Document:

Exhibit 10.16

As of January 15, 2009 

NOTE MODIFICATION AGREEMENT

by and between

BANK OF AMERICA, N.A., 

as Payee

and

ACADIA-P/A SHERMAN AVENUE, LLC,
 as Maker

NOTE MODIFICATION AGREEMENT

                    NOTE
MODIFICATION AGREEMENT (this “Agreement”) made as of the 15th day of January,
2009 by and between BANK OF AMERICA, N.A., having an office at One Bryant Park,
35th Floor, New York, New York 10036 (“Payee”), and ACADIA-P/A SHERMAN AVENUE,
LLC, a Delaware limited liability company having an address at c/o Acadia Realty
Trust, 1311 Mamaroneck Avenue, Suite 260, White Plains, New York 10605
(“Maker”). 

WITNESSETH:

                    WHEREAS,
Payee is now the lawful owner and holder of the note (the “Note”) secured by
the mortgage more particularly described in Exhibit A attached hereto and made
a part hereof; 

                    WHEREAS,
Maker is the obligor under the Note which, as of the date hereof, evidences an
aggregate outstanding principal indebtedness of $19,000,000 (the
“Indebtedness”), plus interest thereon; and 

                    WHEREAS,
Payee and Maker have agreed to modify the Note in the manner hereinafter set
forth; 

                    NOW,
THEREFORE, in consideration of the premises and the mutual agreements herein
expressed, the parties hereto covenant and agree as follows: 

                         1.
The Note evidences the aggregate principal amount of the Indebtedness, together
with interest accrued and to accrue thereon and all other sums evidenced
thereby. 

                         2.
Maker hereby acknowledges that it is justly indebted to Payee under the Note,
and covenants and promises to pay the Indebtedness, together with 

interest and
other charges thereon, in accordance with the terms, covenants, conditions and
provisions set forth in Exhibit B attached hereto and made a part hereof,
including any exculpatory provisions contained in said Exhibit B, which terms,
covenants, conditions and provisions shall supersede in their entirety all of
the terms and provisions of the Note. 

                         3.
The terms and provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their heirs, representatives, successors and assigns.

                         4.
This Agreement and the rights and obligations of the parties hereto shall in
all respects be governed by, and construed and enforced in accordance with, the
laws of the State of New York (without giving effect to New York’s choice of
law principles). 

                         5.
This Agreement may be executed in multiple counterparts, each of which shall
constitute an original and together which shall constitute but one and the same
instrument. 

                         6.
The information set forth on the cover hereof is incorporated herein. 

[Remainder of page intentionally left blank.]

2

                    IN
WITNESS WHEREOF, this Agreement has been duly executed and delivered by each of
the parties hereto as of the day and year first above written. 

	
 

	
 

	
 

	
 

	
BANK OF
 AMERICA, N.A.

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	
 

	

	
 

	
 

	
Gregory Egli

	
 

	
 

	
Senior Vice
 President

	
 

	
 

	
 

	
 

	
ACADIA-P/A
 SHERMAN AVENUE, LLC,

	
 

	
a Delaware
 limited liability company

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	
 

	

	
 

	
 

	
Robert
 Masters

	
 

	
 

	
Senior Vice
 President

                    This
is to certify that this Note Modification Agreement was executed in my presence
on the date hereof on behalf of the Maker identified above by the party or
parties whose signature(s) appear(s) above in the capacities indicated. 

	
 
	
 

	
 
	

	
 
	
Notary
 Public

	
 
	
 

	
My Commission Expires:
	
 

	 	 
	
 
	
 

	

	
 

EXHIBIT A

Mortgage

All recording references are to recordings in
the 

Office of the New York City Register, New York County.

Mortgage,
Assignment of Leases and Rents in the original principal amount of $19,000,000
made by Acadia-P/A Sherman Avenue, LLC to Bank of China, New York Branch dated
as of September 8, 2005 and recorded September 19, 2005 as CRFN 2005000523844.
Mortgage Tax Paid: $532,000. 

Said mortgage
was assigned by Bank of China, New York Branch to Bank of America, N.A. by an
Assignment of Mortgage dated January 14, 2009 and intended to be recorded. 

EXHIBIT B

Form of Modified Note

EXHIBIT B

NOTE

Date of Note:   January
15, 2009

Note Amount:   $19,000,000

Maturity Date:   January 15,
2010 

                    FOR
VALUE RECEIVED, the undersigned (hereinafter, “Maker”) does hereby covenant and
promise to pay to the order of BANK OF AMERICA, N.A. or its successors or
assigns (hereinafter collectively “Payee”), on the Maturity Date, at One Bryant
Park, 35th Floor, New York, New York 10036, or at such other place as Payee may
designate to Maker in writing from time to time (it being understood that all
or any portions of the indebtedness evidenced hereby, whether principal or
interest, at Payee’s election, may be payable at, or for the account of,
Payee’s lending offices at other locations), the Note Amount or so much thereof
as shall be advanced by Payee and remain unpaid, together with interest at the
Floating Rate (as hereinafter defined), provided, however, that if the BBA
LIBOR Daily Floating Rate (as hereinafter defined) is not available for any
reason, or if Payee determines that no adequate basis exists for determining
the BBA LIBOR Daily Floating Rate or that the BBA LIBOR Daily Floating Rate
will not adequately and fairly reflect the cost to Payee of funding the Loan,
or that any applicable law or regulation or compliance therewith by Payee
prohibits or restricts or makes impossible the charging of interest based on
the BBA LIBOR Daily Floating Rate and Payee so notifies Maker, then until Payee
notifies Maker that the circumstances giving rise to such suspension no longer
exist, interest shall accrue and be payable on the unpaid principal balance of
this Note from the date Payee so notifies Maker until the maturity date of this
Note (whether by acceleration, declaration, extension or otherwise) at a
fluctuating rate of interest per annum equal to the Prime Rate (as hereinafter
defined) of Payee plus 150 basis points per annum. If Payee (including any
subsequent holder of this Note) ceases to exist or to establish a prime rate
from which the Prime Rate is then determined, the applicable variable rate from
which the Prime Rate is then determined thereafter shall be instead the prime
rate reported in The Wall Street Journal (or the average prime rate if a high
and a low prime rate are therein reported), and the Prime Rate shall change without
notice with each change in such prime rate as of the date such change is
reported. Interest shall be computed on an actual/360-day basis (i.e., interest
for each day during which any portion of the Note Amount bearing interest at
said rate is outstanding shall be computed at said rate divided by 360) on so
much of the Note Amount as is from time to time outstanding (the “Principal
Amount”), all as hereinafter provided, and with a late payment premium of 5% of
any principal or interest payment (other than the balloon payment due on the
Maturity Date) made more than ten (10) days after the due date thereof which
shall be due with any such late payment. All payments of principal, interest
and other sums hereunder shall be made in lawful money of the United States and
in immediately available funds. All payments of principal, interest and other 

3

sums hereunder
shall be made in lawful money of the United States and in immediately available
funds, without counterclaim or setoff and free and clear of, and without any
deduction or withholding for, any taxes or other payments. 

                    The
following additional terms, as used in this Note, shall have the meanings
indicated opposite them: 

	
 

	
 

	
 

	
          “Additional
 Costs” — Any costs, losses or expenses incurred by Payee which it determines
 are attributable to its making or maintaining the Loan, or its obligation to
 make any Loan advances, or any reduction in any amount receivable by Payee
 under the Loan or this Note. 

	
 

	
 

	
 

	
          “BBA
 LIBOR Daily Floating Rate” — A fluctuating rate of interest per annum equal
 to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by
 Reuters (or other commercially available source providing quotations of BBA
 LIBOR as selected by Payee from time to time) as determined for each Business
 Day at approximately 11:00 a.m. London time two (2) London Banking Days prior
 to the date in question, for U.S. Dollar deposits (for delivery on the first
 day of such interest period) with a one month term, as adjusted from time to
 time in Payee’s sole discretion for reserve requirements, deposit insurance
 assessment rates and other regulatory costs. A “London Banking Day” is a day
 on which banks in London are open for business and dealing in offshore
 dollars. 

	
 

	
 

	
 

	
          
 “Business Day” — Any day other than a Saturday, Sunday or day which shall be
 in the State of New York a legal holiday or day on which banking institutions
 are required or authorized to close. 

	
 

	
 

	
 

	
          “Dollars”
 and “$” — Lawful money of the United States of America. 

	
 

	
 

	
 

	
          “Floating
 Rate” — A fluctuating rate per annum equal to the BBA LIBOR Daily Floating
 Rate plus 150 basis points per annum, each change in said rates to be
 effective as of the date of such change. 

	
 

	
 

	
 

	
          “Loan”
 — The loan in the Note Amount to be made to Maker by Payee and evidenced
 hereby. 

	
 

	
 

	
 

	
          “Loan
 Documents” — All instruments delivered (whether now or hereafter and whether
 by Maker or any other person or entity) to Payee or any other holder of this
 Note in connection with the Loan evidenced by this Note. 

	
 

	
 

	
 

	
          “Prime
 Rate” — On any day, the rate of interest per annum then most recently
 established by Payee as its “prime rate”. Any such rate is a general
 reference rate of interest, may not be related to any other rate, and may not
 be the lowest or best rate actually charged by Payee to any customer or a
 favored rate and may not correspond with future increases or decreases in
 interest rates charged by other lenders or market rates in general, and Payee
 may make various business or other loans at rates of interest having no
 relationship to such rate. 

4

	
 

	
 

	
 

	
          “Regulation
 D” — Regulation D of the Board of Governors of the Federal Reserve System,
 as from time to time amended or supplemented.

	
 

	
 

	
 

	
          “Regulatory
 Change” — With respect to the charging and collecting of interest at the
 Floating Rate, any change after the date hereof in United States federal,
 state or foreign laws or regulations (including Regulation D) or the adoption
 or making after such date of any interpretations, directives or requests
 applying to a class of banks including Payee under any United States federal,
 state or foreign laws or regulations (whether or not having the force of law)
 by any court or governmental or monetary authority charged with the
 interpretation or administration thereof, excluding any change the effect of
 which is reflected in a change in the Floating Rate. 

	
 

	
 

	
 

	
          “Reserve
 Requirement” — The average maximum rate at which reserves (including any
 marginal, supplemental or emergency reserves) are required to be maintained
 under Regulation D by member banks of the Federal Reserve System in New York
 City with deposits exceeding one billion U.S. Dollars against “Euro-Currency
 Liabilities”, as such quoted term is used in Regulation D. Without limiting
 the effect of the foregoing, the Reserve Requirement shall reflect any other
 reserves required to be maintained by such member banks by reason of any
 Regulatory Change against (a) any category of liabilities which includes
 deposits by reference to which the Floating Rate is to be determined as
 provided in this Note or (b) any category of extensions of credit or other
 assets which includes loans the interest rate on which is determined on the
 basis of rates referred to in the definition of “Floating Rate” set forth
 above. 

                    Interest
on the Principal Amount shall be payable monthly on the first day of the first
month (an “Interest Payment Date”) following the first advance of Loan proceeds
which are evidenced hereby and on the first day of each month thereafter until
this Note is repaid in full. 

                    Maker
shall pay to Payee, promptly upon demand, such amounts as are necessary to
compensate Payee for Additional Costs resulting from any Regulatory Change
which (i) subjects Payee to any tax, duty or other charge with respect to the
Loan or this Note, or changes the basis of taxation of any amounts payable to
Payee under the Loan or this Note (other than taxes imposed on the overall net
income of Payee or of its applicable lending office by the jurisdiction in
which Payee’s principal office or such applicable lending office is located),
(ii) imposes, modifies or deems applicable any reserve, special deposit or
similar requirements relating to any extensions of credit or other assets of,
or any deposits with or other liabilities of, Payee, (iii) imposes on Payee or
on the London interbank market, any other condition affecting the Loan or this
Note, or any of such extensions of credit or liabilities or (iv) imposes any
capital adequacy requirements on Payee by virtue of the Loan or this Note.
Payee will notify Maker of any event occurring after the date hereof which
would entitle it to compensation pursuant to this paragraph as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation, and will designate a different lending office for those portions
of the Loan affected by such event if such designation will avoid the need 

5

for, or reduce
the amount of, such compensation and will not, in Payee’s sole opinion, be
disadvantageous to it, provided that Payee shall have no obligation to so
designate a lending office located in the United States. For purposes of this
paragraph, of the definition of “Additional Costs” set forth above and of the
next succeeding four paragraphs, the term “Payee” shall, at Payee’s option, be
deemed to include Payee’s present and future participants in the Loan. 

                    Determinations
by Payee of the existence or effect of any Regulatory Change on its costs of
making or maintaining the Loan, or portions thereof, at the Floating Rate, or
on amounts receivable by it in respect thereof, and of the additional amounts
required to compensate Payee in respect of Additional Costs, shall be
conclusive, provided that such determinations are made on a reasonable basis. 

                    Maker
shall have the right to prepay this Note, in whole or in part, without premium
or penalty (subject, however, to the provisions of the immediately preceding
paragraph of this Note) upon written notice thereof given to Payee by prepaid
registered or certified mail at least ten (10) days prior to the date to be
fixed therein for prepayment, and upon the payment of all accrued interest on
the amount prepaid (and all late charges and other sums that may be payable
hereunder) to the date so fixed. Any such notice of prepayment shall be
irrevocable. 

                    This
Note is secured by, among other things, a mortgage(s) or deed(s) of trust (the
“Mortgage”) of premises situated as indicated below, which Mortgage specifies
various defaults upon the happening of which all sums owing on this Note may be
declared immediately due and payable. 

                    If
a default shall occur hereunder or under the Mortgage and such default shall
continue after the expiration of any applicable grace period, interest on the
Principal Amount shall, at the option of Payee, immediately and without notice
to Maker, be converted to the Prime Rate. The foregoing provision shall not be
construed as a waiver by Payee of its right to pursue any other remedies
available to it under the Mortgage or any other instrument evidencing or
securing the Loan, nor shall it be construed to limit in any way the
application of the “Default Rate” as provided in the Mortgage. 

                    Maker
hereby agrees that it shall be bound by any agreement extending the time or
modifying the above terms of payment, made by Payee and the owner or owners of
the property affected by the Mortgage or any additional collateral documents
delivered to Payee in connection with the Loan, whether with or without notice
to Maker, and Maker shall continue to be liable to pay the amount due hereunder,
but with interest at a rate no greater than the interest rate provided for
herein according to the terms of any such agreement of extension or
modification. 

                    This
Note may not be changed orally but only by an agreement in writing, signed by
the party against whom enforcement of any waiver, change, modification or
discharge is sought. All parties to this Note, whether Maker, principal,
surety, guarantor or endorser, hereby waive demand, notice and protest. Written
notices required to be given hereunder shall be given as provided in the
Mortgage. 

6

                    Should
the indebtedness represented by this Note or any part thereof be collected at
law or in equity, or in bankruptcy, receivership or any other court proceeding
(whether at the trial or appellate level), or should this Note be placed in the
hands of attorneys for collection upon default, Maker agrees to pay, in
addition to the principal, interest and other sums due and payable hereon, all
costs of collecting or attempting to collect this Note, including reasonable
attorneys’ fees and expenses. 

                    Anything
herein to the contrary notwithstanding, the obligations of Maker under this
Note shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt of any such payment by Payee would be
contrary to provisions of law applicable to Payee limiting the maximum rate of
interest which may be charged or collected by Payee. All agreements between
Maker and/or any guarantor of Maker’s obligations hereunder and Payee are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to Payee for the use or
the forbearance of the indebtedness evidenced hereby exceed the maximum
permissible under applicable law. As used herein, the term “applicable law”
shall mean the law in effect as of the date hereof, provided, however, that in
the event there is a change in the law which results in a higher permissible
rate of interest, then this Note shall be governed by such new law as of its
effective date. In this regard, it is expressly agreed that it is the intent of
Maker and Payee in the execution, delivery and acceptance of this Note to
contract in strict compliance with the laws of the State of New York from time
to time in effect. If, under or from any circumstances whatsoever, fulfillment
of any provision hereof or of any of the loan documents at the time of
performance of such provision shall be due, shall involve transcending the
limit of such validity prescribed by applicable law, then the obligation to be
fulfilled shall automatically be reduced to the limits of such validity, and
if, under or from any circumstances whatsoever Payee should ever receive as
interest an amount which would exceed the highest lawful rate, such amount
which would be excessive interest shall be applied to the reduction of the
principal balance evidenced hereby and not to the payment of interest. This
provision shall control every other provision of all agreements between Maker
and/or any guarantor of Maker’s obligations hereunder and Payee. 

                    Promptly
upon receipt of an affidavit of an officer of Payee as to the loss, theft,
destruction or mutilation of this Note, or of any other document evidencing or
securing the loan evidenced hereby which is not of public record, Maker will
issue and deliver, in lieu thereof, a replacement Note or other such document. 

                    Payee
may at any time pledge all or any portion of this Note or its rights hereunder
or otherwise in respect of the Loan to any of the twelve (12) Federal Reserve
Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section
341. No such pledge or enforcement thereof shall release Payee from its
obligations under the Loan. 

                    MAKER
HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVES, IN CONNECTION WITH ANY SUIT,
ACTION OR PROCEEDING BROUGHT BY PAYEE ON THIS NOTE, ANY AND EVERY RIGHT IT MAY
HAVE 

7

TO (I)
INJUNCTIVE RELIEF, (II) INTERPOSE ANY COUNTERCLAIM THEREIN, OTHER THAN A
COMPULSORY COUNTERCLAIM AND (III) HAVE THE SAME CONSOLIDATED WITH ANY OTHER OR
SEPARATE SUIT, ACTION OR PROCEEDING. NOTHING HEREIN CONTAINED SHALL PREVENT OR
PROHIBIT MAKER FROM INSTITUTING OR MAINTAINING A SEPARATE ACTION AGAINST PAYEE
WITH RESPECT TO ANY ASSERTED CLAIM. IN ADDITION, MAKER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY CLAIM BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE
OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH,
OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF ANY PARTY. THE FOREGOING WAIVERS CONSTITUTE A MATERIAL INDUCEMENT
FOR PAYEE TO ACCEPT THIS NOTE AND TO MAKE THE LOAN EVIDENCED HEREBY. 

                This
Note and the rights and obligations of the parties hereunder shall in all respects
be governed by, and construed and enforced in accordance with, the laws of the
State of New York (without giving effect to New York’s principles of conflicts
of law). Maker hereby irrevocably submits to the non-exclusive jurisdiction of
any New York State or Federal court sitting in The City of New York (or any
county in New York State where any portion of the “Mortgaged Property”, as such
quoted term is defined in the Mortgage, is located) over any suit, action or
proceeding arising out of or relating to this Note, and Maker hereby agrees and
consents that, in addition to any methods of service of process provided for
under applicable law, all service of process in any such suit, action or
proceeding in any New York State or Federal court sitting in The City of New
York (or such other county in New York State) may be made by certified or
registered mail, return receipt requested, directed to Maker at the address
indicated below, and service so made shall be complete five (5) days after the
same shall have been so mailed. 

           Maker
shall not be personally liable for payment of the principal of this Note or
interest thereon, and in the event of any failure by Maker to pay any portion
of such principal or interest, Payee will look, with respect to the then
outstanding balance of such principal and interest, solely to the Mortgaged
Property and such other collateral as has been, or hereafter shall be, given to
secure payment of the Note and any guaranties thereof. The foregoing limitation
on liability shall not impair or otherwise affect the validity or
enforceability of (a) the debt evidenced by this Note or of any other
obligations evidenced by this Note, the Mortgage or any of the Loan Documents or (b) Payee’s liens, security interests,
rights and remedies (including, without limitation, the remedies of foreclosure
and/or sale) with respect to the Mortgaged Property or any other property,
security, collateral and/or assets (including the proceeds thereof) encumbered,
pledged or assigned by the Mortgages or any other security for the Loan. In
addition, the foregoing limitation on liability shall not limit the obligations
of Maker or any other party, or be applicable, with respect to: (i) liability
under any guaranty(ies) or indemnity(ies) delivered or afforded to Payee; (ii)
any fraud or material misrepresentation; (iii) taxes of any kind (whether
characterized as transfer, gains or 

8

other taxes)
payable in connection with the foreclosure sale of the Mortgaged Property,
irrespective of who pays such taxes; (iv) application of any proceeds of the
Loan to any purpose other than as provided in the Loan Documents; (v) the
application of any insurance or condemnation proceeds or other funds or
payments other than strictly in accordance with the Loan Documents; (vi) the
misapplication of any security deposits; (vii) rents, sales proceeds, or other
sums received after default under the Loan Documents which are not applied to
expenses of operating the Mortgaged Property or paid to Payee or a duly
appointed receiver of the Premises; (viii) any failure to deliver to Payee,
after demand therefor, any agreements relating to the operation, management,
leasing, use, occupancy or construction of the Mortgaged Property; (ix) any
intentional physical waste in respect of the Mortgaged Property; (x) any
failure to pay or discharge any real estate tax, other tax, assessment, fine,
penalty or lien against the Mortgaged Property to the extent revenue from
leases of the Mortgaged Property was available to pay same; (xi) liability as
landlord under any lease(s) relating to the Mortgaged Property which liability
accrued prior to Payee’s succeeding to such interest of Maker, which Payee is
or becomes obligated for by virtue of Payee succeeding to the interests of
Maker, provided,  however, that such liability shall only apply with respect to
any liability of Maker under such leases which Payee assumes pursuant to
subordination, non-disturbance and attornment agreements required pursuant to
the terms of such leases; (xii) liability under any agreement relating to the
operation or maintenance of the Mortgaged Property which liability accrued
prior to Payee’s succeeding to such interest of Maker which Payee is or becomes
obligated for by virtue of Payee succeeding to the interests of Maker,
provided,  however, that such liability shall only apply with respect to
agreements which are not terminable by their terms upon thirty (30) days’
written notice; (xiii) liability to pay for the premiums on and keep in full
force and effect insurance in respect of the Mortgaged Property in accordance
with the Loan Documents to the extent revenue from leases of the Mortgaged
Property was available to pay same; or (xiv) liability for Hazardous Substances
(as defined in the Mortgage) that may exist upon or be discharged from the
Mortgaged Property. Maker shall in any event be and shall remain personally
liable for each of the matters to which reference is made in the preceding
sentence and Payee may seek, obtain and enforce one or more money judgments in
any appropriate proceeding(s) with respect thereto. The limitation on personal
liability contained in this paragraph shall become automatically null and void
and shall be of no further force or effect, and Maker shall be and remain
personally liable for payment of the principal of this Note and interest
thereon, in accordance with the terms and provisions of this Note, in the event
that Maker, or anyone acting on behalf of Maker, shall (A) file a petition or
answer seeking any relief of any kind under the bankruptcy laws of the United
States, or if an Insolvency Event (as defined in the Mortgage) shall otherwise
occur, (B) assert in writing or in any legal proceedings of any kind that any
provisions of any of the Loan Documents are in whole or in part unenforceable,
invalid or not legally binding, or (C) fail fully to cooperate with Payee or a
receiver in Payee’s or such receiver’s efforts to collect Rents directly from
tenants after a default under the Loan Documents.  

[Remainder of page intentionally left blank]

9

                    IN
WITNESS WHEREOF, Maker has executed and delivered this Note on the day and year
first above written. 

	
 

	
 

	
 

	
 

	
ACADIA-P/A
 SHERMAN AVENUE, LLC,

	
 

	
a Delaware
 limited liability company

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	
 

	

	
 

	
 

	
Robert
 Masters

	
 

	
 

	
Senior Vice
 President

	
 

	
 

	
Location of
 Premises:

	
Address of
 Maker

	
 

	
 

	
4650-4060
 Broadway (a/k/a 2-16 Sherman

	
Acadia-P/A
 Sherman Avenue, LLC

	
Avenue), New
 York, New York

	
c/o Acadia
 Realty Trust

	
 

	
1311
 Mamaroneck Avenue, Suite 260

	
 

	
White
 Plains, New York 10605

                    This
is to certify that this Note was executed in my presence on the date hereof by
the party whose signature appears above in the capacity indicated. 

	
 
	
 

	
 
	

	
 
	
Notary
 Public 

	
 
	
 

	
My Commission Expires:
	
 

	 	 
	
 
	
 

	

	
 

	
 

	
 

	
BLOCK: 

	
2175 

	
LOT: 

	
1 

	
COUNTY: 

	
New York 

	
ADDRESS: 

	
4650-4660
 Broadway (a/k/a 2-16 Sherman Avenue), New York, New York 

	
 

	
As of January 15, 2009 

	
 

	
MORTGAGE MODIFICATION AGREEMENT 

	
 

	
by and between

	
 

	
ACADIA-P/A SHERMAN AVENUE, LLC,

	
as Mortgagor

	
 

	
and

	
 

	
BANK OF AMERICA, N.A.,

	
as Mortgagee

	
 

	
 

	
 

	

This instrument prepared by, and after recording please return to:

	
Schiff Hardin LLP

	
900 Third Avenue

	
New York, New York 10022

	
Attention: Paul G. Mackey, Esq.

MORTGAGE MODIFICATION AGREEMENT

          MORTGAGE
MODIFICATION AGREEMENT (this “Agreement”) made as of the 15th day of January,
2009 by and between BANK OF AMERICA, N.A., having an office at One Bryant Park,
35th Floor, New York, New York 10036 (“Mortgagee”), and ACADIA-P/A SHERMAN AVENUE,
LLC, a Delaware limited liability company having an address at c/o Acadia
Realty Trust, 1311 Mamaroneck Avenue, Suite 260, White Plains, New York 10605
(“Mortgagor”).

WITNESSETH:

          WHEREAS,
Mortgagee is now the lawful owner and holder of the mortgages (collectively,
the “Mortgage”) more particularly described in Exhibit A attached hereto
and made a part hereof, and of the note (the “Note”) and other obligations
secured thereby; 

          WHEREAS,
the maximum outstanding principal amount which is or under any contingency may
be secured by the Mortgage is $19,000,000 (the “Indebtedness”), plus interest
thereon and all additional interest and late payment and prepayment charges in
respect thereof, plus all amounts expended by Mortgagee following a default
thereunder in respect of insurance premiums and real estate taxes, and all
legal costs or expenses of collection of the note(s) secured thereby or of the
defense or prosecution of the rights and lien created thereby; 

          WHEREAS,
the Mortgage is presently a valid lien on the real property described in Schedule
A attached hereto and made a part hereof (the “Premises”); 

          WHEREAS,
Mortgagor is the lawful owner of the Premises; and 

          WHEREAS,
Mortgagee and Mortgagor have agreed to modify, amend and restate the terms of
the Mortgage in the manner hereinafter set forth; 

          NOW,
THEREFORE, in consideration of the premises and the mutual agreements herein
expressed, the parties hereto covenant and agree as follows: 

               7. Mortgagor
hereby agrees to pay the Indebtedness and interest thereon at the rate(s) of
interest and on the terms provided for the payment of principal and interest in
the Note, as modified by that certain note modification agreement, dated the
date hereof, between Mortgagee and Mortgagor (the “Note Agreement”). 

               8. The
Mortgage is hereby amended and restated in its entirety by Exhibit B attached
hereto and made a part hereof including any exculpatory provisions contained in
said Exhibit B, and Mortgagor hereby agrees to comply with and be bound by all
of the terms, covenants and conditions set forth in said Exhibit B.

               9. Mortgagor
hereby certifies that this Agreement secures the same indebtedness evidenced by
the Note, as modified by the Note Agreement, and secured by the Mortgage, as
modified, amended and restated hereby, and secures no new or further
indebtedness or obligation. 

               10. Mortgagor
represents and warrants that there exist no defenses, offsets or counterclaims
with respect to its obligations under the Mortgage, as modified hereby, or
under the Note, as modified by the Note Agreement, including its obligation for
the payment of the Indebtedness. 

               11. The
terms and provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their heirs, representatives, successors and assigns. 

2

               12. This
Agreement and the rights and obligations of the parties hereto shall in all
respects be governed by, and construed and enforced in accordance with, the
laws of the State of New York (without giving effect to New York’s choice of
law principles). 

               13. This
Agreement may be executed in multiple counterparts, each of which shall
constitute an original and together which shall constitute but one and the same
instrument. 

               14. The
information set forth on the cover hereof is incorporated herein. 

[Remainder of page intentionally left blank.]

3

          IN
WITNESS WHEREOF, this Agreement has been duly executed and delivered by each of
the parties hereto as of the day and year first above written. 

	
 

	
 

	
 

	
BANK OF
 AMERICA, N.A. 

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	
 

	

	
 

	
 

	
Gregory Egli
 

	
 

	
 

	
Senior Vice
 President

	
 

	
 

	
 

	
 

	
ACADIA-P/A
 SHERMAN AVENUE, LLC, 

	
 

	
a Delaware
 limited liability company

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	
 

	

	
 

	
 

	
Robert
 Masters

	
 

	
 

	
Senior Vice
 President

	
 

	
 

	
 

	
STATE OF NEW
 YORK

	
)

	
 

	
 

	
:

	
ss.:

	
COUNTY OF
 NEW YORK

	
)

	
 

          On
the ______ day of January in the year 2009, before me, the undersigned, a
notary public in and for said state, personally appeared Gregory Egli,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual(s) whose name(s) is (are) subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person upon behalf of which the individual(s) acted,
executed the instrument. 

	
 
	
 

	
 
	

	
 
	
Notary
 Public 

	
 
	
 

	
My Commission Expires:
	
 

	 	 
	
 
	
 

	

	
 

	
 

	
 

	
 

	
STATE OF NEW
 YORK

	
)

	
 

	
 

	
:

	
ss.:

	
COUNTY OF
WESTCHESTER

	
)

	
 

          On
the ______ day of January in the year 2009, before me, the undersigned, a
notary public in and for said state, personally appeared Robert Masters,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual(s) whose name(s) is (are) subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person upon behalf of which the individual(s) acted,
executed the instrument. 

	
 
	
 

	
 
	

	
 
	
Notary
 Public 

	
 
	
 

	
My
 Commission Expires:
	
 

	 	 
	
 
	
 

	
 
	
 

	

	

SCHEDULE A

Property Description

ALL that lot
or parcel of land, in the Borough of Manhattan, County of New York, City of New
York, State of New York described as follows:

PARCEL A:

Lot Numbers 1
and 4 in Section Number 8, Block Number 2175 on the land map of the County of
New York, and bounded and described as follows:

BEGINNING a
point on the easterly side of Broadway at the northeasterly line of said Lot
Number 4;

RUNNING THENCE
easterly, or nearly so along said Lot Number 4, 220 feet 5 inches to the westerly
line of Lot Number 100 on said map;

THENCE 113
feet 8 inches southeasterly along said westerly line of said Lot Number 100 to
the northerly side of Sherman Avenue;

THENCE
westerly or nearly so along the northerly side of Sherman Avenue to a point
thereon distant 204 feet 4-3/8 inches westerly from the westerly side of said
Lot Number 100;

THENCE running
on a curved line, 96 feet 9-5/8 inches to a point on the easterly side of
Broadway, distant 130 feet 5/8 inch southerly from the northerly line of said
Lot Number 4;

THENCE
northerly along the easterly side of Broadway, 130 feet 5/8 inch to the point
or place of BEGINNING. Be the said several distances, more or less.

