stake Consents/Approvals including APA, credit and shareholder consents 4.2.2.3 Portfolio Monitoring SIG Quoted Investment Review Committee The Committee will usually meet on a weekly basis to review the Weekly Quoted Equity Review Report. Its responsibilities are – • To review the performance of the portfolio of SIG managed quoted securities • To approve Strategy and Price Targets for individual positions • To approve disposals of Quoted Positions. The SIG Quoted Investment Review Committee consists of the Global Head of Strategic Investments and the Head of Realisations, SIG. Where meetings are Chaired by the Head of Realisations, disposals will require confirmation in line with the SIG Committee Terms of Reference (refer to Section 20) The meetings are minuted via a “Sign Off” sheet prepared by a member of the team. SIG Operations maintain a file of the approvals/sign-offs. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 20 of 48 30 January 2012 SIG Procedures Manual Weekly Quoted Equity Review Report This Report is produced by the Quoted Portfolio Team and will incorporate the following – • Portfolio Summary; • Summary of Top 20 Positions within the portfolio; • Summary of current share process relative to Target Prices; • Portfolio Analysis by Country, Currency, Index, Balance Sheet and Industry; • Commentary on Corporate /Market News, APA Matters, Disposals/New Cases; • Cases for Review with Recommendation Papers; • List of Cases for next review; • Portfolio Review Schedule; • Any other business. An example of the Report is attached as Appendix 21 Recommendation Papers All cases globally will be reviewed by the Quoted Investment Review Committee as a minimum once per year. The timing of the next review will be as agreed by the Committee although the expectation is that the larger value positions will be reviewed more frequently e.g. quarterly. A template paper is attached as Appendix 22 but would typically expect to cover Summary Investment Thesis & Catalysts, Revenue, Margins, Earning, Finance and Valuation. 4.2.2.4 Income The only income expected for these positions is dividends and a report has been established within Bloomberg to detail expected dividends and to track receipt. This report is to be reviewed on a monthly basis in conjunction with custodian statements to ensure that all income has been received as expected or non-receipt has been investigated. Where funds have been received the Quoted Portfolio team should undertake checks to ensure that any amounts received are correct. The dividend report should also be provided to the SIG Finance at the end of each quarter – it will then be distributed to the various regional finance contacts so that they have visibility on expected receipts. A Journal should be added to eVenture confirming the amount received together with any supporting documents for audit purposes. 4.2.3 Valuations 4.2.3.1 Overview This process is managed by the SIG Financial Control team who are responsible for confirming the methodology and requesting and collating responses. They will co-ordinate the production of the quarterly valuation report which will be reviewed and by the SIG Valuation Committee before recommending approval to the Global Head of GRG. They will then make the necessary accounting entries in the Bank’s ledgers for UK booked positions, and liaise with their global financial contacts with regard to other positions managed by SIG. 4.2.3.2 SIG Valuation Committee The SIG Valuation Committee will review the quarterly valuation report for the SIG portfolio (quoted and unquoted) and where necessary provide challenge to the SIG RMs. Once the report and valuations have been approved by the Committee they will recommend its approval to the Head of GRG who will provide final approval. The Committee consists of – Global Head of Strategic Investments Head of Realisations, SIG Head of Finance and Operations, SIG Iain McNeill, Equity Analyst, SIG Quoted Portfolio Team GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 21 of 48 30 January 2012 SIG Procedures Manual 4.2.3.3 Quoted Portfolio All listed securities are marked to market on the last working day of each month by the Quoted Portfolio Team. The equities are valued based on the closing market price and the warrants are valued in accordance with the guidance notes and assumptions detailed as Appendix 24a (which have been agreed with Deloittes and Finance). The valuations are incorporated within the Portfolio Schedule maintained within Bloomberg and this is downloaded and forwarded to the SIG Financial Control team for incorporation in the Valuation Report detailed above. 4.2.3.4 Unquoted Portfolio All unquoted positions are required to be valued on a quarterly basis; a comprehensive exercise is undertaken for the half year end and year end, with a less comprehensive process undertaken for Quarters 1 and 3. SIG Finance in London will collate the responses, challenge where required and incorporate these in to the Valuation Report detailed above. The latest methodology is detailed in Appendix 24b (with the valuation template saved as Appendix 24c Half Year and Year End Exercises For these exercises the Portfolio RM is required to provide SIG Finance in London with the following for each investment – • • • A completed valuation template Supporting documentation or models upon which the RM has made their assessments i.e. Financial statements/management accounts, justification of earnings multiples/discount rates used, adjustments made etc. Justification for the valuation used by reference to previous outside or comparable assets valuations (including all NIL valuations) Quarter 1 and 3 Exercises For these exercises the Portfolio RM is required to review all valuations undertaken for the previous quarter as follows – • • • • Where the investment had value the position should be reviewed to consider whether there have been any changes to this fair value greater than £100,000. If this is the case then a new template should be completed and forwarded to SIG Finance in London with the supporting documentation detailed above For Nil valuations, a review should be performed to ensure that no new information has come to light during the quarter which would result in a valuation greater than £100,000. If this is the case then a new template should be completed and forwarded to SIG Finance in London with the supporting documentation detailed above. A full valuation should be completed for all new investments completed during the quarter Confirm by e-mail to SIG Finance in London that a review has been taken for all other positions and that the previous valuation is still appropriate Final Valuation Templates should be saved as a Valuation Journal in eVenture by the SIG RM together with supporting documentation (SIG Operations in London will undertake this for members of the team who do not have access to eVenture). 4.2.4 New Money Requests As shareholders in companies, SIG will on occasion be required to deal with new money requests for a number of potential purposes e.g. exit of an unco-operative shareholder, acquisition, growth, capex, liquidity etc. There are a number of general guidelines which SIG RM’s should follow when we are required to deal with a request for new money. Initially the RM should undertake an appraisal of the request, reviewing appropriate documentation and discussing the request with management, advisors and any other key stakeholders such as other syndicate lenders where appropriate. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 22 of 48 30 January 2012 SIG Procedures Manual If the SIG RM decides to proceed with the new money request then they should look to instruct the appropriate and relevant due diligence which may be, inter alia, legal, market, financial and management. This may be done through a combination of internal analysis and/or use of external providers. Where external providers are being used, SIG must ensure that appropriate instruction letters are agreed containing scope and fee and liability for loss by the Bank of the diligence provider and ensuring the bank is not exposed to any potential litigation as a result of the exercise being undertaken, Any issues must be run through GRG Legal. Once all diligence has been received it must be reviewed either by the deal RM or by an independent RM where appropriate. Any further issues or questions must be discussed with the diligence provider and where necessary the report provided should be amended to reflect any further work undertaken. On receipt of the diligence the SIG RM must prepare their Investment Recommendation Request incorporating a summary of the business, the rationale for the request, a view on management and market, the findings of due diligence, financial analysis of the proposition, potential returns and risks inherent in the proposal. The recommendation paper and any other relevant documentation must then be presented to the Global Head of Strategic Investments for approval; if the amount of new money exceeds their authority then it will be referred to the relevant approving authority for approval. Any APS issues and consents will also require to be reviewed and addressed by the SIG RM – see Section 9. Other approvals e.g. tax, accounting should be obtained in line with the SIG Equity Checklist/Manual for the relevant region which are saved as Appendix 5. The SIG RM should then follow the Pre-Completion process for a New Deal as detailed in Section 4.1 4.2.5 Insolvency Processes – Liquidation/Receivership If an RM is made aware that an investee company has either gone into liquidation or a Receiver has been appointed then they should advise SIG Operations in London and update eVenture as follows – Status to be amended from Active to Dead – top right hand of the Investment screen Date Dead to be inputted – this is the date that the status was changed Stage 1 at the foot of the Investment Screen to be completed with the date the Company entered liquidation / Receiver was appointed. Details of what has occurred to be added to the “Realisation Route” text box. Note – • all details of the equity stake should continue to be included within eVenture as the shareholding must continue to be reported in line with RBS Group Policy until the company has been wound-up/struck off at Companies House. • Companies trading within a CVA should continue to be treated as “Live” investments. 