Exhibit 4(a) (iv) 


DATED AS OF 13 OCTOBER 2008


THE COMMISSIONERS OF HER
MAJESTY’S TREASURY


and


HBOS PLC


	
 


	



	
 


	
PREFERENCE SHARE SUBSCRIPTION AGREEMENT 


	
 


	




	
 





Slaughter and May

One Bunhill Row

London

EC1Y 8YY

(NV/JAYP/ACZE)






THIS IS AGREEMENT IS EFFECTIVE AS OF 13
OCTOBER 2008 BETWEEN: 


	
 

	
 


	
(1)

	
THE
 COMMISSIONERS OF HER MAJESTY’S TREASURY, of 1 Horse Guards Road, London
 SW1A 2HQ (“HMT”) 


	
 

	
 


	
AND
 

	
 


	
 

	
 


	
(2)

	
HBOS
 PLC
 incorporated in Scotland under the Companies Acts 1948 to 1967 with
 registered number SC218813 and registered address The Mound, Edinburgh EH1
 1YZ (“HBOS”) 


	
 

	
 


	
WHEREAS: 


	
 

	
 


	
HMT has agreed to
 subscribe for, and HBOS has agreed to allot and issue to HMT, the Preference
 Shares (as defined in this Agreement) in each case on the terms and subject
 to the conditions set out in this Agreement. 


	
 

	
 


	
NOW IT IS HEREBY
 AGREED AS FOLLOWS: 


	
 

	
 


	
1.

	
Interpretation
 


	
 

	
 


	
1.1

	
In this Agreement:
 








	
 

	
 


	
“Admission”

	
has the meaning
 given to it in the Placing Agreement;


	
 

	
 


	
“Acquisition”

	
has the meaning
 given to it in the Placing Agreement;


	
 

	
 


	
“Business
 Day”

	
means any day
 (other than a Saturday or Sunday) on which clearing banks are open for a full
 range of banking transactions in London;


	
 

	
 


	
“FSA”

	
has the meaning
 given to it in the Placing Agreement;


	
 

	
 


	
“Group”

	
has the meaning
 given to it in the Placing Agreement;


	
 

	
 


	
“HBOS
 Account”

	
means the bank
 account of HBOS, the details of which shall be notified to HMT by HBOS at
 least five Business Days prior to the Subscription Date;


	
 

	
 


	
“Placing
 Agreement”

	
means the
 agreement effective as of 13 October 2008 entered into by HMT, HBOS, Morgan
 Stanley & Co International PLC and Dresdner Kleinwort Limited relating to
 the placing and open offer of a number of HBOS’s ordinary shares;


	
 

	
 


	
“Posting
 Date”

	
has the meaning
 given to it in the Placing Agreement;


	
 

	
 


	
“Preference
 Shares”

	
means preferred
 shares issued by HBOS with an aggregate liquidation preference of
 £3,000,000,000, having the rights and subject to the restrictions set out in
 Schedule 1 to this












2


	
 

	
 


	
 

	
Agreement;


	
 

	
 


	
“Proceedings”

	
means any
 proceeding, suit or actions arising out of or in connection with this
 Agreement;


	
 

	
 


	
“Subscription
 Amount”

	
means
 £3,000,000,000;


	
 

	
 


	
“Subscription
 Date”

	
means the date on
 which Admission occurs;


	
 

	
 


	
“Supplementary

 Prospectus”

	
has the meaning
 given to it in the Placing Agreement; and


	
 

	
 


	
“Warranties”

	
means the
 representations, warranties and undertakings set out in Schedule 3 of the
 Placing Agreement.








	
 

	
 

	
 


	
1.2

	
In this Agreement,
 unless otherwise specified: 


	
 

	
 

	
 


	
 

	
(A)

	
the headings are
 inserted for convenience only and shall not affect the construction of this
 Agreement; 


	
 

	
 

	
 


	
 

	
(B)

	
any reference to
 an enactment or statutory provision is a reference to it as it may have been,
 or may from time to time be, amended, modified, consolidated or re-enacted (and
 includes all instruments or orders made under the enactment); 


	
 

	
 

	
 


	
 

	
(C)

	
references to
 Clauses and the Schedules are to Clauses of, and the Schedules to, this
 Agreement; 


	
 

	
 

	
 


	
 

	
(D)

	
references to “pounds” and “£” are references to the currency of
the United Kingdom; and
 


	
 

	
 

	
 


	
 

	
(E)

	
Schedule 1 shall
 take effect as if set out in this Agreement and references to this Agreement
 shall be deemed to include Schedule 1. 


	
 

	
 

	
 


	
1.3

	
The parties agree
 that applications will be made to the UK Listing Authority for the Preference
 Shares to be admitted to the Official List of the UK Listing Authority and to
 the London Stock Exchange for the Preference Shares to be admitted to trading
 on the London Stock Exchange’s Regulated Market, and that for the purposes of
 such admission to trading the Preference Shares will be cleared through CREST
 (as defined in the Placing Agreement). 


	
 

	
 

	
 


	
2.

	
Agreement
 to Subscribe for Preference Shares 


	
 

	
 

	
 


	
2.1

	
Upon the terms and
 subject to the condition set out in Clause 3 of this Agreement and in
 reliance on the Warranties, HMT agrees to subscribe for, and HBOS agrees to
 allot and issue to HMT, the Preference Shares. 












3


	
 

	
 

	
 


	
2.2

	
In consideration
 of the agreement to allot and issue the Preference Shares, and subject to
 Clause 3, HMT hereby undertakes to pay to HBOS, or to procure the payment to
 HBOS, of an amount equal to the Subscription Amount. 


	
 

	
 


	
3.

	
Condition
 


	
 

	
 


	
 

	
The obligations of
 HMT set out in Clause 2 to subscribe for the Preference Shares and to pay the
 Subscription Amount shall be conditional upon the Placing Agreement becoming
 wholly unconditional in accordance with its terms and this Agreement not
 having been terminated in accordance with Clause 7. 


	
 

	
 


	
4.

	
Warranties
 


	
 

	
 


	
4.1

	
HBOS hereby
 represents, warrants and undertakes to HMT that: 


	
 

	
 


	
 

	
(A)

	
each Warranty in
 Part I of Schedule 3 of the Placing Agreement is true and accurate and not
 misleading as at the date of this Agreement; and 


	
 

	
 

	
 


	
 

	
(B)

	
each Warranty in
 Parts I and II of Schedule 3 of the Placing Agreement will be true and
 accurate and not misleading on the Posting Date, at such time as a
 Supplementary Prospectus shall be issued in accordance with the Placing
 Agreement (whether before or after Admission), and immediately prior to
 Admission, in each case by reference to the facts and circumstances then
 existing and will be treated as Warranties given and/or repeated on such
 dates. Warranties shall be deemed repeated under this clause in relation to
 the relevant document, announcement or event on the basis that any reference
 in any such Warranty to something being done or something being the case in
 relation to such document, announcement or event which is expressed in the
 future tense shall be regarded as being expressed in the present tense. 


	
 

	
 

	
 


	
4.2

	
Each of the
 Warranties shall be construed as a separate and independent warranty and
 (except where expressly provided to the contrary in the Placing Agreement)
 shall not be limited or restricted by reference to, or inference from, the
 terms of any other Warranty. 