PARCEL B:

Lot Number 50
on a certain map entitled “Map of 128 acres of land situated in the 12th Ward
of the City of New York, part of the Estate Of Isaac Dyckman, deceased, known
as Fort George Property”. Dated September 15th, 1868 by R. Rosa, Surveyor, and
filed in the Office of the Register of the County of New York on
November 7, 1868 as map number 697 and which said plot is bounded and
described as follows:

BEGINNING at a
point on the easterly side of Broadway or Kingsbridge Road, as widened, at the
southwesterly corner of plot number 49 on said map;

THENCE
easterly or nearly so along said plot number 49, 202 feet to plot number 53 on
said map;

THENCE
southeasterly along the said plot number 53 on said map and parallel with a new
street laid out by the Commissioners of the Central Park and designated on said
map as boulevard or Dyckman Street, 53 feet 3 inches;

THENCE
westerly or nearly so and along plot number 51 on said map, 220 feet 5 inches
to the present easterly side of Broadway or Kingsbridge Road, as widened;

THENCE
northerly or nearly so along the said present easterly side of Broadway or
Kingsbridge Road, 50 feet to the point or place of BEGINNING.

2

EXHIBIT A

Mortgage

All recording references are to recordings in
the

Office of the New York City Register, New York County.

Mortgage,
Assignment of Leases and Rents in the original principal amount of $19,000,000
made by Acadia-P/A Sherman Avenue, LLC to Bank of China, New York Branch dated
as of September 8, 2005 and recorded September 19, 2005 as CRFN
2005000523844. Mortgage Tax Paid: $532,000.

Said mortgage
was assigned by Bank of China, New York Branch to Bank of America, N.A. by an
Assignment of Mortgage dated January 14, 2009 and intended to be recorded.

EXHIBIT B

Form of Amended and Restated Mortgage

EXHIBIT B

	
 

	
 

	
BLOCK:

	
2175

	
LOT:

	
1

	
COUNTY:

	
New York

	
ADDRESS:

	
4650-4660
 Broadway (a/k/a 2-16 Sherman Avenue), New York, New York

Date: As of January 15, 2009

MORTGAGE, ASSIGNMENT OF LEASES

AND RENTS AND SECURITY AGREEMENT

(“this Mortgage”)

FROM

ACADIA-P/A SHERMAN AVENUE, LLC,

a limited liability company organized and existing under the laws of Delaware

(“Mortgagor”)

	
 

	
 

	
 

	
 

	
Address of
 Mortgagor:

	
c/o Acadia
 Realty Trust

	
 

	
 

	
1311
 Mamaroneck Avenue, Suite 260

	
 

	
 

	
White
 Plains, New York 10605

TO

BANK OF AMERICA, N.A.

(“Mortgagee”)

	
 

	
 

	
 

	
 

	
Address of
 Mortgagee:

	
One Bryant
 Park, 35th Floor

	
 

	
 

	
New York,
 New York 10036

Mortgage Amount: $19,000,000

This instrument prepared by, and after
recording please return to:
Schiff Hardin LLP

900 Third Avenue, 23rd Floor

New York, New York 10022

Attention: Paul G. Mackey, Esq.

2

THE AMOUNT OF THIS MORTGAGE IS $19,000,000.

RECITAL

                    ACADIA-P/A
SHERMAN AVENUE, LLC, a Delaware limited liability company, is the owner of the
premises described in Schedule A. Mortgagor will borrow the Mortgage
Amount from Mortgagee and has executed and delivered to Mortgagee a note
modification agreement, dated the date hereof, obligating it to pay the
Mortgage Amount (the note described in, and modified by, said note modification
agreement, as the same may hereafter be amended, modified, extended, severed,
assigned, renewed, replaced or restated, hereinafter, the “Loan Note”). In the
event that all or any part of the Premises is located in the State of New York,
then, notwithstanding the language in the Granting Clause and Section 1.10 or
anything else contained herein to the contrary, the maximum amount secured
hereby at execution or which under any contingency may become secured hereby at
any time hereafter is the Mortgage Amount and all interest, Additional Interest
and late payment and prepayment charges in respect thereof, plus all amounts
expended by Mortgagee following a default hereunder in respect of insurance
premiums and real estate taxes, and all legal costs or expenses of collection
of the debt secured hereby or of the defense or prosecution of the rights and
lien created hereby. In addition, Mortgagor may hereafter enter into the
Hedging Agreement (as hereinafter defined) with Counterparty (as hereinafter
defined), providing for one or more interest rate hedging transactions. The
Loan Note and the Hedging Agreement are hereinafter referred to individually
and collectively as the “Note”. In connection with the Hedging Agreement,
Counterparty has appointed or will appoint Mortgagee to act as its agent
hereunder.

CERTAIN DEFINITIONS AND RULES OF CONSTRUCTION

                    Mortgagor
and Mortgagee agree that, unless the context otherwise specifies or requires,
the following terms shall have the meanings herein specified.

                    “Additional
Interest” means all sums payable by Mortgagor under the Hedging Agreement.

                    “Chattels”
means all fixtures, furnishings, fittings, appliances, apparatus, equipment,
building materials and components, machinery, boilers, oil burners, power
systems, heating, ventilating and air conditioning systems, elevators, and all
other chattels and articles of personal property, of whatever kind or nature,
and any additions thereto and any replacements, proceeds or products thereof
(other than those owned by lessees or those claiming under or through lessees
or leased by lessees from parties other than Mortgagor) now or at any time
hereafter intended to be or actually affixed to, attached to, placed upon, or
used in any way in connection with the complete and comfortable use, enjoyment,
development, occupancy or operation of the Premises, and whether located on or
off the Premises.

                    “Counterparty”
means Bank of America, N.A., in its capacity as a party to the Hedging
Agreement, and its successors and assigns in such capacity.

                    “Default
Rate” means the rate (or, if more than one, the highest of the rates) of
interest per annum provided in the Note plus 5%, but in no event to exceed the
maximum rate allowed by law.

                    “Events
of Default” means the events and circumstances described as such in Section
2.01.

                    “Financial
Statements” means statements of the assets, liabilities (direct or contingent),
income, expenses and cash flow of Mortgagor and Guarantor, prepared in
accordance with generally accepted accounting principles in the United States
as in effect from time to time and consistently applied (“GAAP”).

                    “Guarantor”
means Acadia Strategic Opportunity Fund II, LLC, a Delaware limited liability
company (“ASOF II”).

                    “Guaranty”
means, individually and collectively, that certain Guaranty of Payment-Mortgage
Loan (Interest/Carrying Costs) made by ASOF II in favor of Mortgagee.

                    “Hazardous Materials” means any pollutant,
effluents, emissions, contaminants, toxic or hazardous wastes, materials or
substances, as any of those terms are defined from time to time in or for the
purposes of any relevant environmental law, rule, regulation, code, permit,
order, notice, demand letter or other binding determination (hereinafter,
“Environmental Laws”) including, without limitation, asbestos fibers and
friable asbestos, polychlorinated biphenyls and any petroleum or
hydrocarbon-based products or derivatives.

                    “Hedging
Agreement” means any ISDA Master Agreement or other documentation with respect
to an interest rate hedging transaction entered into by and between Mortgagor
and Counterparty, as may be amended, modified or supplemented from time to
time, including any and all “confirmations” under any thereof.

                    “Improvements”
means all structures or buildings, and replacements thereof, now or hereafter
located upon the Premises, including all plant equipment, apparatus, machinery
and fixtures of every kind and nature whatsoever forming part of said
structures or buildings.

                    “Insolvency
Event” means (1) the voluntary or collusive involuntary incurrence of any
secured or unsecured indebtedness in contravention of the Loan Documents, (2)
any voluntary or collusive involuntary filing of any bankruptcy, insolvency or
similar proceeding by or against Mortgagor or Guarantor or (3) the voluntary or
collusive involuntary creation of any pledge, lien or other encumbrance on the
Mortgaged Property in contravention of the Loan Documents.

2

                    “lease”
or “leases” means any lease or leases of all or any portion of the Premises,
whether affecting the fee or leasehold portion thereof.

                    “Loan”
means the loan made by Mortgagee to Mortgagor pursuant to the Note and secured
hereby.

                    “Loan
Documents” means this Mortgage, any other Mortgages held by Mortgagee which
encumber the Premises (collectively, the “Other Mortgages”), the Note, the
Guaranty, any Hedging Agreement and all other documents executed or delivered
by Mortgagor or Guarantor to Mortgagee in connection with the Loan or the Other
Mortgages, if any.

                    “Premises”
means the premises described in Schedule A, including all of the
easements, rights, privileges and appurtenances (including air or development
rights) thereunto belonging or in anywise appertaining, and all of the estate,
right, title, interest, claim or demand whatsoever of Mortgagor therein and in
the streets and ways adjacent thereto, either in law or in equity, in
possession or expectancy, now or hereafter acquired, and as used herein shall,
unless the context otherwise requires, be deemed to include the Improvements. 

                    “Premises
Documents” means all reciprocal easement or operating agreements, declarations,
development agreements, developer’s or utility agreements, and any similar such
agreements or declarations now or hereafter affecting the Premises or any part
thereof.

                    All
terms of this Mortgage which are not defined above shall have the meaning set
forth elsewhere in this Mortgage.

                    Except
as expressly indicated otherwise, when used in this Mortgage (i) “or” is not
exclusive, (ii) “hereunder”, “herein”, “hereof” and the like refer to this
Mortgage as a whole, (iii) “Article”, “Section” and “Schedule” refer to
Articles, Sections and Schedules of this Mortgage, (iv) terms defined in the
singular have a correlative meaning when used in the plural and vice versa, (v)
a reference to a law or statute includes any amendment or modification to, or
replacement of, such law or statute and (vi) a reference to an agreement,
instrument or document means such agreement, instrument or document as the same
may be amended, modified or supplemented from time to time in accordance with
its terms. The cover page and all Schedules hereto are incorporated herein and
made a part hereof. Any table of contents and the headings and captions herein
are for convenience only and shall not affect the interpretation or
construction hereof.

GRANTING CLAUSE

                    NOW,
THEREFORE, Mortgagor, in consideration of the premises and in order to secure
the payment of both the principal of, and the interest, Additional Interest and
any other sums payable under, the Note or this Mortgage and the performance and
observance of all the provisions hereof and of the Note, hereby gives, grants,
bargains, sells, warrants, aliens, remises, releases, conveys, assigns,
transfers, mortgages, 

3

hypothecates,
deposits, pledges, sets over and confirms unto Mortgagee, all its estate,
right, title and interest in, to and under any and all of the following
described property (hereinafter, the “Mortgaged Property”) whether now owned or
held or hereafter acquired:

	
 

	
 

	
 

	
          (i) the
 Premises;

	
 

	
 

	
 

	
          (ii) the
 Improvements;

	
 

	
 

	
 

	
          (iii) the
 Chattels;

	
 

	
 

	
 

	
          (iv) the
 Premises Documents;

	
 

	
 

	
 

	
          (v) all
 rents, royalties, issues, profits, revenue, income, recoveries,
 reimbursements and other benefits of the Mortgaged Property (hereinafter, the
 “Rents”) and all leases of the Mortgaged Property or portions thereof now or
 hereafter entered into and all right, title and interest of Mortgagor thereunder,
 including, without limitation, cash, letters of credit or securities
 deposited thereunder to secure performance by the lessees of their
 obligations thereunder, whether such cash, letters of credit or securities
 are to be held until the expiration of the terms of such leases or applied to
 one or more of the installments of rent coming due immediately prior to the
 expiration of such terms, and including any guaranties of such leases and any
 lease cancellation, surrender or termination fees in respect thereof, all
 subject, however, to the provisions of Section 3.01;

	
 

	
 

	
 

	
          (vi) all
 (a) development work product prepared in connection with the Premises,
 including, but not limited to, engineering, drainage, traffic, soil and other
 studies and tests; water, sewer, gas, electrical and telephone approvals,
 taps and connections; surveys, drawings, plans and specifications; and
 subdivision, zoning and platting materials; (b) building and other permits,
 rights, licenses and approvals relating to the Premises; (c) contracts and
 agreements (including, without limitation, contracts with architects and
 engineers, construction contracts and contracts for the maintenance,
 management or leasing of the Premises), contract rights, logos, trademarks,
 trade names, copyrights and other general intangibles used or useful in
 connection with the ownership, operation or occupancy of the Premises or any
 part thereof; (d) financing commitments (debt or equity) issued to Mortgagor
 in respect of the Premises and all amounts payable to Mortgagor thereunder;
 (e) contracts for the sale of all or any portion of the Premises, the
 Improvements or the Chattels, and all amounts payable by the purchasers
 thereunder; (f) operating and other bank accounts, and monies therein, of
 Mortgagor relating to the Premises, including, without limitation, any
 accounts relating to real estate taxes or assessments; (g) interest rate
 protection agreements entered into by Mortgagor in respect of the Loan,
 whether pursuant to the Note or otherwise; and (h) commercial tort claims
 related to the Premises, the Improvements or the Chattels;

4

	
 

	
 

	
 

	
          (vii) all
 rights of Mortgagor under promissory notes, letters of credit, electronic
 chattel paper, proceeds from accounts, payment intangibles, and general
 intangibles related to the Premises, as the terms “accounts”, “general
 intangibles”, and “payment intangibles” are defined in the applicable Uniform
 Commercial Code Article 9, as the same may be modified or amended from time
 to time;

	
 

	
 

	
 

	
          (viii) all
 other assets of Mortgagor related in any way to the Premises, subject to
 certain limitations that may be set forth herein; and

	
 

	
 

	
 

	
          (ix) all
 proceeds of the conversion, voluntary or involuntary, of any of the foregoing
 into cash or liquidated claims, including, without limitation, proceeds of
 insurance and condemnation awards, and all rights of Mortgagor to refunds of
 real estate taxes and assessments.

	
 

	
 

	
 

	
          TO HAVE AND
 TO HOLD unto Mortgagee, its successors and assigns forever.

15.

COVENANTS OF MORTGAGOR

                    Mortgagor
covenants and agrees as follows:

                              (a)
(i) Warranty of Title; Power and
Authority. Mortgagor warrants that it has a good and marketable title to an
indefeasible fee estate in the Premises subject to no lien, charge or
encumbrance except such as are listed as exceptions to title in the title
policy insuring the lien hereof; that it owns the Chattels, all leases and the
Rents in respect of the Mortgaged Property and all other personal property encumbered
hereby free and clear of liens and claims; and that this Mortgage is and will
remain a valid and enforceable lien on the Mortgaged Property subject only to
the exceptions referred to above. Mortgagor has full power and lawful authority
to mortgage the Mortgaged Property in the manner and form herein done or
intended hereafter to be done. Mortgagor will preserve, and will forever
warrant and defend the same to Mortgagee and will forever warrant and defend
the validity and priority of the lien hereof against the claims of all persons
and parties whomsoever.

          (ii)
Hazardous Materials. Mortgagor represents and warrants that (i) the
Premises and the improvements thereon, and, to the best of Mortgagor’s
knowledge, the surrounding areas, are not currently and have never been subject
to Hazardous Materials or their effects, (ii) neither it nor any portion of the
Premises or improvements thereon is in violation of, or subject to any
existing, pending or threatened investigation or proceeding by any governmental
authorities under, any Environmental Law, (iii) there are no claims,
litigation, administrative or other proceedings, whether actual or threatened,
or judgments or orders, concerning Hazardous Materials relating in any way to
the Premises or the improvements thereon and (iv) Mortgagor is not required by
any

5

Environmental
Law to obtain any permits or licenses to construct or use any improvements,
fixtures or equipment with respect to the Premises, or if any such permit or
license is required it has been obtained and is capable of being mortgaged and
assigned hereby. Mortgagor will comply with all applicable Environmental Laws
and will, at its sole cost and expense, promptly remove, or cause the removal
of, any and all Hazardous Materials or the effects thereof at any time
identified as being on, in, under or affecting the Premises.

          (iii)
Flood Hazard Area. Mortgagor represents that neither the Premises nor
any part thereof is located in an area identified by the Secretary of the
United States Department of Housing and Urban Development or by any applicable
federal agency as having special flood hazards or, if it is, Mortgagor has
obtained the insurance required by Section 1.09.

                              (b)
(i) Further Assurances. Mortgagor will, at its sole cost and expense,
do, execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, assignments, notices of assignment, transfers and
assurances as Mortgagee shall from time to time require, for the better
assuring, conveying, assigning, transferring and confirming unto Mortgagee the
property and rights hereby conveyed or assigned or intended now or hereafter so
to be, or which Mortgagor may be or may hereafter become bound to convey or
assign to Mortgagee, or for carrying out the intention or facilitating the
performance of the terms hereof, or for filing, registering or recording this
Mortgage and, on demand, will execute and deliver, and hereby irrevocably
authorizes Mortgagee to execute (including in Mortgagor’s name) and/or file, at
any time and from time to time, one or more financing statements (including
amendments), chattel mortgages or comparable security instruments, to evidence
or perfect more effectively Mortgagee’s security interest in and the lien
hereof upon the Chattels and other personal property encumbered hereby.

          (ii)
Information Reporting and Back-up Withholding. Mortgagor will, at its
sole cost and expense, do, execute, acknowledge and deliver all and every such
acts, information reports, returns and withholding of monies as shall be
necessary or appropriate to comply fully, or to cause full compliance, with all
applicable information reporting and back-up withholding requirements of the
Internal Revenue Code of 1986 (including all regulations now or hereafter
promulgated thereunder) in respect of the Premises and all transactions related
to the Premises, and will at all times provide Mortgagee with satisfactory
evidence of such compliance and notify Mortgagee of the information reported in
connection with such compliance.

                              (c)
(i) Filing and Recording of Documents. Mortgagor forthwith upon the
execution and delivery hereof, and thereafter from time to time, will cause
this Mortgage and any security instrument creating a lien or evidencing the
lien hereof upon the Chattels and each instrument of further assurance to be
filed, registered or recorded in such manner and in such places as may be
required by any present or future law in order to publish notice of and fully
to protect the lien hereof upon, and the interest of Mortgagee in, the
Mortgaged Property.

6

          (ii)
Filing and Recording Fees and Other Charges. Mortgagor will pay all
filing, registration or recording fees, and all expenses incident to the
execution and acknowledgment hereof, any mortgage supplemental hereto, any
security instrument with respect to the Chattels, and any instrument of further
assurance, and any expenses (including attorneys’ fees and disbursements)
incurred by Mortgagee in connection with the Loan, and will pay all federal,
state, county and municipal stamp taxes and other taxes, duties, imposts,
assessments and charges arising out of or in connection with the execution and
delivery of the Note, this Mortgage, any mortgage supplemental hereto, any
security instrument with respect to the Chattels or any instrument of further
assurance.

                              (d)
Payment and Performance of Loan Documents. Mortgagor will punctually pay
the principal and interest, Additional Interest, and all other sums to become
due in respect hereof and of the Note at the time and place and in the manner
specified therein, according to the true intent and meaning thereof, all in
currency of the United States of America which at the time of such payment
shall be legal tender for the payment of public and private debts. Mortgagor
will duly and timely comply with and perform all of the terms, provisions,
covenants and agreements contained in said documents and in all other documents
or instruments executed or delivered by Mortgagor to Mortgagee in connection
with the Loan, and will permit no failures of performance thereunder.

                              (e)
Type of Entity; Maintenance of Existence; Compliance with Laws.
Mortgagor represents that its correct legal name, jurisdiction of
formation/existence and chief executive office or, if applicable, sole place of
business (or, if an individual, its principal residence) are as set forth on
the cover page hereof. Mortgagor, if other than a natural person, further
represents that it has delivered to Mortgagee a current, original certificate
issued by the appropriate official of said jurisdiction evidencing such
formation and existence, and agrees that it will, so long as it is owner of all
or part of the Mortgaged Property, do all things necessary to preserve and keep
in full force and effect its existence, franchises, rights and privileges as a
business or stock corporation, partnership, limited liability company, trust or
other entity under the laws of such jurisdiction. Mortgagor, if other than a
natural person, will not (a) modify or amend such certificate or change its
legal name or jurisdiction of formation/existence without Mortgagee’s prior
consent, not to be unreasonably withheld or (b) change the location of its
chief executive office or, if applicable, sole place of business without first
giving Mortgagee at least thirty (30) days’ prior notice. Mortgagor, if an
individual, will not change its legal name or principal residence without first
giving Mortgagee at least thirty (30) days’ prior notice. Mortgagor will duly
and timely comply with all laws, regulations, rules, statutes, orders and
decrees of any governmental authority or court applicable to it or to the
Mortgaged Property or any part thereof.

                              (f)
After-Acquired Property. All right, title and interest of Mortgagor in
and to all extensions, improvements, betterments, renewals, substitutes and
replacements of, and all additions and appurtenances to, the Mortgaged
Property, hereafter acquired by, or released to, Mortgagor or constructed,
assembled or placed by Mortgagor on the Premises, and all conversions of the
security constituted thereby, 

7

immediately
upon such acquisition, release, construction, assembling, placement or
conversion, as the case may be, and in each such case, without any further mortgage,
conveyance, assignment or other act by Mortgagor, shall become subject to the
lien hereof as fully and completely, and with the same effect, as though now
owned by Mortgagor and specifically described in the Granting Clause hereof,
but at any and all times Mortgagor will execute and deliver to Mortgagee any
and all such further assurances, mortgages, conveyances or assignments thereof
as Mortgagee may reasonably require for the purpose of expressly and
specifically subjecting the same to the lien hereof.

                              (g)
(i) Payment of Taxes and Other Charges. Mortgagor, from time to time
when the same shall become due and payable, will pay and discharge all taxes of
every kind and nature (including real and personal property taxes and income,
franchise, withholding, profits and gross receipts taxes), payments in lieu of
taxes, all general and special assessments, levies, permits, inspection and
license fees, all water and sewer rents and charges, all charges for utilities,
and all other charges (public or private) whether of a like or different
nature, imposed upon or assessed against it or the Mortgaged Property or any
part thereof or upon the revenues, rents, issues, income and profits of the
Mortgaged Property or arising in respect of the occupancy, use or possession
thereof. Mortgagor will, upon Mortgagee’s request, deliver to Mortgagee
receipts evidencing the payment of all such taxes, assessments, levies, fees,
rents and other charges imposed upon or assessed against it or the Mortgaged Property
or any portion thereof.

                    From
and after the occurrence of an Event of Default, Mortgagee may, at its option,
to be exercised by thirty (30) days’ notice to Mortgagor, require the deposit
by Mortgagor, at the time of each payment of an installment of interest or
principal under the Note (but no less often than monthly), of an additional
amount sufficient to discharge the obligations under this clause (a) when they
become due. The determination of the amount so payable and of the fractional
part thereof to be deposited with Mortgagee, so that the aggregate of such
deposits shall be sufficient for this purpose, shall be made by Mortgagee in
its sole discretion. Such amounts shall be held by Mortgagee without interest
and applied to the payment of the obligations in respect of which such amounts
were deposited or, at Mortgagee’s option, to the payment of said obligations in
such order or priority as Mortgagee shall determine, on or before the
respective dates on which the same or any of them would become delinquent. If
one (1) month prior to the due date of any of the aforementioned obligations
the amounts then on deposit therefor shall be insufficient for the payment of
such obligation in full, Mortgagor within ten (10) days after demand shall
deposit the amount of the deficiency with Mortgagee. Nothing herein contained
shall be deemed to affect any right or remedy of Mortgagee under any provisions
hereof or of any statute or rule of law to pay any such amount and to add the
amount so paid, together with interest at the Default Rate, to the indebtedness
hereby secured.

          (ii)
Payment of Mechanics and Materialmen. Mortgagor will pay, from time to
time when the same shall become due, all lawful claims and demands of
mechanics, materialmen, laborers, and others which, if unpaid, might result in,
or permit the creation 

8

of, a lien on
the Mortgaged Property or any part thereof, and in general will do or cause to
be done everything necessary so that the lien hereof shall be fully preserved,
at the cost of Mortgagor and without expense to Mortgagee.

          (iii)
Good Faith Contests. Nothing in this Section 1.07 shall require the
payment or discharge of any obligation imposed upon Mortgagor by this Section
so long as Mortgagor shall in good faith and at its own expense contest the
same or the validity thereof by appropriate legal proceedings which shall
operate to prevent the collection thereof or other realization thereon and the
sale or forfeiture of the Mortgaged Property or any part thereof to satisfy the
same; provided, however, that (i) during such contest Mortgagor
shall, at Mortgagee’s option, provide security satisfactory to Mortgagee,
assuring the discharge of Mortgagor’s obligation hereunder and of any
additional charge, penalty or expense arising from or incurred as a result of
such contest and (ii) if at any time payment of any obligation imposed upon
Mortgagor by clause (a) above shall become necessary to prevent the delivery of
a tax deed or other instrument conveying the Mortgaged Property or any portion
thereof because of non-payment, then Mortgagor shall pay the same in sufficient
time to prevent the delivery of such tax deed or other instrument.

                              (h)
Taxes on Mortgagee. Mortgagor will pay any taxes (except income,
franchise or similar taxes) imposed on Mortgagee by reason of its ownership of
the Note or this Mortgage.

                              (i)
Insurance. 

	
 

	
 

	
 

	
     Mortgagor
 will at all times provide, maintain and keep in force: 

	
 

	
 

	
 

	
          policies
 of insurance insuring the Premises, Improvements and Chattels against loss or
 damage by fire and lightning; against loss or damage by other risks embraced
 by coverage of the type now known as All Risk Replacement Cost Insurance with
 agreed amount endorsement, including but not limited to riot and civil
 commotion, vandalism, malicious mischief, terrorism and theft; and against
 such other risks or hazards as Mortgagee from time to time reasonably may
 designate in an amount sufficient to prevent Mortgagee or Mortgagor from
 becoming a co-insurer under the terms of the applicable policies, but in any
 event in an amount not less than 100% of the then full replacement cost of
 the Improvements (exclusive of the cost of excavations, foundations and
 footings below the lowest basement floor) without deduction for physical
 depreciation; 

	
 

	
 

	
 

	
          policies
 of insurance insuring the Premises against the loss of “rental value” of the
 buildings which constitute a part of the Improvements on a “rented or vacant
 basis” arising out of the perils insured against pursuant to clause (i) above
 in an amount equal to not less than one (1) year’s gross “rental value” of
 the Improvements. “Rental value” as used herein is defined as the sum of (A)
 the total anticipated gross rental income from tenant occupancy of such
 buildings as furnished and equipped, (B) the amount of all charges which are
 the legal 

9

obligation of
tenants and which would otherwise be the obligation of Mortgagor and (C) the
fair rental value of any portion of such buildings which is occupied by
Mortgagor. Mortgagor hereby assigns the proceeds of such insurance to
Mortgagee, to be applied by Mortgagee in payment of the interest and principal
on the Note, insurance premiums, taxes, assessments and private impositions
until such time as the Improvements shall have been restored and placed in full
operation, at which time, provided Mortgagor is not then in default hereunder,
the balance of such insurance proceeds, if any, held by Mortgagee shall be paid
over to Mortgagor;

	
 

	
 

	
 

	
          if
 all or part of the Premises are located in an area identified by the
 Secretary of the United States Department of Housing and Urban Development or
 by any applicable federal agency as a flood hazard area, flood insurance in
 an amount at least equal to the maximum limit of coverage available under the
 National Flood Insurance Act of 1968, provided, however, that
 Mortgagee reserves the right to require flood insurance in excess of said
 limit if such insurance is commercially available up to the amount provided
 in clause (i) above;

	
 

	
 

	
 

	
          during
 any period of restoration under this Section 1.09 or Section 1.13, a policy
 or policies of builder’s “all risk” insurance, written on a Standard
 Builder’s Risk Completed Value Form (100% non-reporting), in an amount not
 less than the full insurable value of the Premises against such risks
 (including, without limitation, fire and extended coverage, collapse and
 earthquake coverage to agreed limits) as Mortgagee may reasonably request, in
 form and substance acceptable to Mortgagee;

	
 

	
 

	
 

	
          a
 policy or policies of workers’ compensation insurance as required by workers’
 compensation insurance laws (including employer’s liability insurance, if
 requested by Mortgagee) covering all employees of Mortgagor; 

	
 

	
 

	
 

	
          comprehensive
 liability insurance on an “occurrence” basis against claims for “personal
 injury” liability, including, without limitation, bodily injury, death or
 property damage liability, with a limit of not less than $15,000,000 in the
 event of “personal injury” to any number of persons or of damage to property
 arising out of one “occurrence”. Such policies shall name Mortgagee as
 additional insured by an endorsement, and shall contain cross-liability and
 severability of interest clauses, all satisfactory to Mortgagee; and 

	
 

	
 

	
 

	
          such
 other insurance (including, but not limited to, earthquake insurance), and in
 such amounts, as may from time to time be reasonably required by Mortgagee
 against the same or other insurable hazards.

               All
policies of insurance required under this Section 1.09 shall be issued by
companies having Best’s ratings and being otherwise acceptable to Mortgagee,
shall be subject to the reasonable approval of Mortgagee as to amount, content,
form and expiration date and, except for the liability policies described in
clauses (a)(v) and (vi) 

10

above, shall
contain a Non-Contributory Standard Mortgagee Clause and Mortgagee’s Loss
Payable Endorsement, or their equivalents, in favor of Mortgagee, and shall
provide that the proceeds thereof shall be payable to Mortgagee. Mortgagee
shall be furnished with the original of each policy required hereunder, which
policies shall provide that they shall not lapse, nor be modified or cancelled,
without thirty (30) days’ written notice to Mortgagee. At least thirty (30)
days prior to expiration of any policy required hereunder, Mortgagor shall
furnish Mortgagee appropriate proof of issuance of a policy continuing in force
the insurance covered by the policy so expiring. Mortgagor shall furnish to
Mortgagee, promptly upon request, receipts or other satisfactory evidence of
the payment of the premiums on such insurance policies. In the event that
Mortgagor does not deposit with Mortgagee a new certificate or policy of
insurance with evidence of payment of premiums thereon at least thirty (30)
days prior to the expiration of any expiring policy, then Mortgagee may, but
shall not be obligated to, procure such insurance and pay the premiums
therefor, and Mortgagor agrees to repay to Mortgagee the premiums thereon
promptly on demand, together with interest thereon at the Default Rate. 

               Mortgagor
hereby assigns to Mortgagee all proceeds of any insurance required to be
maintained by this Section 1.09 which Mortgagor may be entitled to receive for
loss or damage to the Premises, Improvements or Chattels. All such insurance
proceeds shall be payable to Mortgagee, and Mortgagor hereby authorizes and
directs any affected insurance company to make payment thereof directly to
Mortgagee. Mortgagor shall give prompt notice to Mortgagee of any casualty,
whether or not of a kind required to be insured against under the policies to
be provided by Mortgagor hereunder, such notice to generally describe the nature
and cause of such casualty and the extent of the damage or destruction.
Mortgagor may settle, adjust or compromise any claims for loss, damage or
destruction, regardless of whether or not there are insurance proceeds
available or whether any such insurance proceeds are sufficient in amount to
fully compensate for such loss or damage, subject to Mortgagee’s prior consent.
Notwithstanding the foregoing, Mortgagee shall have the right to join Mortgagor
in settling, adjusting or compromising any loss of $250,000 or more. Mortgagor
hereby authorizes the application or release by Mortgagee of any insurance
proceeds under any policy of insurance, subject to the other provisions hereof.
The application or release by Mortgagee of any insurance proceeds shall not cure
or waive any default or notice of default hereunder or invalidate any act done
pursuant to such notice. 

               In
the event of the foreclosure hereof or other transfer of the title to the
Mortgaged Property in extinguishment, in whole or in part, of the indebtedness
secured hereby, all right, title and interest of Mortgagor in and to any
insurance policy, or premiums or payments in satisfaction of claims or any
other rights thereunder then in force, shall pass to the purchaser or grantee
notwithstanding the amount of any bid at such foreclosure sale. Nothing
contained herein shall prevent the accrual of interest as provided in the Note
on any portion of the principal balance due under the Note until such time as
insurance proceeds are actually received and applied to reduce the principal
balance outstanding.