4.3 Disposal 4.3.1 Unquoted Portfolio 4.3.1.1 Realisation in Principle A Realisation in Principle paper should be prepared to outline a proposed realisation; this could be in response to an approach from a prospective purchaser or where the SIG RM believes that it is an appropriate time for SIG to seek an exit. The Realisation in Principle template is attached as Appendix xx and once completed should be circulated to the Global Head of Strategic Investments, Head of SIG and Head of Realisations for their review and approval. It should cover the following (as appropriate) – Rationale for realisation Indicative Price Description of proposed acquirer (if known) Elements of any proposed roll over Capital Assessment / RWA impact GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 23 of 48 30 January 2012 SIG Procedures Manual Summary of other options Advisers and potential fees If the Realisation in Principle paper is declined then this should be attached as a Journal against the Investment Record in eVenture. If it is approved then this needs to be added to the SIG Work in Progress reports – see below. If approved the SIG RM then has a mandate to continue their assessment of the position and to engage with advisers and/or prospective purchasers to progress to an acceptable position. 4.3.1.2 Work-in-Progress If the Realisation in Principle has been approved then the Exit should be logged in to eVenture within the Deal Log system, selecting Stage 4 Exit and the approved Realisation in Principle paper attached as a Journal. The exit should also be logged in to the manual spreadsheet that is also currently being maintained by SIG Operations and which is circulated as part of the Weekly WIP Update e-mail. SIG Operations will raise an Operations Realisation Checklist (Unquoted Equity) to ensure that all appropriate approvals and notifications are received / made. A template checklist is attached as Appendix 27a. 4.3.1.3 Final Realisation Paper Once the RM feels that an acceptable offer/position has been reached than a Final Realisation Paper should be prepared covering the following areas • • • • • • • • Background – original investment / restructuring summary Review of performance Current Business Strategy Proposed Deal Valuation and returns Key Issues Warranties Conclusion and recommendation Once prepared this should be circulated to one of Global Head of Strategic Investments, Head of SIG or Head of Realisations for their review/approval. A Template is attached as Appendix 26. The SIG RM must save the approved paper in eVenture. 4.3.1.4 Approvals Credit / APS Exits require the approval of the SIG Committee, in line with the Terms of Reference – Section 8 refers. Initially the Final Realisation Paper must be approved internally within SIG as detailed above; if the transaction is outside the delegated authority of the approver then it will be circulated to the appropriate level of the SIG Committee for approval. If applicable, APA approval will also need to be obtained prior to completion of the disposal – Section 9 refers. Compliance Both compliance checks must be undertaken and clearance obtained before a realisation can be completed. Conflict Check SIG Operations in London are required to submit a Conflict Check form to the GBM Control Room to obtain clearance for the transaction to proceed. The SIG RM should complete the Conflict Check Request Template which is attached as Appendix 28a and saved on the SIG Shared Drive under SIG/SIG Forms and Procedures and forward it to the GRG SIG Operations mailbox. SIG Operations in London will confirm when clearance has been obtained and will ensure that the approval is saved in eVenture. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 24 of 48 30 January 2012 SIG Procedures Manual KYC Checks The KYC clearance process involves checks against the specific legal entity/individuals that SIG are selling the stake to so cannot be undertaken until this has been confirmed. The SIG RM should complete the SIG Asset Sale Notification – KYC form which is attached as Appendix 28b and saved on the SIG Shared Drive under SIG/SIG Forms and Procedures. This should then be e-mailed to the GRG KYC team (email GRG KYC and SIG Operations in London (email GRG SIG Operations). Both the completed form and the subsequent clearance should be saved in to eVenture by the SIG RM. Other Other Approvals are required as detailed in the SIG Equity Checklists for each region (Manual for Citizens) which are saved as Appendix 5 but in general will be as follows – GRG Legal Transactions must be referred to GRG Legal where documents are being made available to the market or to other parties in which reference is made to RBS in any way or in which RBS gives any warranties or representations. The earliest possible draft documents should be provided for their comment and review. This is for all jurisdictions. Competition Transactions must be referred to the Group Legal, Regulatory and Competition Team where the disposal is of 20% or more of the shares in the Company (including our interest and those of other entities) or we are exiting a Joint Venture entirely. This is for all jurisdictions. SIG Finance (London) SIG Finance must be advised of all disposals. They will then liaise with the relevant Accounting, Regulatory, and Tax teams to obtain the necessary approvals. All approvals should be saved in to eVenture. SIG Pre-Completion Approvals Once approval has been obtained from all other internal teams, an Unquoted Realisation Pre-Completion Memo and Unquoted Realisation Pre-Completion Checklist need to be completed and forwarded to either the Global Head of Strategic Investments, the Head of SIG or the Head of Realisations, SIG for approval – this must be obtained before a transaction can complete. These should be provided either in Hard or Soft Copy, accompanied by evidence of the various approvals, a fund flow, details of any deferred consideration/escrow amounts and confirmation of any Non-Embarrassment Agreement. The approved Memo and Checklist should then be saved in eVenture. The Pre-Completion Memo is attached as Appendix 29 and the Pre-Completion Checklists (which are Region specific) as Appendix 30. 4.3.1.5 Sales to Management/Other Shareholders The prospective purchaser may be current management or other shareholders. In these cases the following SIG policy must be adhered to • A Non-Embarrassment Agreement (“NEA”) is to be obtained. This is an agreement whereby the Purchaser agrees to pass on a specified share of any sales proceeds in excess of the price paid in the event of a subsequent sale within a specified time period. SIG would aim for a period of three years, although two is more typical. • SIG’s legal costs are to be covered by the Purchaser. If a NEA is obtained then details should be recorded in eVenture and a copy of the Agreement attached as a Journal. SIG Operations will maintain a central record of all NEAs to ensure that they are monitored. 4.3.1.6 Documentation SIG will engage their own lawyers who must be from the Bank’s panel. The sale documentation will typically be prepared by the Purchaser’s lawyers, with SIG’s advisors preparing any NEA that has been agreed. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 25 of 48 30 January 2012 SIG Procedures Manual SIG will not give warranties other than to title. If SIG is unable to locate a share certificate for completion and this is required, then the SIG RM can provide and Indemnity for a Lost, Mislaid, or Destroyed Certificate in a format agreed by GRG Legal / local Group/GBM legal representatives. A template which has been agreed by GRG Legal in the UK is attached as Appendix 31 – this should be used in all cases in the UK (unless otherwise agreed with GRG Legal in London) and be provided to local legal teams to be amended as appropriate for other regions/jurisdictions. 4.3.2 Quoted Portfolio Quoted realisations will not be added to WIP as this could be deemed to be UPSI. SIG Operations be advised of an exit via the Weekly Quoted Review Report and will raise an Operations Realisation Checklist (Quoted Equity) to ensure that all appropriate approvals and notifications are received / made. A template checklist is attached as Appendix 27b. 4.3.2.1 Exit Recommendation The Quoted Portfolio Team will prepare a recommendation paper (in the same format as detailed in Section 4.2.2.3 and attached as Appendix 22 either upon receipt of an acceptable offer for the quoted position or when they believe that it is an appropriate time to sell. This paper will be reviewed and approved/declined by the SIG Quoted Investment Review Committee. If the transaction is outside the delegated authority of the approver (per the SIG Committee Terms of Reference) then it will be circulated to the appropriate level of for approval. 