	
 

	
 


	
5.

	
Subscription
 


	
 

	
 


	
5.1

	
On the
 Subscription Date, HBOS shall: 


	
 

	
 


	
 

	
(A)

	
allot and issue
 the Preference Shares to HMT credited as fully paid; 


	
 

	
 

	
 


	
 

	
(B)

	
enter HMT, or its
 nominee, in its register of members as a shareholder of HBOS in respect of
 the Preference Shares; and 


	
 

	
 

	
 


	
 

	
(C)

	
deliver share
 certificate(s) to HMT or its nominee in respect of the Preference Shares.


	
 

	
 


	
5.2

	
On the
 Subscription Date, HMT shall pay an amount equal to the Subscription Amount
 by CHAPS transfer for same day value to the HBOS Account. 












4


	
 

	
 


	
5.3

	
HBOS shall use
 reasonable endeavours to ensure that the Preference Shares remain admitted to
 the Official List of the UK Listing Authority and admitted to trading on the
 London Stock Exchange’s Regulated Market for so long as HMT holds any Preference
 Shares. 


	
 

	
 


	
6.

	
Use
 of Subscription Proceeds 


	
 

	
 


	
 

	
HBOS agrees that
 it shall, promptly after the Subscription Date, apply the proceeds of the
 issue of the Preference Shares in such manner, in such form and for such
 regulatory capital purpose as may be agreed with HM Treasury, the Bank of
 England and the FSA. 


	
 

	
 


	
7.

	
Termination
 


	
 

	
 


	
 

	
In the event of
 the Placing Agreement terminating in accordance with its terms, this
 Agreement shall terminate and have no further force or effect and no party
 shall have any claim against any other under this Agreement except: (i) in
 respect of any accrued rights arising from any prior breach of this
 Agreement; and (ii) in respect of this clause 7 and clauses 1.1, 1.2, 8, 9
 and 11 to 18 (inclusive), which shall remain in full force and effect
 notwithstanding such termination. 


	
 

	
 


	
8.

	
Assignment
 and Novation 


	
 

	
 


	
8.1

	
Subject to clause
 8.2, HMT shall be permitted to novate its rights and obligations under this
 Agreement to any entity which is wholly-owned directly or indirectly by HMT
 (a Wholly Owned Entity) and HBOS
 agrees to consent to, and to execute and deliver all such documentation as
 may be necessary to effect, any such novation provided that such novation is
 effected upon substantially the same terms as are contained in the pro forma
 novation agreement set out in Schedule 2 to this Agreement. 


	
 

	
 


	
8.2

	
In the event that
 HMT novates its rights and obligations under this Agreement pursuant to
 clause 8.1, HMT shall procure that, immediately prior to any such Wholly
 Owned Entity ceasing to be wholly-owned directly or indirectly by HMT, such
 rights and obligations under this Agreement shall be novated to HMT or any
 other Wholly Owned Entity. 


	
 

	
 


	
8.3

	
Subject to Clause
 8.1, neither HMT nor HBOS shall be permitted to assign or novate, or purport
 to assign or novate, all or any part of the benefit of, or its rights or
 benefits under, this Agreement to any other person without the prior written
 consent of the other party. 


	
 

	
 


	
9.

	
Costs
 and Expenses 


	
 

	
 


	
 

	
HBOS shall bear
 the costs and expenses of both parties in relation to the negotiation of this
 Agreement and the subscription for, and allotment and issue of, the
 Preference Shares (including, without limitation, any stamp duty or stamp
 duty reserve tax). 












5


	
 

	
 


	
10.

	
US
 Securities Laws 


	
 

	
 


	
 

	
Each of HMT and
 HBOS acknowledge and agree that the Preference Shares have not been and will
 not be registered under the US Securities Act of 1933 (the “Securities Act”)
 and may not be offered or sold except in accordance with Rule 903 of Regulation
 S under the Securities Act or pursuant to an exemption from, or in a
 transaction not subject to, the registration requirements of the Securities
 Act. 


	
 

	
 


	
11.

	
Entire
 Agreement 


	
 

	
 


	
11.1

	
This Agreement and
 the Placing Agreement constitute the whole and only agreement and
 understanding between the parties relating to the subject matter of this
 Agreement. All previous agreements, understandings, undertakings,
 representations, warranties and arrangements of any nature whatsoever between
 the parties or any of them with any bearing on the subscription of the
 Preference Shares are superseded and extinguished (and all rights and
 liabilities arising by reason of them, whether accrued or not at the date of
 this Agreement, are cancelled) to the extent they have such a bearing. 


	
 

	
 


	
11.2

	
This Agreement may
 only be varied by agreement in writing signed by each of the parties. 


	
 

	
 


	
12.

	
Notices
 


	
 

	
 


	
12.1

	
A notice under
 this Agreement shall only be effective if it is in writing. Faxes are
 permitted. 


	
 

	
 


	
12.2

	
Notices under this
 Agreement shall be sent to a party to this Agreement at its address or number
 and for the attention of the party set out below: 








	
 

	
 

	
 

	
 

	
 


	
Party

	
 

	
Address

	
 

	
Facsimile no.


	


	
 

	


	
 

	



	
 

	
 

	
 

	
 

	
 


	
HBOS

	
 

	
Its registered
 office from time to time, which at the date of this agreement is The Mound,
 Edinburgh EH1 1YZ

	
 

	
0131 243 5546


	
 

	
 

	
 

	
 


	
fao: Company

	
 

	
 

	
 


	
Secretary

	
 

	
 

	
 


	
 

	
 

	
 

	
 

	
 


	
HMT

	
 

	
1 Horse Guards
 Road,

 London SW1A 2HQ

	
 

	
0207 270 7562


	
fao: Jeremy

	
 

	
 

	
 


	
Pocklington

	
 

	
 

	
 

	
 








	
 

	
 


	
 

	
provided that a
 party may change its notice details on giving notice to the other party of
 the change in accordance with this clause. That notice shall only be
 effective on the day falling five clear Business Days after the notification
 has been received or such later date as may be specified in the notice. 


	
 

	
 


	
12.3

	
Any notice given
 under this Agreement shall, in the absence of earlier receipt, be deemed to
 have been duly given as follows: 












6


	
 

	
 

	
 


	
 

	
(A)

	
if delivered
 personally, on delivery; 


	
 

	
 

	
 


	
 

	
(B)

	
if sent by first
 class post, two clear Business Days after the date of posting; and 


	
 

	
 

	
 


	
 

	
(C)

	
if sent by
 facsimile, when despatched. 


	
 

	
 

	
 


	
13.

	
Counterparts
 


	
 

	
 

	
 


	
13.1

	
This Agreement may
 be executed in any number of counterparts, and by the parties to it on
 separate counterparts, but shall not be effective until each party has
 executed at least one counterpart. 


	
 

	
 

	
 


	
13.2

	
Each counterpart
 shall constitute an original of this Agreement, but all the counterparts
 shall together constitute but one and the same instrument. 


	
 

	
 

	
 


	
14.

	
Invalidity
 


	
 

	
 

	
 


	
 

	
If at any time any
 provision of this Agreement is or becomes illegal, invalid or unenforceable
 in any respect under the law of any jurisdiction, that shall not affect or
 impair: 


	
 

	
 

	
 


	
 

	
(A)

	
the legality,
 validity or enforceability in that jurisdiction of any other provision of
 this Agreement; or 


	
 

	
 

	
 


	
 

	
(B)

	
the legality,
 validity or enforceability under the law of any other jurisdiction of that or
 any other provision of this Agreement. 