               Mortgagor
shall not take out separate insurance concurrent in form or contributing in the
event of loss with that required to be maintained under this Section 

11

1.09 unless
Mortgagee is included thereon as a named insured with loss payable to Mortgagee
under standard mortgage endorsements of the character and to the extent above
described. Mortgagor shall promptly notify Mortgagee whenever any such separate
insurance is taken out and shall promptly deliver to Mortgagee the policy or
policies of such insurance.

               Any
and all monies received as payment which Mortgagor may be entitled to receive
for loss or damage to the Premises, Improvements or Chattels under any insurance
maintained pursuant to this Section 1.09 (other than proceeds under the
policies required by clause (a)(ii) above) shall be paid over to Mortgagee and,
at Mortgagee’s option, either applied to the prepayment of the Note and all
interest, Additional Interest and other sums accrued and unpaid in respect
thereof or disbursed from time to time to Mortgagor in reimbursement of its
costs and expenses incurred in the restoration of the Improvements in
accordance with Mortgagee’s standard construction lending practices, terms and
conditions, in either case, less Mortgagee’s reasonable expenses for collecting
and, if applicable, disbursing the insurance proceeds, or otherwise incurred in
connection therewith.

                              (j)
Protective Advances by Mortgagee. If Mortgagor shall fail to perform any
of the covenants contained herein, Mortgagee may make advances to perform the
same on its behalf and all sums so advanced shall be a lien upon the Mortgaged
Property and shall be secured hereby. Mortgagor will repay on demand all sums
so advanced on its behalf together with interest thereon at the Default Rate.
The provisions of this Section shall not prevent any default in the observance
of any covenant contained herein from constituting an Event of Default.

                              (k)
(i) Visitation and Inspection. Mortgagor will keep adequate records and
books of account in accordance with generally accepted accounting principles,
consistently applied (“GAAP”) and will permit Mortgagee, by its agents,
accountants and attorneys, to visit and inspect the Mortgaged Property and
examine its records and books of account and make copies thereof or extracts
therefrom, and to discuss its affairs, finances and accounts with the officers
or general partners, as the case may be, of Mortgagor, at such reasonable times
as may be requested by Mortgagee.

          (ii)
Financial and Other Information. Mortgagor shall furnish directly to
Mortgagee: 

	
 

	
 

	
 

	
            Annual
 Financial Statements; Tax Returns. As soon as available and in any event
 within one hundred twenty (120) days after the end of the fiscal year of
 Mortgagor, Financial Statements of Mortgagor and Guarantor, as of the end of
 and for such fiscal year, certified by the principal financial or accounting
 officer of Mortgagor, in reasonable detail, stating in comparative form the
 respective figures for the preceding fiscal year and compiled by a firm of
 certified public accountants reasonably satisfactory to Administrative Agent;
 and complete copies of Mortgagor’s and Guarantor’s federal and state income
 tax returns, within thirty (30) days of filing;

12

                    Semi-Annual
Financial Statements. As soon as available and in any event within sixty
(60) days after the end of each semi-annual period ending June 30 of each
year, Financial Statements of Mortgagor and Guarantor, as of the end of and for
such calendar quarter, certified by the principal financial or accounting
officer of Mortgagor or Guarantor, as the case may be, in reasonable detail and
stating in comparative form the respective figures for the corresponding date
and period in the preceding fiscal year;

                    Compliance
Certificate. At the time of the delivery of the Financial Statements
required by paragraphs (i) and (ii) above, a certificate of the principal
financial or accounting officer of Mortgagor or Guarantor, as the case may be,
dated within five (5) days of the delivery of such statements to Administrative
Agent, stating (a) that such officer knows of no Default or Event of Default
which has occurred and is continuing, or, if any such Default or Event of
Default has occurred and is continuing, specifying the nature and period of
existence thereof and what action Mortgagor has taken or proposes to take with
respect thereto and (b) with respect to Guarantor, that Guarantor is in
compliance with the financial covenant(s) set forth in paragraph 13 of the
Guaranty;

                    Notice
of Litigation. Promptly
after the commencement and knowledge thereof, notice of all actions, suits, and
proceedings before any court or arbitrator or any Governmental Authority,
affecting (i) Mortgagor which, if determined adversely to Mortgagor are likely
to result in a Material Adverse Change or (ii) all or any portion of the
Mortgaged Property under this Mortgage. For purposes of this Section 1.11(b)(i), a “Material Adverse Change”
shall mean either (1) a material adverse change in the status of the business,
results of operations, financial condition, property or prospects of Mortgagor
or (2) any event or occurrence of whatever nature which is likely to (x) have a
material adverse effect on the ability of Mortgagor to perform its obligations
under the Loan Documents or (y) create, in the sole and absolute judgment
(reasonably exercised) of Mortgagee, a material risk of sale or forfeiture of
any Mortgaged Property (other than an immaterial portion thereof) under this
Mortgage or otherwise materially impair any of the Mortgaged Property under
this Mortgage or Mortgagee’s rights therein;

                    Notices
of Defaults and Events of Default. As soon as possible and in any event
within ten (10) days after Mortgagor becomes aware of the occurrence of a
Default or any Event of Default, a written notice setting forth the details of
such Default or Event of Default and the action which is proposed to be taken
with respect thereto; 

                    Material
Adverse Change. As soon as is practicable and in any event within five (5)
days after knowledge of the occurrence of any event or circumstance which is
likely to result in or has resulted in a Material Adverse Change, written
notice thereof; 

13

                    Offices.
Thirty (30) days’ prior written notice of any change in the chief executive
office or principal place of business of Mortgagor;  

                    Environmental
and Other Notices. As soon as possible and in any event within ten (10)
days after receipt, copies of (i) all Environmental Notices received by
Mortgagor which are not received in the ordinary course of business and which
relate to the Premises or a situation which is likely to result in a Material
Adverse Change and (ii) all reports of any official searches made by any
Governmental Authority having jurisdiction over the Premises or the
Improvements thereon, and of any claims of violations thereof;

                    Insurance
Coverage. Promptly, such information concerning Mortgagor’s insurance
coverage as Mortgagee may reasonably request; 

                    Bankruptcy
of Tenants. Promptly after becoming aware of the same, written notice of
the bankruptcy, insolvency or cessation of operations of any tenant in the
Improvements on the Premises to which 5% or more of the aggregate minimum rent
from such Improvements is attributable;

                    Leasing
Reports and Property Information. (i) Upon request by Mortgagee, but no
more often than quarterly, an updated rent roll, leasing report, and operating
and cash statements for the Premises and (ii) as soon as available and in any
event within ninety (90) days after the end of each Fiscal Year, tenant sales
report for the Premises, to the extent Mortgagor is entitled to receive same
pursuant to the terms of the respective leases; and

                    General
Information. Promptly, such other information respecting the condition or
operations, financial or otherwise, of Mortgagor, Guarantor or the Premises and
Improvements as Mortgagee may from time to time reasonably request.

All financial
statements of Mortgagor or Guarantor shall be prepared in accordance with
generally accepted accounting principles and, in the case of Mortgagor, shall
be accompanied by the certificate of a principal financial or accounting
officer or general partner, as the case may be, of Mortgagor, dated within five
(5) days of the delivery of such statements to Mortgagee, stating that he or
she knows of no Event of Default, nor of any event which after notice or lapse
of time or both would constitute an Event of Default, which has occurred and is
continuing, or, if any such event or Event of Default has occurred and is
continuing, specifying the nature and period of existence thereof and what
action Mortgagor has taken or proposes to take with respect thereto, and,
except as otherwise specified, stating that Mortgagor has fulfilled all of its
obligations hereunder and otherwise in respect of the Loan which are required
to be fulfilled on or prior to the date of such certificate.

          (iii)
Estoppel Certificates. Mortgagor, within ten (10) days upon written
request by Mortgagee, will furnish a statement, duly acknowledged, of the
amount due

14

whether for
principal or interest on the Loan and whether any offsets, counterclaims or
defenses exist against the indebtedness secured hereby. 

                    (l)
Maintenance of Premises and Improvements. Mortgagor will not commit any
waste on the Premises or make any change in the use of the Premises which will
in any way increase any ordinary fire or other hazard arising out of
construction or operation. Mortgagor will, at all times, maintain the
Improvements and Chattels in good operating order and condition and will
promptly make, from time to time, all repairs, renewals, replacements,
additions and improvements in connection therewith which are needful or
desirable to such end. The Improvements shall not be demolished or
substantially altered, nor shall any Chattels be removed without Mortgagee’s
prior consent except where appropriate replacements free of superior title,
liens and claims are immediately made of value at least equal to the value of
the removed Chattels. Notwithstanding anything to the contrary contained
herein, Mortgagee shall be permitted to demolish the Improvements existing on
the date hereof so long as Mortgagor has provided to Mortgagee such insurance
as is reasonably requested by Mortgagee in connection with such demolition. 

                    (m)
Condemnation. Mortgagor, immediately upon obtaining knowledge of the
institution or pending institution of any proceedings for the condemnation of
the Premises or any portion thereof, will notify Mortgagee thereof. Mortgagee
may participate in any such proceedings and may be represented therein by
counsel of its selection. Mortgagor from time to time will deliver to Mortgagee
all instruments requested by it to permit or facilitate such participation. In
the event of such condemnation proceedings, the award or compensation payable
is hereby assigned to and shall be paid to Mortgagee. Mortgagee shall be under
no obligation to question the amount of any such award or compensation and may
accept the same in the amount in which the same shall be paid. The proceeds of
any award or compensation so received shall, at Mortgagee’s option, either be
applied to the prepayment of the Note and all interest, Additional Interest and
other sums accrued and unpaid in respect thereof at the rate of interest
provided therein regardless of the rate of interest payable on the award by the
condemning authority, or be disbursed to Mortgagor from time to time for
restoration of the Improvements in accordance with Mortgagee’s standard
construction lending practices, terms and conditions, in either case, less
Mortgagee’s reasonable expenses for collecting and, if applicable, disbursing
the award, or otherwise incurred in connection therewith. 

                    (n)
Leases. 

          Mortgagor
will not (i) execute an assignment of the rents or any part thereof from the
Premises without Mortgagee’s prior consent, (ii) [intentionally omitted], (iii)
modify or terminate any lease except for valid business purposes, (iv) accept
prepayments of any installments of rents to become due under such leases,
except prepayments in the nature of security for the performance of the lessees
thereunder, (v) modify, release or terminate any guaranties of any such lease
except for valid business purposes or (vi) in any other manner impair the value
of the Mortgaged Property or the security hereof. 

15

          Mortgagor
will not execute any lease of all or a substantial portion of the Premises
except for actual occupancy by the lessee thereunder, and will at all times
promptly and faithfully perform, or cause to be performed, all of the
covenants, conditions and agreements contained in all leases of the Premises or
portions thereof now or hereafter existing, on the part of the lessor
thereunder to be kept and performed and will at all times do all things
necessary to compel performance by the lessee under each lease of all
obligations, covenants and agreements by such lessee to be performed
thereunder. If any of such leases provide for the giving by the lessee of
certificates with respect to the status of such leases, Mortgagor shall
exercise its right to request such certificates within five (5) days of any
demand therefor by Mortgagee and shall deliver copies thereof to Mortgagee
promptly upon receipt. 

          Each
lease of the Premises, or of any part thereof, shall provide that, in the event
of the enforcement by Mortgagee of the remedies provided for hereby or by law,
the lessee thereunder will, upon request of any person succeeding to the
interest of Mortgagor as a result of such enforcement, automatically become the
lessee of said successor in interest, without change in the terms or other
provisions of such lease, provided, however, that said successor
in interest shall not be bound by (i) any payment of rent or additional rent
for more than one (1) month in advance, except prepayments in the nature of
security for the performance by said lessee of its obligations under said lease
or (ii) any amendment or modification of the lease made without the consent of
Mortgagee or such successor in interest. Each lease shall also provide that,
(x) the lease is subordinate to this Mortgage (but shall also provide that
Mortgagee, at its option, may subordinate this Mortgage to such lease) and (y)
upon request by said successor in interest, such lessee shall execute and
deliver an instrument or instruments confirming such attornment. 

          To
the extent that any part of the Premises is located in the State of New York,
reference is hereby made to Section 291-f of the Real Property Law of the State
of New York for the purpose of obtaining for Mortgagee the benefits of said
Section in connection herewith. 

          From
and after the occurrence of an Event of Default, Mortgagor shall, promptly upon
Mortgagee’s request, deposit all tenant security deposits in respect of the
Premises into an account with Mortgagee or as designated by Mortgagee, which
deposits shall be held and disbursed to tenants as required under the terms of
their respective leases. 

                    (o)
Premises Documents. Mortgagor shall (a) do all things necessary to cause
the due compliance and faithful performance by the other parties to the
Premises Documents with and of all obligations and agreements by such other
parties to be complied with and performed thereunder and (b) deliver promptly
to Mortgagee copies of any notices which it gives or receives under any of the
Premises Documents. 

                    (p)
Utilities. Mortgagor will not, without the prior consent of Mortgagee,
sell or contract to sell, or enter into an option to sell, or exchange, assign,
convey, transfer possession of (including, without limitation, by lease) or
otherwise 

16

dispose of all
or any part of the utilities, utility commitments or other agreements or rights
of any nature relating to the utilities, drainage ditches and/or treatment
plants associated with the Mortgaged Property. Mortgagor further covenants and
agrees that it will take any such action and execute, acknowledge, deliver and
record and/or file any and all instruments as may be necessary, desirable or
proper to keep any existing or future utility commitments covering the
Mortgaged Property in a current and valid condition and to keep the existing
utility capacity for the Mortgaged Property at or above the level required for
the contemplated uses thereof. As used herein, the term “utilities” includes,
without limitation, water, gas, electricity and storm and sanitary sewer. 

                    (q)
Trust Fund; Lien Laws. Mortgagor will receive the advances secured hereby
and will hold the right to receive such advances as a trust fund to be applied
first for the purpose of paying the costs of improvements on the Premises and
will apply the same first to the payment of such costs before using any part of
the total of the same for any other purpose and, in the event all or any part
of the Premises is located in the State of New York, will comply with Section
13 of the New York Lien Law. Mortgagor will indemnify and hold Mortgagee
harmless against any loss or liability, cost or expense, including, without
limitation, any judgments, attorney’s fees, costs of appeal bonds and printing
costs, arising out of or relating to any proceeding instituted by any claimant
alleging a violation by Mortgagor of any applicable lien law including, without
limitation, any section of Article 3-A of the New York Lien Law. 

                    (r)
Intentionally Omitted. 

                    (s)
Intentionally Omitted. 

                    (t)
Guarantor Financial Covenants. Guarantor shall comply with the covenants
set forth in the Guaranty. 

                    (u)
Federal Law. The proceeds of the Loan are not being and will not be
used, directly or indirectly, for the purpose of “purchasing” or “carrying” any
“margin stock” in contravention of Regulation U or X promulgated by the Board
of Governors of the Federal Reserve System. Mortgagor is incurring the Loan for
business purposes only, and not for personal, family or household purposes.
Neither the Premises nor any part thereof constitutes or is intended to
constitute the personal residence of Mortgagor or any Guarantor at any time
while the portion of the Premises so used is encumbered by this Mortgage.
Mortgagor is a United States person, and is not a foreign person, as defined in
the Foreign Investment in Real Property Tax Act. 

16.

EVENTS OF DEFAULT AND REMEDIES

                    (a)
Events of Default and Certain Remedies. If one or more of the following
Events of Default shall happen, that is to say: 

17

	
 

	
 

	
 

	
          if
 (i) default shall be made in the payment of any principal, interest,
 Additional Interest, fees or other sums under the Note, in any such case,
 when and as the same shall become due and payable, whether at maturity or by
 acceleration or as part of any payment or prepayment or otherwise, in each
 case, as herein or in the Note provided, and such default shall have
 continued for a period of ten (10) days or (ii) default shall be made in the
 payment of any tax or other charge required by Section 1.07 to be paid and
 said default shall have continued for a period of thirty (30) days; or 

	
 

	
 

	
 

	
          if
 default shall be made in the due observance or performance of any covenant,
 condition or agreement in the Note, this Mortgage, any guaranty executed by
 Guarantor or in any other document executed or delivered to Mortgagee in
 connection with the Loan (other than any such covenant, condition or
 agreement specifically provided for elsewhere in this Section 2.01), and such
 default shall have continued for a period of thirty (30) days after notice
 thereof shall have been given to Mortgagor by Mortgagee, provided, however,
 if such default is not susceptible of being cured within such thirty (30) day
 period and Mortgagor has commenced such cure within such thirty (30) day
 period is diligently pursuing such cure to Mortgagee’s satisfaction, such
 thirty (30) day cure period shall be extended, but in no event shall such
 cure period exceed sixty (60) days, or, in the case of such other documents,
 such shorter grace period, if any, as may be provided for therein; or 

	
 

	
 

	
 

	
          if
 any material representation or warranty made by Mortgagor in Section 1.01
 shall be incorrect, or if any other material representation or warranty made
 to Mortgagee in this Mortgage, any guaranty executed by Guarantor, or in any
 other document, certificate or statement executed or delivered to Mortgagee
 in connection with the Loan shall be incorrect in any material respect when
 made or remade; or 

	
 

	
 

	
 

	
          if
 by order of a court of competent jurisdiction, a trustee, receiver or
 liquidator of the Mortgaged Property or any part thereof, or of Mortgagor
 shall be appointed and such order shall not be discharged or dismissed within
 ninety (90) days after such appointment; or 

	
 

	
 

	
 

	
          if
 Mortgagor shall file a petition in bankruptcy or for an arrangement or for
 reorganization pursuant to the Federal Bankruptcy Act or any similar federal
 or state law, or if, by decree of a court of competent jurisdiction,
 Mortgagor shall be adjudicated a bankrupt, or be declared insolvent, or shall
 make an assignment for the benefit of creditors, or shall admit in writing
 its inability to pay its debts generally as they become due, or shall consent
 to the appointment of a receiver or receivers of all or any part of its
 property; or 

	
 

	
 

	
 

	
          if
 any of the creditors of Mortgagor shall file a petition in bankruptcy against
 Mortgagor or for reorganization of Mortgagor pursuant to the Federal
 Bankruptcy Act or any similar federal or state law, and if such petition
 shall not 

18

	
 

	
 

	
 

	
be
 discharged or dismissed within ninety (90) days after the date on which such
 petition was filed; or 

	
 

	
 

	
 

	
          if
 final judgment for the payment of money shall be rendered against Mortgagor
 in excess of Five Hundred Thousand Dollars ($500,000) and Mortgagor shall not
 discharge the same or cause it to be discharged within sixty (60) days from
 the entry thereof, or shall not appeal therefrom or from the order, decree or
 process upon which or pursuant to which said judgment was granted, based or entered,
 and secure a stay of execution or bond over such judgment by a commercially
 acceptable bonding company pending such appeal; or 

	
 

	
 

	
 

	
          if
 any of the events enumerated in clauses (d) through (g) of this Section 2.01
 shall happen to Guarantor or any of its property; or 

	
 

	
 

	
 

	
          if
 it shall be illegal for Mortgagor to pay any tax referred to in Section 1.08
 or if the payment of such tax by Mortgagor would result in the violation of
 applicable usury laws; or 

	
 

	
 

	
 

	
          if
 there shall occur a default which is not cured within the applicable grace
 period, if any, under any mortgage, deed of trust or other security
 instrument covering all or part of the Mortgaged Property regardless of
 whether any such mortgage, deed of trust or other security instrument is
 prior or subordinate hereto; it being further agreed by Mortgagor that an
 Event of Default hereunder shall constitute an Event of Default under any
 such mortgage, deed of trust or other security instrument held by Mortgagee;
 or 

	
 

	
 

	
 

	
          if
 there shall occur a default which is not cured within the applicable grace
 period, if any, or, if Mortgagor shall be entitled pursuant to the relevant
 Premises Documents to contest such default, if such default is contested
 pursuant to the applicable Premises Documents and such contest is resolved
 adversely to Mortgagor, under any of the Premises Documents; or if any of the
 Premises Documents is amended, modified, supplemented or terminated without
 Mortgagee’s prior consent; or 

	
 

	
 

	
 

	
          if
 Mortgagor shall transfer, or agree to transfer (or suffer or permit the
 transfer or agreement to transfer), in any manner, either voluntarily or
 involuntarily, by operation of law or otherwise, all or any portion of the
 Mortgaged Property, or any interest or rights therein (including air or
 development rights) without, in any such case, Mortgagee’s prior consent. As
 used in this clause, “transfer” shall include, without limitation, any sale,
 assignment, lease or conveyance except leases for occupancy subordinate
 hereto and to all advances made and to be made hereunder or, in the event
 Mortgagor or Guarantor (or a general partner, member or co-venturer of either
 of them) is a partnership, joint venture, limited liability company, trust or
 closely-held corporation, the sale, conveyance, transfer or other disposition
 of more than 10%, in the aggregate, of any class of the issued and
 outstanding capital stock of such closely-held corporation or of the
 beneficial interest of such partnership, venture, 

19

	
 

	
 

	
 

	
limited
 liability company or trust, or a change of any general partner, joint
 venturer, member or beneficiary, as the case may be, or, in the event
 Mortgagor or Guarantor (or a general partner, co-venturer, member or
 beneficiary, as the case may be, of either of them) is a publicly-held
 corporation, the sale, conveyance, transfer or other disposition of more than
 10%, in the aggregate, of the stock-holdings of any of the five (5)
 individuals or entities that own the greatest number of shares of each class
 of issued and outstanding stock, or effectuates or permits a reduction in the
 aggregate direct and indirect ownership interests of Guarantor in Mortgagor
 below that currently held by Guarantor, or effectuates or causes Guarantor to
 fail to control the managing member of Mortgagor, or effectuates or permits a
 transfer of the controlling interest in Mortgagor, other than to an entity
 owned and controlled by Guarantor. In the event Mortgagor or Guarantor is a
 limited partnership, and so long as a limited partner has contributed to (or
 remains personally liable for) the present and future partnership capital
 contributions required of such limited partner by the partnership agreement,
 such partner may sell, convey, devise, transfer or dispose of all or a part
 of his limited partnership interest to his spouse, children, grandchildren or
 a family trust in which his spouse, children or grandchildren are sole
 beneficiaries; or 

	
 

	
 

	
 

	
          if
 Mortgagor shall encumber, or agree to encumber, in any manner, either voluntarily
 or involuntarily, by operation of law or otherwise, all or any portion of the
 Mortgaged Property, or any interest or rights therein (including air or
 development rights) without, in any such case, Mortgagee’s prior consent. As
 used in this clause, “encumber” shall include, without limitation, the
 placing or permitting the placing of any mortgage, deed of trust, assignment
 of rents or other security device. (Mortgagee may grant or deny its consent
 under this clause and the immediately preceding clause in its sole discretion
 and, if consent should be given, any such transfer or encumbrance shall be
 subject hereto and to any other documents which evidence or secure the Loan,
 and, if a transfer, any such transferee shall assume all of Mortgagor’s obligations
 hereunder and thereunder and agree to be bound by all provisions and perform
 all obligations contained herein and therein; consent to one such transfer or
 encumbrance shall not be deemed to be a waiver of the right to require
 consent to future or successive transfers or encumbrances); or 

	
 

	
 

	
 

	
          if
 there shall occur a default under the Hedging Agreement that is not cured
 within the applicable grace or cure period, if any, thereunder;

	
 

	
 

	
then and in
 every such case:

	
 

	
 

	
 

	
          I.
 Mortgagee, by notice to Mortgagor, may declare the entire principal of the
 Note then outstanding (if not then due and payable), and all accrued and
 unpaid interest, Additional Interest, and other sums in respect thereof, to
 be due and payable immediately, and upon any such declaration the principal
 of the Note and said accrued and unpaid interest, Additional Interest, and
 other sums shall become and be immediately due and payable, anything herein
 or in the Note to the contrary notwithstanding. 

20

	
 

	
 

	
 

	
          II.
 Mortgagee personally, or by its agents or attorneys, may enter into and upon
 all or any part of the Premises, and each and every part thereof, and is
 hereby given a right and license and appointed Mortgagor’s attorney-in-fact
 and exclusive agent to do so, and may exclude Mortgagor, its agents and
 servants wholly therefrom; and having and holding the same, may use, operate,
 manage and control the Premises and conduct the business thereof, either
 personally or by its superintendents, managers, agents, servants, attorneys
 or receivers; and upon every such entry, Mortgagee, at the expense of the
 Mortgaged Property, from time to time, either by purchase, repairs or
 construction, may maintain and restore the Mortgaged Property, whereof it
 shall become possessed as aforesaid; and likewise, from time to time, at the
 expense of the Mortgaged Property, Mortgagee may make all necessary or proper
 repairs, renewals and replacements and such useful alterations, additions,
 betterments and improvements thereto and thereon as to it may deem advisable;
 and in every such case Mortgagee shall have the right to manage and operate
 the Mortgaged Property and to carry on the business thereof and exercise all
 rights and powers of Mortgagor with respect thereto either in the name of Mortgagor
 or otherwise as it shall deem best; and Mortgagee shall be entitled to
 collect and receive the Rents and every part thereof, all of which shall for
 all purposes constitute property of Mortgagor; and in furtherance of such
 right Mortgagee may collect the rents payable under all leases of the
 Premises directly from the lessees thereunder upon notice to each such lessee
 that an Event of Default exists hereunder accompanied by a demand on such
 lessee for the payment to Mortgagee of all rents due and to become due under
 its lease, and Mortgagor FOR THE BENEFIT OF MORTGAGEE AND EACH SUCH LESSEE
 hereby covenants and agrees that the lessee shall be under no duty to
 question the accuracy of Mortgagee’s statement of default and shall
 unequivocally be authorized to pay said rents to Mortgagee without regard to
 the truth of Mortgagee’s statement of default and notwithstanding notices
 from Mortgagor disputing the existence of an Event of Default such that the
 payment of rent by the lessee to Mortgagee pursuant to such a demand shall
 constitute performance in full of the lessee’s obligation under the lease for
 the payment of rents by the lessee to Mortgagor; and after deducting the
 expenses of conducting the business thereof and of all maintenance, repairs,
 renewals, replacements, alterations, additions, betterments and improvements
 and amounts necessary to pay for taxes, assessments, insurance and prior or
 other proper charges upon the Mortgaged Property or any part thereof, as well
 as just and reasonable compensation for the services of Mortgagee and for all
 attorneys, counsel, agents, clerks, servants and other employees by it
 engaged and employed, Mortgagee shall apply the moneys arising as aforesaid, first,
 to the payment of the principal of the Note and the interest and Additional
 Interest thereon, when and as the same shall become payable and in such order
 and proportions as Mortgagee shall elect and second, to the payment of
 any other sums required to be paid by Mortgagor hereunder. 

	
 

	
 

	
 

	
          III.
 Mortgagee, with or without entry, personally or by its agents or attorneys,
 insofar as applicable, may: 

21

	
 

	
 

	
 

	
          (1)
 sell the Mortgaged Property to the extent permitted and pursuant to the
 procedures provided by law (including, without limitation, if all or any part
 of the Premises is located in the State of New York, in accordance with
 Article 14 of the New York Real Property Actions and Proceedings Law,
 regarding which Mortgagor hereby consents and agrees that notices thereunder
 (including notices of sale) may be given to Mortgagor in any of the manners
 specified for the giving of notices set forth in Section 3.06), and all
 estate, right, title and interest, claim and demand therein, and right of
 redemption thereof, at one (1) or more sales as an entity or in parcels or
 parts, and at such time and place upon such terms and after such notice
 thereof as may be required or permitted by law; or 

	
 

	
 

	
 

	
          (2)
 institute proceedings for the complete or partial foreclosure hereof; or 

	
 

	
 

	
 

	
          (3)
 take such steps to protect and enforce its rights whether by action, suit or
 proceeding in equity or at law for the specific performance of any covenant,
 condition or agreement in the Note, or herein, or in aid of the execution of
 any power herein granted, or for any foreclosure hereunder, or for the
 enforcement of any other appropriate legal or equitable remedy or otherwise
 as Mortgagee shall elect. 

                    (b)
Other Matters Concerning Sales. 

          Mortgagee
may adjourn from time to time any sale by it to be made hereunder or by virtue
hereof by announcement at the time and place appointed for such sale or for
such adjourned sale or sales; and, except as otherwise provided by any
applicable provision of law, Mortgagee, without further notice or publication,
may make such sale at the time and place to which the same shall be so
adjourned. 

          Upon
the completion of any sale or sales made by Mortgagee under or by virtue of
this Article II, Mortgagee, or an officer of any court empowered to do so,
shall execute and deliver to the accepted purchaser or purchasers a good and
sufficient instrument or instruments conveying, assigning and transferring all
estate, right, title and interest in and to the property and rights sold.
Mortgagee is hereby appointed the true and lawful attorney irrevocable of
Mortgagor, in its name and stead, to make all necessary conveyances,
assignments, transfers and deliveries of the Mortgaged Property and rights so
sold and for that purpose Mortgagee may execute all necessary instruments of
conveyance, assignment and transfer, and may substitute one or more persons
with like power, Mortgagor hereby ratifying and confirming all that its said
attorney or such substitute or substitutes shall lawfully do by virtue hereof.
Nevertheless, Mortgagor, if requested by Mortgagee, shall ratify and confirm
any such sale or sales by executing and delivering to Mortgagee or to such
purchaser or purchasers all such instruments as may be advisable, in the
judgment of Mortgagee, for the purpose, and as may be designated in such
request. Any such sale or sales made under or by virtue of this Article II,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings 

22

or of a
judgment or decree of foreclosure and sale, shall operate to divest all the
estate, right, title, interest, claim and demand whatsoever, whether at law or
in equity, of Mortgagor in and to the properties and rights so sold, and shall
be a perpetual bar both at law and in equity against Mortgagor and against any
and all persons claiming or who may claim the same, or any part thereof from,
through or under Mortgagor.

          In
the event of any sale or sales made under or by virtue of this Article II
(whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale), the
entire principal of, and interest, Additional Interest, and other sums on, the
Note, if not previously due and payable, and all other sums required to be paid
by Mortgagor pursuant hereto or to the Note, immediately thereupon shall,
anything in any of said documents to the contrary notwithstanding, become due
and payable.

          The
purchase money, proceeds or avails of any sale or sales made under or by virtue
of this Article II, together with any other sums which then may be held by
Mortgagee hereunder, whether under the provisions of this Article II or
otherwise, shall be applied as follows:

	
 

	
 

	
 

	
          First:
 To the payment of the costs and expenses of such sale, including reasonable
 compensation to Mortgagee, its agents and counsel, and of any judicial
 proceedings wherein the same may be made, and of all expenses, liabilities
 and advances made or incurred by Mortgagee hereunder, and also including
 attorneys’ fees, expenses and costs of investigation, all as actually
 incurred and including, without limitation, attorneys’ fees, costs and
 expenses of investigation incurred in appellate proceedings or in any action
 or participation in, or in connection with, any case or proceeding under any
 applicable bankruptcy or insolvency law, together with interest at the
 Default Rate on all advances made by Mortgagee, and of all taxes, assessments
 or other charges, except any taxes, assessments or other charges subject to
 which the Mortgaged Property shall have been sold.

	
 

	
 

	
 

	
          Second:
 To the payment of the whole amount then due, owing or unpaid upon the Note
 for principal and interest, and Additional Interest, with interest on the
 unpaid principal at the Default Rate from and after the happening of any
 Event of Default, in such order and amounts as Mortgagee may elect.

	
 

	
 

	
 

	
          Third:
 To the payment of any other sums required to be paid by Mortgagor pursuant to
 any provision hereof or of the Note, including all expenses, liabilities and
 advances made or incurred by Mortgagee hereunder or in connection with the
 enforcement hereof, together with interest at the Default Rate on all such
 advances.