4.3.2.2 Approvals Credit / APS Exits require the approval of the SIG Committee, in line with the Terms of Reference – Section 8 refers. Initially the Recommendation Paper must be approved by the SIG Quoted Investment Review Committee as detailed above but if the transaction is outside the delegated authority of the approver then it will be circulated to the appropriate level of the SIG Committee for approval. If applicable, APA approval will also need to be obtained prior to completion of the disposal – Section 9 refers. Compliance Both compliance checks must be undertaken and clearance obtained before a realisation can be completed. Conflict Check SIG Operations in London are required to submit a Conflict Check form to the GBM Control Room to obtain clearance for the transaction to proceed. The SIG RM should complete the Conflict Check Request Template which is attached as Appendix 28a and saved on the SIG Shared Drive under SIG/SIG Forms and Procedures and forward it to the GRG SIG Operations mailbox. SIG Operations in London will confirm when clearance has been obtained and will ensure that the approval is saved in eVenture. KYC Checks The KYC clearance process involves checks against the specific legal entity/individuals that SIG are selling the stake to so cannot be undertaken until this has been confirmed. The SIG RM should complete the SIG Asset Sale Notification – KYC form which is attached as Appendix 28b and saved on the SIG Shared Drive under SIG/SIG Forms and Procedures. This should then be e-mailed to the GRG KYC team (email GRG KYC and SIG Operations in London (email GRG SIG Operations). Both the completed form and the subsequent clearance should be saved in to eVenture by the SIG RM. GRG Legal All disposals of listed securities should be notified to GRG Legal. SIG Finance (London) SIG Finance in London must be advised of all disposals. They will then liaise with the relevant Accounting, Regulatory, and Tax teams to obtain the necessary approvals. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 26 of 48 30 January 2012 SIG Procedures Manual All approvals should be saved in to eVenture. 4.3.2.3 Documentation/Execution Once the appropriate approvals have been obtained, the Quoted Portfolio Team will instruct the relevant broker/custodian to sell. SIG’s Global custodian/broker is Charles Stanley, who will be used for the majority of transactions, although Execution Only accounts are also maintained with Northland Partners. SIG Americas and Citizens maintain local arrangements. Reference should be made to the SIG Custodian Process attached as Appendix 32 dependent on the broker/custodian being instructed 4.3.3 RBEF Cases Where the exit relates to a RBEF case (whether quoted or unquoted) then approval must also be obtained from a member of the RBEF team. SIG Operations will liaise with RBEF and forward them a copy of the Realisation Paper and SIG approval. No exit/disposal of an RBEF position can complete until this approval has been obtained. 4.3.4 Post Completion Administration 4.3.4.1 eVenture Once the documentation has been executed and the transaction completed the SIG Deal RM is responsible for updating eVenture as follows – • • • Key Deal Log entry for exit (Unquoted positions only) as Completed Amend Investment entry Status to Exited, input Exited date and complete the Disposal section of the Investment background screen Attach disposal approvals and disposal legal documents as Journals 4.3.4.2 Operations Post Completion Checklist The SIG RM should also advise SIG Operations in London that the transaction has completed, including details of any deferred consideration/escrow and if a Non-Embarrassment Agreement has been obtained. SIG Operations will complete the Post Completion Actions on their Realisations Checklist (Quoted or Unquoted) which will incorporate the following – • advising Share Aggregation Reporting Unit via e-mail that the position has been exited and can be removed from the Group Hierarchy. • Updating the GBM Control Room that the sale has completed 4.3.4.3 Cash Receipts In addition to any local notifications required outside the UK, the SIG RM must advise SIG Finance in London of sums to be received, forwarding them a copy of the Funds flow if available, so that receipts can be correctly accounted for. Funds should normally be credited to the Bank Account of the investment holding company; in exceptional circumstances only the SIG sterling suspense account may be used. Standard Settlement Instructions for the accounts maintained by SIG Finance in the UK are attached as Appendix 33 – these are for RBS plc, West Register (Investments) Limited and West Register Number 2 Limited. Non-UK based teams should liaise with SIG Finance in London and their local finance contacts to obtain correct settlement details. Where funds have been credited to an income account with a broker/custodian then SIG Operations will liaise with SIG Finance as to when this should be transferred to the Group. 4.3.4.4 Sale Proceeds received as Shares/other securities There may be occasions where the proceeds of the exit/disposal are settled in shares / other securities issued by either the purchaser or another Company. When this occurs the SIG RM will need to follow the Post Completion Administration processes as detailed in Section 4.1.8 as this effectively becomes a new investment. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 27 of 48 30 January 2012 SIG Procedures Manual 4.3.4.5 Deferred Consideration/Escrow Documents that confirm the amounts/detail the terms of any Deferred Consideration/Escrow must be saved in eVenture and details provided to both SIG Operations and SIG Finance in London. SIG Operations will maintain a central listing of amounts due which will be reviewed on a regular basis to ensure that sums are received / non-receipt investigated with the RM. 4.3.4.6 Non-Embarrassment Agreement (“NEA”) The SIG RM must advise SIG Operations in London if a NEA has been negotiated and attach a copy of the agreement to eVenture. SIG Operations (London) will add the details to a central listing which will be monitored on a regular basis to ensure that the conditions are met and the listing updated as agreements expire. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 28 of 48 30 January 2012 SIG Procedures Manual 5 Property Participation Fee Agreements 5.1 Completion 5.1.1 SIG Approval Where the GRG RM is considering taking a PPFA as part of a restructuring they must engage with a SIG RM who will assist and advise on the appropriateness of what is proposed – it is the responsibility of the GRG RM to obtain credit (and if applicable APS) approval for the upside. The SIG RM must then approve the terms and the pricing of the PPFA after the receipt of the following documents from the GRG RM: • • • The credit application or the SCR paper. A memorandum or email from the RM outlining the terms of the PPFA they are proposing to take. The IRR model (attached as Appendix 2). SIG should ensure that the assumptions made in the model are robust. It is appreciated that Non Embarrassment Agreements will not benefit from the IRR model and can be omitted from the process in these cases. A copy of the approval, together with these supporting documents should then be retained on file by the SIG RM for audit purposes. 5.1.2 PPFA Documents. 5.1.2.1 England and Wales A new suite of PPFA documents were introduced early in 2011 and are saved on the GRG Secure Intranet Site accessed via the SIG section under GRG Organisation Documents are grouped under the PPFA Documents heading by the type of legal entity that will grant the PPFA – individual, unincorporated partnership, limited liability partnership (LLP) or company. The GRG and SIG RMs should confirm the correct entity type and then use the documents in the relevant section as follows • • • • • • The options letter. The “West Register” letter. This is a letter of introduction to “West Register” and must be signed by a member of the SIG Team. The PPFA. The Legal Charge. A letter signed by the legal entity granting the PPFA confirming they have taken Independent Legal Advice (ILA). Note – if a customer chooses not to take ILA they must sign a waiver letter (copies of which can also be found on this site). Waiver Letter which must be obtained where the person executing the PPFA does not accept Independent Legal Advice (ILA) Additional documents are required where there is a third party guarantee for the obligations of the person granting the PPFA. These are • • • A Deed of Priority. A confirmation letter from each guarantor. An ILA-guarantor letter from each guarantor. Notes are attached to each document to provide further guidance. 5.1.2.2 Scotland SIG in Scotland has a separate suite of documents governed by Scottish law and these are maintained on the local GRG/SIG drive in Edinburgh. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 29 of 48 30 January 2012 SIG Procedures Manual 5.1.2.3 Ulster Bank Ulster Bank hold their own suite of documents covering both the Republic of Ireland and Northern Ireland. These are maintained on the local GRG/SIG drive in Dublin. 5.1.2.4 AsiaPacific Documents will vary by jurisdiction/country and SIG will liaise with external lawyers as required in respect of documentation. 5.1.2.5 Citizens Reference should be made to the latest version of the Citizens SIG Policy & Procedures Manual. Note: SIG Americas do not take PPFAs 5.1.3 Completion of documentation 5.1.3.1 England and Wales In England and Wales, unless SIG notify otherwise, the PPFA will be taken in name of West Register Number 2 Limited (“WRN2L”) unless it was negotiated prior to 1 October 2010 when it will be in the name of West Register (Investments) Limited (“WRIL”). It is the responsibility of the GRG RM to prepare the PPFA documents as detailed above, although there may be instances where external lawyers will be engaged. In all cases the SIG RM & Group Legal must approve any changes proposed to the GRG prepared documents. The drafted documents will be sent to the solicitors acting on behalf of the Customer. Where the Customer has chosen not to take ILA the person granting the PPFA must sign a waiver letter. The documentation must only be executed by an authorised SIG signatory as follows – • • PPFA taken in the name of the lending bank – documents are signed under the relevant divisional Power of Attorney which are saved on the GRG Intranet site PPFA Taken in the name of WRN2L – the current Power of Attorney is attached as Appendix 13b Once executed by all parties, if required, the documents will be forwarded to Companies House and/or the Land Registry for registration. 5.1.3.2 Scotland In Scotland the PPFA will be taken in name of the lending Bank in most cases this will be RBS or NatWest. In conjunction with SIG the GRG RM will be responsible for obtaining a quote and then instructing an external lawyer to prepare the formal PPFA documents in all cases (based on the standard documents that have been agreed internally). The drafted documents will be sent to the solicitors acting on behalf of the Customer. Where the Customer has chosen not to take ILA the person granting the PPFA must sign a waiver letter. The documentation must only be executed by an authorised SIG signatory under the relevant divisional Power of Attorney which are saved on the GRG Intranet site 5.1.3.3 Ulster Bank In Ulster Bank, unless SIG notify otherwise, the PPFA will be taken in name of West Register (Republic of Ireland) Limited (“WRROIL”) or West Register (Northern Ireland) Limited (“WRNIL”), depending on where the customer is based. As in Scotland, in conjunction with SIG the GRG RM will be responsible for obtaining a quote and then instructing an external lawyer to prepare the formal PPFA documents in all cases (based on the standard documents that have been agreed internally). The drafted documents will be sent to the solicitors acting on behalf of the Customer. Where the Customer has chosen not to take ILA the person granting the PPFA must sign a waiver letter. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 30 of 48 30 January 2012 SIG Procedures Manual The documentation must only be executed by an authorised SIG signatory for the appropriate West Register company 5.1.3.4 AsiaPacific The PPFA will be taken in name of the lending Bank in most cases. In conjunction with SIG the GRG RM will be responsible for obtaining a quote and then instructing an external lawyer to prepare the formal PPFA documents in all cases. The drafted documents will be sent to the solicitors acting on behalf of the Customer. Where the Customer has chosen not to take ILA the person granting the PPFA must sign a waiver letter. The documentation must only be executed by an authorised SIG signatory under the relevant divisional Power of Attorney which are saved on the GRG Intranet site 5.1.3.5 Citizens Reference should be made to the latest version of the Citizens SIF Policy & Procedures Manual. 5.1.3.6 Security Where the PPFA is being taken in name of the lending Bank, you should ensure the security held by the lending bank is an “all sums due and to become due” security and ensuring that the PPFA falls within the ambit of the security. 5.1.4 Recording PPFA documents. All PPFAs taken in the UK & Ulster are recorded in a SIG PPFA Database saved on the SIG shared drive in London; AsiaPacific and Citizens maintain their own portfolio listings. Once documents have been executed by all parties (or confirmation has been received that the documents have been recorded externally with Companies House/Land Registry), the GRG RM will record the deal on RMP/Prism and send the documents to their Regional Operations/SIG team. 5.1.4.1 UK & Ulster Completed documentation, including a completed PPFA Information Sheet should be sent to the following teams for input to the SIG PPFA Database – London, Birmingham, Bristol, Cambridge, Leeds, Manchester – Operations, London Edinburgh – Operations, Edinburgh Ulster – Deputy COO GRG, Dublin The appropriate team will record the details on the PPFA database and add the allocated PPFA number to the appropriate record(s) to RMP/PRisM. Operations in Edinburgh and Dublin will retain and file their documents; Operations in London will forward the documentation to SIG for checking/filing. 5.1.4.2 AsiaPacific Executed documentation will be sent by the GRG to SIG who will update the AsiaPac SIG PPFA Inventory and then forward them to the Regional Finance team. 5.1.4.3 Citizens Executed documentation will be sent by the GRG RM to SIG who will update their Portfolio listing and file the documentation in accordance with their P & P Manual. 5.2 Governance GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 31 of 48 30 January 2012 SIG Procedures Manual 5.2.1 Monitoring of PPFAs Day to day management of the PPFA will remain with the GRG RM whilst the connection remains in GRG, although SIG will monitor the various PPFA databases in respect of termination dates. When a connection is returned to the front line the GRG RM must inform their local SIG contact and Operations Team, and ensure that the PPFA is advised to the front line RM as part of the handover process. SIG will then manage all aspects of the PPFA with the customer from the date the connection returns to the front line. 5.2.2 Amendment of Terms post-completion Prior SIG approval is required for all amendments, extensions, rollovers, partial releases, full releases or actual fee payments under a PPFA. If any amendment to security is required such as a Deed of Easement, Consent to Lease and other similar requests these should also be approved by a member of SIG. In these situations (if applicable) SIG are responsible for seeking APA approval for the amendment to the Non Cash Realisation element – Section 9 refers; the responsibility for seeking APA approval for the debt element remains with the GRG RM. 5.3 Disposal / Release 5.3.1 Disposal Before Termination “Early Termination” 5.3.1.1 Early Termination Resulting From Insolvency In the event of Insolvency the PPFA will only be payable when the debt has been repaid in full. SIG should ensure that the insolvency practitioner managing the insolvency is aware of the liability due in respect of the PPFA and submit the appropriate claim form (see local Recoveries team for guidance). Where the PPFA is held by a vehicle other than the lending bank i.e. WRN2L the insolvency practitioner may require SIG to confirm that the senior debt is to be repaid in advance of the WRN2L liability. In such circumstances care should be taken to ensure that the maximum aggregate recovery is made utilising all sources of security. If the PPFA is held by a West Register company and they have a charge over the property Recoveries will need to confirm to SIG that the charged property has been sold for market value. If a property has been marketed during an insolvency this will normally be self evident. Care should be taken if a property has been disposed of after a limited period of marketing, in such circumstances SIG should consider whether the disposal value represented the true market value. The processes for the release of the charge (if applicable), accounting for the fee and updating the PPFA database are detailed below. 5.3.1.2 Early Termination Resulting From Sale/ Change of Control of Property In the event that a customer wishes to sell or change control of a property that is subject to a PPFA SIG will need to ensure that the customer understands that the PPFA will be calculated utilising the Market Value of the property at the date of sale/ change of control. The processes for agreeing Market Value, release of the charge (if applicable), accounting for the fee and updating the PPFA database are detailed below. 5.3.1.3 Early Termination Resulting From a Negotiated Exit If approached by the customer to negotiate an exit outside of the contractual terms contained within the PPFA, SIG must seek to understand why the customer wants to terminate the PPFA early and judge the plausibility of the explanation offered. Either PAU, a local property team (if outside the UK) or an external valuer should be engaged to assess the property, particularly the likelihood that the value of the business could change materially before the termination date. This is likely to be the result of change of use in respect of the property or changes that may occur in the area of the property impacting upon prices locally. The processes for agreeing Market Value, release of the charge (if applicable), accounting for the fee and updating the PPFA database are detailed below. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 32 of 48 30 January 2012 SIG Procedures Manual 5.3.2 Contractual Early Termination In the UK most PPFA agreements with a Termination date more than three years alter the date ol execution grant the customer the right to terminate the contract upon delined Early Termination Dates; this is less common elsewhere. In most cases Early Termination Dates Will be granted every three years between completion and Termination. For UK and Ulster cases SIG London monitor termination dates via the PPFA database and will advise local SIG RMs that an Early Termination Date is approaching. Ila customer approaches the GRG or SIG RM to terminate then the process Ior agreeing Market Value. release ol the charge (it applicable). accounting tor the lee and updating the PPFA database should be Iollowed as detailed below. 5.3.3 Termination on Termination Date In the UK St Ulster it Is standard lor to remind customers ol the Fee that is payable as the Termination date is approaching; letters will be sent twelve months and then three months belore the Termination Date. The three month letter will also notin them ol the need to agree a Valuation so that the lee can be calculated. The SIG teams in AsiaPacilic and Citizens Will maintain their own monitoring systems and will engage with the GRG RM (il applicable) and customer as the Termination Date nears. II the customer resides in GRG then negotiations regarding the payment ol the PPFA Will usually be conducted by the GRG RM (who has a better understanding oi the circumstances ol the customer) with oversight Irom the local SIG RM. Where customers no longer reside in GRG the local SIG RM Will conduct negotiations. Where it is established that the customer does not have the available Iacilities to pay the Fee the term ol the agreement may be extended. In such circumstances the existing PPFA may be amended il the existing agreement is on the current pro Iorma. II the Iormat ol the Agreement does not match the current pro Iorma then the Agreement should be documented as a new Agreement. Any concessions made to the customer (departing Irom the terms ol the PPFA) as part oi the negotiation must be sanctioned by a senior member at the SIG team. 5.3.4 Agreeing Market Value Either PAU or a local propeny team (ii outside the UK) should review the proposed sale pricel assumed value, noting the terms ol the PPFA (panicularly the relerences to the inclusion oi Goodwill. the potential alternative use and the granting ol planning permission). II they believe that the sale price/ assumed value is materially below the Market Value (as delined within the Agreementl the customer should be inlormed and oIIered the option ol paying the lee based upon the PAU or equivalent view ol Market Value or instructing a panel surveyor acceptable to GRG to conlirm the Market Value ol the property. The surveyors lee will be payable in equal shares between the bank and the customer as detailed in the Agreement. 5.3.5 Accounting for the Fee In the UK Fees paid by customers should be applied to the Iollowing income accoun At this time a copy oi the PPFA agreement and workings to support the calculation ol the Fee ("Supporting Inlormation") should be emailed to SIG (authorised signatory, local SIG RM and SIG London) who Will ensure SIG Finance are provided With copies to support the income received. based SIG teams should engage with their local Iinance teams to obtain/agree appropriate settlement instructions. GRG: The at "us dummem ls Author: Kate Wyeth Page 33 0! 43 so January 2012 SIG Procedures Manual 5.3.6 Releasing the Charge (where applicable) Where PPFAs have been taken in the name of a West Register vehicle (UK & Ulster) SIG authorised signatories under a PoA orOfficers of the Company will have the authority to execute the required documents to release/ vary the charge. The charge should not be released until the Fee has been taken and Supporting Information has been received as detailed in 6.3.5 above. 5.3.7 Updating the PPFA Database SIG London will update the PPFA database to record the details of fees paid and charges released. SIG in AsiaPacific and Citizens will update their respective inventories/PPFA listings. 5.3.8 Multiple Properties on One PPFA Where multiple properties are recorded on one PPFA and Fees cannot be paid as they fall due, a statement of fees owed must be compiled by the GRG RM and provided as part of the Supporting Information prior to the release of the charge. On the release of each charge this statement should be sent to the customer with a copy going to the local SIG RM. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 34 of 48 30 January 2012 SIG Procedures Manual 6 Other Upsides 6.1 Management of Bonds/Recovery Notes In September 2010 SIG were requested by GRG Senior management to manage bonds and recovery notes that were being received as pan ol a restructure. As these were new products Ior SIG a NPAP was completed and approved. The Bonds are standard corporate bonds otten with a coupon and a maturity date: Recovery notes are instruments which have a notional value and amonise as the borrower (the issuer 01 the recovery notes) collects monies which are then used to "pay down" the recovery notes. These instruments are typically received by SIG Iollowmg a restructure ol a multi banked entity and they may or may not be listed. Given the nature ol the instruments received and the process involved in the restructuring. it is unlikely that SIG will have had material involvement prior to receipt 01 the instruments. The individual nature 01 these instruments are such that a generic policy and procedure may not be applicable and therelore this will require regular review it and when diflerent instruments are received into the ponlolio. This policy is based on the receipt ol BTA (now exited) and Straumur instruments which are recovery notes. 6.1.1 Information on the Instruments The SIG RM should establish the nature ol the instruments through discussions with the GRG RM. Specilically they should look to obtain the credit paper. provision papers. legal documents and any restructuring documents. The GRG RM should also be able to provide SIG with the statement showing which instruments are due to the bank. otten the inlormation is held on a secure website which should be accessed with a secure password and holds all relevant inlormation. Hard copies ol all key documents should be retained. The inlormation on the instruments should be input into eVenture by the SIG RM with all key documents attached as with Equity positions. 6.1.2 Holding the Instruments The instruments received have been delivered into a Eurociear account by the issuer. Accounts have been set up by the broker Charles Stanley in the name 01 R35 plc. RBS N.v. West Register (Investments) and West Register (Trading) Limited to receive the instruments depending on which vehicle they are issued to. The SIG RM should liaise with an authorised Charles Stanley signatory within SIG to ensure the appropriate account is used and to get approval to use the account see Custodian Processes (Appendix 32). can then provide up to date statements ol our positions on request. 6.1.3 Managing the Instruments As a holder 01 recovery notes. we are entitled to receive regular inlormation. usually Irom a third party accountant. as to the status ol recoveries made and distributed to the holders. GRG as pan ol their credit process will have calculated an expected recovery rate on these positions and through these repons we should be able to see the status ol recoveries. As an instrument holder in recovery notes there is usually no inlluence we can exert on the company. its strategy etc. particularly it the company in question is in run 0" (ie there to collect proceeds only and not continue trading). The strategy is therelore to hold to maturity unless a decision to sell the instruments in the secondary market is made. Therelore. the SIG RM should ary ol proceeds received and reconcile with those actually received into the account on a quarterly basis. This income inlormation should then be provided to SIG Finance. One ol the key questions will be whether the potential receipts under the instruments will match the initial recovery projection (which in turn will have inlluenced the level ol provision made against the instruments). This needs to be undertaken through a review ol the Iinancial inlormation provided and an assessment (using appropriate models e.g. DCF) to calculate the potential recovery. GRG: SIG The Imormatmn Ciasslilcatmn L71 Ihls document ls INTERNAL Author: Kate Wyeth Page 35 0148 30 January 2012 SIG Procedures Manual 6.1.4 Valuing the Instruments SIG Finance guideline is that the instruments are valued as ‘Fair Value Through P&L’. To date, this has been undertaken through obtaining pricing in the secondary markets. This is achieved by contacting Charles Stanley and asking them to source pricing or if the SIG or GRG RM have contacts to utilise them where appropriate. If necessary valuations may be required on a DCF basis if sufficient information is available and SIG RMs should be aware of this requirement. 