	
 

	
 

	
 


	
15.

	
Contracts
 (Rights of Third Parties) Act 1999 


	
 

	
 

	
 


	
 

	
The parties to
 this Agreement do not intend that any term of this Agreement should be
 enforceable, by virtue of the Contracts (Rights of Third Parties) Act 1999,
 by any person who is not a party to this Agreement. 


	
 

	
 

	
 


	
16.

	
Choice
 of governing law 


	
 

	
 

	
 


	
 

	
This Agreement and
 any non-contractual obligations arising out of or in connection with it shall
 be governed by and construed in accordance with English law. 


	
 

	
 

	
 


	
17.

	
Jurisdiction
 


	
 

	
 

	
 


	
17.1

	
The courts of
 England are to have exclusive jurisdiction to settle any dispute arising out
 of or in connection with this Agreement. Any Proceedings shall be brought in
 the English courts. 


	
 

	
 

	
 


	
17.2

	
HBOS waives (and
 agrees not to raise) any objection, on the ground of forum non conveniens or on any other
 ground, to the taking of proceedings in the English courts. HBOS also agrees
 that a judgment against it in Proceedings brought in England shall be
 conclusive and binding upon it and may be enforced in any other jurisdiction.
 












7


	
 

	
 


	
17.3

	
HBOS irrevocably
 submits and agrees to submit to the jurisdiction of the English courts. 


	
 

	
 


	
18.

	
Agent
 for Service of Process 


	
 

	
 


	
 

	
HBOS shall at all
 times maintain an agent for service of process and for service of any other
 documents and proceedings in England, or any other proceedings in connection
 with this Agreement. Such agent shall be the London office of HBOS, at 33 Old
 Broad Street London EC2N 1HZ and any writ, judgment or other notice of legal
 process shall be sufficiently served on HBOS if delivered to such agent at
 its address for the time being. HBOS irrevocably undertakes not to revoke the
 authority of the above agent and if, for any reason, the agent ceases to act
 as such, HBOS shall appoint a replacement agent having an address for service
 in England and shall notify HMT of the name and address of such replacement
 agent. If HBOS fails to appoint another agent, HMT shall be entitled to
 appoint one on HBOS’s behalf and at HBOS’s expense. 












8


Schedule 1


Terms of the Preference Shares


DESCRIPTION OF THE PREFERENCE
SHARES


General 


The Preference
Shares will have a nominal value of £1 each and will be issued at a premium of
£[999] fully paid for cash (so that the total paid up amount of each Preference
Share will be £[1,000]). The Preference Shares will be issued in registered
form and will rank pari passu inter se
and pari passu with the Existing
Preference Shares and in priority to the Ordinary Shares. 


Dividends 


	
 

	
 

	
 


	
(i)

	
Subject to
 the limitations, discretions and qualifications set out herein, each
 Preference Share shall entitle the holder thereof to receive out of the
 profits of the Company available for distribution and permitted by law to be
 distributed, in priority to the payment of any dividend to the holders of
 Ordinary Shares but pari passu inter se and pari passu with the holders of
 the Existing Preference Shares, a non-cumulative preferential dividend, which
 will accrue from the Issue Date and will be payable (A) semi-annually in
 arrear in equal instalments on [●] and [●] of each year until [●] 20● (each a
 “Semi-Annual Dividend Payment Date”), provided that if any Semi-Annual
 Dividend Payment Date is not a business day, payment shall be postponed to
 the next business day without penalty or interest accruing in respect of such
 delay and thereafter (B) quarterly in arrear on [●], [●], [●] and [●] of each
 year subject to adjustment in accordance with the Modified Following Business
 Day Convention (each a “Quarterly Dividend Payment Date” and together with
 the Semi-Annual Dividend Payment Dates, the “Dividend Payment Dates”) to
 those holders of Preference Shares whose names appear on the register of
 members of the Company on the fifteenth calendar day preceding such Dividend
 Payment Date. Dividends will accrue and will be payable when, as, and if,
 declared by the Board on the paid up amount of £[1,000] per Preference Share.
 Subject to paragraph (ii) below, dividends shall only be paid to the extent
 that payment can be made out of the profits of the Company available for
 distribution and permitted by law to be distributed. Any right to receive a
 dividend on the Preference Shares will be non-cumulative. 


	
 

	
 


	
 

	
Payments in
 respect of dividends on Preference Shares will be made by cheque drawn on a
 bank in London or, upon the request of the holder or joint holders, by
 transfer to an account maintained by the payee with a bank in London. All
 payments in respect of dividends will be made after complying in all respects
 with any applicable fiscal or other laws. 


	
 

	
 


	
(ii)

	
(a)

	
If on any
 Dividend Payment Date the profits of the Company available for distribution
 are, in the opinion of the Board, insufficient to enable payment in full to
 be made of the dividend which would otherwise fall to be payable on such
 Dividend Payment Date and also the payment in full of all other dividends and
 other amounts stated to be payable on such date on any other shares and other
 instruments of the Company in issue that are expressed to rank equally with the
 Preferences Shares with regard to participation in profits (including any
 arrears of dividends and other amounts on any such shares and other
 instruments which have rights to cumulative dividends and other amounts),
 then, 












9


	
 

	
 

	
 


	
 

	
 

	
subject to
 the restrictions in this paragraph (ii), either a reduced dividend or none of
 such dividend shall be payable. 


	
 

	
 

	
 


	
 

	
(b)

	
If, in the
 opinion of the Board, the payment of any dividend on the Preference Shares
 would breach or cause a breach of the capital adequacy requirements then
 applicable under Applicable Banking Regulations to the Company, the Group or
 any subsidiary or associated undertaking of the Company, then none of such
 dividend shall be payable. 


	
 

	
 

	
 


	
 

	
(c)

	
Without
 prejudice to paragraphs (ii)(a) and (b) above (but subject to sub-paragraph
 (viii) below), if on any Dividend Payment Date the Board determines that the
 dividend which would otherwise be payable on such Dividend Payment Date (the
 “Relevant Dividend”) should not be paid, then none of the Relevant Dividend
 shall be payable or that the Relevant Dividend should be declared and paid in
 part, then the Relevant Dividend shall be payable in part. If the Directors
 consider that the distributable profits of the Company are insufficient to
 cover the payment in full of dividends on the Preference Shares and also the
 payment in full of all other dividends or other amounts stated to be payable
 on such Dividend Payment Date on any other shares and other instruments of
 the Company that are expressed to rank equally with the Preference Shares as
 regards participation in profits (including any arrears of dividends and
 other amounts on any such shares and other instruments which have rights to
 cumulative dividends or other amounts), then, subject always to the restrictions
 relating to the Company’s capital adequacy requirements and subject always to
 sub-paragraph (c) above, the Directors may declare a reduced dividend on the
 Preference Shares and any other shares and other instruments of the Company
 in respect of which dividends or other amounts are stated to be payable on
 such Dividend Payment Date and which are expressed to rank equally with the
 Preference Shares as regards participation in profits (including any arrears
 of dividends or other amounts on any such shares and other instruments which
 have rights to cumulative dividends or other amounts) on such Dividend
 Payment Date; provided however that, in the case of the Preference Shares,
 the Directors may in their sole and absolute discretion resolve that no
 reduced dividend shall be declared and paid on the Preference Shares or that
 such reduced dividend shall be declared and paid only in part. The reduced
 dividend (if any) declared on the Preference Shares shall bear the same
 proportion to the full dividend which was due for payment on the relevant
 Dividend Payment Date, as the reduced dividends or other amounts declared on
 such other shares and instruments bear to the full dividends or other amounts
 due for payment on that date.