	
 

	
 

	
 

	
          Fourth:
 To the payment of the surplus, if any, to whomsoever may be lawfully entitled
 to receive the same.

          Upon
any sale or sales made under or by virtue of this Article II, whether made
under the power of sale herein granted or under or by virtue of judicial
proceedings 

23

or of a
judgment or decree of foreclosure and sale, Mortgagee may bid for and acquire
the Mortgaged Property or any part thereof and in lieu of paying cash therefor
may make settlement for the purchase price by crediting upon the indebtedness
secured hereby the net sales price after deducting therefrom the expenses of
the sale and the costs of the action and any other sums which Mortgagee is
authorized to deduct hereunder.

                    (c)
Payment of Amounts Due. 

          In
case an Event of Default shall have happened and be continuing, then, upon
demand of Mortgagee, Mortgagor will pay to Mortgagee the whole amount which
then shall have become due and payable on the Note, for principal, interest or
Additional Interest, or all, as the case may be, and after the happening of
said Event of Default will also pay to Mortgagee interest at the Default Rate
on the then unpaid principal of the Note, and the sums required to be paid by
Mortgagor pursuant to any provision hereof or of the Note, and in addition
thereto such further amount as shall be sufficient to cover the costs and
expenses of collection, including reasonable compensation to Mortgagee, its
agents and counsel and any expenses incurred by Mortgagee hereunder. In the
event Mortgagor shall fail forthwith to pay all such amounts upon such demand,
Mortgagee shall be entitled and empowered to institute such action or
proceedings at law or in equity as may be advised by its counsel for the
collection of the sums so due and unpaid, and may prosecute any such action or
proceedings to judgment or final decree, and may enforce any such judgment or
final decree against Mortgagor and collect, out of the property of Mortgagor
wherever situated, as well as out of the Mortgaged Property, in any manner
provided by law, moneys adjudged or decreed to be payable.

          Mortgagee
shall be entitled to recover judgment as aforesaid either before, after or
during the pendency of any proceedings for the enforcement of the provisions
hereof; and the right of Mortgagee to recover such judgment shall not be
affected by any entry or sale hereunder, or by the exercise of any other right,
power or remedy for the enforcement of the provisions hereof, or the
foreclosure of the lien hereof; and in the event of a sale of the Mortgaged
Property, and of the application of the proceeds of sale, as herein provided,
to the payment of the debt hereby secured, Mortgagee shall be entitled to
enforce payment of, and to receive all amounts then remaining due and unpaid
upon, the Note, and to enforce payment of all other charges, payments and costs
due hereunder or under the Note or otherwise in respect of the Loan, and shall
be entitled to recover judgment for any portion of the debt remaining unpaid,
with interest at the Default Rate. In case of proceedings against Mortgagor in
insolvency or bankruptcy or any proceedings for its reorganization or involving
the liquidation of its assets, then Mortgagee shall be entitled to prove the
whole amount of principal, interest, Additional Interest, and other sums due
upon the Note to the full amount thereof, and all other payments, charges and
costs due hereunder or under the Note or otherwise in respect of the Loan,
without deducting therefrom any proceeds obtained from the sale of the whole or
any part of the Mortgaged Property, provided, however, that in no
case shall Mortgagee receive a greater amount than such principal, interest,
Additional Interest, and such other payments, charges and costs from the aggregate
amount of the proceeds of the sale of the Mortgaged Property and the
distribution from the estate of Mortgagor.

24

          No
recovery of any judgment by Mortgagee and no levy of an execution under any
judgment upon the Mortgaged Property or upon any other property of Mortgagor
shall affect in any manner or to any extent, the lien hereof upon the Mortgaged
Property or any part thereof, or any liens, rights, powers or remedies of
Mortgagee hereunder, but such liens, rights, powers and remedies of Mortgagee
shall continue unimpaired as before.

          Any
moneys thus collected by Mortgagee under this Section 2.03 shall be applied by
Mortgagee in accordance with the provisions of clause (d) of Section 2.02.

                    (d)
Actions; Receivers. After the happening of any Event of Default and
immediately upon the commencement of any action, suit or other legal
proceedings by Mortgagee to obtain judgment for the principal of, or interest
or Additional Interest on, the Note and other sums required to be paid by
Mortgagor pursuant to any provision hereof or of the Note, or of any other
nature in aid of the enforcement of the Note or hereof, Mortgagor will (a)
waive the issuance and service of process and enter its voluntary appearance in
such action, suit or proceeding and (b) if required by Mortgagee, consent to
the appointment of a receiver or receivers of all or part of the Mortgaged
Property and of any or all of the Rents in respect thereof. After the happening
of any Event of Default and during its continuance, or upon the commencement of
any proceedings to foreclose this Mortgage or to enforce the specific
performance hereof or in aid thereof or upon the commencement of any other
judicial proceeding to enforce any right of Mortgagee, Mortgagee shall be
entitled, as a matter of right, if it shall so elect, without the giving of
notice to any other party and without regard to the adequacy or inadequacy of
any security for the indebtedness secured hereby, forthwith either before or
after declaring the unpaid principal of the Note to be due and payable, to the
appointment of such a receiver or receivers.

                    (e)
Mortgagee’s Right to Possession. Notwithstanding the appointment of any
receiver, liquidator or trustee of Mortgagor, or of any of its property, or of
the Mortgaged Property or any part thereof, Mortgagee shall be entitled to
retain possession and control of all property now or hereafter held hereunder.

                    (f)
Remedies Cumulative. No remedy herein conferred upon or reserved to
Mortgagee is intended to be exclusive of any other remedy or remedies, and each
and every such remedy shall be cumulative, and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law, in equity or by
statute. No delay or omission of Mortgagee to exercise any right or power
accruing upon any Event of Default shall impair any such right or power, or
shall be construed to be a waiver of any such Event of Default or any
acquiescence therein; and every power and remedy given hereby to Mortgagee may
be exercised from time to time as often as may be deemed expedient by
Mortgagee. Nothing herein or in the Note shall affect the obligation of
Mortgagor to pay the principal of, interest, Additional Interest, and other
sums on, the Note in the manner and at the time and place therein respectively
expressed.

                    (g)
Moratorium Laws; Right of Redemption. Mortgagor will not at any time
insist upon, or plead, or in any manner whatever claim or take any benefit 

25

or advantage
of any stay or extension or moratorium law, any exemption from execution or
sale of the Mortgaged Property or any part thereof, wherever enacted, now or at
any time hereafter in force, which may affect the covenants and terms of
performance hereof, nor claim, take or insist upon any benefit or advantage of
any law now or hereafter in force providing for the valuation or appraisal of
the Mortgaged Property, or any part thereof, prior to any sale or sales thereof
which may be made pursuant to any provision herein, or pursuant to any decree,
judgment or order of any court of competent jurisdiction; nor, after any such
sale or sales, claim or exercise any right under any statute heretofore or
hereafter enacted to redeem the property so sold or any part thereof and
Mortgagor hereby expressly waives all benefit or advantage of any such law or
laws, and covenants not to hinder, delay or impede the execution of any power
herein granted or delegated to Mortgagee, but to suffer and permit the
execution of every power as though no such law or laws had been made or
enacted. Mortgagor, for itself and all who may claim under it, waives, to the
extent that it lawfully may, all right to have the Mortgaged Property marshaled
upon any foreclosure hereof.

                    (h)
Mortgagor’s Use and Occupancy after Default. During the continuance of
any Event of Default and pending the exercise by Mortgagee of its right to
exclude Mortgagor from all or any part of the Premises, Mortgagor agrees to pay
the fair and reasonable rental value for the use and occupancy of the Premises
or any portion thereof which are in its or any of its affiliates’ possession
for such period and, upon default of any such payment, will vacate and
surrender possession of the Premises to Mortgagee or to a receiver, if any, and
in default thereof may be evicted by any summary action or proceeding for the
recovery of possession of premises for non-payment of rent, however designated.

                    (i)
Mortgagee’s Rights Concerning Application of Amounts Collected.
Notwithstanding anything to the contrary contained herein, upon the occurrence
of an Event of Default, Mortgagee may apply, to the extent permitted by law,
any amount collected hereunder to principal, interest, Additional Interest, or
any other sum due under the Note or otherwise in respect of the Loan in such
order and amounts, and to such obligations, as Mortgagee shall elect in its
sole and absolute discretion.

17. 

MISCELLANEOUS

                    (a)
Assignment of Rents. This Mortgage constitutes a present, absolute,
unconditional and irrevocable assignment of all of the Rents now or hereafter
accruing, and Mortgagor, without limiting the generality of the Granting Clause
hereof, specifically hereby presently, absolutely, unconditionally and
irrevocably assigns, transfers and sets over all of the Rents now or hereafter
accruing to Mortgagee. The aforesaid assignment shall be effective immediately
upon the execution hereof and is not conditioned upon the occurrence of any
Event of Default or any other contingency or event, provided, however,
that Mortgagee hereby grants to Mortgagor the right and license to collect and
receive the Rents as they become due, and not in advance, so long 

26

as no Event of
Default exists hereunder. Immediately upon the occurrence of any such Event of
Default, the foregoing right and license shall be automatically terminated and
of no further force or effect. Nothing contained in this Section or elsewhere
herein shall be construed to make Mortgagee a mortgagee in possession unless
and until Mortgagee actually takes possession of the Mortgaged Property, nor to
obligate Mortgagee to take any action or incur any expense or discharge any
duty or liability under or in respect of any leases or other agreements
relating to the Mortgaged Property or any part thereof.

                    (b)
Security Agreement. This Mortgage constitutes a security agreement under
the applicable Uniform Commercial Code with respect to the Chattels and such
other of the Mortgaged Property which is personal property. Mortgagor agrees
that it will not terminate or amend any financing statements filed in
connection with the Loan without Mortgagee’s prior consent. In addition to the
rights and remedies granted to Mortgagee by other applicable law or hereby,
Mortgagee shall have all of the rights and remedies with respect to the
Chattels and such other personal property as are granted to a secured party
under the applicable Uniform Commercial Code. Upon Mortgagee’s request,
Mortgagor shall promptly and at its expense assemble the Chattels and such
other personal property and make the same available to Mortgagee at a
convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on
demand, with interest at the Default Rate, any and all expenses, including
attorneys’ fees, incurred by Mortgagee in protecting its interest in the
Chattels and such other personal property and in enforcing its rights with
respect thereto. Any notice of sale, disposition or other intended action by
Mortgagee with respect to the Chattels and such other personal property sent to
Mortgagor in accordance with the provisions hereof at least five (5) days prior
to such action shall constitute reasonable notice to Mortgagor. The proceeds of
any such sale or disposition, or any part thereof, may be applied by Mortgagee
to the payment of the indebtedness secured hereby in such order and proportions
as Mortgagee in its discretion shall deem appropriate.

                    (c)
Application of Certain Payments. In the event that all or any part of
the Mortgaged Property is encumbered by one or more mortgages held by
Mortgagee, Mortgagor hereby irrevocably authorizes and directs Mortgagee to
apply any payment received by Mortgagee in respect of any note secured hereby
or by any other such mortgage to the payment of such of said notes as Mortgagee
shall elect in its sole and absolute discretion, and Mortgagee shall have the
right to apply any such payment in reduction of principal and/or interest,
Additional Interest, and in such order and amounts as Mortgagee shall elect in
its sole and absolute discretion without regard to the priority of the mortgage
securing the note so repaid or to contrary directions from Mortgagor or any
other party.

                    (d)
Severability. In the event any one or more of the provisions contained
herein or in the Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, but this Mortgage shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein or therein, provided, however, that if such
provision held to be invalid, illegal or unenforceable relates to the payment
of any sum under the Note or any other material monetary sum, 

27

then Mortgagee
may, at its option, declare the indebtedness and any other sums secured hereby
to be immediately due and payable.

                    (e)
Modifications and Waivers in Writing. No provision hereof may be
changed, waived, discharged or terminated orally or by any other means except
an instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought. Any agreement hereafter
made by Mortgagor and Mortgagee relating hereto shall be superior to the rights
of the holder of any intervening or subordinate lien or encumbrance. 

                    (f)
Notices, Etc. All notices, demands, consents, approvals and statements
required or permitted hereunder shall be in writing and shall be deemed to have
been sufficiently given or served for all purposes when presented personally,
three (3) days after mailing by registered or certified mail, postage prepaid,
or one (1) day after delivery to a nationally recognized overnight courier
service providing evidence of the date of delivery, if to Mortgagor at its
address stated above, and if to Mortgagee to the attention of its Real Estate
Finance office at its address stated above, or at such other address of which a
party shall have notified the party giving such notice in accordance with the
provisions of this Section.

                    (g)
Successors and Assigns. All of the grants, covenants, terms, provisions
and conditions herein shall run with the land and shall apply to, bind and
inure to the benefit of, the respective successors and assigns of Mortgagor and
Mortgagee.

                    (h)
Limitation on Interest. Regardless of any provision contained herein or
in any of the other Loan documents, the total liability for payments in the
nature of interest shall not exceed the applicable limits now or hereafter
imposed by any applicable state or federal interest rate laws to which
Mortgagee may be subject. If any payments in the nature of interest, fees and
other charges made hereunder or under the Note or other Loan documents are held
to be in excess of the applicable limits imposed by any such applicable state
or federal interest rate laws, it is agreed that any such amount held to be in
excess shall be considered payment of principal under the Note and the
indebtedness evidenced thereby shall be reduced by such amount in the inverse
order of maturity so that the total liability for payments in the nature of
interest, fees and other charges shall not exceed the applicable limits imposed
by any such applicable state or federal interest rate laws in compliance with
the desires of Mortgagor and Mortgagee.

                    (i)
Counterparts. This Mortgage may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original; and all such counterparts shall together constitute but one and
the same mortgage.

                    (j)
Substitute Mortgages. Mortgagor and Mortgagee shall, upon their mutual
agreement to do so, execute such documents as may be necessary in order to
effectuate the modification hereof, including the execution of substitute
mortgages, so as to create two (2) or more liens on the Mortgaged Property in such

28

amounts as may
be mutually agreed upon but in no event to exceed, in the aggregate, the
Mortgage Amount; in such event, Mortgagor covenants and agrees to pay the
reasonable fees and expenses of Mortgagee and its counsel in connection with
any such modification.

                    (k)
Mortgagee’s Sale of Interests in Loan. Mortgagor recognizes that
Mortgagee may sell and transfer interests in the Loan to one or more
participants or assignees and that all documentation, financial statements,
appraisals and other data, or copies thereof, relevant to Mortgagor, any
Guarantor or the Loan, may be exhibited to and retained by any such participant
or assignee or prospective participant or assignee.

                    (l)
No Merger of Interests. Unless expressly provided otherwise, in the
event that ownership hereof and title to the fee and/or leasehold estates in
the Premises encumbered hereby shall become vested in the same person or
entity, this Mortgage shall not merge in said title but shall continue to be
and remain a valid and subsisting lien on said estates in the Premises for the
amount secured hereby.

                    (m)
CERTAIN WAIVERS. MORTGAGOR HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVES,
IN CONNECTION WITH ANY FORECLOSURE OR SIMILAR ACTION OR PROCEDURE BROUGHT BY
MORTGAGEE ASSERTING AN EVENT OF DEFAULT HEREUNDER, ANY AND EVERY RIGHT IT MAY
HAVE TO (I) INJUNCTIVE RELIEF, (II) A TRIAL BY JURY, (III) INTERPOSE ANY
COUNTERCLAIM THEREIN, OTHER THAN A COMPULSORY COUNTERCLAIM AND (IV) HAVE THE SAME
CONSOLIDATED WITH ANY OTHER OR SEPARATE SUIT, ACTION OR PROCEEDING. NOTHING IN
THIS SECTION SHALL PREVENT OR PROHIBIT MORTGAGOR FROM INSTITUTING OR
MAINTAINING A SEPARATE ACTION AGAINST MORTGAGEE WITH RESPECT TO ANY ASSERTED
CLAIM.

                    (n)
Satisfaction or Assignment of Mortgage. Upon payment in full of all
sums, and the performance of all obligations, secured hereby in accordance with
the terms and conditions of this Mortgage and the other Loan documents,
Mortgagee shall deliver a satisfaction or release of this Mortgage or, at
Mortgagor’s option to be exercised in writing, an assignment hereof, in either
case in proper form for recording. As a condition to any such satisfaction or
assignment, Mortgagor covenants and agrees to pay Mortgagee’s reasonable fees
and expenses (including attorneys’ fees and expenses) in connection therewith.
Upon any such satisfaction or assignment, Mortgagee shall, automatically and
without the need for any further documentation, be absolutely and unconditionally
released from any and all claims or liabilities in connection with the Loan. In
addition, Mortgagor hereby indemnifies and agrees to hold Mortgagee harmless
from and against any and all claims and liabilities arising out of the
satisfaction or assignment hereof, such indemnification to survive any such
satisfaction or assignment.

                    (o)
Other Liens; Subrogation. In the event any or all of the proceeds of the
indebtedness secured hereby have been used to extinguish, extend or renew any
indebtedness heretofore existing against the Mortgaged Property or to satisfy 

29

any
indebtedness or obligation secured by a lien or encumbrance of any kind, such
proceeds have been advanced by Mortgagee at Mortgagor’s request, and, to the
extent of such funds so used, the indebtedness hereby secured shall be
subrogated to all of the rights, claims, liens, titles and interest heretofore
existing against the Mortgaged Property to secure the indebtedness or
obligation so extinguished, paid, extended or renewed, and the former rights,
claims, liens, title and interests, if any, shall not be waived but rather
shall be continued in full force and effect and in favor of Mortgagee and shall
not be merged with the lien and security for the repayment of the indebtedness
hereby secured.

                    (p)
New York Provisions. If all or any part of the Premises is located in
the State of New York, (a) Mortgagor hereby makes the following statement:
“This Mortgage does not cover real property principally improved or to be
improved by one (1) or more structures containing in the aggregate not more
than six (6) residential dwelling units, each having its own separate cooking
facilities.” and (b) the covenants and conditions contained herein, other than
those included in the New York Statutory Short Form of Mortgage, shall be
construed as affording to Mortgagee rights additional to, and not exclusive of,
the rights conferred under the provisions of Sections 254, 271 and 272 of the
Real Property Law of the State of New York. 

                    (q)
Exculpation. Mortgagor shall not be personally liable for payment of the
principal of the Note or interest thereon, and in the event of any failure by
Mortgagor to pay any portion of such principal or interest, Mortgagee will look,
with respect to the then outstanding balance of such principal and interest,
solely to the Mortgaged Property and such other collateral as has been, or
hereafter shall be, given to secure payment of the Note and any guaranties
thereof. The foregoing limitation on liability shall not impair or otherwise
affect the validity or enforceability of (a) the debt evidenced by the Note or
of any other obligations evidenced by the Note, the Mortgage or any of the Loan
Documents or (b) Mortgagee’s liens, security interests, rights and remedies
(including, without limitation, the remedies of foreclosure and/or sale) with
respect to the Mortgaged Property or any other property, security, collateral
and/or assets (including the proceeds thereof) encumbered, pledged or assigned
by the Mortgages or any other security for the Loan. In addition, the foregoing
limitation on liability shall not limit anyone’s obligations or be applicable
with respect to: (i) liability under any guaranty(ies) or indemnity(ies)
delivered or afforded to Mortgagee; (ii) any fraud or material
misrepresentation; (iii) taxes of any kind (whether characterized as transfer,
gains or other taxes) payable in connection with the foreclosure sale of the
Mortgaged Property, irrespective of who pays such taxes; (iv) application of
any proceeds of the Loan to any purpose other than as provided in the Loan
Documents; (v) the application of any insurance or condemnation proceeds or
other funds or payments other than strictly in accordance with the Loan Documents;
(vi) the misapplication of any security deposits; (vii) rents, sales proceeds,
or other sums received after default under the Loan Documents which are not
applied to expenses of operating the Mortgaged Property or paid to Mortgagee or
a duly appointed receiver of the Premises; (viii) any failure to deliver to
Mortgagee, after demand therefor, any agreements relating to the operation,
management, leasing, use, occupancy or construction of the Mortgaged Property;
(ix) any intentional physical waste in respect of the Mortgaged Property; (x)
any failure to pay or discharge any real estate tax, other tax, assessment,
fine, penalty or lien against the Mortgaged

30

Property to
the extent revenue from leases of the Mortgaged Property was available to pay
same; (xi) liability as landlord under any lease(s) relating to the Mortgaged
Property which liability accrued prior to Mortgagee’s succeeding to such
interest of Mortgagor, which Mortgagee is or becomes obligated for by virtue of
Mortgagee succeeding to the interests of Mortgagor, provided, however,
that such liability shall only apply with respect to any liability of Mortgagor
under such leases which Mortgagee assumes pursuant to subordination,
non-disturbance and attornment agreements required pursuant to the terms of
such leases; (xii) liability under any agreement relating to the operation or
maintenance of the Mortgaged Property, which liability accrued prior to
Mortgagee’s succeeding to such interest of Mortgagor, which Mortgagee is or
becomes obligated for by virtue of Mortgagee succeeding to the interests of
Mortgagor, provided, however, that such liability shall only apply with respect
to agreements which are not terminable by their terms upon thirty (30) days’
written notice; (xiii) liability to pay for the premiums on and keep in full
force and effect insurance in respect of the Mortgaged Property in accordance
with the Loan Documents to the extent revenue from leases of the Mortgaged
Property was available to pay same; or (xiv) liability for Hazardous Substances
that may exist upon or be discharged from the Mortgaged Property. Mortgagor
shall in any event be and shall remain personally liable for each of the
matters to which reference is made in the preceding sentence and Mortgagee may
seek, obtain and enforce one or more money judgments in any appropriate
proceeding(s) with respect thereto. The limitation on personal liability
contained in this paragraph shall become automatically null and void and shall
be of no further force or effect, and Mortgagor shall be and remain personally
liable for payment of the principal of the Note and interest thereon, in
accordance with the terms and provisions of the Note, in the event that
Mortgagor, or anyone acting on behalf of Mortgagor, shall (A) file a petition
or answer seeking any relief of any kind under the bankruptcy laws of the
United States (or if an Insolvency Event shall otherwise occur), (B) assert in
writing or in any legal proceedings of any kind that any provisions of any of
the Loan Documents are in whole or in part unenforceable, invalid or not
legally binding, or (C) fail fully to cooperate with Mortgagee or a receiver in
Mortgagee’s or such receiver’s efforts to collect Rents directly from tenants
after a default under the Loan Documents.

                    (r)
Priority of Loan and Hedging Agreement. Notwithstanding anything to the
contrary contained in this Mortgage, the sums secured hereby payable under the
Loan Note and Loan Agreement and otherwise in respect of the Loan shall have
equal priority with the Additional Interest secured hereby.

31

          IN
WITNESS WHEREOF, this Mortgage has been duly executed and delivered by
Mortgagor.

	
 

	
 

	
 

	
 

	
ACADIA-P/A
 SHERMAN AVENUE, LLC, 

 a Delaware limited liability company

	
 

	
 

	
 

	
By

	
 

	
 

	
 

	

	
 

	
 

	
Name:

	
 

	
 

	
Title:

	
 

	
 

	
STATE OF NEW
 YORK

	
)

	
 

	
)  ss:

	
COUNTY OF
 WESTCHESTER

	
)

                         On
the ______ day of January in the year 2009, before me, the undersigned, a
notary public in and for said state, personally appeared
_________________________, personally known to me or proved to me on the basis
of satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument. 

	
 
	
 

	
 
	

	
 
	
Notary
 Public

	
 
	
 

	
My Commission Expires:
	
 

	 	 
	
 
	
 

	

	
 

SCHEDULE A

LEGAL DESCRIPTION

ALL that lot
or parcel of land, in the Borough of Manhattan, County of New York, City of New
York, State of New York described as follows:

PARCEL A:

Lot Numbers 1
and 4 in Section Number 8, Block Number 2175 on the land map of the County of
New York, and bounded and described as follows:

BEGINNING a
point on the easterly side of Broadway at the northeasterly line of said Lot
Number 4;

RUNNING THENCE
easterly, or nearly so along said Lot Number 4, 220 feet 5 inches to the
westerly line of Lot Number 100 on said map;

THENCE 113
feet 8 inches southeasterly along said westerly line of said Lot Number 100 to
the northerly side of Sherman Avenue;

THENCE
westerly or nearly so along the northerly side of Sherman Avenue to a point
thereon distant 204 feet 4-3/8 inches westerly from the westerly side of said
Lot Number 100;

THENCE running
on a curved line, 96 feet 9-5/8 inches to a point on the easterly side of
Broadway, distant 130 feet 5/8 inch southerly from the northerly line of said
Lot Number 4;

THENCE
northerly along the easterly side of Broadway, 130 feet 5/8 inch to the point
or place of BEGINNING. Be the said several distances, more or less.

PARCEL B:

Lot Number 50
on a certain map entitled “Map of 128 acres of land situated in the 12th Ward
of the City of New York, part of the Estate Of Isaac Dyckman, deceased, known
as Fort George Property”. Dated September 15th, 1868 by R. Rosa, Surveyor, and
filed in the Office of the Register of the County of New York on
November 7, 1868 as map number 697 and which said plot is bounded and
described as follows:

BEGINNING at a
point on the easterly side of Broadway or Kingsbridge Road, as widened, at the
southwesterly corner of plot number 49 on said map;

THENCE
easterly or nearly so along said plot number 49, 202 feet to plot number 53 on
said map;

THENCE
southeasterly along the said plot number 53 on said map and parallel with a new
street laid out by the Commissioners of the Central Park and designated on said
map as boulevard or Dyckman Street, 53 feet 3 inches;

THENCE
westerly or nearly so and along plot number 51 on said map, 220 feet 5 inches
to the present easterly side of Broadway or Kingsbridge Road, as widened;

THENCE
northerly or nearly so along the said present easterly side of Broadway or
Kingsbridge Road, 50 feet to the point or place of BEGINNING.

2

TABLE OF CONTENTS

	
 

	
 

	
 

	
 

	
 

	
Page 

	
 

	
 

	

	
 

	
ARTICLE I
 COVENANTS OF MORTGAGOR

	
5

	
 

	
 

	
 

	
 

	
Section
 1.01

	
 

	
 

	
(a) Warranty of Title; Power and Authority

	
5

	
 

	
(b) Hazardous Materials

	
5

	
 

	
(c) Flood Hazard Area

	
6

	
 

	
Section
 1.02

	
 

	
 

	
(a) Further Assurances

	
6

	
 

	
(b) Information Reporting and Back-up
 Withholding

	
6

	
 

	
Section
 1.03

	
 

	
 

	
(a) Filing and Recording of Documents

	
6

	
 

	
(b) Filing and Recording Fees and Other
 Charges

	
7

	
 

	
Section
 1.04 Payment and Performance of Loan Documents

	
7

	
 

	
Section
 1.05 Type of Entity; Maintenance of Existence; Compliance with Laws

	
7

	
 

	
Section
 1.06 After-Acquired Property

	
7

	
 

	
Section
 1.07

	
 

	
 

	
(a) Payment of Taxes and Other Charges

	
8

	
 

	
(b) Payment of Mechanics and Materialmen

	
8

	
 

	
(c) Good Faith Contests

	
9

	
 

	
Section
 1.08 Taxes on Mortgagee

	
9

	
 

	
Section
 1.09 Insurance

	
9

	
 

	
Section
 1.10 Protective Advances by Mortgagee

	
12

	
 

	
Section
 1.11

	
 

	
 

	
(a) Visitation and Inspection

	
12

	
 

	
(b) Financial and Other Information

	
12

	
 

	
(c) Estoppel Certificates

	
14

	
 

	
Section
 1.12 Maintenance of Premises and Improvements

	
15

	
 

	
Section
 1.13 Condemnation

	
15

	
 

	
Section
 1.14 Leases

	
15

	
 

	
Section
 1.15 Premises Documents

	
16

	
 

	
Section
 1.16 Utilities

	
16

	
 

	
Section
 1.17 Trust Fund; Lien Laws

	
17

	
 

	
Section
 1.18 Intentionally Omitted

	
17

	
 

	
Section
 1.19 Intentionally Omitted

	
17

	
 

	
Section
 1.20 Guarantor Financial Covenants

	
17

	
 

	
Section
 1.21 Federal Law

	
17

	
 

	
 

	
 

	
ARTICLE II
 EVENTS OF DEFAULT AND REMEDIES

	
17

	
 

	
Section
 2.01 Events of Default and Certain Remedies

	
17

	
 

	
Section 2.02
 Other Matters Concerning Sales

	
22

	
 

	
Section
 2.03 Payment of Amounts Due

	
24

	
 

	
Section
 2.04 Actions; Receivers

	
25

	
 

	
Section
 2.05 Mortgagee’s Right to Possession

	
25

	
 

	
Section
 2.06 Remedies Cumulative

	
25

	
 

	
Section
 2.07 Moratorium Laws; Right of Redemption

	
25

	
 

	
Section
 2.08 Mortgagor’s Use and Occupancy after Default

	
26

	
 

	
 

	
 

	
 

	
Section
 2.09 Mortgagee’s Rights Concerning Application of Amounts Collected

	
26

	
 

	
 

	
 

	
ARTICLE III
 MISCELLANEOUS

	
26

	
 

	
Section
 3.01 Assignment of Rents

	
26

	
 

	
Section
 3.02 Security Agreement

	
27

	
 

	
Section
 3.03 Application of Certain Payments

	
27

	
 

	
Section
 3.04 Severability

	
27

	
 

	
Section
 3.05 Modifications and Waivers in Writing

	
28

	
 

	
Section
 3.06 Notices, Etc

	
28

	
 

	
Section
 3.07 Successors and Assigns

	
28

	
 

	
Section
 3.08 Limitation on Interest

	
28

	
 

	
Section
 3.09 Counterparts

	
28

	
 

	
Section
 3.10 Substitute Mortgages

	
28

	
 

	
Section
 3.11 Mortgagee’s Sale of Interests in Loan

	
29

	
 

	
Section
 3.12 No Merger of Interests

	
29

	
 

	
Section
 3.13 CERTAIN WAIVERS

	
29

	
 

	
Section
 3.14 Satisfaction or Assignment of Mortgage

	
29

	
 

	
Section
 3.15 Other Liens; Subrogation

	
29

	
 

	
Section
 3.16 New York Provisions

	
30

	
 

	
Section
 3.17 Exculpation

	
30

	
 

	
Section
 3.18 Priority of Loan and Hedging Agreement

	
31

2

SECURITY AGREEMENT
(Deposit Account at Bank of America, N.A.) 

                    This
Security Agreement (Deposit Account) (this “Agreement”) is made as of January
15, 2009 by and between Acadia Strategic Opportunity Fund II, LLC, a Delaware
limited liability company (the “Pledgor”), and Bank of America, N.A. (the
“Bank”). 

                    18.
Grant of Security Interest. As security for any and all Indebtedness (as
defined below), the Pledgor hereby irrevocably and unconditionally grants a
security interest in and assigns and transfers the Deposit Account (as defined
below) to the Bank. 