6.1.5 Reviewing the Instruments The instruments received should be reviewed as part of the SIG Investment Review process as detailed in Section 4.2.1.4. The review should focus on the ability to be repaid or selling the instrument above the expected amount at time of restructure. 6.1.6 Disposal of Instruments If a decision to sell the instrument is undertaken then this requires approval of the relevant approving authority and the process is as outlined in Section 4.3 Disposal. 6.1.7 Other If the bonds convert into quoted instruments, then policies relating to quoted instruments will apply. References to Charles Stanley can equally apply to any other broker used by the Bank where SIG has oversight and control. 6.2 Non Standard Fee Agreements/Other Upsides Examples of these types of Agreements are as follows – • • • • Exit fee where the sum received is a percentage of the value of the Company on exit; Fee linked to the value of property on disposal (but not a standard PPFA as detailed in section 6) Participation Agreement – entitlement to a set percentage of any upside post repayment of debt, shareholder loans etc. Profit Participating Loans (“PPLs”) – typically repayment is a percentage of any cash generated on exit post debt repayment All of these upside agreements should be recorded on eVEnture by the SIG RM (SIG Operations in London for those of the team without access). SIG Operations London will liaise with SIG senior management to determine whether or not it is appropriate for them to be reviewed in line with the Equity Investment Review Process. SIG Finance will advise any periodic valuation requirements post completion as this is expected to be assessed on a case by case basis. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 36 of 48 30 January 2012 SIG Procedures Manual 7 SIG Mezzanine Loans 7.1 Overview SIG has historically had a hybrid mezzanine/equity product in the UK which helps bridge a funding gap in buy-out/development capital transactions requiring investment of between £1million and £3million. This product offering is currently not available for new positions although the SIG team continue to manage a small number of historic positions. 7.2 Governance/Management The SIG RM would normally attend at monthly/quarterly board meetings as an Observer (board positions would only be taken by the SIG RM in exceptional circumstances) and review of monthly/quarterly management information. The positions will be categorised and reviewed as for the Unquoted Equity Portfolio positions as detailed in Section 5.2.1. The Investment Reviews will incorporate the annual credit review for these cases where loans have not been repaid. The SIG RM is also responsible for – • • • Checking the loan payment / bullet payments are accurate – SIG Operations will assist as they have access to RMP for this purpose Confirming that the limits are current Diarising for receipt of Annual Accounts and any dividends due. 7.3 Exit Please refer to Section 4.3 of this manual GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 37 of 48 30 January 2012 SIG Procedures Manual 8 SIG Committee 8.1 Terms of Reference The SIG Committee has responsibility for the oversight of the portfolio of equity related and other upside instruments acquired by the Group through debt restructuring and for any other portfolio of assets managed by the SIG team in GRG. The full Terms of Reference are saved as Appendix 34 but the committee’s authority is derived from the GRG Executive Committee and it will consider and sanction various matters, including, but not limited to • • • • Acquisitions Disposals Valuations Strategy and risk profile of the portfolio The Principals Committee consists of – Head of GRG (Chair) Head of Restructuring & Risk Head of Non-Core Head of GRG, UK Global Head of Strategic Investments Head of SIG Head of GRG Finance Note – quorum is three members of the Committee 8.2 Quarterly Meetings The Committee meets on a quarterly basis to review the portfolio managed by SIG, focusing on the following areas – • • • Financial performance of the portfolio in terms of income generated etc Valuation of the investments The strategy and risk profile of the portfolio Meetings will be scheduled by SIG in conjunction with the Head of GRG’s office and minuted by the Head of Business Management in COO. The Report, agenda and previous minutes will be forwarded to the Head of GRGs PA a minimum of two business days prior to the meeting being held for circulation to the Committee. 8.3 Ad hoc Approval Requests Where it is not possible to table approvals i.e. for disposals at one of the quarterly meetings then the Exit paper should be prepared and sent to the Global Head of Strategic Investments who will then circulate as required under the delegated authority detailed in the Terms of Reference. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 38 of 48 30 January 2012 SIG Procedures Manual 9 Asset Protection Scheme 9.1 Introduction FoHowlng the implementation ol the APS Threshold Agreement on 1 August 2011. now lollow the agreed engagement model lor positions on the Eocussed Asset List (EAL) which is made up ol connections managed by GRG or N0rl>>Core where aggregate scheme cover lor the connection is in excess ol and additional cases/noncash realisations selected at the discretion ol the APA. Full details ol the engagement model can be lound on the APS page on the intranet but the key elements are outlined on the Guidance Note lor GRG Stan which is attached as Appendix 35. in summary this means 7 - Only FAL connections remain within exiting APS scheme rules and processes lor approvals. together With their Related Party Assets i.e. managed Equity/other upsides. . All GRG managed APS connections excluded lrom the EAL Will be treated as "blind" lor APS Asset Management Framework purposes . All Weblorm approvals lor FAL connections must be submitted to the central APS Risk and Compliance Team . The APS will assign an agreed engagement RAG Status (Red. Amber or Green] to each EAL connection which dictates the level and lrequency ol engagement. These are recorded in eVenture by Operations in London when they are advised ol any updates to the Listing/Status. 9.2 Engagement The APA will assign an agreed engagement RAG status to each FAL Connection which dictates the level and lrequency ol engagement. For GREEN and EAL assets the APA remain entitled to receive inlormation and attend relevant meetings on request. However. any requests lrom the APA lor an ad hoc review or update lor these cases MUST go via the secondee to GRG Risk It a SIG RM receives a direct approach lrom the APA. they should notity GRG Risk immediately as they will be responsible lor arranging meetings etc. it the approach lrom the APA is in response to a Prohibited Conduct consent request lor a Green or Amber asset. you should deal With it in the ordinary course and continue to copy the Central APS Risk and Compliance team and GRG Risk into your response. ll connection is categorised as RED. the APA will require much closer engagement. including: . meetings With GRG Risk and selected Manco representatives to review case status . at an early stage in the credit process. prepare a "Sighting paper' which provides the outline ol strategic options considered. and recommended options. The sighting paper Will lorm the basis ol the credit memo (sections 2 (viability). 3 (restructuring objectives and relevant strategic options). 4 (Trade-ons between options). 5 (Value ol options including analysis]. 6 (Key Risks) and a (lndicative timetable/milestones>>. This paper should have business and credit input/approval in principle belore it is sent to the APA: . direct RM interaction 7 Will vary according to case statusnntensity. Briel lile notes ol all calls must be kept and all lile notes and emails copied to GRG Risk. 9.2.1 Significant Restructuring Events (FAL Connections only) The must be notilied ol all proposed Signilicant Restructuring Events and proposed disposals ol EAL assets suniciently early so that it can have the opponunity to input into strategy where appropriate. The ultimate respective rights ol RES and the APA are unchanged but this is to allow lor timely escalation ii there is a lundamental disagreement as to strategy. Minor Restructuring Events are also delined and are expressly excluded lrom the need to notity the APA (except in certain circumstances which are outlined beiow]. 