	
 

	
 

	
 


	
(iii)

	
If it shall
 subsequently appear that any dividend on the Preference Shares which has been
 paid should not have been paid, then, provided the Board shall have acted in
 good faith, it shall not incur any liability for any loss which any holder of
 Preference Shares may suffer in consequence of such payment having been made.
 


	
 

	
 


	
(iv)

	
If a
 dividend on the Preference Shares is not paid for the reasons specified in
 sub-paragraph (ii) above, the holders of such shares shall have no claim in
 respect of such non-payment. 


	
 

	
 


	
(v)

	
Any dividend
 unclaimed after a period of 12 years from the date when it became due for
 payment shall be forfeited and shall revert to the Company and the payment by
 the Board of any 












10


	
 

	
 

	
 


	
 

	
unclaimed
 dividend or other sum payable on or in respect of a share into a separate
 account shall not constitute the Company a trustee in respect of it. 


	
 

	
 


	
(vi)

	
If any
 dividend on the Preference Shares is not paid on a Dividend Payment Date (the
 “Relevant Dividend Payment Date”) (or a sum is not set aside to provide for
 its payment), the Dividend Restriction and Redemption Restriction shall
 apply. 


	
 

	
 


	
(vii)

	
Except as
 described in this document, holders of Preference Shares will have no right
 to participate in the profits of the Company. 


	
 

	
 


	
(viii)

	
Until the
 date on which the Preference Shares are redeemed or repurchased in full, the
 Company shall not: 


	
 

	
 


	
 

	
(a)

	
declare or
 pay any dividend or make any distribution (whether in cash or otherwise) on
 or in respect of the Ordinary Shares of the Company or set aside any sum to
 provide for payment of any such dividend or distribution; or 


	
 

	
 

	
 


	
 

	
(b)

	
redeem,
 purchase, cancel or otherwise acquire in any way any Ordinary Shares of the
 Company or effect a reduction of the Ordinary Share capital of the Company
 which involves a distribution to holders of Ordinary Shares. 


	
 

	
 

	
 


	
(ix)

	
If, on any
 Dividend Payment Date, (i) a Capital Disqualification Event (as defined
 below) has occurred and is continuing, and (ii) the Company and the Group are
 in compliance with Applicable Banking Regulations, dividends on the
 Preference Shares will be mandatorily payable on such Dividend Payment Date,
 to the extent that payment can be made out of the profits of the Company
 available for distribution and permitted by law to be distributed at such
 time after the setting aside of a sum required for payment in full of all
 dividends payable on or before the relevant Dividend Payment Date on any
 Existing Preference Shares. 





A “Capital Disqualification Event” shall be
deemed to have occurred if: (a) the Preference Shares would not be eligible to
qualify (save, where such non-qualification is only as a result of any
applicable limitation on the amount of such capital) as regulatory capital
resources for the Company or the Group under Applicable Banking Regulations; and
(b) the FSA has confirmed to the Company that the Preference Shares would not
be eligible to qualify as regulatory capital resources for the Company or the
Group. 


Payment of Dividends 


Subject to the
limitations, discretions, and qualifications set out herein, the Company will
pay dividends on the Preference Shares out of its distributable profits in
sterling: 


	
 

	
 


	
(a)

	
at the rate
 of 12 per cent. per annum on the paid up amount of £[1,000] per Preference
 Share in respect of the Dividend Periods from, and including, the Issue Date
 to, but excluding, [●] 20● (the “Fixed Rate Dividend Period”). During the
 Fixed Rate Dividend Period, dividends will be payable semi-annually in equal
 instalments in arrear on the Semi-Annual Dividend Payment Dates, commencing
 on [●] 2009 and ending on [●] 20● (being the date five years from the date of
 issue). If at any time during the Fixed Rate Dividend Period, dividends are
 required to be determined for a period shorter than a semi-annual instalment,
 they should be calculated on the 












11


	
 

	
 


	
 

	
basis of the
 actual number of days in the period from (and including) the most recent
 Semi-Annual Dividend Payment Date to (but excluding) the date on which the
 relevant dividend is payable, divided by two times the number of days in the
 Dividend Period in which the relevant period falls (including the first such
 day but excluding the last). The dividend on each Preference Share during any
 such full semi-annual Dividend Period will therefore amount to £[●]; and 


	
 

	
 


	
(b)

	
at the rate
 per annum equal to 7 per cent. plus Three Month LIBOR on the paid up amount
 of £[1,000] per Preference Share in respect of the Dividend Periods from, and
 including, [●], 20● (being the date five years from the date of issue to, but
 excluding, the date on which the Preference Shares are redeemed (the
 “Floating Rate Dividend Period”). During the Floating Rate Dividend Period,
 dividends will be payable quarterly in arrear on the Quarterly Dividend
 Payment Dates. In respect of the Floating Rate Dividend Period, the amount of
 dividend accruing in respect of any Dividend Period will be calculated on the
 basis that the actual number of days in the Dividend Period in respect of
 which payment is being made is divided by 365 or, if a leap year, 366. 





In respect of
any dividend payable upon a winding up of the Company during the Fixed Rate
Dividend Period, where the number of days in the period in respect of which
such dividend is to be paid is fewer than or greater than a full Dividend
Period, the amount of dividend accruing in respect of any such period will be
calculated on the basis that the actual number of days in the period from (and
including) the most recent Semi-Annual Dividend Payment Date to (but excluding)
the date on which the relevant dividend is payable, divided by two times the
number of days in the Dividend Period in which the relevant period falls
(including the first such day but excluding the last). In respect of any
dividend payable upon a winding up of the Company during the Floating Rate
Dividend Period, where the number of days in the period in respect of which
such dividend is to be paid is fewer than or greater than a full Dividend
Period, the amount of dividend accruing in respect of any such period will be
calculated on the basis that the actual number of days in such period is
divided by 365 or, if a leap year, 366. 


Capital 


On a
winding-up or other return of capital (other than a redemption, reduction or
purchase by the Company of any of its issued shares), the assets of the Company
available to shareholders shall be applied, in priority to any payment to the
holders of Ordinary Shares, pari passu inter
se and pari passu with
the holders of the Existing Preference Shares and in priority to or pari passu with the holders of any other
class of shares in issue (other than shares which may be issued by the Company
and which may by their terms rank in priority to the Preference Shares in a
winding-up or other return of capital), in payment to the holders of the
Preference Shares of a sum equal to the aggregate of: 


	
 

	
 


	
(i)

	
an amount
 equal to dividends accrued thereon for the then current Dividend Period to
 the date of the commencement of the winding-up or other return of capital,
 but only to the extent that any such amount was, or would have been, payable
 as a cash dividend; 


	
 

	
 


	
(ii)

	
an amount
 equal to any dividend thereon which has been resolved to be paid on or after
 the date of commencement of the winding-up or other return of capital but
 which is payable in respect of a Dividend Period ending on or before such
 date; and 


	
 

	
 


	
(iii)

	
the amount
 paid up on such Preference Shares. 