                    19.
“Indebtedness” means any and all existing and future indebtedness and
liabilities of every kind, nature and character, direct or indirect, absolute
or contingent, liquidated or unliquidated, voluntary or involuntary and whether
for principal, interest, premiums, fees, indemnities, damages, costs, expenses
or otherwise, (a) of Acadia-P/A Sherman Avenue, LLC, a Delaware limited
liability company (the “Debtor”), to the Bank, whether associated with any
credit or other financial accommodation made to or for the benefit of the
Debtor by the Bank or otherwise and whenever created, arising, evidenced or
acquired (including all renewals, extensions, amendments, refinancings and
other modifications thereof), and (b) of the Pledgor to the Bank hereunder, and
all costs, attorneys’ fees and expenses incurred by the Bank in connection with
the collection or enforcement thereof or hereof, and whether recovery upon such
indebtedness and liabilities may be or hereafter become unenforceable or shall
be an allowed or disallowed claim under any proceeding or case commenced by or
against the Debtor or the Pledgor under the Bankruptcy Code (Title 11, United
States Code), any successor statute or any other liquidation, conservatorship,
bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement,
receivership, insolvency, reorganization, or similar debtor relief laws of the
United States or other applicable jurisdictions from time to time in effect and
affecting the rights of creditors generally, and including interest that
accrues after the commencement by or against the Debtor or the Pledgor of any
proceeding thereunder. The Bank’s books and records showing the amount of the
Indebtedness shall be admissible in evidence in any action or proceeding, and
shall be binding upon the Debtor and the Pledgor and conclusive for the purpose
of establishing the amount of the Indebtedness. 

                    20.
Deposit Account. For purposes of this Agreement, “Deposit Account” means
account no. 406718 opened or to be opened by the Pledgor with the Bank, any
renewals or rollovers thereof, any successor or substitute deposit account(s)
including, without limitation, any such deposit account as it may have been
renumbered or retitled, any proceeds thereof (including without limitation any
interest paid thereon), and any general intangibles and choses in action
arising therefrom or related thereto. 

                    21.
Withdrawals; Renewals; Rollovers. The Pledgor shall not withdraw funds
from the Deposit Account without the Bank’s prior written consent. The Pledgor
agrees that, upon maturity of any deposit with a maturity date, such deposit
shall be renewed at the Bank’s then prevailing rate of interest for successive
ninety (90) day periods (or such other time period as may be agreed by the Bank
and the Pledgor). 

3

                    22.
Interest Payments. Notwithstanding the Bank’s security interest in the proceeds
of the Deposit Account, the Bank will continue to pay to the Pledgor any
interest accruing thereunder until the occurrence of an Event of Default under
this Agreement.  

                    23.
Pledgor’s Covenants, Warranties and Representations. The Pledgor covenants,
represents and warrants that unless compliance is waived by the Bank in
writing:  

	
 

	
 

	
 

	
          (a)
 Except as otherwise agreed by the Bank in writing, the Pledgor owns the
 Deposit Account free and clear of any and all liens, encumbrances, or
 interests of any third parties other than the security interest of the Bank,
 and will keep the Deposit Account free of all liens, claims, security
 interests and encumbrances of any kind or nature, whether voluntary or
 involuntary, except the security interest of the Bank. 

	
 

	
 

	
 

	
          (b)
 The Pledgor shall, at the Pledgor’s expense, take all actions necessary or
 advisable from time to time to maintain the first priority and perfection of
 said security interest and shall not take any actions that would alter,
 impair or eliminate said priority or perfection. 

	
 

	
 

	
 

	
          (c)
 The Pledgor agrees to pay prior to delinquency all taxes, charges, liens and
 assessments against the Deposit Account, and upon the failure of the Pledgor
 to do so, the Bank at its option may pay any of them and shall be the sole
 judge of the legality or validity thereof and the amount necessary to
 discharge the same. 

	
 

	
 

	
 

	
          (d)
 The Pledgor’s exact legal name is correctly set forth on the signature page
 hereof. The Pledgor will provide the Bank with at least 30 days’ prior
 written notice of any change in the Pledgor’s name or identity. 

	
 

	
 

	
 

	
          (e)
 The Pledgor is an organization of the type and (if not an unregistered
 entity) is incorporated in or organized under the laws of the state specified
 in the first paragraph above. The Pledgor shall give the Bank at least 30
 days’ notice before changing its type of organization, business structure or
 state of organization. 

	
 

	
 

	
 

	
          (f)
 The Pledgor’s organizational identification number, if any, assigned by the
 state of incorporation or organization is correctly set forth on the
 signature page hereof. The Pledgor shall promptly notify the Bank (i) of any
 change of its organizational identification number, or (ii) if the Pledgor
 does not have an organizational identification number and later obtains one,
 of such organizational identification number. 

                    24.
Certificates. Upon the Bank’s request, the Pledgor shall deliver any
certificate evidencing any part of the Deposit Account to the Bank, duly
endorsed over to the Bank as necessary. 

                    25.
Costs. All advances, charges, costs and expenses, including reasonable
attorneys’ fees, incurred or paid by the Bank in exercising any right, power or
remedy conferred by this Agreement or in the enforcement hereof, shall become a
part of the Indebtedness secured hereunder and shall be paid to the Bank by the
Pledgor immediately and without demand, with interest thereon at an annual rate
equal to the highest rate of interest that would be applicable to 

4

any
Indebtedness secured by this Agreement. Such costs and attorneys’ fees shall
include, without limitation, the allocated cost of in-house counsel. 

                    26.
Events of Default. Any one or more of the following shall be a default
hereunder (“Event of Default”): 

	
 

	
 

	
 

	
          (a)
 The Pledgor, the Debtor or any comaker, accommodation maker, surety or
 guarantor of the Indebtedness or any endorser of any note or other document
 evidencing the Indebtedness (a “Credit Party”) fails to pay any Indebtedness
 when due, or breaches any other term, provision, warranty or representation
 of any agreement evidencing or relating to the Indebtedness. 

	
 

	
 

	
 

	
          (b)
 Any custodian, receiver or trustee is appointed to take possession, custody
 or control of all or a substantial portion of the property of any Credit
 Party. 

	
 

	
 

	
 

	
          (c)
 Any Credit Party becomes insolvent, or is generally not paying or admits in
 writing its inability to pay its debts as they become due, makes a general
 assignment for the benefit of creditors, or commences any case, proceeding or
 other action under any bankruptcy or other law for the relief of, or relating
 to, debtors. 

	
 

	
 

	
 

	
          (d)
 Any case, proceeding or other action is commenced against any Credit Party
 under any bankruptcy or other law for the relief of, or relating to, debtors.
 

	
 

	
 

	
 

	
          (e)
 Any involuntary lien of any kind or character attaches to the Deposit
 Account. 

	
 

	
 

	
 

	
          (f)
 Any financial statement, certificate, schedule or other information now or
 hereafter furnished by any Credit Party to the Bank proves to have been false
 or incorrect in any material respect when furnished to the Bank. 

	
 

	
 

	
 

	
          (g)
 If any Indebtedness is an obligation or liability of any kind (including any
 renewals, extensions or modifications thereof) arising out of or relating to
 any transaction (including an agreement with respect thereto) now existing or
 hereafter entered into which is a rate swap, basis swap, forward rate
 transaction, commodity swap, commodity option, equity or equity index swap,
 equity or equity index option, bond option, interest rate option, spot or
 forward foreign exchange transaction, cap transaction, floor transaction,
 collar transaction, currency swap transaction, cross-currency rate swap
 transaction, currency option, credit swap or default transaction or any other
 similar transaction (including any option with respect to any of these
 transactions) or any combination thereof, whether linked to one or more
 interest rates, foreign currencies, commodity prices, equity prices or other
 financial measures (individually, a “Hedging Transaction;” collectively, the
 “Hedging Transactions”), any termination event, event of default or other
 similar event occurs under such Indebtedness. 

                    27.
Remedies. If an Event of Default occurs, the Bank may do any one or more
of the following: 

5

	
 

	
 

	
 

	
          (a)
 Declare all Indebtedness to be immediately due and payable, whereupon the same
 shall become and be immediately due and payable, without notice of default,
 presentment or demand for payment, protest or notice of nonpayment or
 dishonor, or other notices or demands of any kind or character, all of which
 are hereby expressly waived; provided, however, that upon the occurrence of
 an Event of Default described in Paragraph 9(c) or 9(d), all Indebtedness
 shall become and be immediately due and payable, without notice of default,
 presentment or demand for payment, protest or notice of nonpayment or
 dishonor, or other notices or demands of any kind or character, all of which
 are hereby expressly waived. 

	
 

	
 

	
 

	
          (b)
 Exercise as to the Deposit Account all of the rights, powers and remedies of
 an owner and all of the rights, powers and remedies of a secured party under
 the UCC (as defined below) and any other applicable law. 

	
 

	
 

	
 

	
          (c)
 Apply, without notice, any funds in any Deposit Account against the
 Indebtedness. 

	
 

	
 

	
 

	
          (d)
 Exercise any other remedy provided under this Agreement or by any applicable
 law. 

                    28.
Additional Waivers. The Pledgor waives any right to require the Bank to
(a) proceed against any person, (b) proceed against or exhaust any collateral,
or (c) pursue any other remedy in the Bank’s power; and waives any defense
arising by reason of any disability or other defense of the Debtor or any other
person, or by reason of the cessation from any cause whatsoever of the
liability of the Debtor or any other person. Until the Indebtedness is paid in
full, the Pledgor waives any right of subrogation, reimbursement,
indemnification, and contribution (contractual, statutory or otherwise),
including without limitation any claim or right of subrogation under the
Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, arising
from the existence or performance of this Agreement, and the Pledgor waives any
right to enforce any remedy which the Bank now has or may hereafter have
against the Debtor or against any other person and waives any benefit of and
any right to participate in any collateral or security whatsoever now or
hereafter held by the Bank. If the Pledgor is not also a debtor with respect to
a specified Indebtedness, the Pledgor authorizes the Bank without notice or
demand and without affecting the Pledgor’s liability hereunder, from time to
time to: (a) renew, extend, accelerate or otherwise change the time for payment
of or otherwise change the terms of the Indebtedness or any part thereof,
including increase or decrease of the rate of interest thereon; (b) take and
hold security, other than the Deposit Account, for the payment of the
Indebtedness or any part thereof, and exchange, enforce, waive and release the
Deposit Account or any part thereof or any such other security; and (c) release
or substitute the Debtor or any one or more of them, or any of the endorsers or
guarantors of the Indebtedness or any part thereof, or any other parties
thereto. The Pledgor agrees that it is solely responsible for keeping itself
informed as to the financial condition of the Debtor and of all circumstances
which bear upon the risk of nonpayment or the risk of a margin call or
liquidation of the collateral. 

                    29.
Return of Collateral. The Bank may at any time deliver the collateral or
any part thereof to the Pledgor and the receipt of the Pledgor shall be a
complete and full 

6

acquittance
for the collateral so delivered, and the Bank shall thereafter be discharged
from any liability or responsibility therefor. 

                    30.
Transfer of Collateral. Upon the transfer of all or any part of the
Indebtedness, the Bank may transfer all or any part of the collateral and shall
be fully discharged thereafter from all liability and responsibility with
respect to such collateral so transferred, and the transferee shall be vested
with all the rights and powers of the Bank hereunder with respect to such
collateral so transferred; but with respect to any collateral not so
transferred the Bank shall retain all rights and powers hereby given. 

                    31.
Continuing Agreement. This is a continuing Security Agreement and all
the rights, powers and remedies hereunder shall apply to all past, present and
future Indebtedness of the Debtor, including that arising under successive
transactions which shall either continue the Indebtedness, increase or decrease
it, or from time to time create new Indebtedness after all or any prior
Indebtedness has been satisfied, and notwithstanding the death, incapacity,
cessation of business, dissolution or bankruptcy of the Debtor or any other
event or proceeding affecting the Debtor. 

                    32.
Continuing Powers. Until all Indebtedness shall have been paid in full,
the power of sale and all other rights, powers and remedies granted to the Bank
hereunder shall continue to exist and may be exercised by the Bank at the time
specified hereunder irrespective of the fact that the Indebtedness or any part
thereof may have become barred by any statute of limitations, or that the personal
liability of the Pledgor or the Debtor may have ceased. The Pledgor waives the
benefit of any statute of limitations as applied to this Agreement. 

                    33.
Other Rights. The rights, powers and remedies given to the Bank by this
Agreement shall be in addition to all rights, powers and remedies given to the
Bank by virtue of any statute or rule of law. Any forbearance or failure or
delay by the Bank in exercising any right, power or remedy hereunder shall not
be deemed to be a waiver of such right, power or remedy, and any single or
partial exercise of any right, power or remedy hereunder shall not preclude the
further exercise thereof; and every right, power and remedy of the Bank shall
continue in full force and effect until such right, power or remedy is
specifically waived by an instrument in writing executed by the Bank. 

                    34.
Termination. This Agreement shall remain in full force and effect until
terminated by the Bank. 

                    35.
Miscellaneous. 

                    The
Pledgor hereby authorizes the Bank to file one or more financing statements
describing all or part of the collateral, and continuation statements, or
amendments thereto, relative to all or part of the collateral as authorized by
applicable law. Such financing statements, continuation statements and
amendments will contain any other information required by the UCC for the
sufficiency or filing office acceptance of any financing statement,
continuation statement or amendment, including whether the Pledgor is an
organization, the type of organization and any organizational identification
number issued to the Pledgor. The Pledgor agrees to furnish any such
information to the Bank promptly upon request. 

7

                    At
the request of the Bank, the Pledgor shall execute such other agreements,
documents or instruments in connection with this Agreement as the Bank may
reasonably deem necessary to evidence or perfect the security interests granted
herein, to maintain the first priority of the security interests, or to
effectuate the rights granted to the Bank herein. 

                    This
Agreement shall be governed by and construed according to the internal laws of
the State of New York, except as otherwise required by mandatory provisions of
law and except to the extent that remedies are governed by the laws of any
other jurisdiction. The Pledgor hereby irrevocably (i) submits to the
non-exclusive jurisdiction of any United States Federal or State court sitting
in New York City in any action or proceeding arising out of or relating to this
Agreement, and (ii) waives to the fullest extent permitted by law any defense
asserting an inconvenient forum in connection therewith. Service of process by
the Bank in connection with such action or proceeding shall be binding on the
Pledgor if sent to the Pledgor by registered or certified mail at its address
specified below. The Pledgor agrees that the Bank may disclose to any
prospective purchaser and any purchaser of all or part of the Indebtedness any
and all information in the Bank’s possession concerning the Pledgor, this
Agreement and the collateral. The state referred to above in this subparagraph
is the “bank’s jurisdiction” for purposes of the UCC (as defined below). 

                    References
to “UCC” in this Agreement shall mean the Uniform Commercial Code as in effect
from time to time in the state referred to in subparagraph (d) above; provided
that if by mandatory provisions of law, the perfection, the effect of
perfection or non-perfection, or the priority of the security interests granted
in this Agreement, as well as all other security interests created or assigned
as additional security for the Indebtedness under the provisions of this
Agreement, in any collateral is governed by the Uniform Commercial Code as in
effect in any other jurisdiction, the “UCC” means the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions of this
Agreement relating to such perfection, effect of perfection or non-perfection,
or the priority of security interests. Any term used or defined in the UCC and
not defined in this Agreement has the meaning given to the term in the UCC,
when used in this Agreement. 

                    This
Agreement shall benefit the Bank’s successors and assigns and shall bind the
Pledgor’s successors and assigns, except that the Pledgor may not assign its
rights and obligations under this Agreement. This Agreement shall bind all
parties who become bound as a debtor with respect to the Indebtedness. 

                    In
all cases where more than one party executes this Agreement, all words used
herein in the singular shall be deemed to have been used in the plural where
the context and construction so require, and the obligations and undertakings
hereunder are joint and several. 

                    36.
WAIVER OF JURY TRIAL. TO THE EXTENT ALLOWED BY APPLICABLE LAW, THE
PLEDGOR AND THE BANK EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION,
CLAIM, SUIT OR PROCEEDING ON OR ARISING OUT OF THIS AGREEMENT. 

                    37.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY AGREEMENT AND ANY OTHER
DOCUMENTS EXECUTED IN CONNECTION WITH 

8

THIS SECURITY
AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. 

[Remainder of page intentionally left blank]

9

          IN WITNESS
WHEREOF, the parties have executed this Agreement by their authorized officers
as of the date first above written. 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
PLEDGOR:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
ACADIA
 STRATEGIC OPPORTUNITY FUND II,

 LLC, a Delaware limited liability company

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
Acadia
 Realty Acquisition II, LLC, a Delaware limited liability company, its
 managing member

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
Acadia
 Realty Limited Partnership, its sole member

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
Acadia
 Realty Trust, its general partner

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	
 

	
 

	
 

	
 

	

	
 

	
 

	
 

	
 

	
 

	
Robert
 Masters

	
 

	
 

	
 

	
 

	
 

	
Senior Vice
 President

	
 

	
 

	
 

	
 

	
BANK:

	
 

	
 

	
 

	
 

	
BANK OF
 AMERICA, N.A.

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	
 

	

	
 

	
 

	
Gregory Egli

	
 

	
 

	
Senior Vice
 President

Acknowledgment and Consent of Debtor

          The
Debtor hereby acknowledges and consents to the terms of this Agreement. The
Debtor acknowledges that the contact information below is correct for any
margin call or other notice to the Debtor. The Debtor further agrees that any
such notice of a margin call may be given orally or in writing, including
facsimile, to the Debtor as provided below. Notices and other communications
sent by (a) first class mail shall be deemed delivered on the earlier of actual
receipt or on the fourth business day after deposit in the U.S. mail, postage
prepaid, (b) overnight courier shall be deemed delivered on the next business
day, and (c) telecopy shall be deemed delivered when transmitted. To the extent
that oral notification is provided for or agreed to herein, such oral
notification may be made by telephone to the number(s) set forth below for the
Debtor; provided that any oral notification in person or at any other telephone
number shall constitute notification hereunder and under the terms of any
Indebtedness related hereto. The Debtor hereby agrees to promptly notify Bank
in writing of any change in the notice information set forth below. 

	
 

	
 

	
 

	
 

	
DEBTOR:

	
 

	
 

	
 

	
 

	
ACADIA-P/A
 SHERMAN AVENUE, LLC,

 a Delaware limited liability company

	
 

	
 

	
 

	
 

	
By

	
 

	
 

	
 

	

	
 

	
 

	
Robert
 Masters

	
 

	
 

	
Senior Vice
 President

CONTACT INFORMATION FOR NOTICE PURPOSES

	
 

	
 

	
 

	
 

	
 

	
 

	
Telephone
 Numbers:

	
 

	
Address for
 Notices:

	
914-288-8139

	
 

	
 

	
914-288-8100

	
 

	
c/o Acadia
 Realty Trust

	
 

	
 

	
1311
 Mamaroneck Avenue, Suite 260

	
Facsimile,
 telecopy or similar

	
 

	
White
 Plains, New York 10605

	
number for
 notices:

	
 

	
Attention:
 Mr. Robert Masters

	
914-428-3646Exhibit 4(a)(i)

Dated as of 13 October 2008

LLOYDS TSB GROUP PLC

and

CITIGROUP GLOBAL MARKETS LIMITED

and

CITIGROUP GLOBAL MARKETS U.K. EQUITY LIMITED

and

UBS LIMITED

and

MERRILL LYNCH INTERNATIONAL

and

THE COMMISSIONERS OF HER MAJESTY’S TREASURY

	
 

	

	
 

	
PLACING AND OPEN OFFER AGREEMENT

	
 

	

Slaughter and May

One Bunhill Row

London

EC1Y 8YY

(TP/PIRD)

Contents

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Page

	
 

	
 

	
 

	
 

	
1.

	
INTERPRETATION

	
 

	
2

	
 

	
 

	
 

	
 

	
2.

	
CONDITIONS

	
 

	
23

	
 

	
 

	
 

	
 

	
3.

	
THE PLACING AND
 OPEN OFFER AND APPOINTMENTS

	
 

	
30

	
 

	
 

	
 

	
 

	
4.

	
ALLOTMENT OF THE
 NEW SHARES, CONSIDERATION AND REGISTRATION

	
 

	
37

	
 

	
 

	
 

	
 

	
5.

	
OVERSEAS
 SHAREHOLDERS

	
 

	
39

	
 

	
 

	
 

	
 

	
6.

	
HM TREASURY
 ACQUISITION

	
 

	
42

	
 

	
 

	
 

	
 

	
7.

	
CAPACITY

	
 

	
44

	
 

	
 

	
 

	
 

	
8.

	
FEES, COMMISSIONS,
 EXPENSES AND VAT

	
 

	
45

	
 

	
 

	
 

	
 

	
9.

	
COVENANTS

	
 

	
48

	
 

	
 

	
 

	
 

	
10.

	
REPRESENTATIONS,
 WARRANTIES AND UNDERTAKINGS

	
 

	
51

	
 

	
 

	
 

	
 

	
11.

	
INDEMNITIES

	
 

	
54

	
 

	
 

	
 

	
 

	
12.

	
CONTRIBUTION

	
 

	
58

	
 

	
 

	
 

	
 

	
13.

	
TERMINATION

	
 

	
59

	
 

	
 

	
 

	
 

	
14.

	
EXCLUSIONS OF
 LIABILITY

	
 

	
63

	
 

	
 

	
 

	
 

	
15.

	
MISCELLANEOUS

	
 

	
64

	
 

	
 

	
 

	
 

	
16.

	
GENERAL

	
 

	
64

	
 

	
 

	
 

	
 

	
17.

	
ASSIGNMENT OR
 NOVATION

	
 

	
67

	
 

	
 

	
 

	
 

	
18.

	
NOTICES

	
 

	
67

	
 

	
 

	
 

	
 

	
19.

	
GOVERNING LAW AND
 SUBMISSION TO JURISDICTION

	
 

	
69

	
 

	
 

	
 

	
 

	
SCHEDULE 1
 CERTIFICATES TO BE DELIVERED

	
 

	
71

	
 

	
 

	
 

	
SCHEDULE 2
 DOCUMENTS TO BE DELIVERED

	
 

	
77

	
 

	
 

	
 

	
SCHEDULE 3
 WARRANTIES

	
 

	
87

	
 

	
 

	
 

	
SCHEDULE 4 PRO
 FORMA NOVATION AGREEMENT

	
 

	
122

	
 

	
 

	
 

	
SCHEDULE 5 US
 INVESTOR LETTER

	
 

	
128

	
 

	
 

	
 

	
SCHEDULE 6
 CONDITIONS TERM SHEET

	
 

	
132

THIS AGREEMENT is effective as of 13 October 2008 among:

	
 

	
 

	
(1)

	
LLOYDS TSB GROUP PLC, a company incorporated in
 Scotland with registered number 095000 and whose registered office is at Henry
 Duncan House, 120 George St, Edinburgh, Scotland EH2 4LH (the “Company”);

	
 

	
 

	
(2)

	
UBS LIMITED, a company incorporated in
 England and Wales with registered number 2035362 whose registered office is
 at 1 Finsbury Avenue, London EC2M 2PP (“UBS”); 

	
 

	
 

	
(3)

	
MERRILL LYNCH INTERNATIONAL, a company incorporated in
 England and Wales with registered number 02312079 and whose registered office
 is at Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ
 (“Merrill
 Lynch”); 

	
 

	
 

	
(4)

	
CITIGROUP
 GLOBAL MARKETS LIMITED, a company incorporated in England and Wales with
 registered number 01763297 and whose registered office is at Citigroup
 Centre, Canada Square, Canary Wharf, London, E14 5LB (“CGML”); 

	
 

	
 

	
(5)

	
CITIGROUP GLOBAL MARKETS U.K. EQUITY
 LIMITED, a company incorporated in England and Wales with registered number
 2019774 and whose registered office is at Citigroup Centre, Canada Square,
 Canary Wharf, London, E14 5LB (“CGMEL”); and

	
 

	
 

	
(6)

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

	
 

	
 

	
WHEREAS:

	
 

	
 

	
(A)

	
The Company
 proposes to invite Qualifying Shareholders to apply to acquire New Shares at
 the Issue Price by way of an open offer and otherwise on the terms and
 subject to the conditions to be set out in the Prospectus and the Application
 Form.

	
 

	
 

	
(B)

	
Each of the Joint
 Bookrunners is willing (severally and not jointly or jointly and severally),
 on the terms and subject to the conditions set out in this Agreement, to use
 reasonable endeavours to procure Placees to acquire the New Shares on such
 terms and conditions as may be agreed by the Company and HM Treasury,
 including the Treasury Solicitor, and at a price not lower than the Issue
 Price on the basis that the New Shares shall be subject to clawback to the
 extent they are taken up under the Open Offer.

	
 

	
 

	
(C)

	
To the extent not
 placed or taken up under the Open Offer and subject to the provisions of this
 Agreement, HM Treasury is willing to acquire (or procure that its nominee
 acquires) such New Shares itself.

	
 

	
 

	
(D)

	
The Company
 proposes, subject, inter alia, to the passing of the
 Resolutions, to allot and issue the New Shares to such persons as UBS and/or
 Merrill Lynch and/or CGMEL may direct (with the consent of HM Treasury), or,
 failing which, to HM Treasury (or its nominee) as Placee. The consideration
 for the allotment and issue of the New Shares to Qualifying Shareholders
 and/or Placees, and/or to HM Treasury or its nominee (as the case may be)
 will be the transfer of the Consideration Shares by one of UBS, Merrill Lynch
 or CGML or a third party (in its capacity as a subscriber for the
 Consideration Shares) to the Company.

2

	
 

	
 

	
(E)

	
On 18 September
 2008, the Company and HBOS announced that they had reached agreement on the
 terms of a recommended acquisition by the Company of the entire issued and to
 be issued ordinary share capital of HBOS by means of a scheme of arrangement
 to be effected under the CA 2006 or, should the Company so elect, by means of
 a contractual takeover offer, such terms being amended as announced on 13
 October 2008.

	
 

	
 

	
(F)

	
The Company has
 agreed to appoint the Joint Sponsors to act as joint sponsors in connection
 with the applications for New Share Admission, Acquisition Share Admission
 and the publication of the Circular and to appoint UBS, Merrill Lynch and
 CGMEL to act as joint bookrunners and joint placing agents in connection with
 the Placing.

	
 

	
 

	
(G)

	
Application will
 be made to the FSA and the London Stock Exchange for the admission of the New
 Shares, the Acquisition Shares and the Preference Shares to the Official List
 and to trading on the London Stock Exchange’s main market for listed
 securities.

	
 

	
 

	
(H)

	
Application will
 also be made for the New ADSs to be listed on The New York Stock Exchange.

	
 

	
 

	
(I)

	
New Share Admission
 shall not occur until such time as is agreed as being the latest time before
 the court hearing to sanction the reduction of capital of HBOS as part of the
 scheme of arrangement pursuant to the Acquisition that will allow the
 Acquisition to apply to the HBOS Ordinary Shares.

	
 

	
 

	
NOW THEREFORE IT IS AGREED as follows:

	
 

	
 

	
1. 

	
INTERPRETATION 

	
 

	
 

	
1.1

	
In this Agreement (including the Recitals):

	
 

	
 

	
 

	
 

	
 

	
 

	
“Acceptance”

	
 

	
means application
 and payment validly made (or, where the context so requires, treated as validly
 made) in accordance with the procedures to be set out in the Prospectus and
 (where appropriate) the Application Form (including, for the avoidance of
 doubt, any such application and payment validly made in respect of New Shares
 in addition to Qualifying Shareholders’ pre-emptive entitlements);

	
 

	
 

	
 

	
 

	
 

	
 

	
“Accepted Shares”

	
 

	
has the meaning
 given in clause 6.1(A);

	
 

	
 

	
 

	
 

	
 

	
 

	
“Accounts”

	
 

	
means the audited
 consolidated accounts of the Group for the three years ended 31 December
 2005, 2006 and 2007 (including, without limitation, the related directors’
 and auditors’ reports, the consolidated income statement, the consolidated
 balance sheet, the consolidated cashflow statement, the consolidated
 statement of recognised income and expense and all related

3

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
notes);

	
 

	
 

	
 

	
 

	
 

	
 

	
“Accounts Date”

	
 

	
means 31 December
 2007;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Acquisition”

	
 

	
means the proposed
 recommended acquisition by the Company, by way of scheme of arrangement, or,
 should the Company so elect, by way of a contractual takeover offer, of the entire
 issued and to be issued ordinary share capital of HBOS as more particularly
 described in the announcement by the Company of its firm intention to make an
 offer on 18 September 2008 (as amended on 13 October 2008);

	
 

	
 

	
 

	
 

	
 

	
 

	
“Acquisition Resolution”

	
 

	
means the
 resolution, in a form acceptable to HM Treasury, acting reasonably, pursuant
 to which the ordinary shareholders of HBOS are to approve the terms of the
 Acquisition;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Acquisition Share Admission”

	
 

	
means the
 admission of the Acquisition Shares to the Official List becoming effective
 in accordance with paragraph 3.2.7G of the Listing Rules and admission to
 trading on the London Stock Exchange’s main market for listed securities
 becoming effective in accordance with paragraph 2.1 of the Admission and
 Disclosure Standards;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Acquisition Shares”

	
 

	
means the new
 Ordinary Shares proposed to be issued pursuant to the Acquisition;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Admission and Disclosure Standards”

	
 

	
means the
 Admission and Disclosure Standards of the London Stock Exchange, as amended
 from time to time;

	
 

	
 

	
 

	
 

	
 

	
 

	
“ADSs”

	
 

	
means American
 depositary shares issued pursuant to the Deposit Agreement, each representing
 the right to receive four New Shares, and reference to Ordinary Shares or New
 Shares shall be deemed to include any such Ordinary Shares or New Shares
 represented by ADSs;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Adverse Interest”

	
 

	
means any option,
 lien, mortgage, charge, equity, trust, any other right or interest of any
 third party and any other encumbrance of any kind;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Affiliate”

	
 

	
means, unless
 otherwise specified herein, “affiliate” as defined in Rule 405 under the
 Securities Act or, as the context may require, Rule 501(b) under Regulation D
 of the Securities Act;

4

	
 

	
 

	
 

	
 

	
 

	
 

	
“Application Form”

	
 

	
means the
 application form, in a form acceptable to HM Treasury and to the Joint
 Sponsors, acting reasonably, to be despatched for use in connection with the
 Open Offer;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Auditors”

	
 

	
means
 PricewaterhouseCoopers LLP;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Board”

	
 

	
means the Board of
 Directors of the Company or a duly authorised committee thereof;

	
 

	
 

	
 

	
 

	
 

	
 

	
“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;

	
 

	
 

	
 

	
 

	
 

	
 

	
“CA 1985”

	
 

	
means the
 Companies Act 1985;

	
 

	
 

	
 

	
 

	
 

	
 

	
“CA 2006”

	
 

	
means the
 Companies Act 2006;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Capital Resources Requirement”

	
 

	
has the meaning
 given in the FSA Rules;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Circular”

	
 

	
means the
 circular, in a form acceptable to HM Treasury and to the Joint Sponsors, to
 be sent to the Qualifying Shareholders (other than the Prohibited
 Shareholders) giving details of the Acquisition, the Placing and Open Offer
 and containing notice of the GM;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Circular Posting Date”

	
 

	
means the date on
 which the Company despatches the Circular to Qualifying Shareholders (other
 than Prohibited Shareholders);

	
 

	
 

	
 

	
 

	
 

	
 

	
“Circular Warranties”

	
 

	
means the
 Warranties set out in Part II and Part IIA of Schedule 3, with the exception
 of those Warranties set out in paragraphs 1.5, 1.7, 2, 3, and 4 of Part II of
 Schedule 3, provided that any references to Issue Documents in such
 Warranties shall be deemed to be references to such Issue Documents as have
 been issued or published by or on behalf of the Company on or before the
 Circular Posting Date, and “Circular Warranty” shall be construed
 accordingly;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Citi”

	
 

	
means each of
 CGML, in its capacity as joint sponsor, and/or CGMEL, in its capacity as
 joint bookrunner and joint placing agent (including, for the avoidance of
 doubt, both of them where the context requires);

