Secondary Fundraisings

3 April 2009

David Broadley, Partner Simon Toms, Senior Associate

98050-00111 BS:2232560.1

2

Overview

Market overview Refresher on secondary fundraisings Documentation including underwriting agreements Rights issue reform Pre marketing activity Cashboxes Short selling PIPEs

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Market Overview

Significant increase in secondary issues Bank recapitalisations account for large portion of overall

amount raised

Source: Thomson Financial

21%

79%

Bank recapitalisationsOther issuers

2008 2009 YTD

62%

38%

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Market Overview

Companies raising cash for balance sheet repair, prior to refinancing or for acquisitions

Total equity issued (excluding bank recaps): 2008: £11 billion YTD 2009: £10 billion

Most active sectors to date in 2009: Banks Real Estate Building/Construction & Engineering

Source: Thomson Financial

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Equity Issues - Volumes

0

5

10

15

20

25

30

(£ bn)

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009

Source: Thomson Financial

Bank recapitalisations Other issuers

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IPOs – markets effectively remain shut

0

2

4

6

8

10

12

Numberof new London

Main Market listings

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009Source: Thomson Financial

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Refresher of Secondary FundraisingsRights Issues Open Offer Cash/Cashbox Placing

Shareholder

Approvals

Likely to need to increase authority to allot

May need to increase authority to allot

No shareholder approvals if sufficient authority to allot

Documents Prospectus Prospectus No prospectus needed if <10% of issued share capital (incl. shares issued in previous 12 months) and no public offer

Discount No limit on discount Maximum discount: 10% (Listing Rules); 7.5% (ABI)

Maximum discount: 10% (Listing Rules);

5% (Pre-emption Group/ABI)

Size No limit on issue size Limit on issue size c.18% (ABI)

Maximum cash placing issue

size 5% (7.5% in

rolling three

year period)

(Pre-emption Group)

No limit on cashbox placing size but typically <10% (ABI guidelines on shareholder claw back on placings); rarely used where prospectus needed

Speed Offer can only start once necessary shareholder approvals obtained (nil paid rights trade on unconditional basis)

Offer must be open for 10 business days (LSE A&DS); notice of general meeting can run concurrently

No offer to shareholders; up to five days for placing, settlement and admission

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Documentation

Underwriting documentation broadly unchanged Greater focus on termination provisions and MACs Use of specific events (e.g. ratings downgrade)

Public documentation is main hurdle to swift execution Must be significantly advanced/finalised prior to any

announcement Underwriter risk on diligence/disclosure Volatile markets have forced time between

announcement and documentation to be reduced

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Rights Issue Reform

Rights Issue Reform Group Industry representatives co-chaired by FSA and HMT

UKLA reduced rights issue offer period from 21 days to 10 business days (LR9.5.6.R)

FSA currently consulting on open offer structure Compensation for non-participating shareholders

ABI has reviewed its guidelines to increase headroom from 1/3 to 2/3 (additional 1/3 on pre-emptive basis only)

Short form prospectus for rights issues and greater use of shelf registration documentation in future?

FSA considering accelerated rights issue models

(e.g. Australian RAPIDS model)

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Pre-marketing Activity

Increased activity prior to announcement Deal by deal consideration Issuers wanting to ensure successful issue Underwriters seeking increased certainty to cover

exposure before announcement Period for which investors will become “insiders”

Impact on liquidity Process of making an investor an “insider” and

implications for confidentiality and disclosure Use of NDAs? Pre-marketing presentations Leak scenario planning

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Cashbox Placings

Mechanism to permit a cash placing outside the Companies Act restrictions on shareholders’ pre-emption rights

Issue of ordinary shares

Issue of new ordinary shares conditional on

Admission Cash on trigger of underwriting risk

Issuer Banks

JerseyCo

Cash proceeds of placing on closing

Payment of net cash proceeds of placing to satisfy preference share

subscription

Transfer of ordinary shares and preference

shares in JerseyCo

Banks (as underwriter)

Issue of ordinary Shares and preference

shares

Placees

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Cashbox Placings

Historically used in connection with acquisitions Recent concerns raised by investors bodies as to

their use Letter from ABI to listed companies: “…investors do not welcome issues that breach the

Pre-Emption Group guidance and will hold boards to account for such breaches.”

“…we are doubly anxious that the pre-emption principle [should] not be eroded through abuse of cash-box issues.”

Greater consultation pre-announcement likely

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Short Selling

Current temporary disclosure regime in place until 30 June 2009

Disclosure required of net short positions >0.25% in stocks of listed UK financial sector companies

FSA consulting on permenant regime including: Extending to all UK stocks across all sectors Disclosure of individual short positions >0.50% Retain >0.25% disclosure during rights issues No ban on underwriters short selling proposed Exemption for market makers

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Private Investment in Public Equity

Companies with significant/urgent cash needs Unable to access debt capital markets Bank debt unavailable Current shareholders indicated no support for equity

raising Opportunity for PE/SWF to invest capital on attractive terms to

support viable businesses with currently inappropriate capital structure

Ordinary share investment most common form Firm/conditional placing Underwriting of rights issue

Use of relationship agreements

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Any Questions?

These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources.

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