12


If, upon any
return of capital or distribution of assets, the amounts available for payment
are insufficient to cover the amounts payable in full on the Preference Shares
and any other class of shares in issue or which may be issued by the Company
which are expressed to rank equally with the Preference Shares as regards
participation in assets, the holders of the Preference Shares and the holders
of those other shares will share rateably in the distribution of surplus assets
(if any) of the Company in proportion to the full amounts to which they are
respectively entitled. The Preference Shares confer no rights to participate in
the surplus assets of the Company other than as described in this document. 


Redemption 


The Company
may, subject to the Companies Act and all other laws and regulations applying
to the Company, to the Articles, to the Company giving at least one month’s
prior written notice to, and receiving no objection from, the FSA (or such
other period of notice the FSA may from time to time require or accept and in
any event provided that such notice is required to be given) and to the Company
(both at the time of, and immediately following, the redemption) being in
compliance with its capital requirements as provided in Applicable Banking Regulations
from time to time, upon not less than 30 nor more than 60 days’ notice, redeem
the Preference Shares in whole, or in part, on [●] 20● or on any Quarterly
Dividend Payment Date thereafter (each such date on which a Preference Share
may be redeemed being a “Redemption Date”). Redemption will be effected in the
manner provided in the Articles. There shall be paid on each Preference Share
so redeemed the aggregate of: 


	
 

	
 


	
(i)

	
an amount
 paid up on such share; and 


	
 

	
 


	
(ii)

	
the dividend
 accrued for the period from, and including, the Dividend Payment Date last
 preceding the Redemption Date to, but excluding, the Redemption Date, but
 only to the extent that any such amount was, or would have been, payable as a
 cash dividend. 





Voting 


	
 

	
 

	
 


	
(i)

	
The holders
 of Preference Shares shall not be entitled to attend or vote at any general
 meeting of the Company except: 


	
 

	
 


	
 

	
(a)

	
where the
 dividend which is (or, but for the provisions described in subparagraph (ii)
 under the heading “Dividends” above, would be) most recently payable on such
 shares shall not have been paid in full; or 


	
 

	
 

	
 


	
 

	
(b)

	
where a
 resolution is to be proposed at the meeting varying or abrogating any of the
 rights, preferences, privileges, limitations or restrictions attached to any
 class of shares of which the Preference Shares form part (and then only to
 speak and vote upon any such resolution). 


	
 

	
 

	
 


	
(ii)

	
Whenever
 holders of Preference Shares are entitled to vote on a resolution, on a show
 of hands every such holder who is present in person shall have one vote and
 every proxy present who has been duly appointed by a holder shall have one
 vote and on a poll every such holder who is present in person or by proxy
 shall have one vote in respect of each Preference Share held by him. 












13


Other provisions
in the Articles relating to voting rights and procedures also apply to the
Preference Shares. 


Purchases 


Subject to the
provisions of the Companies Act and all other laws and regulations applying to
the Company, the Company may purchase or may enter into a contract under which
it will or may purchase all or any of its shares of any class, including any
redeemable shares. Neither the Company nor the Board shall be required to
select the shares to be purchased rateably or in any other particular manner as
between the holders of shares of the same class or as between them, and the
holders of shares of any other class or in accordance with the rights as to
dividends or capital conferred by any class of shares. No repurchase of
Preference Shares will be made without the Company giving at least one month’s
prior written notice to, and receiving no objection from, the FSA (or such
other period of notice the FSA may from time to time require or accept and in
any event provided that such notice is required to be given) and any such
Preference Shares repurchased would be cancelled by the Company. 


Transfer 


Title to the
Preference Shares, which are in registered and certificated form, will pass by
transfer and registration on the register of members of the Company in
accordance with the Articles. The Articles provide, among other matters, that
transfers of the Preference Shares in certificated form must be effected by an
instrument of transfer in the usual standard form or in any other form approved
by the Directors. Instruments of transfer of the Preference Shares must be
signed by or on behalf of the transferor. 


The Directors
may refuse to register a transfer of Preference Shares in certificated form
unless the instrument of transfer is duly stamped and: 


	
 

	
 


	
(a)

	
is in
 respect of Preference Shares only; 


	
 

	
 


	
(b)

	
is in favour
 of not more than four joint transferees; and 


	
 

	
 


	
(c)

	
is deposited
 at the registered office of the Company, or such other place as the Board may
 from time to time determine, accompanied by the relevant share certificate(s)
 and any other evidence the Directors may reasonably require to show the right
 of the person executing the transfer to make the transfer. 





No fee is
payable to the Company for transferring shares and any registration of a transfer
is subject in all respects to the Articles. 


Variation of Rights and Further Issues 


	
 

	
 


	
(i)

	
Except with
 the written consent of the holders of three-quarters in nominal value of the
 Preference Shares then in issue, or with the sanction of an extraordinary
 resolution passed at a separate general meeting of the holders of Preference
 Shares then in issue, the special rights attached to the Preference Shares
 may not be varied or abrogated. 


	
 

	
 


	
 

	
The special
 rights attached to the Preference Shares will be regarded as being varied or
 abrogated if: 












14


	
 

	
 

	
 


	
 

	
(a)

	
the Board
 seeks to authorise, create or increase the amount of any shares of any class
 or any security convertible into shares of any class ranking as regards
 rights to participate in the profits or assets of the Company in priority to
 the Preference Shares; 


	
 

	
 

	
 


	
 

	
(b)

	
following a
 capitalisation of any reserves which are capable of being distributed to
 shareholders, the Company’s distributable reserves, when aggregated with the
 distributable reserves of all its subsidiaries, would amount in aggregate to
 less than ten times the total annual amount of any dividends payable in
 respect of all preference shares of the Company in issue at the time of
 capitalisation (except if such capitalisation of distributable reserves is
 for the purposes of allotting and issuing ordinary shares of the Company in
 lieu of a dividend or allotting and issuing additional preference shares to
 holders of preference shares in lieu of a dividend); 


	
 

	
 

	
 


	
 

	
(c)

	
any other
 class of shares of the Company that is expressed to rank as regards
 participation in the profits or assets of the Company equally in some or all
 respects with the Preference Shares or any securities convertible into any
 such shares are created or issued, if the dividend payable on the Preference
 Shares on the Dividend Payment Date immediately preceding such creation or
 issue has not been paid in full; or 


	
 

	
 

	
 


	
 

	
(d)

	
any
 resolution is passed for the reduction of the amount of capital paid up on
 the Preference Shares. 