5

	
 

	
 

	
 

	
 

	
 

	
 

	
“Citi Indemnified Persons”

	
 

	
means:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(a)

	
CGML, CGMEL and any subsidiary, branch or affiliate of CGML and/or
 CGMEL;

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(b)

	
a person who is,
 on or at any time after the date of this Agreement, a director, officer,
 partner or employee of an undertaking specified in sub paragraph (a) above;
 and

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(c)

	
CGML, CGMEL, their selling agents and each person, if any, who
 controls CGML or CGMEL within
 the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
 Act and CGML’s and CGMEL’s respective affiliates, subsidiaries, branches,
 affiliates, associates and holding companies and the subsidiaries of such
 subsidiaries, branches, affiliates, associates and holding companies and each
 of such person’s respective directors, officers and employees; and “Citi
 Indemnified Person” shall be construed accordingly;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Claims”

	
 

	
means any and all
 claims, actions, liabilities, demands, proceedings, investigations, judgments
 or awards whatsoever (and in each case whether or not successful, compromised
 or settled and whether joint or several) threatened, asserted, established or
 instituted against any Indemnified Person and “Claim” shall be construed
 accordingly;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Class 1 Resolution”

	
 

	
means the
 resolution, in a form acceptable to HM Treasury, acting reasonably, pursuant
 to which the Ordinary Shareholders are to approve the Acquisition; 

	
 

	
 

	
 

	
 

	
 

	
“Closing Date”

	
 

	
means the last
 date for Acceptance under the terms of the Open Offer;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Companies Acts”

	
 

	
means the CA 1985
 and/or the CA 2006 as the context requires;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Consideration Shares”

	
 

	
means the JerseyCo
 Ordinary Shares and the JerseyCo Preference Shares;

	
 

	
 

	
 

	
 

	
 

	
 

	
“CREST”

	
 

	
means the relevant
 system (as defined in the Regulations) in respect of which Euroclear is the

6

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Operator (as
 defined in the Regulations);

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
“Dealing Day”

	
 

	
means a day on
 which dealings in securities may take place on, and with the authority of,
 the London Stock Exchange;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Deposit Agreement”

	
 

	
means the deposit
 agreement dated 27 November 2001 made between the Company, The Bank of New
 York, as depositary, and the owners and holders of ADSs issued thereunder (as
 amended and restated);

	
 

	
 

	
 

	
 

	
 

	
 

	
“Directors”

	
 

	
means the
 directors of the Company from time to time;

	
 

	
 

	
 

	
 

	
 

	
 

	
“DTRs”

	
 

	
means the Disclosure
 and Transparency Rules, as amended from time to time, made by the FSA
 pursuant to Part VI of FSMA;

	
 

	
 

	
 

	
 

	
 

	
 

	
“EEA”

	
 

	
means the European
 Economic Area;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Effective Date”

	
 

	
means 13 October
 2008;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Enablement Letter”

	
 

	
means a letter, in
 a form acceptable to HM Treasury and to the Joint Sponsors, acting
 reasonably, from the Company to Euroclear confirming that the conditions for
 admission of the New Shares, the Acquisition Shares and the Preference Shares
 to CREST are satisfied;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Engagement Letters”

	
 

	
means the
 engagement letters between the Company and each of the Joint Sponsors dated
 on or around the Effective Date and relating to the Placing and Open Offer,
 and the engagement letter between the Company and Citi dated 3 October 2008;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Enlarged Group”

	
 

	
means the Company
 and its subsidiaries and subsidiary undertakings following completion of the
 Acquisition;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Euroclear”

	
 

	
means Euroclear UK
 & Ireland Limited;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Exchange Act”

	
 

	
means the United
 States Securities Exchange Act of 1934;

	
 

	
 

	
 

	
 

	
 

	
 

	
“FCPA”

	
 

	
means the US
 Foreign Corrupt Practices Act of 1977, including the rules and regulations
 thereunder;

7

	
 

	
 

	
 

	
 

	
 

	
 

	
“Form of Proxy”

	
 

	
means the form of
 proxy, in a form acceptable to HM Treasury and to the Joint Sponsors, acting
 reasonably, to be sent to Qualifying Shareholders (other than Prohibited
 Shareholders) in connection with the GM;

	
 

	
 

	
 

	
 

	
 

	
 

	
“FSA”

	
 

	
means the
 Financial Services Authority acting in its capacity as the competent
 authority for the purposes of Part VI of the FSMA;

	
 

	
 

	
 

	
 

	
 

	
 

	
“FSA Rules”

	
 

	
means the rules,
 as amended from time to time, made by the FSA under the FSMA;

	
 

	
 

	
 

	
 

	
 

	
 

	
“FSMA”

	
 

	
means the
 Financial Services and Markets Act 2000 including any regulations made
 pursuant thereto;

	
 

	
 

	
 

	
 

	
 

	
 

	
“GM”

	
 

	
means the general
 meeting of the Company to be convened at which the Resolutions are to be
 proposed, or any adjournment of it;

	
 

	
 

	
 

	
 

	
 

	
 

	
“GM Date”

	
 

	
means the date on
 which the GM is held, being no later than 20th November 2008, or
 such later date as the Company, HM Treasury and the Joint Sponsors may agree;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Group”

	
 

	
means the Company
 and its subsidiary undertakings from time to time and “Group Company” means any of
 them;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS”

	
 

	
means HBOS plc, a
 company incorporated in Scotland with registered number SC218813 and whose
 registered office is at The Mound, Edinburgh EH1 1YZ;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS Accounts”

	
 

	
means the audited
 consolidated accounts of the HBOS Group for the three years ended 31 December
 2005, 2006 and 2007 (including, without limitation, the related directors’
 and auditors’ reports, the consolidated income statement, the consolidated
 balance sheet, the consolidated cashflow statement, the consolidated
 statement of recognised income and expense and all related notes);

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS Accounts Date”

	
 

	
means 31 December
 2007;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS ADRs”

	
 

	
means American
 depositary receipts of HBOS, each representing one HBOS Ordinary Share;

8

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS Confirmation”

	
 

	
means the written
 confirmation addressed to HM Treasury by the Company confirming (i) that the
 Company has consented to HBOS entering into the HBOS Placing and Open Offer
 Agreement and the HBOS Preference Share Subscription Agreement; (ii) that
 neither the entry into such agreements nor any of the transactions
 contemplated by them will give rise to a right to terminate the HBOS
 Implementation Agreement exercisable by the Company; and (iii) that the
 Company will not, as a result of HBOS entering into, or performing any of its
 obligations under the HBOS Placing and Open Offer Agreement and the HBOS
 Preference Share Subscription Agreement, withdraw, lapse, cease to proceed
 with, or invoke any condition in relation to, the Acquisition;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS Group”

	
 

	
means HBOS and its
 subsidiaries and subsidiary undertakings;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS Implementation Agreement”

	
 

	
means the
 agreement dated 18 September 2008 between HBOS and the Company relating to
 the implementation of the Acquisition (as amended on 13 October 2008);

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS Interim Accounts”

	
 

	
means the
 unaudited consolidated financial information for the HBOS Group in respect of
 the six month period ended 30 June 2008;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS Material Adverse Effect”

	
 

	
means an event has
 occurred or is reasonably likely to occur which has resulted in or may result
 in a material adverse change in or affecting the condition (financial,
 operational, legal or otherwise), profitability, prospects, solvency,
 business affairs or operations of the HBOS Group taken as a whole, whether or
 not arising in the ordinary course of business;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS
 Ordinary Shares”

	
 

	
means the ordinary
 shares in the capital of HBOS to be conditionally subscribed for by HM
 Treasury (or its nominee) pursuant, inter alia, to the HBOS Placing and Open
 Offer Agreement;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS
 Placing and Open Offer Agreement”

	
 

	
means the placing
 and open offer agreement effective as of the Effective Date between HBOS,
 Morgan Stanley & Co. International plc, Dresdner Kleinwort Limited and HM
 Treasury;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS
 Preference Shares”

	
 

	
means the
 preference shares in the capital of HBOS to be subscribed for by HM Treasury
 (or its

9

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
nominee) pursuant,
 inter alia, to the HBOS Preference Share Subscription Agreement;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HBOS
 Preference Share Subscription Agreement”

	
 

	
means the
 agreement effective as of the Effective Date between HBOS and HM Treasury
 pursuant to which HM Treasury agrees to subscribe for the HBOS Preference
 Shares;

	
 

	
 

	
 

	
 

	
 

	
 

	
“HMT Indemnified Persons”

	
 

	
means:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(a)

	
The Commissioners
 of Her Majesty’s Treasury;

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(b)

	
the Treasury;

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(c)

	
the Treasury
 Solicitor;

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(d)

	
any entity to
 which HM Treasury novates its rights and obligations under this Agreement
 pursuant to clause 17; and

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(e)

	
any person who is,
 on or at any time after the date of this agreement, a director, officer,
 official, agent or employee of or under any person specified in paragraph
 (a), (b), (c) or (d) above;

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
and “HMT
 Indemnified Person” shall be construed accordingly;

	
 

	
 

	
 

	
 

	
 

	
 

	
“IFRS”

	
 

	
means
 International Financial Reporting Standards as adopted by the European Union;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Indemnified Persons”

	
 

	
means each and any
 HMT Indemnified Person, each and any UBS Indemnified Person, each and any
 Merrill Lynch Indemnified Person and each and any Citi Indemnified Person and “Indemnified Person” shall
 be construed accordingly;

	
 

	
 

	
 

	
 

	
 

	
 

	
“Intellectual
 Property Rights”

	
 

	
means patents,
 trade marks, service marks, logos, get-up, trade names, rights in designs,
 copyright (including rights in computer software), internet domain names,
 moral rights, utility models, rights in know how, rights in databases and other
 intellectual property rights, in each case whether registered or unregistered
 and including applications for the grant of any such rights and all rights or
 forms of protection having equivalent or similar effect anywhere in the
 world;

10

	
 

	
 

	
 

	
 

	
“Interim Accounts”

	
 

	
means the
 unaudited consolidated financial information for the Group in respect of the
 six month period ended 30 June 2008;

	
 

	
 

	
 

	
 

	
“Investment Company Act”

	
 

	
means the United
 States Investment Company Act of 1940;

	
 

	
 

	
 

	
 

	
“Issue Documents”

	
 

	
means the Press
 Announcement, the Application Form, the Circular, the Form of Proxy, the
 Prospectus, any Supplementary Prospectus, the Preference Prospectus, any
 Supplementary Preference Prospectus, the Presentation, all documentation
 published or issued in connection with the Preference Share Subscription, any
 interim management statement published after the Effective Date and before
 New Share Admission or Acquisition Share Admission and any other document
 published or issued after the Effective Date by or on behalf of the Company
 in connection with the Placing, the Open Offer, the Acquisition or the
 Preference Share Subscription;

	
 

	
 

	
 

	
 

	
“Issue Price”

	
 

	
means the price of
 173.3 pence per New Share;

	
 

	
 

	
 

	
 

	
“JerseyCo”

	
 

	
means a company to
 be incorporated in Jersey in connection with the Placing;

	
 

	
 

	
 

	
 

	
“JerseyCo Ordinary Shares”

	
 

	
means the ordinary
 shares in the capital of JerseyCo to be issued to one of UBS, Merrill Lynch
 or CGML under the terms of the Option Agreement;

	
 

	
 

	
 

	
 

	
“JerseyCo Preference Shares”

	
 

	
means the
 redeemable preference shares in the capital of JerseyCo to be issued to one
 of UBS, Merrill Lynch or CGML, or a third party, under the terms of the
 Subscription and Transfer Agreement;

	
 

	
 

	
 

	
 

	
“Joint Bookrunners”

	
 

	
means UBS, Merrill
 Lynch and CGMEL;

	
 

	
 

	
 

	
 

	
“Joint Sponsors”

	
 

	
means UBS, Merrill
 Lynch and CGML;

	
 

	
 

	
 

	
 

	
“KPMG”

	
 

	
means KPMG Audit
 Plc;

	
 

	
 

	
 

	
 

	
“KPMG Reports”

	
 

	
means the reports
 and letters prepared by KPMG in connection with the Placing and Open Offer
 and the Acquisition;

	
 

	
 

	
 

	
 

	
“KPMG Working Capital Report”

	
 

	
means the working
 capital review report prepared by KPMG, in the agreed form, relating to the
 HBOS Group, to be dated the date of the Circular 

11

	
 

	
 

	
 

	
 

	
 

	
 

	
and of the
 Prospectus and to be appended to, and whose significant findings will be included
 in, the PwC Working Capital Report;

	
 

	
 

	
 

	
“Listing Rules”

	
 

	
means the Listing
 Rules made by the FSA pursuant to section 73A of the FSMA, as amended from
 time to time;

	
 

	
 

	
 

	
 

	
“London Stock Exchange”

	
 

	
means London Stock
 Exchange plc;

	
 

	
 

	
 

	
 

	
“Losses”

	
 

	
means any and all
 loss, damage, cost, liability, demand, charge or expense (including legal
 fees), in each case whether joint or several, which any Indemnified Person
 may suffer or incur (including, but not limited to, all Losses suffered or
 incurred in investigating, preparing for or disputing or defending or
 settling any Claim and/or in establishing its right to be indemnified
 pursuant to clause 11 and/or in seeking advice regarding any Claim or in any
 way related to or in connection with the indemnity contained in clause 11)
 and “Loss”
 shall be construed accordingly;

	
 

	
 

	
 

	
 

	
“Material Adverse Effect”

	
 

	
means an event has
 occurred or is reasonably likely to occur which has resulted in or may result
 in a material adverse change in or affecting the condition (financial,
 operational, legal or otherwise), profitability, prospects, solvency,
 business affairs or operations of the Group taken as a whole, whether or not
 arising in the ordinary course of business;

	
 

	
 

	
 

	
 

	
“Merrill Lynch Indemnified Persons”

	
 

	
means:

	
 

	
 

	
 

	
 

	
 

	
 

	
(a)

	
Merrill Lynch and any subsidiary, branch or affiliate of Merrill Lynch;

	
 

	
 

	
 

	
 

	
 

	
 

	
(b)

	
a person who is,
 on or at any time after the date of this Agreement, a director, officer,
 partner or employee of an undertaking specified in sub paragraph (a) above; and

	
 

	
 

	
 

	
 

	
 

	
 

	
(c)

	
Merrill Lynch, their selling agents and each person, if any, who
 controls Merrill Lynch within
 the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
 Act and Merrill Lynch’s
 respective affiliates, subsidiaries, branches, affiliates, associates and
 holding companies and the subsidiaries of such subsidiaries, branches,
 affiliates, 

12

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
associates and
 holding companies and each of such person’s respective directors, officers
 and employees;

	
 

	
 

	
 

	
 

	
 

	
 

	
and “Merrill Lynch
 Indemnified Person” shall be construed accordingly;

	
 

	
 

	
 

	
 

	
“New ADSs”

	
 

	
means the ADSs
 proposed to be issued pursuant to the Acquisition;

	
 

	
 

	
 

	
 

	
“New Share Admission”

	
 

	
means the
 admission of the New Shares to the Official List becoming effective in accordance
 with paragraph 3.2.7G of the Listing Rules and admission to trading on the
 London Stock Exchange’s main market for listed securities becoming effective
 in accordance with paragraph 2.1 of the Admission and Disclosure Standards;

	
 

	
 

	
 

	
 

	
“New Shares”

	
 

	
means the
 2,596,653,203 new Ordinary Shares which are to be allotted and issued
 pursuant to the Placing and the Open Offer;

	
 

	
 

	
 

	
 

	
“Non-Accepted Shares”

	
 

	
has the meaning
 given in clause 6.1(B);

	
 

	
 

	
 

	
 

	
“Notifying Sponsor”

	
 

	
has the meaning
 given in clause 13.5;

	
 

	
 

	
 

	
 

	
“OECD Convention”

	
 

	
means the OECD
 Convention on Combating Bribery of Foreign Public Officials in International
 Business Transactions;

	
 

	
 

	
 

	
 

	
“Official List”

	
 

	
means the Official
 List maintained by the FSA in its capacity as UK Listing Authority;

	
 

	
 

	
 

	
 

	
“Open Offer”

	
 

	
means the
 conditional invitation by the Company to Qualifying Shareholders to apply to
 acquire New Shares on the basis to be referred to in the Prospectus and, as
 relevant, the Application Form; 

	
 

	
 

	
 

	
 

	
“Open Offer Acceptors”

	
 

	
means those Qualifying
 Shareholders that have validly applied (or are treated as having validly
 applied) to acquire New Shares under the Open Offer;

	
 

	
 

	
 

	
 

	
“Open Offer Date”

	
 

	
means the date on
 which the Application Form is issued;

	
 

	
 

	
 

	
 

	
“Open Offer Documents”

	
 

	
means the Prospectus,
 any Supplementary Prospectus and the Application Form;

13

	
 

	
 

	
 

	
 

	
“Open Offer Entitlement”

	
 

	
an entitlement to
 apply to acquire New Shares allocated to a Qualifying Shareholder pursuant to
 the Open Offer;

	
 

	
 

	
 

	
 

	
“Option Agreement”

	
 

	
means the option agreement
 to be entered into between JerseyCo, the Company and one of UBS, Merrill
 Lynch and CGML providing a put
 option in relation to the JerseyCo Ordinary Shares granted by the Company in
 favour of one of UBS, Merrill Lynch and CGML and a call option in relation to the JerseyCo Ordinary
 Shares granted by one of UBS, Merrill Lynch and CGML in favour of the Company, in the form to be agreed;

	
 

	
 

	
 

	
 

	
“Ordinary Shareholders”

	
 

	
means holders of
 Ordinary Shares;

	
 

	
 

	
 

	
 

	
“Ordinary Shares”

	
 

	
means ordinary
 shares of 25 pence each in the capital of the Company;

	
 

	
 

	
 

	
 

	
“Overall Financial Resources Rule”

	
 

	
has the meaning
 given in the FSA Rules;

	
 

	
 

	
 

	
 

	
“Panel”

	
 

	
means the Panel on
 Takeovers and Mergers;

	
 

	
 

	
 

	
 

	
“Participating Security”

	
 

	
has the meaning
 given to it in the Regulations (and “Participating Securities” shall be
 construed accordingly);

	
 

	
 

	
 

	
 

	
“Placees”

	
 

	
means any placees
 procured by UBS, Merrill Lynch and CGMEL pursuant to this Agreement to
 acquire New Shares pursuant to the Placing and approved by HM Treasury in
 advance of any acquisition by them of New Shares, which may include QIBs in
 the United States and HM Treasury in respect of any Residual Shares;

	
 

	
 

	
 

	
 

	
“Placing”

	
 

	
means the proposed
 arrangements for the procuring of Placees for the New Shares on such terms
 and conditions as may be agreed by HM Treasury, including the Treasury
 Solicitor, and at a price not lower than the Issue Price, subject to a right
 of clawback in respect of any New Shares which are taken up under the Open
 Offer;

	
 

	
 

	
 

	
 

	
“Placing and Open Offer”

	
 

	
means the Placing
 and the Open Offer or any of them;

	
 

	
 

	
 

	
 

	
“Placing Documents”

	
 

	
means the Press
 Announcement, the Presentation, the Prospectus and the Placing 

14

	
 

	
 

	
 

	
 

	
 

	
 

	
Letters;

	
 

	
 

	
 

	
 

	
“Placing Letters”

	
 

	
means the UK
 Placing Letter and the US Placing Letter;

	
 

	
 

	
 

	
 

	
“Placing Schedule”

	
 

	
has the meaning
 given to it in clause 3.5;

	
 

	
 

	
 

	
 

	
“Preference Admission”

	
 

	
means the
 admission of the Preference Shares to the Official List becoming effective in
 accordance with paragraph 3.2.7 G of the Listing Rules and admission to
 trading on the London Stock Exchange’s market for listed securities becoming
 effective in accordance with paragraph 2.1 of the Admission and Disclosure
 Standards;

	
 

	
 

	
 

	
 

	
“Preference Prospectus”

	
 

	
means the
 prospectus (including the information incorporated by reference therein and
 comprising a prospectus for the purposes of the Prospectus Rules) to be
 published by the Company in relation to Preference Admission, in the form to
 be agreed;

	
 

	
 

	
 

	
 

	
“Preference Shares”

	
 

	
means preference
 shares to be issued by the Company to HM Treasury (or its nominee) with an
 aggregate liquidation preference of £1,000,000,000 having the rights and
 subject to the restrictions set out in the Company’s articles of association
 as supplemented by Schedule 1 of the Preference Share Subscription Agreement;

	
 

	
 

	
 

	
 

	
“Preference Share Subscription”

	
 

	
means the proposed
 subscription for Preference Shares pursuant to the Preference Share
 Subscription Agreement;

	
 

	
 

	
 

	
 

	
“Preference Share Subscription Agreement”

	
 

	
means the
 agreement between the Company and HM Treasury being effective as of the
 Effective Date pursuant to which HM Treasury agrees to subscribe for the
 Preference Shares;

	
 

	
 

	
 

	
 

	
“Presentation”

	
 

	
means any
 presentation, in the form to be agreed, used by the Company during presentations
 to institutional investors in connection with the Placing and any other
 publicity materials relating to the Placing and Open Offer prepared by or at
 the request of the Company;

	
 

	
 

	
 

	
 

	
“Press Announcement”

	
 

	
means the press
 announcement issued by the Company dated the Effective Date giving details
 of, inter alia, the Placing and Open Offer and the Preference Share
 Subscription;

15

	
 

	
 

	
 

	
 

	
“Previous Announcements”

	
 

	
means all
 documents issued and announcements (other than the Press Announcement) made
 by or on behalf of the Company or any member of the Group through a
 Regulatory Information Service or by way of a public regulatory filing in the
 three year period immediately prior to the Effective Date of this Agreement;

	
 

	
 

	
 

	
 

	
“Prohibited Shareholders”

	
 

	
means holders of
 Ordinary Shares with registered addresses in any jurisdiction(s) in which the
 Placing and Open Offer cannot lawfully be made, as may be agreed by the
 Company and the Joint Sponsors;

	
 

	
 

	
 

	
 

	
“Prospectus”

	
 

	
means the document
 (including the information incorporated by reference therein) comprising a
 prospectus for the purposes of the Prospectus Rules to be published by the
 Company in relation to the Placing and Open Offer, in the form to be agreed;

	
 

	
 

	
 

	
 

	
“Prospectus Posting Date”

	
 

	
means the date on
 which the Company publishes the Prospectus;

	
 

	
 

	
 

	
 

	
“Prospectus Directive”

	
 

	
means Directive
 2003/71/EC;

	
 

	
 

	
 

	
 

	
“Prospectus Rules”

	
 

	
has the meaning
 given in Section 73A(4) of FSMA;

	
 

	
 

	
 

	
 

	
“PwC Reports”

	
 

	
means the reports
 and letters prepared by the Auditors in connection with the Placing and Open
 Offer and the Acquisition;

	
 

	
 

	
 

	
 

	
“PwC Working Capital Report”

	
 

	
means the working
 capital review report prepared by the Auditors, in the agreed form, relating
 to the Group and the Enlarged Group, to be dated the date of the Circular and
 of the Prospectus;

	
 

	
 

	
 

	
 

	
“Qualifying CREST Shareholders”

	
 

	
means Qualifying
 Shareholders whose Ordinary Shares on the register of members of the Company
 at the close of business on the Record Date are in uncertificated form;

	
 

	
 

	
 

	
 

	
“Qualifying Non-CREST Shareholders”

	
 

	
means Qualifying
 Shareholders whose Ordinary Shares are held in certificated form;

	
 

	
 

	
 

	
 

	
“Qualifying Shareholders”

	
 

	
means holders of
 Ordinary Shares whose names are on the register of members of the Company as
 at the close of business on the Record Date;

16

	
 

	
 

	
 

	
 

	
“QIB Purchasers”

	
 

	
has the meaning
 given in clause 5.8(C)(i);

	
 

	
 

	
 

	
 

	
“QIBs”

	
 

	
has the meaning
 given to it in clause 5.2;

	
 

	
 

	
 

	
 

	
“Receiving Agent”

	
 

	
means the
 receiving agent to be appointed pursuant to clause 3.8;

	
 

	
 

	
 

	
 

	
“Receiving Agent Agreement”

	
 

	
means an agreement
 among the Company, UBS, Merrill Lynch, Citi and the Receiving Agent relating to the Placing and Open
 Offer, in the form to be agreed;

	
 

	
 

	
 

	
 

	
“Record Date”

	
 

	
means the record
 date for the Open Offer, being such date as the Company, HM Treasury, UBS,
 Merrill Lynch and CGMEL shall agree, all acting reasonably;

	
 

	
 

	
 

	
 

	
“Registrars”

	
 

	
means Equiniti
 Limited;

	
 

	
 

	
 

	
 

	
“Regulations”

	
 

	
means the
 Uncertificated Securities Regulations 2001;

	
 

	
 

	
 

	
 

	
“Regulation D”

	
 

	
means Regulation D
 under the Securities Act;

	
 

	
 

	
 

	
 

	
“Regulation S”

	
 

	
means Regulation S
 under the Securities Act;

	
 

	
 

	
 

	
 

	
“Regulatory Information Service”

	
 

	
has the meaning
 given in the Listing Rules;

	
 

	
 

	
 

	
 

	
“Relevant Cost”

	
 

	
has the meaning
 given in clause 8.9;

	
 

	
 

	
 

	
 

	
“Relevant Member State”

	
 

	
has the meaning
 given in clause 5.6;

	
 

	
 

	
 

	
 

	
“Relevant Time”

	
 

	
has the meaning
 given in clause 6.1(C) (iii);

	
 

	
 

	
 

	
 

	
“Reports”

	
 

	
means the PwC
 Reports and the KPMG Reports;

	
 

	
 

	
 

	
 

	
“Residual Shares”

	
 

	
has the meaning
 given to it in clause 6.3;

	
 

	
 

	
 

	
 

	
“Resolutions”

	
 

	
means the Share
 Capital Resolutions, the Class 1 Resolution and the Whitewash Resolution;

	
 

	
 

	
 

	
 

	
“Scheme”

	
 

	
means the scheme
 of arrangement under sections 895 to 899 of the CA 2006 between HBOS and its
 shareholders, with or subject to any modification thereof or in addition
 thereto or condition agreed by HBOS and the Company and which the Court may
 think fit to approve or impose;

17

	
 

	
 

	
 

	
 

	
“SDRT”

	
 

	
means stamp duty
 reserve tax;

	
 

	
 

	
 

	
 

	
“Securities Act”

	
 

	
means the United
 States Securities Act of 1933;

	
 

	
 

	
 

	
 

	
“Share Capital Resolutions”

	
 

	
means the
 resolutions, in a form acceptable to HM Treasury, acting reasonably:

	
 

	
 

	
 

	
 

	
 

	
 

	
(a)

	
to increase the
 authorised share capital of the Company to allow for the creation and issue
 of the New Shares, the Acquisition Shares and, to the extent necessary, the
 Preference Shares; and

	
 

	
 

	
 

	
 

	
 

	
 

	
(b)

	
to authorise the
 Directors to allot under Section 80 of CA 1985 such number of Ordinary Shares
 as equals or exceeds the number of New Shares, Acquisition Shares and, to the
 extent necessary, Preference Shares,

	
 

	
 

	
 

	
 

	
 

	
 

	
to be proposed at
 the GM;

	
 

	
 

	
 

	
 

	
“Specified Event”

	
 

	
means an event
 occurring or matter arising on or after the Effective Date, which:

	
 

	
 

	
 

	
 

	
 

	
 

	
(a)

	
if it had occurred
 or arisen before or at the Effective Date; or

	
 

	
 

	
 

	
 

	
 

	
 

	
(b)

	
if it had been
 known by the Directors before or at the Effective Date,

	
 

	
 

	
 

	
 

	
 

	
 

	
would have
 rendered any of the Warranties untrue, inaccurate or misleading in any
 respect;

	
 

	
 

	
 

	
 

	
“Stamp Tax”

	
 

	
means any stamp,
 documentary, registration or capital duty or tax (including, without
 limitation, stamp duty, SDRT and any other similar duty or similar tax) and
 any fines, penalties and/or interest relating thereto;

	
 

	
 

	
 

	
 

	
“Subscription and Transfer Agreement”

	
 

	
means the share
 subscription and transfer agreements, or any of them, as the context
 requires, in the form to be agreed, to be entered into between JerseyCo, the
 Company and one of the Joint Sponsors providing, among other things, for the
 transfer to the Company by one of the Joint Sponsors (in its capacity as
 subscriber for the Consideration Shares) of the Consideration Shares;

18

	
 

	
 

	
 

	
 

	
“Supplementary Preference Prospectus”

	
 

	
means any
 prospectus supplementary to the Preference Prospectus published by the
 Company pursuant to section 87G of FSMA;

	
 

	
 

	
 

	
 

	
“Supplementary Prospectus”

	
 

	
means any
 prospectus supplementary to the Prospectus published by the Company pursuant
 to section 87G of FSMA;

	
 

	
 

	
 

	
 

	
“Tax” or “Taxation”

	
 

	
means all forms of
 taxation and statutory, governmental, state, provincial, local governmental
 or municipal impositions, duties, contributions and levies (including, for
 the avoidance of doubt, Stamp Tax), in each case in the nature of taxation,
 duty, contribution or levy, whether of the United Kingdom or elsewhere in the
 world whenever imposed and whether chargeable directly or primarily against
 or attributable directly or primarily to a Group Company or any other person
 and all penalties, charges, costs and interest relating thereto;

	
 

	
 

	
 

	
 

	
“Tax Authority”

	
 

	
means any
 government, state, municipal, local, federal or other fiscal, revenue,
 customs or excise authority, body or official anywhere in the world having
 the power to impose, collect or administer any Tax or exercising a fiscal,
 revenue, customs or excise function with respect to Tax (including, without limitation,
 H.M. Revenue and Customs);

	
 

	
 

	
 

	
 

	
“The New York Stock Exchange”

	
 

	
means The New York
 Stock Exchange, Inc.;

	
 

	
 

	
 

	
 

	
“Time of Sale”

	
 

	
means, with
 respect to the Placing, each time identified to the Company by UBS, Merrill
 Lynch and CGMEL as a Time of Sale (with respect to which they are obtaining
 commitments from Placees to take up the New Shares), provided that there
 shall not be more than two times that are treated as a “Time of Sale” for purposes
 of this Agreement without the consent of the Company; such consent will not
 be unreasonably withheld; 

	
 

	
 

	
 

	
 

	
“Time of Sale Documents”

	
 

	
means the
 documents specified as being delivered at, or with respect to, the Time of
 Sale in Part IV of Schedule 2;

	
 

	
 

	
 

	
 

	
“Treasury Solicitor”

	
 

	
has the same
 meaning as in the Treasury Solicitor Act 1876;

19

	
 

	
 

	
 

	
 

	
“UBS Indemnified Persons”

	
 

	
means:

	
 

	
 

	
 

	
 

	
 

	
 

	
(a)

	
UBS and any
 subsidiary, branch or affiliate of UBS;

	
 

	
 

	
 

	
 

	
 

	
 

	
(b)

	
a person who is,
 on or at any time after the date of this Agreement, a director, officer,
 partner or employee of an undertaking specified in sub paragraph (a) above;
 and

	
 

	
 

	
 

	
 

	
 

	
 

	
(c)

	
UBS, their selling
 agents and each person, if any, who controls UBS within the meaning of
 Section 15 of the Securities Act or Section 20 of the Exchange Act and UBS’s
 respective affiliates, subsidiaries, branches, affiliates, associates and
 holding companies and the subsidiaries of such subsidiaries, branches,
 affiliates, associates and holding companies and each of such person’s
 respective directors, officers and employees;

	
 

	
 

	
 

	
 

	
 

	
 

	
and “UBS
 Indemnified Person” shall be construed accordingly;

	
 

	
 

	
 

	
 

	
“UK Listing Authority”

	
 

	
means the
 Financial Services Authority acting in its capacity as the competent
 authority for the purposes of Part VI of the FSMA and in the exercise of its
 functions in respect of the admission of securities to the Official List
 otherwise than in accordance with Part VI of the FSMA;

	
 

	
 

	
 

	
 

	
“UK Placing Letter”

	
 

	
means a letter, in
 a form acceptable to the Company, HM Treasury and to the Joint Bookrunners,
 acting reasonably, to be sent by the Company to and executed by Placees
 (other than QIBs and HM Treasury) by which New Shares are to be offered to
 Placees on such terms and conditions as may be agreed by HM Treasury,
 including the Treasury Solicitor, and at a price not lower than the Issue
 Price, subject to a right of clawback in respect of any New Shares which are
 taken up under the Open Offer;

	
 

	
 

	
 

	
 

	
“United States”

	
 

	
means the United
 States of America, its territories and possessions, any state of the United
 States and the District of Columbia;

	
 

	
 

	
 

	
 

	
“US Placing Letter”

	
 

	
means a letter, in
 a form acceptable to the Company, HM Treasury and to the Joint 

20

	
 

	
 

	
 

	
 

	
 

	
 

	
Bookrunners,
 acting reasonably, to be sent by the Company to and executed by QIBs by which
 New Shares are to be offered to QIBs on such terms and conditions as may be
 agreed by HM Treasury, including the Treasury Solicitor and at a price not
 lower than the Issue Price, subject to a right of clawback in respect of any
 New Shares which are taken up under the Open Offer;

	
 

	
 

	
 

	
 

	
“US Shareholders”

	
 

	
means Ordinary
 Shareholders who are within the United States or are holding Ordinary Shares
 on behalf of, or for the account or benefit of, persons within the United
 States for whom they are acting without investment discretion (but only with
 respect to any such holdings);

	
 

	
 

	
 

	
 

	
“VAT”

	
 

	
means:

	
 

	
 

	
 

	
 

	
 

	
(a)

	
any tax imposed in
 conformity with the council directive of 28 November 2006 on the common
 system of value added tax (EC Directive 2006/112) (including, in relation to
 the United Kingdom, value added tax imposed by the VATA and legislation
 and/or any regulations supplemental thereto); and

	
 

	
 

	
 

	
 

	
 

	
 

	
(b)

	
any other tax of a
 similar nature (whether imposed in a member state of the European Union in
 substitution for or in addition to the tax referred to in sub-paragraph (a)
 or imposed elsewhere);

	
 

	
 

	
 

	
 

	
“VATA”

	
 

	
means the Value
 Added Tax Act 1994;

	
 

	
 

	
 

	
 

	
“Verification Materials”

	
 

	
means verification
 materials in a form acceptable to HM Treasury and to the Joint Sponsors,
 acting reasonably, evidencing the verification process supporting the
 accuracy of certain information contained in the Issue Documents, including
 the verification questions and the answers thereto, signed by each of the
 persons named therein as being responsible for such answers; 

	
 

	
 

	
 

	
 

	
“Warranties”

	
 

	
means the
 representations, warranties and undertakings contained in Schedule 3;

	
 

	
 

	
 

	
 

	
“Whitewash Resolution”

	
 

	
means the
 resolution, in a form acceptable to HM Treasury, acting reasonably, pursuant
 to which Ordinary Shareholders are to waive any obligation of HM Treasury to
 make an offer under Rule 9 of 

21

	
 

	
 

	
 

	
 

	
 

	
 

	
the City Code on
 Takeovers and Mergers;

	
 

	
 

	
 

	
 

	
“Wholly Owned Entity”

	
 

	
has the meaning
 given in clause 17.1; and

	
 

	
 

	
 

	
 

	
“Working Capital Reports”

	
 

	
means the PwC
 Working Capital Report and the KPMG Working Capital Report.