9.2.1.1 Sig cant Restructuring Event "Signilicant Restructuring Events" require early notilication to the APA and. subiect to the point beloW relating to Minor Restructuring Events. include any ol the lollowing: GRG: The Imurmatmn Ciasslilcatmn Ihls document ls INTERNAL Author: Kate Wyeth Page 39 0148 30 January 2012 SIG Procedures Manual • • • • • • reduction in the rate or amount of interest payable or the amount of scheduled interest accruals reduction in the amount of principal or premium payable at maturity or at scheduled redemption dates (similar rules in relation to derivatives) postponement or other deferral of a date or dates for either (i) the payment or accrual of interest or (ii) the payment of principal or premium (similar rules in relation to derivatives) changes in ranking or priority of security/debt resulting in subordination releases of all security in relation to the relevant Covered Asset any Minor Restructuring Event (see definition below) which has the effect, either alone or when added with any other Minor Restructuring Event(s), of deferring engagement with the Borrower regarding a longer term restructuring for more than six months will constitute a Significant Restructuring Event 9.2.1.2 Minor Restructuring Event No notification is required in respect of any Minor Restructuring Events (provided they do not come within the final bullet point above). A “Minor Restructuring Event” includes any action which is intended by GRG (acting reasonably and in good faith) to provide a borrower/guarantor with short term financial relief or stability and which would usually be considered as an interim measure pending the anticipated agreement of a longerterm restructuring. Such Minor Restructuring Events would include: • covenant test deferrals, waivers, resets or amendments • deferrals of interest (for less than six months) • deferrals of non-material amounts of capital • provision of short term funding to meet perceived liquidity requirements • standstill agreements If you are in any doubt as to whether a proposed action is a “Minor” or “Significant” Restructuring Event you should consult with GRG Risk in the first instance 9.3 Training APS Training is currently being reviewed following the introduction of the APS Threshold Agreement – refer to SIG Business Manager / GRG Risk. 9.4 Asset Classification & Verification In order to meet the APS reporting requirements and additional reporting agreed between SIG and the APA, all upsides which are impacted by the APS need to be identified, classified and, in most instances, apportioned between the APS Covered Assets from which they are derived. SIG Operations in London will liaise with GRG APS Reporting to positively identify impacted assets on a monthly basis and will add a confirming e-mail for all investments confirmed as being related to APS covered assets to eVenture (this will include FAL and non-FAL connections as all APS related positions need to be reported on a monthly basis (see Section x). Where an investment is confirmed as being impacted by the scheme then they need to be classified as either a Non-Cash Realisation (“NCR”) or a Related Junior Asset (“RJA”). For full guidance please refer to the scheme rules or APS Compliance, however, in brief they are defined as follows – NCR – where the equity /upside has been obtained directly with respect to an APS Covered Asset or Related Junior Asset RJA – where the equity held is clearly not derived from or obtained with respect to an APS Covered Asset or Related Junior Asset, for example RBEF equity cases, equity in SIG deals. Only NCRs need to be apportioned between the relevant Covered Assets. Apportionment will in many cases be straightforward, as there is a clear relationship between the individual facilities and the upside received set out in restructuring agreements, in all other cases advice should be sought from GRG Legal. GRG APS Reporting will undertake the apportionment but may require assistance from the SIG and GRG RMs. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 40 of 48 30 January 2012 SIG Procedures Manual 10 Operations and Reporting 10.1 Portfolio Data 10.1.1 Equity Code As detailed in section SIG Operations in London will allocate an equity code as part of their new deal PostCompletion Checklist process for new equity positions and other upsides (excluding PPFAs – see section 5) where SIG has management responsibility. Each Equity code is comprised of three elements – • • • Numerical code – this is specific to each investee company Region Code – there is a different code for each global region, each UK Region (CRU and RER are incorporated within London), and for other positions/portfolios managed by SIG i.e. RBEF, RVCF Security code – this is a numeric code which is unique to each security and tranche of security, so for example if the upside incorporates 2 classes of shares the first will be designated 01 and the second 02. More detail and a full list of the Region codes is detailed in Appendix 35. 10.1.2 Key Documents Key documents and approvals must now be saved in eVenture and these will be confirmed via the PostCompletion Checklist process, supported by the Self-Audit process which is undertaken for a sample of deals completed each quarter. 10.1.3 Asset Register SIG Operations in London are responsible for maintaining a Register of all Assets/Investments maintained in eVenture which confirms the location of the asset (i.e. if held with a broker/custodian) or the physical share certificate. This will detail individual certificates/securities held and a process is to be implemented to reconcile holdings on a periodic basis; in the UK physical checks will be undertaken and for non-UK positions confirmation obtained from local SIG/Operations teams. As it is SIG policy to hold original certificates all missing certificates will be chased via the SIG RM. 10.2 Portfolio Reporting 10.2.1 Work-in-Progress SIG Operations in London are responsible for co-ordinating the updating of SIG’s Work in Progress via the Deal Log section of eVenture. A reminder will be circulated to the team together with Exit and Team Activity sheets for updating weekly. Note: for members of the team without access to eVenture SIG Operations will also circulate extracts from the previous week’s report for them to update. SIG Operations will collate updates to the Exit and Team Activity schedules and also update entries in eVenture for those team members without access. The main report is downloaded from eVenture at the end of each week and saved to the SIG shared drive. An extract of this report, together with the Exits and Team Activity schedules is then circulated to the Global Head of Strategic Investments and SIG Business Manager is also sent to the Global Head of GRG, the Head of GRG UK, the Head of SIG and the Head of GRG Finance which incorporates the following key information only - GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 41 of 48 30 January 2012 SIG Procedures Manual 10.2.2 GRG Finance – MI Reporting 10.2.2.1 Equity / Other Upsides GRG Finance provide SIG Operations in London with a listing of all Equity and Other Upsides keyed on RMPS at the end of each month. SIG Operations will compare this to the deals advised by the SIG RMs, investigate any variances and agree the numbers to be reported in the various GRG management information reports – an upside cannot be reported by a GRG business/incorporated in the reports by Finance unless it has been confirmed by SIG. SIG Operations in London will maintain a listing of portfolio movements - New Deals, Realisations, Cases moved to Dead – and will reconcile this at month end to eVenture and with SIG Finance in London. 10.2.2.2 PPFAs GRG Finance provide SIG Operations in London with a listing of all PPFAs keyed on RMP at the end of each month. This will be reconciled to the SIG PPFA database maintained in London (covering all UK and Ulster PPFAs). If there are any anomalies between the finance report and the SIG records these are agreed between SIG and Finance and any necessary amendments are made as appropriate. The numbers published by finance into the monthly management information packs must be agreed with SIG before they are published. SIG Operations in London will obtain latest numbers from teams which do not use the database (AsiaPac, Citizens, Americas) to ensure that the global position is reported. 10.2.3 Share Aggregation Reporting Unit, Group Secretariat (“SARU”) In accordance with the Bank’s Share Reporting Policy there are a number of reports that are required to be submitted to SARU – SARU is responsible for coordinating and overseeing the global share reporting obligations for the RBS Group. 10.2.3.1 Group Hierarchy (“GOC”) The Group Organisation Chart is the RBS Group Hierarchy of Companies which includes any equity stakes where, either directly or indirectly a Group company has a beneficial interest of more than 5% of a class of ordinary or preference share capital. New Deals/Amended Holdings • As detailed in Section 4.1.5 8SIG is required to advise SARU immediately a new equity stake is acquired or an existing stake changes. • In practice for non-listed cases SIG should look to provide this within 5 working days of completion by forwarding a copy of the completed Capital Structure Template/Database Input Form to the SARU team mail box ~ Share Aggregation Unit. • Stakes in any LISTED businesses need to be advised WITHIN 24 HOURS as there may be a regulatory filing required, which typically have very tight timescales and would result in the Bank being censured/fined if not complied with. • SIG Operations in London will advise SARU of all holdings taken globally. Quarterly Returns • • • At each quarter end it is necessary to review the Group Hierarchy data for the SIG reported positions to confirm that they are correct / confirm any changes that have not been advised in error during the period. SARU will send details of the current position in a spreadsheet which needs to be reviewed and agreed to eVenture. Where a company is in an insolvency process it’s Status in eVenture will be amended to “Dead” but it still needs to be reported on the GOC. For all these cases it is necessary to check whether it had been dissolved at Companies House – it cannot be removed from the return until this is the case. If it has been dissolved then a screenprint of the confirmation should be taken and forwarded to SARU with the annotated return to confirm that it should be deleted. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 42 of 48 30 January 2012 SIG Procedures Manual 10.2.3.2 Bank Holding Companies Act 1956 (“BHCA”) Background The US BHCA legislation is aimed at prohibiting banks conducting non-banking activities in the US. It is structured as a general prohibition on banks from holding equity stakes in non-banking businesses with a number of exemptions. One of these, regulation K, relates to private equity activities. In 1999 this was amended by the Gramm-Leach Bliley Act (“GLBA”) which extended the scope of activities and investments that companies could undertake and/or make if they qualify as a financial holding company (“FHC”). RBSG qualified for FHC status in 2004. Essentially SIG needs to report all equity/warrant positions on a quarterly basis where the Company has US Operations (excluding Citizens positions as Citizens have different reporting requirements which are undertaken internally). Under this legislation US Operations means that the Company has either • • • A US incorporated subsidiary; or A US representative office Note - If a company has sales in the US but does not have either of the above then they do not need to be reported. Quarterly Returns • • • At each quarter end eVenture will be reviewed for any new positions added during the quarter which have the US activity field completed. The Master Schedule should also be reviewed to see if any entries can be deleted – either as a result of the stake being sold or if the company has been dissolved/struck off The amended Master Schedule should then be e-mailed to ~Share Aggregation Unit with the covering certificate which should confirm the o Number of new cases being reported – list the names o Number of unchanged cases being reported o Number of cases removed from the schedule – list the names 10.2.3.3 13F Reporting – US Listed Securities Form 13F is a quarterly return for RBS Group companies that invest in equity securities listed on a United States Stock Exchange (including NASDAQ), either for their own account of on behalf of clients. At the end of each quarter SIG will need to complete and return the schedules forwarded by SARU. Any movements or new interests of more than 1% in any of the holdings on the list need to be provided to Share Aggregation Unit immediately. 10.2.3.4 S198 Return This is a monthly return covering all listed equity stakes which confirms current holdings at the end of each month. SARU confirm all positions held in Charles Stanley via the online portal and e-mail SIG Operations in London for confirmation of positions held elsewhere. 10.2.3.5 Assurance Confirmations Half Yearly Certificate When received from SARU, SIG are required to complete and submit a Half Yearly certificate that confirms that they have, to the best of their knowledge and belief after reasonable investigation • • • Disclosed all potentially reportable interests to SARU All reports have been accurate in material respects That the obligations and responsibilities set out in the SARU Global Process Manual have been complied with, as they are relevant to SIG Annual Certificate When received from SARU the Global Head of GRG is required to confirm that all Feeds within GRG have been captured. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 43 of 48 30 January 2012 SIG Procedures Manual 10.2.3.6 Quarterly Confirmation of Non-UK Positions To ensure that all GRG equity positions are being captured (and to check that there is no duplication with other feeds) SIG also prepare a quarterly listing of all Non-UK positions which is submitted to SARU. This is submitted to coincide with the Group Hierarchy and BHCA reporting detailed above. 10.2.4 GBM Control Room As advised in Section 4.3.1.4 SIG are required to obtain clearance from the GBM Control Room for exits/disposals. As SIG’s portfolio is not always recorded on other bank systems such as RMPS it has also been agreed that we will provide them with a listing of our portfolio on a monthly basis. The report will include a live listing of the total portfolio, new cases added during the month, cases exited during the month and cases moved to “Dead” during the month when the company has entered a formal insolvency process. 10.2.5 APS Following the implementation of the Threshold Agreement it has been agreed that SIG Operations will provide a report of all APS related equity and other upsides (PPFAs are not included) on a Monthly basis. This is downloaded from eVenture and provided to the GRG APS reporting team to be included within the GRG reporting pack. The data fields included in the report are – • • • • • • • • • • • • TopCo Name (Legal Name) Opco Name (Investment Name) Equity Code Upside Type Date Completed Sector Business Activity Voting% Economic % CCY Debt Written off (RBS) (m) Listed (Yes/No) GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 44 of 48 30 January 2012 SIG Procedures Manual 11 Training 11.1 Introduction to Upsides Course GRG Learning and Development in conjunction with members of the SIG team deliver this bespoke course for GRG RM’s on a periodic basis. 11.1.1 Two-day course The two-day course is for GRG staff in relationship roles and it is recommended that it is attended during their first year in GRG. It is designed to provide GRG relationship staff with the technical and practical knowledge of upsides. It also covers the quantification and pricing of risk in order to calculate an upside and considers how that upside can be delivered through equity stakes and PPFAs. 11.1.2 One-day course A one-day course has also been developed which is designed as an overview of upsides for those that may not be involved directly with upside instruments but would like an understanding of them 11.1.3 Ulster Bank A one-day course has also been developed for delivery to GRG relationship staff in Ulster which uses case studies and examples appropriate to their portfolios and market 11.2 PPFA Workshops (UK only) The SIG team periodically hold PPFA workshops for GRG relationship staff in the UK (predominantly BRG) which provide a practical guide to completing PPFA documentation and the administrative steps required to ensure the fee is properly recorded. GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 45 of 48 30 January 2012 SIG Procedures Manual 12 Appendices No 1 2 3 4 5 a b c d 6a 6b 6c 7a 7b 8 9 10 a b c d e 11 12a 12b 13a 13b 14a 14b 15 16 17 18 19a 19b 20 21 22 23 24a 24b 24c 25 26 27a 27b 28a 28b 29 30 a b c d Name SIG Structure Chart IRR CalculationTemplate SIG eVenture Journal Guidance SIG New Equity Sighting Paper SIG Equity Checklists UK & EMEA Ireland Americas AsiaPacific Group Tax Guidance including contacts (UK) Group Tax Self Certification Form (UK) Group Tax Deal Form (UK) Group Legal GRG Guidelines Group Legal Merger Control Flow Chart GBM Finance Template (UK & EMEA) SIG Pre-Completion Memo SIG Pre-Completion Checklists UK & EMEA Ireland Americas AsiaPacific Citizens Legal Instruction Letter Standard Subscription Agreement and Articles of Association (English) Standard Subscription Agreement and Articles of Association (Scottish) Power of Attorney – West Register (Investments) Limited Power of Attorney – West Register Number 2 Limited Capital Structure Template Database Input Form Operations Post Completion Checklist Monitoring Fee and Other Income Advice Template SIG Operations Take-on Self Audit Checklist SIG Unquoted Review Committee Terms of Reference Short Form Investment Review Paper Template Long Form Investment Review Paper Template and Case List SIG Quoted Review Committee Terms of Reference Weekly Quoted Equity Review Report Template Listed Case Recommendation Paper Template SIG Valuation Committee Terms of Reference Valuation Methodology – Listed Warrants Valuation Methodology – Unlisted Positions Valuation Template SIG Unquoted Realisation in Principle Paper SIG Final Realisation Paper – Unquoted Equity SIG Operations Realisations Checklist – Unquoted Equity SIG Operations Realisations Checklist – Quoted Equity Conflict Check Request Template SIG Asset Sale Notification – KYC template SIG Unquoted Realisation Pre-completion Memo SIG Unquoted Realisation Pre-completion Checklists UK & EMEA Ireland Americas AsiaPacific GRG: SIG Author: Kate Wyeth Last Revised The Information Classification of this document is INTERNAL Page 46 of 48 30 January 2012 SIG Procedures Manual e 31 32 33 34 35 36 37 Citizens Indemnity for Lost, Mislaid or Destroyed Certificate Template SIG Custodian Processes Standard Settlement Instructions UK SIG Committee Terms of Reference Guidance note for GRG Staff- APS Threshold Agreement Equity Coding Format eVenture Instruction Manual GRG: SIG Author: Kate Wyeth The Information Classification of this document is INTERNAL Page 47 of 48 30 January 2012 SIG Procedures Manual 13 Document Governance Appwved py: John Davrsan G'oba' Head cl Slrategrc Investments G'oba' Restrucluling Gloup 2nd "con 280 Blshupsiate. London ECZM ARB Date: Document Owner: Kate Wyeth Operetmg omeer, Strategtc Investment Group Gropar Restructuring Group 2nd upon 280 London ECZM 4R3 GRGI The lnlurmauon C'assmcauon [ms document 15 INTERNAL Author: Ka|e Wyem Page 48 0! 43 so January 2012