	
 

	
 

	
 


	
(ii)

	
The Company
 shall be entitled at any time and from time to time and without any consent
 or sanction of the holders of the Preference Shares to create and issue
 further preference share capital ranking as regards participation in the
 profits and assets of the Company after or pari
 passu with the Preference Shares. Such creation and issue shall be
 deemed not to alter, vary, affect, modify or abrogate any of the rights
 attaching to the Preference Shares and for the avoidance of doubt such rights
 shall not be deemed to be varied by the alteration of any of the provisions,
 other than provisions as to pari passu
 ranking, set out in the Articles in respect of any unissued preference
 shares. Any further series of preference shares ranking, as regards
 participation in profits or assets, pari
 passu with the Preference Shares may, without their creation or
 issue being deemed to vary the special rights attaching to the Preference
 Shares, either carry identical rights in all respects with the Preference
 Shares or carry rights differing therefrom in any respect including, but
 without prejudice to the foregoing, in that: 


	
 

	
 

	
 


	
 

	
(a)

	
the rate
 and/or basis of calculating dividends may differ and the dividend may be
 cumulative or non-cumulative; 


	
 

	
 

	
 


	
 

	
(b)

	
such shares
 may rank for dividends as from such date as may be provided by the terms of
 issue thereof and the dates for payment of dividends may differ; 


	
 

	
 

	
 


	
 

	
(c)

	
such shares
 may be denominated in any currency or, if permitted by law, any basket of
 currencies; 


	
 

	
 

	
 


	
 

	
(d)

	
a premium
 may be payable on return of capital or there may be no such premium; 


	
 

	
 

	
 


	
 

	
(e)

	
such shares
 may be redeemable at the option of the Company or may be non-redeemable; 












15


	
 

	
 

	
 


	
 

	
(f)

	
such shares
 may carry a right to additional shares by way of capitalisation of profits or
 reserves; and 


	
 

	
 

	
 


	
 

	
(g)

	
such shares
 may be convertible into Ordinary Shares or any other class of shares ranking
 as regards participation in the profits and assets of the Company pari passu with or after the Preference
 Shares, in each case on such terms and conditions as may be prescribed by the
 terms of issue thereof. 





Governing Law 


The creation
and issue of the Preference Shares and the rights attached to them are governed
by, and shall be construed in accordance with, English law. 


Definitions 


“Applicable Banking Regulations” means at
any time the capital adequacy regulations, guidelines and policies then in
effect of the FSA. 


“Articles” means the Articles of
Association of the Company, as in effect from time to time. 


“Board” means the Board of Directors from
time to time or any authorised committee thereof. 


“business day” means a day (other than a
Saturday or Sunday) on which banks in London are open for business and on which
foreign exchange dealings may be conducted. 


“Capital Disqualification Event” has the
meaning set forth under “Description of the Preference Shares – Dividends”. 


 “Companies
Act” means Companies Act 1985 or, where applicable, Companies Act
2006, as such acts may be amended, modified or re-enacted from time to time. 


“Directors” means the directors of the
Company from time to time. 


“Dividend Determination Date” means, in
relation to each Dividend Period commencing on or after [●] 20●, the first day
of the relevant Dividend Period. 


“Dividend Period” means the period from,
and including, a Dividend Payment Date (or the Issue Date) to, but excluding,
the next succeeding Dividend Payment Date. 


“Dividend Restriction” means that: 


	
 

	
 

	
 


	
(a)

	
the Company
 shall not declare or pay a dividend on its Ordinary Shares for a one year
 period commencing on the Relevant Dividend Payment Date; and 


	
 

	
 


	
(b)

	
(i)

	
the Company
 shall not, and shall procure that [relevant HBOS group authorised
 institutions currently issuing regulatory capital] shall not, declare, pay or
 distribute interest, any dividend or other payment (other than interest or a
 dividend or other payment declared, paid or distributed by [relevant HBOS
 group institutions currently 












16


	
 

	
 

	
 


	
 

	
 

	
issuing
 regulatory capital] to the Company, any holding company of the Company or to
 another wholly owned subsidiary of the Company) on any of its then issued
 Tier 1 Capital or make any payment on a Tier 1 Guarantee; and


	
 

	
 

	
 


	
 

	
(ii)

	
the Company
 shall procure that no payment is made by any subsidiary of the Company on any
 security (howsoever named or designated) benefiting from a Tier 1 Guarantee; 


	
 

	
 

	
 


	
 

	
in each
 case, for the following periods: 


	
 

	
 


	
 

	
(x)

	
where the
 relevant Tier 1 Capital (or, in the case of a payment on a Tier 1 Guarantee,
 the Tier 1 Capital to which that Tier 1 Guarantee relates) pays interest,
 dividends or other payments quarterly or more frequently, for a period of six
 calendar months commencing on the Relevant Dividend Payment Date if the
 Relevant Dividend Payment Date is on or before the Dividend Payment Date on
 [●] 20●, and thereafter for a period of three calendar months commencing on
 the Relevant Dividend Payment Date; 


	
 

	
 

	
 


	
 

	
(y)

	
where the
 relevant Tier 1 Capital (or, in the case of a payment on a Tier 1 Guarantee,
 the Tier 1 Capital to which that Tier 1 Guarantee relates) pays interest,
 dividends or other payments semi-annually, for a period of six calendar
 months commencing on the Relevant Dividend Payment Date; and 


	
 

	
 

	
 


	
 

	
(z)

	
in any other
 case, for a period of one year commencing on the Relevant Dividend Payment
 Date, 


	
 

	
 

	
 


	
 

	
provided
 that the foregoing shall not prevent the Company, [relevant HBOS group
 authorised institutions currently issuing regulatory capital] or any
 subsidiary of the Company, nor oblige the Company to procure that any of them
 are so prevented, from: 


	
 

	
 


	
 

	
(1)

	
satisfying
 any mandatory obligation to make an interest, dividend or other payment
 through an allotment and issue of shares; or 


	
 

	
 

	
 


	
 

	
(2)

	
declaring,
 paying or distributing any interest, dividend or other payment which is
 mandatorily required to be funded by the proceeds of an issue of shares for
 such purpose; or 


	
 

	
 

	
 


	
 

	
(3)

	
declaring,
 paying or distributing any interest, dividend or other payment in respect of
 any Tier 1 Capital or Tier 1 Guarantee the terms of which do not provide for
 the ability of the relevant issuer or guarantor (as the case may be) to defer
 or cancel any such payment at its discretion. 





“Existing Preference Shares” means the
non-cumulative irredeemable preference shares with a dividend rate of 9 1/4%
each year issued or to be issued by the Company, the non-cumulative
irredeemable preference shares with a dividend rate of 9 3/4% each year issued
or to be issued by the Company and any other shares and instruments which have
been issued or may be issued which, in either case, are expressed to rank
equally with them. 






17


“FSA” means the Financial Services
Authority of the United Kingdom and, if any successor governmental authority
succeeds to the bank regulatory functions of the Financial Services Authority
in the United Kingdom, such successor governmental authority. 


“Group” means HBOS PLC and its
subsidiaries. 


 “Issue
Date” means the date on which the Preference Shares are issued. 


“Modified Following Business Day Convention”
means if a Quarterly Dividend Payment Date falls on a day which is not a
business day, such Quarterly Dividend Payment Date shall be postponed to the
next day which is a business day unless it would fall into the next calendar
month in which event such Quarterly Dividend Payment Date shall be brought
forward to the immediately preceding day which is a business day. 


 “Redemption
Date” has the meaning set forth under “Description of Preference
Shares – Redemption”. 