	
 

	
 

	
1.2

	
Any reference to a
 document being “in the agreed form” or “form to be
 agreed” means in the form of the draft or proof thereof signed or
 initialled for the purpose of identification by Linklaters LLP (on behalf of
 the Company), Slaughter and May (on behalf of HM Treasury) and Freshfields
 Bruckhaus Deringer LLP (on behalf of the Joint Sponsors and the Joint
 Bookrunners, as relevant), or (in the case of documents to be agreed) in such
 form as may be satisfactory to HM Treasury and the Joint Sponsors and the
 Joint Bookrunners (acting reasonably), and initialled, for the purposes of
 identification only, by such firms on behalf of their clients. No such
 initialling shall imply approval of all or any part of its contents by or on
 behalf of the person initialling it or any of the parties to this Agreement. 

	
 

	
 

	
1.3

	
The Interpretation
 Act 1978 shall apply to this Agreement in the same way as it applies to an
 enactment.

	
 

	
 

	
1.4

	
References to a
 statutory provision include any subordinate legislation made from time to
 time under that provision.

	
 

	
 

	
1.5

	
References to a
 statutory provision include that provision as from time to time modified,
 supplemented or re-enacted so far as such modification or re-enactment applies
 or is capable of applying to any transactions entered into in accordance with
 this Agreement.

	
 

	
 

	
1.6

	
In this Agreement,
 a reference to a “subsidiary undertaking” or “parent undertaking” is to be
 construed in accordance with section 1162 (and Schedule 7) of the CA 2006 and
 a “subsidiary” or “holding company” is to be construed in accordance with
 section 1159 of the CA 2006.

	
 

	
 

	
1.7

	
Expressions
 defined or used in the Regulations shall have the same meaning in this
 Agreement (except where the context otherwise requires).

	
 

	
 

	
1.8

	
References to this
 Agreement include its Schedules and references in this Agreement to clauses,
 sub-clauses and Schedules are to clauses and sub-clauses of, and Schedules
 to, this Agreement.

	
 

	
 

	
1.9

	
The obligations of
 the Joint Sponsors and CGMEL under this Agreement shall be several and not
 joint or joint and several. No provision of this Agreement shall impose any
 liability on any of the Joint Sponsors or CGMEL for, nor shall the rights or
 remedies of any of the Joint Sponsors or CGMEL be adversely affected by, any
 act or omission by any other Joint Sponsor or CGMEL or for any breach by the
 other Joint Sponsor of the provisions of this Agreement. The obligations owed
 by the Company to the Joint Sponsors and CGMEL are owed to them as separate
 and independent obligations, and 

	
 

	
 

	
 

	
22

	
 

	
 

	
each Joint Sponsor and CGMEL shall have the
 right to protect and enforce its rights hereunder without joining any other
 Joint Sponsor or CGMEL in any proceedings.

	
 

	
 

	
1.10

	
Headings shall be ignored in construing
 this Agreement. 

	
 

	
 

	
 

	
1.11

	
References to time of day are to London
 time unless otherwise stated. 

	
 

	
 

	
 

	
1.12

	
When construing any provision relating to
 VAT, any reference in this Agreement to any person shall (where appropriate)
 be deemed, at any time when such person is a member of a group of companies
 for VAT purposes, to include a reference to the representative member of such
 group at such time. 

	
 

	
 

	
 

	
1.13

	
Any reference to any indemnity, covenant to
 pay or payment (a “Payment Obligation”)
 being given or made on an “after-Tax basis” or expressed to be calculated on
 an “after-Tax basis” means that, in calculating the amount payable pursuant
 to such Payment Obligation (the “Payment”),
 there shall be taken into account (if and to the extent that the same has not
 already been taken into account in the calculation of the Payment): 

	
 

	
 

	
 

	
 

	
(A)

	
any Tax suffered by the person entitled to
 receive the Payment to the extent that it arises as a result of the matter
 giving rise to the Payment Obligation or as a result of receiving, or being
 entitled to receive, the Payment; and 

	
 

	
 

	
 

	
 

	
(B)

	
any relief, exemption, allowance or credit
 which is available to set against any Tax otherwise payable or against any
 income, profits or gains for Tax purposes, and any right to any refund or
 reimbursement of any Tax, which in each case is available to the person
 entitled to receive the Payment if and to the extent that the same arises as
 a result of the matter giving rise to the Payment Obligation or as a result
 of receiving, or being entitled to receive, the Payment, 

	
 

	
 

	
 

	
 

	
such that the person entitled to receive
 the Payment is in the same economic position after Tax that it would have
 been in if the matter giving rise to the Payment Obligation had not occurred.

	
 

	
 

	
 

	
1.14

	
Each reference in this Agreement to the
 Joint Sponsors, CGMEL or any of them by any description or in any capacity
 includes a reference to it in each other capacity in which it may act
 pursuant to this Agreement or otherwise with the agreement of the Company in
 connection with the Placing and Open Offer and/or the publication of the
 Circular and/or Acquisition Share Admission. 

	
 

	
 

	
 

	
1.15

	
Any reference to the Joint Sponsors, the
 Joint Bookrunners or to HM Treasury approving or agreeing the form of an
 Issue Document, shall be a reference to such approval or agreement being
 given solely for the purposes of this Agreement. 

	
 

	
 

	
 

	
1.16

	
A reference to “certificated” or “certificated
 form” in relation to a share or other security is a reference to a
 share or other security title to which is recorded on the relevant register
 of the share or other security as being held in certificated form. 

	
 

	
 

	
 

	
1.17

	
A reference to “uncertificated” or “uncertificated
 form” in relation to a share or other security is a reference to a
 share or other security title to which is recorded on the 

	
 

	
 

	
 

	
 

	
23

	
 

	
 

	
relevant register of the share or other
 security as being held in uncertificated form, and title to which, by virtue
 of the Regulations, may be transferred by means of CREST.

	
 

	
 

	
 

	
 

	
1.18

	
Words and expressions defined in the
 Companies Acts shall bear the same meaning. 

	
 

	
 

	
 

	
 

	
1.19

	
Any reference to “this Agreement” or “any other agreement relating to the Placing and Open
 Offer” or “the arrangements
 contemplated by the Issue Documents” or similar expressions shall
 be deemed, where the context permits, to include a reference to the
 Subscription and Transfer Agreement and the Option Agreement and the
 arrangements thereunder, including, without limitation, JerseyCo and the
 issue and allotment of the JerseyCo Ordinary Shares and the JerseyCo
 Preference Shares. 

	
 

	
 

	
 

	
 

	
2.

	
CONDITIONS 

	
 

	
 

	
 

	
 

	
2.1

	
The obligations of HM Treasury and of the
 Joint Sponsors and CGMEL under this Agreement (save for the obligations under
 clauses 3.3 and 3.4 and such other obligations hereunder which fall due for
 performance before New Share Admission) are conditional on: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
the release of the Press Announcement via a
 Regulatory Information Service by 8.00 a.m. on the Effective Date; 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
there having occurred, as at New Share
 Admission, no material default or breach by the Company of the terms of: 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
this Agreement; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
if executed, the Subscription and Transfer
 Agreement; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
if executed, the Option Agreement; or 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

	
the Preference Share Subscription
 Agreement; 

	
 

	
 

	
 

	
 

	
 

	
(C)

	
the New Shares being validly created under
 applicable law and forming part of the Company’s authorised but unissued
 share capital; 

	
 

	
 

	
 

	
 

	
 

	
(D)

	
the Preference Shares being validly created
 under applicable law and forming part of the Company’s authorised but
 unissued share capital; 

	
 

	
 

	
 

	
 

	
(E)

	
the Directors being duly authorised under
 applicable law to allot and issue the New Shares in accordance with the terms
 of this Agreement; 

	
 

	
 

	
 

	
 

	
 

	
(F)

	
the Directors being duly authorised under
 applicable law to allot and issue the Preference Shares to HM Treasury (or
 its nominee) in accordance with the terms of the Preference Share
 Subscription Agreement; 

	
 

	
 

	
 

	
 

	
 

	
(G)

	
the Company having obtained such approvals,
 authorisations, permits and consents as may be required by any government,
 state or other regulatory body and all necessary filings having been made and
 all necessary waiting periods having expired, in each case in any part of the world and as a consequence of 

	
 

	
 

	
 

	
24

	
 

	
 

	
 

	
 

	
the
 actions contemplated by this Agreement and/or the Preference Share
 Subscription Agreement;

	
 

	
 

	
 

	
 

	
(H)

	
HM Treasury having obtained such approvals,
 authorisations, permits and consents as may be required by any governmental,
 state or other regulatory body in any part of the world and all necessary
 filings having been made and all necessary waiting periods having expired, in
 each case as a consequence of the issue of New Shares and/or Preference
 Shares contemplated by this Agreement and/or the Preference Share
 Subscription Agreement;

	
 

	
 

	
 

	
 

	
(I)

	
each Warranty in Part I of Schedule 3 of
 this Agreement being true and accurate in all material respects and not
 misleading in any material respect as at the date of this Agreement and
 remaining true and accurate in all material respects and not misleading in
 any material respect on the Circular Posting Date, the Prospectus Posting
 Date, at such time as a Supplementary Prospectus shall be issued in
 accordance with this Agreement before New Share Admission, at each Time of
 Sale (if any) and immediately prior to New Share Admission by reference to
 the facts and circumstances then existing; 

	
 

	
 

	
 

	
 

	
(J)

	
each Circular Warranty being true and
 accurate in all material respects and not misleading in any material respect
 on the Circular Posting Date and remaining true and accurate in all material
 respects and not misleading in any material respect on the Prospectus Posting
 Date, at such time as a Supplementary Prospectus shall be issued in
 accordance with this Agreement before New Share Admission, at each Time of
 Sale (if any) and immediately prior to New Share Admission by reference to
 the facts and circumstances then existing; 

	
 

	
 

	
 

	
 

	
(K)

	
each Warranty in Part II of Schedule 3 of
 this Agreement being true and accurate in all material respects and not
 misleading in any material respect on the Prospectus Posting Date and
 remaining true and accurate in all material respects and not misleading in
 any material respect, at such time as a Supplementary Prospectus shall be
 issued in accordance with this Agreement before New Share Admission, at each
 Time of Sale (if any) and immediately prior to New Share Admission by
 reference to the facts and circumstances then existing; 

	
 

	
 

	
 

	
 

	
(L)

	
there being, in the opinion of HM Treasury
 (acting in good faith), no Material Adverse Effect; 

	
 

	
 

	
 

	
 

	
(M)

	
there being no contracts or arrangements to
 which the Company or any member of the Group are party which would become
 capable of being terminated by a party thereto (other than a member of the
 Group) or would permit such a party to exercise a right against a member of
 the Group or may otherwise give rise to material adverse consequences for the
 Group as a whole, in each case as a result of the issue of New Shares and/or
 Preference Shares contemplated by this Agreement and/or the Preference Share
 Subscription Agreement, in each case where this or any other consequences
 thereof would be, or would be reasonably likely to be, material in the
 context of the business of the Group or the Placing and Open Offer, the
 Preference Share Subscription, any acquisition of New Shares, or subscription
 for the Preference Shares, by 

	
 

	
 

	
 

	
 

	
25

	
 

	
 

	
 

	
HM Treasury, Qualifying Shareholders or
 Placees, New Share Admission or post-New Share Admission dealings in the
 Ordinary Shares;

	
 

	
 

	
 

	
 

	
 

	
(N)

	
the delivery to HM Treasury and to the
 Joint Sponsors, as applicable: 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
simultaneously with the execution of this
 Agreement, of the documents listed in Part I of Schedule 2;

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
prior to despatch of the Circular, of the
 documents listed in Part II of Schedule 2;

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
prior to the publication of the Prospectus,
 of the documents listed in Part III of Schedule 2;

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

	
at the date of each Supplementary
 Prospectus, the documents (or “bring downs” from such documents) listed in
 Part III of Schedule 2 (as applicable) requested by the Joint Sponsors and by
 HM Treasury in respect of such Supplementary Prospectus and dated as of such
 date;

	
 

	
 

	
 

	
 

	
 

	
 

	
(v)

	
at each Time of Sale, if any, the Time of
 Sale Documents required to be delivered at such Time of Sale listed in Part
 IV of Schedule 2;

	
 

	
 

	
 

	
 

	
 

	
 

	
(vi)

	
immediately prior to New Share Admission,
 of the documents listed in Part IV of Schedule 2, and

	
 

	
 

	
 

	
 

	
 

	
 

	
(vii)

	
immediately prior to Preference Admission,
 of the documents listed in Part VI of Schedule 2;

	
 

	
 

	
 

	
 

	
 

	
 

	
in each case to the extent not already
 delivered and provided that HM Treasury shall not be entitled to rely on this
 condition in the case of non-delivery of any document which is not material,
 in the respective judgments of HM Treasury and the Joint Sponsors, in the
 context of the Placing and Open Offer or the applications for New Share
 Admission or Preference Admission;

	
 

	
 

	
 

	
 

	
 

	
(O)

	
the GM being duly convened and held no
 later than the GM Date;

	
 

	
 

	
 

	
 

	
 

	
(P)

	
subject to applicable law, (including
 directors’ fiduciary duties), the Directors recommending (without
 qualification and maintaining such recommendation) that the Company’s
 shareholders vote in favour of the Resolutions;

	
 

	
 

	
 

	
 

	
 

	
(Q)

	
subject to applicable law, the Directors
 voting all Ordinary Shares held by them in favour of the Resolutions;

	
 

	
 

	
 

	
 

	
(R)

	
the Company’s shareholders passing the
 Resolutions (without amendment) at the GM;

	
 

	
 

	
 

	
 

	
(S)

	
the Prospectus, the Preference Prospectus
 and, to the extent necessary, the Circular being approved by the FSA in
 accordance with the Prospectus Rules, the Listing Rules and FSMA;

	
 

	
 

	
 

	
26

	
 

	
 

	
(T)

	
the Circular being approved by the Panel in
 relation to the Whitewash Resolution; 

	
 

	
 

	
 

	
 

	
(U)

	
subject to satisfaction of the condition
 set out in clause 2.1(S), the Prospectus being made available to Qualifying
 Shareholders (other than Prohibited Shareholders and US Shareholders) with,
 as relevant, an Application Form, in accordance with clause 3 and in
 accordance with the Prospectus Rules and the Preference Prospectus being published
 in accordance with the Prospectus Rules; 

	
 

	
 

	
 

	
 

	
(V)

	
subject to satisfaction of the conditions
 set out in clause 2.1(S) and clause 2.1(T), the posting to Qualifying
 Shareholders of the Company (other than Prohibited Shareholders) of the
 Circular and the Form of Proxy; 

	
 

	
 

	
 

	
 

	
(W)

	
the Company having applied for New Share
 Admission and admission of the New Shares to CREST as Participating
 Securities and all of the conditions to such admissions having been
 satisfied, in each case, on or before New Share Admission; 

	
 

	
 

	
 

	
 

	
(X)

	
the Company allotting, subject only to New
 Share Admission, the New Shares to the relevant Placees in accordance with
 clauses 3 and 4 or to HM Treasury (or its nominee) in accordance with clause
 6; 

	
 

	
 

	
 

	
 

	
 (Y)

	
the Subscription and Transfer Agreement and
 the Option Agreement having been duly executed, the Subscription and Transfer
 Agreement relating to the allotment of the New Shares having become wholly
 unconditional except for the condition relating to New Share Admission, each
 of the parties thereto complying with its obligations in each of the
 Subscription and Transfer Agreement relating to the allotment of the New
 Shares and the Option Agreement to the extent that the same fall to be
 performed prior to New Share Admission or Preference Admission and there
 having occurred no default or breach by any party thereto under either such
 agreement; 

	
 

	
 

	
 

	
 

	
(Z)

	
no event referred to in Section 87G of the
 FSMA arising between the time of publication of the Prospectus and the time
 of New Share Admission and no Supplementary Prospectus being published by or
 on behalf of the Company before New Share Admission which, in any of the
 foregoing cases, HM Treasury or the Joint Sponsors consider in their
 respective sole judgment acting in good faith to be (singly or in the
 aggregate) material in the context of the business of the Group, the Placing
 and Open Offer, the Preference Share Subscription, any acquisition of New
 Shares or Preference Shares by HM Treasury, Ordinary Shareholders or Placees,
 New Share Admission, Preference Admission or post-New Share Admission
 dealings in the Ordinary Shares; 

	
 

	
 

	
 

	
 

	
(AA)

	
the Company having applied for Preference
 Admission and admission of the Preference Shares to CREST as Participating
 Securities and all of the conditions to such Preference Admission having been
 satisfied, in each case, on or before Preference Admission; 

	
 

	
 

	
 

	
 

	
(BB)

	
Preference Admission becoming effective on
 the date of Admission; 

	
 

	
 

	
 

	
27

	
 

	
 

	
 

	
 

	
(CC)

	
New Share Admission occurring at or before
 8.00 a.m. on 19 January 2009 (or such later time or date as HM Treasury may
 agree); 

	
 

	
 

	
 

	
 

	
(DD)

	
the HBOS Confirmation having been provided
 to HM Treasury in a form reasonably satisfactory to it and the confirmations
 contained therein not having been revoked or amended; 

	
 

	
 

	
 

	
 

	
(EE)

	
the Prospectus containing disclosure of any
 fact, matter or circumstance as is material in the context of the Group or
 the Placing and Open Offer, the Preference Share Subscription, any
 acquisition of New Shares, or subscription for the Preference Shares, by HM
 Treasury or New Share Admission or Preference Admission or post-New Share
 Admission dealings in the Ordinary Shares and the Circular containing all
 such disclosures as are required by the Listing Rules; 

	
 

	
 

	
 

	
 

	
(FF)

	
the Acquisition having been announced on
 terms such that, if the Acquisition becomes effective in accordance with its
 terms, the HBOS Ordinary Shares shall be acquired by the Company on terms
 such that, in consideration of the cancellation or transfer of the HBOS
 Ordinary Shares, HM Treasury (or its nominee) shall, to the extent that HM
 Treasury has received HBOS Ordinary Shares pursuant to the terms of the HBOS
 Placing and Open Offer Agreement, receive ordinary shares in the capital of
 the Company; 

	
 

	
 

	
 

	
 

	
(GG)

	
the Panel having consented to the terms of
 the revised Acquisition as announced on the Effective Date and as provided
 for in condition 2.1(FF) above; 

	
 

	
 

	
 

	
 

	
(HH)

	
the Acquisition being subject only to those
 conditions which are required for implementation, specifically the requisite
 shareholder approval, court approval of the scheme, regulatory clearances
 without which the Acquisition may not be implemented and the listing and
 admission of the Ordinary Shares to be issued pursuant to such offer; 

	
 

	
 

	
 

	
 

	
(II)

	
(a) the resolutions necessary to implement
 the Acquisition, including, without limitation, the Class 1 Resolution and
 the Acquisition Resolution, having been approved by the Ordinary Shareholders
 and the shareholders of HBOS; (b) the court hearing to sanction the scheme of
 arrangement pursuant to the Acquisition (but not the court hearing in respect
 of the reduction of capital pursuant to the Acquisition) having been held and
 the scheme of arrangement having been approved by the Court of Session in
 Scotland; and (c) the HBOS Placing and Open Offer Agreement not ceasing,
 determining or terminating in accordance with its terms prior to the court
 hearing in respect of the reduction of capital pursuant to the Acquisition
 having been held and the reduction of capital having been approved by the
 Court of Session in Scotland; and 

	
 

	
 

	
 

	
 

	
(JJ)

	
the Company allotting, subject only to
 Preference Admission, the Preference Shares to HM Treasury in accordance with
 the Preference Share Subscription Agreement. 

28

	
 

	
 

	
2.2

	
Subject to
 the fiduciary duties of the Directors, the Company shall use all reasonable
 endeavours to procure the fulfilment of the conditions set out in clause 2.1
 and, where applicable, by the times and dates stated therein (or such later
 times and/or dates as HM Treasury may agree) and shall notify HM Treasury
 forthwith in the event that the Company or any of the Directors becomes aware
 that any of the conditions set out in clause 2.1 has become or might
 reasonably be expected to become incapable of fulfilment by the time and/or
 date stated in such condition (or such later time and/or date as HM Treasury
 may agree) or at all. In addition, the Company shall provide HM Treasury with
 such information as it may reasonably require to enable it to ascertain
 whether the condition in clause 2.1(M) has been satisfied. 

	
 

	
 

	
2.3

	
Each Joint
 Sponsor shall use its reasonable endeavours to provide to the Company such
 assistance as the Company shall reasonably request in connection with the
 procedural steps required for the performance of the obligations of the
 Company set out in clauses 2.1(S), (W), and (CC). 

	
 

	
 

	
2.4

	
Each of the
 Joint Sponsors shall not unreasonably refuse consent to executing such
 documents and doing such things as the Company and HM Treasury may reasonably
 require to grant security, and a power of attorney, to the Company over, and
 in respect of, the shares in JerseyCo to be subscribed by such Joint Sponsor
 under the Subscription and Transfer Agreement and the Option Agreement and to
 JerseyCo over the bank account to which payments are to be made pursuant to
 clauses 3.26, 3.27, 3.28 and 6.3, and over all or any rights of the Joint
 Sponsors or CGMEL to receive payments for any New Shares to be acquired
 pursuant to the Placing and Open Offer, in each case as security for the
 performance by the Joint Sponsors of their obligations under such agreements.
 

	
 

	
 

	
2.5

	
Subject to
 clause 2.8, HM Treasury shall be entitled, in its absolute discretion and
 upon such terms as it shall think fit, to waive fulfilment of all or any of
 the conditions set out in clause 2.1 (other than clauses 2.1(C) to 2.1(F),
 (R) (save in relation to the Whitewash Resolution), (S), (CC) and (II) or to
 extend the time provided for fulfilment of any of the conditions set out in
 clause 2.1 in respect of all or any part of the performance thereof. 

	
 

	
 

	
2.6

	
The Company
 shall be entitled to waive fulfilment of the condition set out in clause
 2.1(G). 

	
 

	
 

	
2.7

	
If the
 condition set out in clause 2.1(G) is not satisfied at the time at which all
 other conditions set out in clause 2.1 are satisfied or, to the extent
 permitted, waived, the parties shall treat such condition as waived (and the
 Company shall be treated as having waived such condition) if the relevant
 matter in respect of which the condition has not been satisfied is not likely
 to lead to material consequences for the Company or the Directors and is not
 material in the judgment of HM Treasury, the Joint Sponsors or CGMEL in the
 context of the Placing, the Open Offer, New Share Admission, Acquisition
 Share Admission, Preference Admission, post-New Share Admission or
 post-Acquisition Share Admission dealings in the Ordinary Shares and, in all
 cases, for the avoidance of doubt, taking account of the financial
 circumstances of the Company. 

29

	
 

	
 

	
 

	
2.8

	
If:

	
 

	
 

	
 

	
 

	
 

	
(A)

	
any of the
 conditions set out in clause 2.1 is not fulfilled or, if capable of waiver
 pursuant to clause 2.5 or clause 2.6, waived, or treated as waived pursuant
 to clause 2.7, by the time and/or date specified therein (or such later time
 and/or date as HM Treasury may agree); and 

	
 

	
 

	
 

	
 

	
(B)

	
HM Treasury
 does not consider it to be necessary that the arrangements contemplated by
 this Agreement and by the Preference Share Subscription Agreement proceed to
 completion in order to maintain the financial stability of the United
 Kingdom, 

	
 

	
 

	
 

	
 

	
then on
 notice from HM Treasury to the Joint Sponsors and the Company, the Joint
 Sponsors shall, on behalf of the Company, withdraw any application made to
 the FSA and/or the London Stock Exchange in connection with New Share
 Admission and/or Acquisition Share Admission, the Company shall withdraw any
 application made for Preference Admission, this Agreement shall cease and
 determine and no party to this Agreement shall have any claim against any other
 party to this Agreement for costs, damages, compensation or otherwise except
 as provided in clause 2.10.

	
 

	
 

	
 

	
2.9

	
Without
 prejudice to the rights of HM Treasury and the Joint Sponsors under clause
 13.2, 13.3, 13.4 and 13.5, if any of the conditions set out in clause 2.1 are
 not fulfilled or, if capable of waiver pursuant to clause 2.5 or 2.6, waived,
 or treated as waived pursuant to clause 2.7, by the date and/or time
 specified herein (or such later time as HM Treasury may agree) and if HM
 Treasury does consider it necessary that the arrangements contemplated by
 this Agreement and by the Preference Share Subscription Agreement proceed to
 completion in order to maintain the financial stability of the United
 Kingdom, HM Treasury shall treat as waived any outstanding conditions in
 clause 2.1 (other than any condition referred to as not being waivable by HM
 Treasury). 

	
 

	
 

	
 

	
2.10

	
Where this
 Agreement has terminated pursuant to clause 2.8:

	
 

	
 

	
 

	
 

	
(A)

	
such
 termination shall be without prejudice to any accrued rights or obligations
 under this Agreement; 

	
 

	
 

	
 

	
 

	
(B)

	
the Company
 shall pay any commissions, fees and expenses as are payable in such
 circumstance under and in accordance with clauses 8.1 and 8.2; and 

	
 

	
 

	
 

	
 

	
(C)

	
the
 provisions of this clause 2.8 and clauses 1, 8, 9.2, 9.3, 9.11, 10, 11, 12,
 14, 15, 16, 17, 18 and 19 shall remain in full force and effect. 

	
 

	
 

	
 

	
2.11

	
HM Treasury
 and the Company shall use all reasonable endeavours to procure that, by no
 later than New Share Admission, all approvals, authorisations and consents as
 may be required from any government, state or other regulatory body shall
 have been obtained in order that the conditions set out in clauses 2.1(G) and
 2.1(H) may be satisfied. The Company and HM Treasury shall co-operate with
 each other (at the cost of the Company) in order that the conditions set out
 in clauses 2.1(G) and 2.1(H) may be satisfied, which co-operation shall
 include the Company: 

30

	
 

	
 

	
 

	
 

	
(A)

	
promptly
 providing to HM Treasury and to HM Treasury’s lawyers and other advisers
 where appropriate, any necessary information and documents reasonably
 required for the purpose of obtaining such approvals, authorisations, permits
 and consents and making such necessary filings; 

	
 

	
 

	
 

	
 

	
(B)

	
promptly
 notifying HM Treasury or HM Treasury’s lawyers and other advisers where
 appropriate, of any material communications received in the course of
 obtaining such approvals, authorisations, permits and consents and making
 such necessary filings; and 

	
 

	
 

	
 

	
 

	
(C)

	
generally
 supporting HM Treasury in obtaining such approvals, authorisations, permits
 and consents and making such necessary filings. 

	
 

	
 

	
 

	
2.12

	
Upon New
 Share Admission, each of the conditions set out in clause 2.1 shall, to the
 extent not fulfilled, be deemed to have been fulfilled or waived. 

	
 

	
 

	
3.

	
THE PLACING AND OPEN OFFER AND APPOINTMENTS

	
 

	
 

	
3.1

	
The Company
 hereby: 

	
 

	
 

	
 

	
(A)

	
appoints (i)
 each of UBS, Merrill Lynch and CGML as joint sponsors in connection with the
 applications for New Share Admission, Acquisition Share Admission and the
 publication of the Circular, and (ii) each of UBS, Merrill Lynch and CGMEL as
 joint bookrunners and joint placing agents in connection with the Placing and
 Open Offer and each of UBS, Merrill Lynch, CGML and CGMEL accepts such
 appointments; 

	
 

	
 

	
 

	
 

	
(B)

	
confirms
 that such appointments confer on each of the Joint Sponsors and CGMEL all
 powers, authorities and discretions on behalf of the Company which are
 necessary for or incidental to the performance of its function as Joint
 Sponsor, joint bookrunner and joint placing agent to the Placing and Open
 Offer (including the power to appoint sub-agents or to delegate the exercise
 of any of its powers, authorities or discretions to such persons as it may
 think fit); and 

	
 

	
 

	
 

	
 

	
(C)

	
agrees to
 ratify and approve all documents, acts and things which each of the Joint
 Sponsors and CGMEL shall lawfully do in the exercise of such appointments,
 powers, authorities and discretions. 