“Redemption Restriction” means that
(without the written consent of a majority in nominal value of, or the sanction
of a special resolution passed at a separate general meeting of, the holders of
the Preference Shares) for a one year period commencing on the Relevant
Dividend Payment Date: 


	
 

	
 


	
(a)

	
the Company
 shall not redeem, reduce, purchase or otherwise acquire for any consideration
 any of its Ordinary Shares; 


	
 

	
 


	
(b)

	
the Company
 shall not, and shall procure that [relevant HBOS group institutions currently
 issuing regulatory capital] shall not, redeem, purchase or otherwise acquire
 for consideration any of its Tier 1 Capital; and 


	
 

	
 


	
(c)

	
the Company
 shall procure that no subsidiary of the Company redeems, purchases or
 otherwise acquires for consideration any security benefiting from a Tier 1
 Guarantee, 





provided that
the foregoing shall not prevent the Company or any subsidiary or associate of
the Company, (nor oblige the Company to procure that any of them are so
prevented) from redeeming, reducing, purchasing or otherwise acquiring, for any
consideration any of its Tier 1 Capital or any security benefiting from a Tier
1 Guarantee the terms of which in each case do not provide for the ability of
the relevant issuer or guarantor (as the case may be) to defer or cancel any
such payment at its discretion 


“Registrar” means the registrar for the
time being of the Preference Shares. 


“Relevant Dividend” has the meaning set
forth under “Description of Preference Shares – Dividends”. 


“Relevant Dividend Payment Date” has the
meaning set forth under “Description of Preference Shares – Dividends”. 


“Three Month LIBOR” means, in relation to a
Dividend Period, the offered rate for three month deposits in sterling as at
11.00 a.m. London time on the related Dividend Determination Date appearing on
the display designated as page “LIBOR01” on the Reuters Service (or such other
page or service as may replace it for the purpose of displaying such
information) as determined by the Company. 






18


 “Tier 1
Capital” has the meaning assigned to such term (i) in Section 2.2 of
Chapter 2 of The General Prudential Sourcebook published by the FSA, as
amended, supplemented or replaced from time to time, or (ii) in any successor
Applicable Banking Regulations. 


“Tier 1 Guarantee” means any guarantee,
indemnity or other contractual support arrangement entered into by [relevant
HBOS group institutions currently issuing regulatory capital] or the Company in
respect of the securities (regardless of name or designation) issued by a
subsidiary of the Company which create Tier 1 Capital of [relevant HBOS group
institutions currently issuing regulatory capital] or the Company. 






19


Schedule 2


Pro-forma Novation Agreement


THIS NOVATION AGREEMENT is made the [●] day of [●], 20[●]



BETWEEN: 


	
 

	
 


	
1.

	
THE
 COMMISSIONERS OF HER MAJESTY’S TREASURY, of 1 Horse Guards Road, London
 SW1A 2HQ (“HMT”) 


	
 

	
 


	
2.

	
HBOS
 PLC
 incorporated in Scotland under the Companies Acts 1948 to 1967 with
 registered number SC218813 and registered address The Mound, Edinburgh EH1
 1YZ (“HBOS”)


	
 

	
 


	
AND 

	
 


	
 

	
 


	
3.

	
[                
         ]
 of

[                                                                      ]
 (registered in England No.

[                
         ])
 (the “Company”) 


	
 

	
 


	
WHEREAS: 


	
 

	
 


	
(A)

	
HMT has agreed to
 subscribe for, and HBOS has agreed to allot and issue to HMT, the Preference
 Shares (as defined in this Agreement) pursuant to the Preference Share
 Subscription Agreement (as defined in this agreement). 


	
 

	
 


	
(B)

	
HMT wishes to be
 released and discharged from the Preference Share Subscription Agreement and
 HBOS has agreed to release and discharge HMT from the Preference Share
 Subscription Agreement upon the terms of the Company’s undertaking to perform
 the Preference Share Subscription Agreement and be bound by its terms in the
 place of HMT and HMT agreeing to guarantee the Company’s obligations in respect
 of the Preference Share Subscription Agreement. 


	
 

	
 


	
NOW IT IS AGREED
 as follows:- 


	
 

	
 


	
1.

	
INTERPRETATION
 


	
 

	
 


	
1.1

	
In this agreement:
 








	
 

	
 


	
“Preference
 Shares”

	
means [insert relevant number] of preferred
 shares of [£●] each, having the rights and subject to the restrictions
 set out in Schedule 1 to the Preference Share Subscription Agreement;


	
 

	
 


	
“Preference
 Share

 Subscription Agreement”

	
means the
 agreement effective as of 13 October 2008 between HMT and HBOS pursuant to
 which HMT agreed to subscribe for, and HBOS agree to allot and issue to HMT,
 the Preference Shares; and












20


	
 

	
 


	
“Proceedings”

	
means any
 proceeding, suit or actions arising out of or in connection with this
 Agreement.








	
 

	
 

	
 


	
1.2

	
In this agreement,
 unless otherwise specified: 


	
 

	
 


	
 

	
(A)

	
references to
 clauses and sub-clauses are to clauses and sub-clauses of this agreement; and
 


	
 

	
 

	
 


	
 

	
(B)

	
headings to
 clauses and schedules are for convenience only and do not affect the
 interpretation of this agreement. 


	
 

	
 

	
 


	
2.

	
COMPANY’S
 UNDERTAKING 


	
 

	
 


	
 

	
With effect from
 the date of this agreement and in consideration of the undertakings given by
 HBOS in clause 3, the Company hereby undertakes to observe, perform,
 discharge and be bound by the Preference Share Subscription Agreement as if
 the Company were a party to that agreement in the place of HMT.
 Notwithstanding this undertaking, nothing in this agreement shall: 


	
 

	
 


	
 

	
(A)

	
require the
 Company to perform any obligation created by or arising under the Preference
 Share Subscription Agreement falling due for performance in its entirety, or
 which should have been performed in its entirety, before the date of this
 agreement; 


	
 

	
 

	
 


	
 

	
(B)

	
make the Company
 liable for any act, neglect, default or omission in respect of the Preference
 Share Subscription Agreement committed by HMT or occurring before the date of
 this agreement; or 


	
 

	
 

	
 


	
 

	
(C)

	
impose any
 obligation on the Company for or in respect of any obligation performed by
 HMT under the Preference Share Subscription Agreement before the date of this
 agreement.


	
 

	
 


	
3.

	
HBOS’S
 UNDERTAKING AND RELEASE OF HMT 


	
 

	
 


	
3.1

	
With effect from
 the date of this agreement and in consideration of the undertakings given by
 the Company in clause 2 and the undertakings and guarantee given by
 HMT in clauses 4 and 5 respectively, HBOS hereby: 


	
 

	
 


	
 

	
(A)

	
releases and
 discharges HMT from all obligations to observe, perform, discharge and be
 bound by the Preference Share Subscription Agreement; 


	
 

	
 

	
 


	
 

	
(B)

	
accepts the
 Company’s undertaking to observe, perform, discharge and be bound by the Preference
 Share Subscription Agreement (such undertaking being set out in clause 2);
 and 


	
 

	
 

	
 


	
 

	
(C)

	
agrees to observe,
 perform, discharge and be bound by the Preference Share Subscription
 Agreement as if the Company were a party to the Preference Share Subscription
 Agreement in the place of HMT. 












21


	
 

	
 


	
3.2

	
Notwithstanding
 the provisions of sub-clause 3.1(A), nothing in this agreement shall
 affect or prejudice any claim or demand whatsoever which HBOS may have
 against HMT in relation to the Preference Share Subscription Agreement and
 (i) arising out of matters prior to the date of this agreement and/or (ii)
 arising in connection with those matters contemplated in clause 2(A), (B) or
 (C). 


	
 

	
 


	
4.

	
HMT’S
 UNDERTAKING AND RELEASE OF HBOS 


	
 

	
 


	
 

	
With effect from
 the date of this agreement and in consideration of the undertakings given by
 HBOS in clause 3, HMT hereby releases and discharges HBOS from all
 obligations to observe, perform, discharge and be bound by the Preference
 Share Subscription Agreement. Notwithstanding this undertaking and release,
 nothing in this agreement shall affect or prejudice any claim or demand
 whatsoever which HMT may have against HBOS in relation to the Preference
 Share Subscription Agreement and (i) arising out of matters prior to the date
 of this agreement and/or (ii) arising in connection with those matters
 contemplated in clause 2(A), (B) or (C). 


	
 

	
 


	
5.

	
GUARANTEE
 AND INDEMNITY 


	
 

	
 


	
5.1

	
In consideration
 of the undertakings given by HBOS in clause 3, HMT hereby
 unconditionally and irrevocably guarantees to HBOS the due and punctual
 performance and observance by the Company of all its obligations, commitments
 and undertakings under or pursuant to this agreement and agrees to indemnify
 HBOS against all loss, damage, costs and breach by the Company of its
 obligations, commitments or undertakings under or pursuant to this agreement.
 The liability of HMT under this agreement shall not be released or diminished
 by any variation of the terms of this agreement or the Preference Share
 Subscription Agreement as novated by this agreement (whether or not agreed by
 HMT), any forbearance, neglect or delay in seeking performance of the
 obligations hereby imposed or any granting of time for such performance. 


	
 

	
 


	
5.2

	
If and whenever
 the Company defaults for any reason whatsoever in the performance of any
 obligation or liability undertaken or expressed to be undertaken by the
 Company under or pursuant to this agreement, HMT shall forthwith upon demand
 unconditionally perform (or procure performance of) and satisfy (or procure
 the satisfaction of) the obligation or liability in regard to which such
 default has been made so that the same benefits shall be conferred on HBOS as
 it would have received if such obligation or liability had been duly
 performed and satisfied by the Company. 


	
 

	
 


	
5.3

	
This guarantee is
 to be a continuing guarantee and accordingly is to remain in force until all
 the obligations, commitments and undertakings of the Company referred to in sub-clause
 5.1 shall have been performed or satisfied. This guarantee is in addition
 to and without prejudice to and not in substitution for any rights or
 security which HBOS may now or hereafter have or hold for the performance and
 observance of the obligations, commitments and undertakings of the Company under
 or in connection with this agreement. 












22


	
 

	
 


	
5.4

	
As a separate and
 independent stipulation HMT agrees that any obligation expressed to be
 undertaken by the Company (including, without limitation, any moneys
 expressed to be payable under this agreement or the Preference Share
 Subscription Agreement as novated by this agreement) which may not be
 enforceable against or recoverable from the Company by reason of any legal
 limitation, disability or incapacity on or of the Company or any other fact
 or circumstance (other than any limitation imposed by this agreement or the
 Preference Share Subscription Agreement as novated by this agreement) shall
 nevertheless be enforceable against and recoverable from HMT as though the
 same had been incurred by HMT and HMT were the sole or principal obligor in
 respect thereof. 


	
 

	
 


	
6.

	
COMPANY
 CEASING TO BE WHOLLY OWNED BY HMT 


	
 

	
 


	
 

	
In the event that
 the Company at any time after the date of this Agreement ceases to be
 directly or indirectly wholly-owned by HMT, the Company shall, and HMT will
 procure that the Company shall, enter into a novation agreement upon
 substantially the same terms as this Agreement such that the rights and
 obligations assumed by the Company under this Agreement are novated either to
 HMT or to an entity which is, directly or indirectly, wholly owned by HMT.
 HBOS hereby agrees to consent to, and to execute and deliver all such
 documentation as may be necessary to effect, such novation provided that such
 novation is effected upon substantially the same terms as this Agreement. 


	
 

	
 


	
7.

	
NOTICES
 


	
 

	
 


	
 

	
For the purposes
 of all provisions in the Preference Share Subscription Agreement concerning
 the service of notices, the address of the Company is its registered office
 as shown above from time to time and its fax number is [●]. All notices
 served on the Company under the Preference Share Subscription Agreement
 should be marked for the attention of [●]. 


	
 

	
 


	
8.

	
COUNTERPARTS
 


	
 

	
 


	
8.1

	
This agreement may
 be executed in any number of counterparts, and by the parties on separate counterparts,
 but shall not be effective until each party has executed at least one
 counterpart. 


	
 

	
 


	
8.2

	
Each counterpart
 shall constitute an original of this agreement, but all the counterparts
 shall together constitute but one and the same instrument. 


	
 

	
 


	
9.

	
GOVERNING
 LAW AND JURISDICTION 


	
 

	
 


	
9.1

	
This agreement and
 all non-contractual obligations arising out of or in connection with it shall
 be governed by and construed in accordance with English law. 


	
 

	
 


	
9.2

	
The courts of
 England are to have exclusive jurisdiction to settle any dispute arising out
 of or in connection with this agreement. Any Proceedings shall be brought in
 the English courts. 












23


	
 

	
 


	
10.

	
[AGENT
 FOR SERVICE OF PROCESS] 


	
 

	
 


	
 

	
[To
 be included if the Company is not a company incorporated in England: 


	
 

	
 


	
 

	
The
 Company shall at all times maintain an agent for service of process and for
 service of any other documents and proceedings in England, or any other
 proceedings in connection with this Agreement. Such agent shall be [agent
 with address in England] and any writ, judgment or other notice of legal
 process shall be sufficiently served on the Company if delivered to such
 agent at its address for the time being. The Company irrevocably undertakes
 not to revoke the authority of the above agent and if, for any reason, the
 agent ceases to act as such, the Company shall appoint a replacement agent
 having an address for service in England and shall notify HBOS and HMT of the
 name and address of such replacement agent. If the Company fails to appoint
 another agent, HBOS shall be entitled to appoint one on the Company’s behalf
 and at the Company’s expense.]





IN WITNESS of which this Agreement has been executed on the date which
first appears on page 1 of this Agreement. 


	
 


	



	
 


	



	
For and on behalf
 of 


	
THE
 COMMISSIONERS OF HER MAJESTY’S TREASURY 


	
 


	



	
For and on behalf
 of 


	
HBOS
 PLC 


	
 


	



	
For and on behalf
 of [insert name of the Company]
 












24


IN WITNESS of which this Agreement has been executed as of the date
which first appears on page 1 of this Agreement on the dates which appear
below. 


	
 

	
 


	
Signed by:

	
 


	
for and on behalf
 of

	
 


	
THE
 COMMISSIONERS

	
TONY
 CUNNINGHAM


	
OF
 HER MAJESTY’S TREASURY

	
BOB
 BLIZZARD


	
 

	
Date:3/11/2008


	
 

	
 


	
Signed by:

	
 


	
for and on behalf
 of

	
 


	
HBOS
 PLC

	
HARRY
 BAINES


	
 

	
Date:21/10/2008