	
 

	
 

	
 

	
3.2

	
The Company
 hereby agrees, subject always to clause 5.1, to invite Qualifying Shareholders
 who are not Prohibited Shareholders or US Shareholders by means of the
 Prospectus and, as relevant, the Application Form to apply to acquire the New
 Shares at the Issue Price and otherwise on the terms and conditions set out
 therein. The Company shall procure that, under the terms of the Placing and
 Open Offer, Qualifying Shareholders who are not Prohibited Shareholders or US
 Shareholders shall be entitled (i) to acquire their pre-emptive entitlements,
 and (ii) to the extent reasonably practicable (and provided always that
 Qualifying Shareholders who are not Prohibited Shareholders or US
 Shareholders are treated equally) and to the extent that such pre-emptive
 entitlements are not taken up by other Qualifying Shareholders who are not
 Prohibited Shareholders or US Shareholders, to apply to acquire additional
 New Shares (either in their capacity as Qualifying Shareholders or, if such
 structure is not reasonably

31

	
 

	
 

	
 

	
practicable,
 as Placees whose application for additional New Shares the parties hereby
 agree will be allocated in full to the extent possible and failing which will
 be scaled back on a pro rata basis).

	
 

	
 

	
3.3

	
Subject to
 the next following sentence, each of UBS, Merrill Lynch and CGMEL hereby
 agrees severally (and not jointly or jointly and severally), and in reliance
 on the representations, warranties and undertakings of the Company set out in
 this Agreement, as agent of the Company to use reasonable endeavours to
 procure Placees to take up the New Shares on such terms and conditions as may
 be agreed upon by HM Treasury, including the Treasury Solicitor, and at a
 price not lower than the Issue Price, subject to a right of clawback as a
 result of the New Shares being acquired under the Open Offer and otherwise
 upon and subject to the terms and conditions in the Placing Letters and on
 the basis of the information in the other Placing Documents, it being
 understood that if having used such reasonable endeavours, UBS, Merrill Lynch
 and CGMEL are unable to procure Placees, or if any Placees who are so
 procured fail to meet their payment obligations, for all or any of the New
 Shares, UBS, Merrill Lynch and CGMEL shall not themselves be obliged to
 acquire such New Shares which shall be Residual Shares to be taken up solely
 by HM Treasury in accordance with clause 6.3. The obligation of each of UBS,
 Merrill Lynch and CGMEL to use reasonable endeavours to procure Placees
 pursuant to the preceding sentence shall not apply until publication of the
 Prospectus in accordance with the provisions of this Agreement, provided that
 each of UBS, Merrill Lynch and CGMEL shall be permitted to endeavour to
 procure Placees prior to such publication. 

	
 

	
 

	
3.4

	
Subject to
 compliance with this clause 3 and with the restrictions in clause 5, each of
 UBS, Merrill Lynch and Citi shall have discretion to procure Placees in the
 manner and otherwise as it thinks fit in compliance with applicable laws as
 are customarily complied with by banks of international reputation, including
 the last time at which Placing Letters may be despatched, allocations
 pursuant thereto may be made and acceptances pursuant thereto received. 

	
 

	
 

	
3.5

	
UBS, Merrill
 Lynch and Citi will procure that a schedule is delivered to the Company (or
 the Registrar on behalf of the Company) and to HM Treasury no later than 5.00
 p.m. on the third Business Day following the Closing Date following
 completion of the procedure set out in clause 3.4 showing the names and
 registration details of Placees allocated Non-Accepted Shares (and the number
 of New Shares comprised in such allocations) and shall specify whether such
 shares are to be issued in certificated or uncertificated form together with
 details of (and the number of New Shares comprised in) the proposed number of
 Residual Shares to be acquired by HM Treasury (or its nominee) pursuant to
 clause 6.3 (the “Placing Schedule”).
 HM Treasury, the Company and the Joint Sponsors will consult each other in
 respect of, and agree a final version of, the Placing Schedule within one
 Business Day of this date of its delivery pursuant to this clause 3.5. 

	
 

	
 

	
3.6

	
Without
 prejudice to the Joint Sponsors’ obligations under Chapter 8 of the Listing
 Rules, the Company acknowledges and agrees that none of the Joint Sponsors
 nor CGMEL nor HM Treasury is responsible for and has not authorised and will
 not authorise the contents of any Issue Document and that none of the Joint
 Sponsors nor CGMEL nor HM Treasury shall be responsible for verifying the
 accuracy, completeness 

32

	
 

	
 

	
 

	
 

	
 

	
or fairness
 of any information in any of the Issue Documents (or any supplement or
 amendment to any of the foregoing). 

	
 

	
 

	 	 
	
3.7

	
The Company
 consents to each Joint Sponsor disclosing to the FSA at any time before or
 after New Share Admission or Acquisition Share Admission, any information
 that such Joint Sponsor is required to disclose to satisfy its obligations as
 a sponsor under the Listing Rules and/or the DTRs provided that, where
 legally permitted and practicable, such Joint Sponsor notifies the Company
 prior to making, and consults as to the timing and manner of, such
 disclosure. 

	
 

	
 

	 	 
	
3.8

	
The Company
 confirms that it will appoint a receiving agent to act as registrar and
 receiving agent in connection with the Placing and Open Offer and that the
 Receiving Agent will be admitted as registrar and receiving agent in respect
 of CREST. 

	
 

	
 

	 	 
	
3.9

	
The Company
 shall give all such assistance and provide all such information as each of
 the Joint Sponsors and the Joint Bookrunners may reasonably require for the
 making and implementation of the Placing and Open Offer, including New Share
 Admission and Acquisition Share Admission, and will do (or procure to be
 done) all such things and execute (or procure to be executed) all such
 documents as may be reasonably necessary or desirable to be done or executed
 by the Company or by its officers, employees or agents in connection
 therewith. 

	
 

	
 

	 	 
	
3.10

	
UBS, Merrill
 Lynch, CGML and the Company agree to use their respective reasonable
 endeavours to finalise the Option Agreement and Subscription and Transfer
 Agreement so as to give effect to the arrangements intended to be
 contemplated by such agreements, provided that such arrangements reflect any
 requirements of UBS, Merrill Lynch and CGML, acting reasonably, to enable
 them to comply with any regulatory provisions applicable to them and to enter
 into those agreements as soon as reasonably practicable and to execute such
 documents and do such things as may be necessary or desirable to implement
 such arrangements. Finalisation of the Option Agreement and the Subscription
 and Transfer Agreement and the mechanical and cash-flow arrangements related
 thereto (including those in support of the arrangements provided in clauses
 2.3, 3.26 and 3.27 and the arrangements for the provision of security for the
 transfer of the Consideration Shares contemplated by clause 2.34) shall
 require the prior approval of HM Treasury (not to be unreasonably withheld). 

	
 

	
 

	 	 
	
3.11

	
The Company
 undertakes that it shall release the Press Announcement to a Regulatory
 Information Service at, or as soon as practicable after, 7.00 a.m. on the
 Effective Date. 

	
 

	
 

	 	 
	
3.12

	
The Company
 undertakes to: 

	
 

	
 

	 	 
	
 

	
(A)

	
make an
 application: 

	
 

	
 

	 	 
	
 

	
 

	
(i)

	
(within the
 meaning of and for the purposes of the Prospectus Rules) to the FSA for the
 approval of the Prospectus, the Preference Prospectus and the Circular; and 

	
 

	
 

	 	 
	
 

	
 

	
(ii)

	
to the Panel
 for the approval of the Circular in relation to the Whitewash Resolution; and
 

33

	
 

	
 

	
 

	
 

	
(B)

	
apply to the
 FSA and to the London Stock Exchange for New Share Admission and Acquisition
 Share Admission and to the FSA and to the London Stock Exchange for
 Preference Admission and further undertakes to provide such information,
 supply and/or execute such documents, pay such fees, give such undertakings
 and do all such acts and things as may be required (a) by the UK Listing
 Authority and the London Stock Exchange for the purposes of obtaining formal
 approval of the Circular and the Prospectus, the Preference Prospectus, any
 Supplementary Prospectus and any Supplementary Preference Prospectus and
 obtaining New Share Admission, Acquisition Share Admission and Preference
 Admission, and (b) to comply with the Listing Rules, the Prospectus Rules, the
 Admission and Disclosure Standards, FSMA and the Companies Acts, and (c) by
 the UK Listing Authority for the passporting of the Prospectus into any
 Relevant Member State in which New Shares will be offered to the public
 (within the meaning set out in clause 5.6) for the purposes of the Prospectus
 Directive, and (d) by Euroclear for the purposes of obtaining permission for
 the admission of the New Shares, the Acquisition Shares and the Preference
 Shares as Participating Securities in CREST and (e) by the FSA and the London
 Stock Exchange, in each case to obtain the grant of New Share Admission,
 Acquisition Share Admission and/or Preference Admission, as the case may be.
 Subject to the fiduciary duties of the Directors, the Company will use all
 reasonable endeavours to obtain the grant of New Share Admission (subject
 only to the allotment of the New Shares) and of Preference Admission (subject
 only to the allotment of the Preference Shares) by no later than 8.00 a.m. on
 19 January 2009 (or such later time or date as HM Treasury may agree in
 writing). 

	
 

	
 

	
3.13

	
The Company
 undertakes that it shall not include any reference to HM Treasury or the
 Joint Sponsors in any of the Issue Documents without the prior written
 consent of HM Treasury or the Joint Sponsors, as applicable. 

	
 

	
 

	
3.14

	
Subject to
 obtaining the approval of the Circular by the FSA and the Panel in relation
 to the Whitewash Resolution, the Company shall procure that: 

	
 

	
 

	
 

	
 

	
(A)

	
the Circular
 and the Forms of Proxy are posted to Qualifying Shareholders (other than
 Prohibited Shareholders) on the Circular Posting Date; and 

	
 

	
 

	
 

	
 

	
(B)

	
a copy of
 the Circular is filed with the FSA pursuant to the Listing Rules and, if
 required, with the Panel. 

	
 

	
 

	
3.15

	
Subject to
 obtaining the approval of the Prospectus by the FSA and such other regulators
 as may be appropriate the Company shall procure that: 

	
 

	
 

	
 

	
 

	
(A)

	
the
 Prospectus is made available to Qualifying Shareholders (other than
 Prohibited Shareholders and US Shareholders) in accordance with the
 Prospectus Rules subject to clause 5; 

	
 

	
 

	
 

	
 

	
(B)

	
a copy of
 the Prospectus is filed with the FSA pursuant to the Prospectus Rules; 

34

	
 

	
 

	
 

	
 

	
(C)

	
copies of
 the Prospectus, together with any other required documents, are made
 available to the public by or on behalf of the Company in accordance with the
 Prospectus Rules; 

	
 

	
 

	
 

	
 

	
(D)

	
Application
 Forms are posted to, amongst others, all Qualifying Non-CREST Shareholders
 (other than Prohibited Shareholders and US Shareholders) with the Prospectus;
 and 

	
 

	
 

	
 

	
 

	
(E)

	
the Open
 Offer Entitlements of Qualifying CREST Shareholders (other than Prohibited
 Shareholders and US Shareholders) are credited to their respective stock
 accounts on the first Dealing Day after the Ordinary Shares go ‘ex’ the
 entitlement to apply under the Open Offer.

	
 

	
 

	
3.16

	
Subject to
 obtaining the approval of the Preference Prospectus by the FSA and subject to
 clause 5, the Company shall procure that: 

	
 

	
 

	
 

	
 

	
(A)

	
a copy of
 the Preference Prospectus is filed with the FSA pursuant to the Prospectus
 Rules; and 

	
 

	
 

	
 

	
 

	
(B)

	
copies of
 the Preference Prospectus, together with all other required documents, are
 made available to the public by or on behalf of the Company in accordance
 with the Prospectus Rules. 

	
 

	
 

	
3.17

	
As soon as
 practicable after the Prospectus Posting Date, the Company shall procure
 delivery to Euroclear of security application forms in a form acceptable to
 HM Treasury and to the Joint Sponsors and CGMEL, acting reasonably, in
 respect of the Open Offer Entitlements, the New Shares and the Acquisition
 Shares and the Company undertakes to use reasonable endeavours to obtain
 permission for the admission of each of the Open Offer Entitlements, the New
 Shares and the Acquisition Shares as a Participating Security in CREST. 

	
 

	
 

	
3.18

	
On the
 Circular Posting Date, prior to the despatch of the Circular, the Company
 shall deliver, or procure there are delivered, to the Joint Sponsors and to
 HM Treasury those documents listed in Part II of Schedule 2. 

	
 

	
 

	
3.19

	
On the
 Prospectus Posting Date, prior to publication of the Prospectus and on the
 date on which any Supplementary Prospectus is published, prior to the
 publication of such Supplementary Prospectus, the Company shall deliver or
 procure there are delivered to the Joint Sponsors and to HM Treasury those
 documents listed in Part III of Schedule 2. 

	
 

	
 

	
3.20

	
At or with
 respect to the date of any Time of Sale, the Company shall deliver or procure
 there are delivered to the Joint Sponsors and to HM Treasury the documents
 listed in Part IV of Schedule 2. 

	
 

	
 

	
3.21

	
The Company
 authorises the Joint Sponsors to date the Enablement Letter and deliver it to
 Euroclear. 

	
 

	
 

	
3.22

	
Subject
 always to the fiduciary duties of the Directors, the Company shall procure
 that the GM is duly convened and held no later than 20th November
 2008 and that the Resolutions are proposed at it. 

35

	
 

	
 

	
3.23

	
Subject to
 clause 3.24, neither the Placing and Open Offer nor the Acquisition, nor any
 of their respective terms and conditions shall be varied, extended, amended
 or withdrawn without the prior written consent of HM Treasury, except as
 required by any applicable law or regulation. 

	
 

	
 

	
3.24

	
If at any
 time between the Prospectus Posting Date and the Closing Date: (i) any event
 shall have occurred as a result of which the Prospectus, as amended or supplemented
 from time to time, would include an untrue statement of a material fact or
 omit to state any material fact necessary in order to make the statements
 therein, in the light of the circumstances under which they were made when
 such document is delivered, not misleading, or if for any other reason,
 including compliance with Section 87G of FSMA, it shall be necessary to amend
 or supplement the Prospectus, the Company will (without prejudice to the
 rights of HM Treasury and the Joint Sponsors under this Agreement) promptly: 

	
 

	
 

	
 

	
 

	
(A)

	
notify HM
 Treasury and the Joint Sponsors of the relevant circumstances; 

	
 

	
 

	
 

	
 

	
(B)

	
consult with
 HM Treasury and the Joint Sponsors in considering any requirement to publish
 a Supplementary Prospectus; 

	
 

	
 

	
 

	
 

	
(C)

	
consult with
 HM Treasury and the Joint Sponsors as to the contents of any Supplementary
 Prospectus and comply with all reasonable requirements of in relation
 thereto; and

	
 

	
 

	
 

	
 

	
(D) 

	
publish such
 Supplementary Prospectus in such manner as may be required by the Prospectus
 Rules,

	
 

	
 

	
 

	
and the
 provisions of this clause 3.24 shall apply mutatis mutandis in respect of the
 Preference Prospectus (save that references to the Joint Sponsors shall not
 so apply). 

	
 

	
 

	
3.25

	
On the
 Prospectus Posting Date, each of UBS, Merrill Lynch and CGML shall deliver to
 the Company and to HM Treasury an original of the Subscription and Transfer
 Agreement and the Option Agreement, each duly executed by UBS, Merrill Lynch
 and CGML. 

	
 

	
 

	
3.26

	
As between
 the Company and UBS, any amounts received by UBS in respect of the New Shares
 whether from applicants for New Shares pursuant to the Open Offer, Placees or
 HM Treasury (in accordance with clause 6) shall be received by UBS and the
 Company shall have no rights to receive such amounts from UBS or from any
 acquiror of such New Shares. Such amounts shall be paid by applicants for the
 New Shares to be issued pursuant to the Open Offer, by Placees and by HM
 Treasury, in each case as applicable, into a bank account approved by HM
 Treasury, being an account established on terms approved by HM Treasury,
 acting reasonably. 

	
 

	
 

	
3.27

	
As between
 the Company and Merrill Lynch, any amounts received by Merrill Lynch in
 respect of the New Shares whether from applicants for New Shares pursuant to
 the Open Offer, Placees or HM Treasury (in accordance with clause 6) shall be
 received by Merrill Lynch and the Company shall have no rights to receive
 such amounts from Merrill Lynch or from any acquiror of such New Shares. Such
 amounts shall be paid by applicants for the New Shares to be issued pursuant
 to the Open Offer, by Placees and 

36

	
 

	
 

	
 

	
by HM
 Treasury, in each case as applicable, into a bank account approved by HM
 Treasury, being an account established on terms approved by HM Treasury,
 acting reasonably. 

	
 

	
 

	
3.28

	
As between
 the Company and CGMEL, any amounts received by CGMEL in respect of the New
 Shares whether from applicants for New Shares pursuant to the Open Offer,
 Placees or HM Treasury (in accordance with clause 6) shall be received by
 CGMEL and the Company shall have no rights to receive such amounts from CGMEL
 or from any acquiror of such New Shares. Such amounts shall be paid by
 applicants for the New Shares to be issued pursuant to the Open Offer, by
 Placees and by HM Treasury, in each case as applicable, into a bank account
 approved by HM Treasury, being an account established on terms approved by HM
 Treasury, acting reasonably. 

	
 

	
 

	
3.29

	
For the
 avoidance of doubt, nothing in this Agreement confers or imposes on any
 Placee (including HM Treasury) any right or obligation (conditional or
 otherwise) to subscribe for or acquire any JerseyCo Preference Shares or
 JerseyCo Ordinary Shares. 

	
 

	
 

	
3.30

	
The Company
 shall procure that New Share Admission and Preference Admission shall occur
 after the time at which the court approves the scheme of arrangement to
 effect the Acquisition but before the time at which the court approves the
 associated reduction of the share capital of HBOS such that the condition set
 out in Clause 2.1(FF) is satisfied. 

	
 

	
 

	
3.31

	
On the Open
 Offer Date, the Company shall deliver or procure that there are delivered to
 the Joint Sponsors (a) four certified copies of the resolution of the Board
 of Directors (or of the duly authorised Committee of such Board) approving
 and authorising the issue of the Application Form and any other documents to
 be issued on the Open Offer Date (and, if the said resolution is of such a
 Committee, a certified copy of the resolution of the Board of Directors
 appointing such Committee), (b) four copies of the Application Form, and
 (iii) four copies of any other document issued on the Open Offer Date. 

	
 

	
 

	
3.32

	
Immediately
 prior to New Share Admission, the Company shall deliver or procure that there
 are delivered to the Joint Sponsors and to HM Treasury those documents listed
 in the Part IV of Schedule 2. 

	
 

	
 

	
3.33

	
Immediately
 prior to Acquisition Share Admission, the Company shall deliver or procure
 that there are delivered to the Joint Sponsors those documents listed in Part
 V of Schedule 2. 

	
 

	
 

	
3.34

	
Immediately
 prior to Preference Admission, the Company shall deliver to HM Treasury those
 documents listed in Part VI of Schedule 2. 

	
 

	
 

	
3.35

	
The Company
 shall procure (to the extent that it lies in its power to do so) to be
 communicated or delivered to the Joint Sponsors and the Joint Bookrunners all
 such information and documents (signed by the appropriate person where so
 required) as the Joint Sponsors and the Joint Bookrunners may reasonably
 require to enable them to discharge their obligations hereunder and pursuant
 to or in connection with obtaining New Share Admission, Acquisition Share
 Admission, Preference Admission, the Placing and Open Offer or as may be
 required to comply with the requirements of the FSMA, the FSA or the London
 Stock Exchange. 

37

	
 

	
 

	
3.36

	
The Company
 confirms to the Joint Sponsors and to HM Treasury that a meeting or meetings
 of the Board has been held (and/or, in the case of (C), (E) and (F) below,
 undertakes to hold such a meeting) which has (or will have, as the case may
 be): 

	
 

	
 

	
 

	
 

	
(A)

	
authorised
 the Company to enter into and perform its obligations under this Agreement
 and the Preference Share Subscription Agreement; 

	
 

	
 

	
 

	
 

	
(B)

	
approved the
 form and release of the Press Announcement and the making of the Acquisition;
 

	
 

	
 

	
 

	
 

	
(C)

	
approved the
 form of the Circular, Prospectus, and Form of Proxy and authorised and
 approved the publication of the Circular, Prospectus, the Form of Proxy, each
 of the other Issue Documents and all other documents connected with the
 Placing and Open Offer, New Share Admission, Acquisition Share Admission and
 Preference Admission, as appropriate; 

	
 

	
 

	
 

	
 

	
(D)

	
approved the
 making of the Placing and Open Offer and the allotment of Preference Shares
 under the Preference Share Subscription Agreement; 

	
 

	
 

	
 

	
 

	
(E)

	
approved the
 making of the applications for New Share Admission, Acquisition Share
 Admission and Preference Admission; and 

	
 

	
 

	
 

	
 

	
(F)

	
authorised
 (or authorise, as the case may be) all necessary steps to be taken by the
 Company in connection with each of the above matters. 

	
 

	
 

	
3.37

	
The Company
 irrevocably authorises each of the Joint Sponsors and each of the Joint
 Bookrunners to give to the Registrars and/or Euroclear any instructions
 consistent with this Agreement and/or the Issue Documents that it reasonably considers
 to be necessary for, or incidental to, the performance of its functions as
 joint sponsor or joint bookrunner or placing agent (as the case may be). 

	
 

	
 

	
3.38

	
The Company
 acknowledges that the Joint Sponsors’ responsibilities as sponsors pursuant
 to the Listing Rules are owed solely to the FSA and that agreeing to act as
 sponsor does not of itself extend any duties or obligations to any one else,
 including the Company. 

	
 

	
 

	
4.

	
ALLOTMENT OF THE NEW SHARES, CONSIDERATION AND REGISTRATION 

	
 

	
 

	
4.1

	
The Company
 shall, prior to New Share Admission, pursuant to a resolution of the Board,
 allot, conditional only on New Share Admission, the New Shares to the Open
 Offer Acceptors in each case in accordance with the terms of the Open Offer
 Documents. 

	
 

	
 

	
4.2

	
The Company
 shall, in relation to the Placing, as soon as reasonably practicable
 following receipt of the Placing Schedule and in any event (subject only to
 such receipt) prior to New Share Admission: 

	
 

	
 

	
 

	
 

	
(A)

	
as regards
 the New Shares required by Placees to be certificated shares, pursuant to a
 resolution of the Board, allot, conditional only upon New Share Admission,
 such New Shares as certificated shares, subject to the prior consent 

38

	
 

	
 

	
 

	
 

	
 

	
 

	
of HM
 Treasury and to the terms of the Placing Documents, to the Placees of such
 New Shares in the proportions set out in the Placing Schedule; and 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
as regards
 the New Shares which are required by Placees to be uncertificated shares, pursuant
 to a resolution of the Board, allot, conditional only upon New Share
 Admission, such New Shares as uncertificated shares, subject to the prior
 consent of HM Treasury and to the terms of the Placing Documents: 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
in the case
 of Placees procured by UBS, to such CREST account of such entity as will be
 notified by UBS to the Company no later than five Business Days prior to New
 Share Admission, such person to hold such New Shares as nominee for such
 Placees; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
in the case
 of Placees procured by Merrill Lynch, to such CREST account of such entity as
 will be notified by Merrill Lynch to the Company no later than five Business
 Days prior to New Share Admission, such person to hold such New Shares as
 nominee for such Placees; and 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
in the case
 of Placees procured by Citi, to such CREST account of such entity as will be
 notified by Citi to the Company no later than five Business Days prior to New
 Share Admission, such person to hold such New Shares as nominee for such
 Placees. 

	
 

	
 

	
 

	
 

	
4.3

	
The
 consideration for the allotment and issue of the New Shares to the Open Offer
 Acceptors and the Placees pursuant to clauses 4.1, 4.2 and 6.3 shall be the
 transfer to the Company by one of the Joint Sponsors (or a third party to
 whom its obligations under the Subscription and Transfer Agreement are
 novated), in its capacity as subscriber for the Consideration Shares, of the
 Consideration Shares pursuant to the Subscription and Transfer Agreement.
 Subject to New Share Admission taking place, one of the Joint Sponsors (or a
 third party to whom its obligations under the Subscription and Transfer
 Agreement are novated) shall, as shall be set out in the Subscription and
 Transfer Agreement and in its capacity as subscriber for the Consideration Shares,
 deliver to, or as may be directed by, the Company duly executed instruments
 of transfer in respect of the Consideration Shares held by it, by which the
 Consideration Shares are transferred to the Company (or such persons as the
 Company may direct). For the avoidance of doubt, the Joint Sponsors will be
 under no obligation to subscribe for Consideration Shares in an amount in
 excess of the amount received by them (a) from Placees (other than HM
 Treasury); (b) from Qualifying Shareholders accepting the Open Offer; and (c)
 from HM Treasury. 

	
 

	
 

	
 

	
 

	
4.4

	
Following
 delivery of the instruments of transfer in respect of the Consideration
 Shares in accordance with clause 4.3, the Company shall procure that the
 Receiving Agent will, without delay on the day of New Share Admission: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
effect the
 registration, without registration fee, of the persons referred to in clauses
 4.1 and 4.2(B) above and, as appropriate, HM Treasury (or its nominee) in
 accordance with clause 6.3, as the holders of the relevant New Shares and
 shall procure that such New Shares are credited to any relevant accounts as
 specified in CREST (without charging any administration fee); and 

39

	
 

	
 

	
 

	
 

	
 

	
(B)

	
effect the
 registration, without registration fee, of the Placees referred to in clause
 4.2(A) in the register of members and to issue definitive certificates. 

	
 

	
 

	
 

	
4.5

	
The New
 Shares will, as from the date when they are issued, rank pari passu in all
 respects with, and be identical to, the Ordinary Shares then in issue and
 will rank in full for all dividends and other distributions declared, made or
 paid on the Ordinary Shares after such date of issue. The New Shares and the
 Preference Shares shall be allotted and issued free from all Adverse
 Interests. 

	
 

	
 

	
 

	
 

	
5.

	
OVERSEAS SHAREHOLDERS 

	
 

	
 

	
 

	
 

	
5.1

	
The Company
 shall procure that no Application Forms and no copies of the Prospectus (or
 any Supplementary Prospectus) shall be posted to Prohibited Shareholders or
 US Shareholders and that no Open Offer Entitlements are credited to stock
 accounts in CREST of Prohibited Shareholders or US Shareholders unless they
 have supplied the Company with an address in the United Kingdom for the
 giving of notices to them. 

	
 

	
 

	
 

	
 

	
5.2

	
The
 Application Forms, together with the Prospectus and any Supplementary Prospectus
 shall specify, to the reasonable satisfaction of the Joint Sponsors and
 CGMEL, such procedures as to ensure that no New Shares are credited to the
 account or for the benefit of any person located in the United States unless
 they have established to the reasonable satisfaction of the Company that, in
 the case of US Shareholders, they are qualified institutional buyers (“QIBs”) as defined in Rule 144A under the
 Securities Act or accredited investors as defined in Rule 501 under the
 Securities Act, or in the case of Prohibited Shareholders, they may take up
 their entitlements to the New Shares in accordance with an applicable
 exemption from local securities laws. 

	
 

	
 

	
 

	
 

	
5.3

	
The Company
 shall not without the written consent of the Joint Sponsors and CGMEL, not to
 be unreasonably withheld, make the New Shares available to the holders of
 American Depositary Shares representing the Ordinary Shares with respect to
 any Ordinary Shares underlying such holder’s American Depositary Shares. 

	
 

	
 

	
 

	
 

	
5.4

	
Each of the
 Joint Sponsors and CGMEL (severally and not jointly or jointly and severally)
 and the Company acknowledges and agrees that offers and sales of New Shares
 will be made as described in the Prospectus and in accordance with the terms
 of this Agreement. The rights of Prohibited Shareholders and US Shareholders
 to participate in the Open Offer and Placing shall be limited as set out in
 the Prospectus and in this Agreement. 

	
 

	
 

	
 

	
 

	
5.5

	
It is agreed
 and understood that the New Shares do not meet the eligibility requirements
 of Rule 144A under the Securities Act. 

	
 

	
 

	
 

	
 

	
5.6

	
Each of the
 Company and the Joint Sponsors and CGMEL (severally and not jointly or
 jointly and severally) confirms and agrees that, except in relation to each
 Member State of the EEA which has implemented the Prospectus Directive (each
 a “Relevant Member State”), none
 of the New Shares have been or will be offered to the public for the purposes
 of the Prospectus Directive in that Relevant Member State prior to the
 publication of a prospectus in relation to the New Shares which has been
 approved by the competent authority in that Relevant Member State or, where
 appropriate, approved 

40

	
 

	
 

	
 

	
 

	
 

	
in another
 Relevant Member State and notified to the competent authority in that
 Relevant Member State, all in accordance with the Prospectus Directive,
 except: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
to legal
 entities which are authorised or regulated to operate in the financial
 markets or, if not so authorised or regulated, whose corporate purpose is
 solely to invest in securities; 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
to any legal
 entity which has two or more of: 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
an average
 of at least 250 employees during the last financial year; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
a total
 balance sheet of more than €43,000,000; and 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
an annual
 net turnover of more than €50,000,000, as shown in its last annual or
 consolidated accounts; or 

	
 

	
 

	
 

	
 

	
 

	
(C)

	
in any other
 circumstances which do not require the publication by the Company of a
 prospectus pursuant to Article 3 of the Prospectus Directive, 

	
 

	
 

	
 

	
 

	
 

	
provided
 that no such offer of any New Shares shall result in a requirement for the
 publication of a prospectus pursuant to Article 3 of the Prospectus Directive
 or any measure implementing the Prospectus Directive in the Relevant Member
 State. 

	
 

	
 

	
 

	
 

	
 

	
For the
 purposes of this provision, the expression an “offer of New Shares to the public” in relation to any New
 Shares in any Relevant Member State means the communication in any form and
 by any means of sufficient information on the terms of the offer and the New
 Shares to be offered so as to enable an investor to decide to purchase or
 subscribe for the New Shares, as the same may be varied in that Member State
 by any measure implementing the Prospectus Directive in that Member State. 

	
 

	
 

	
 

	
 

	
5.7

	
Each of the
 Company, HM Treasury and the Joint Sponsors and CGMEL (severally and not
 jointly or jointly and severally) acknowledges and agrees that the New Shares
 and the Open Offer Entitlements have not been and will not be registered
 under the Securities Act and may not be offered or sold except in accordance
 with Rule 903 of Regulation S, to QIBs or to certain pre-identified US
 employees of the Company who are accredited investors (as defined in Rule 501
 under the Securities Act) only if such employees have executed and delivered
 to the Company an investor letter in a form reasonably satisfactory to the
 Joint Sponsors, CGMEL and HM Treasury, in each case pursuant to an exemption
 from, or in a transaction not subject to, the registration requirements of
 the Securities Act. 

	
 

	
 

	
 

	
 

	
5.8

	
Each of the
 Company, HM Treasury and the Joint Sponsors and CGMEL (severally and not
 jointly or jointly and severally) represents, warrants and agrees that it: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
has not
 engaged and will not engage in any directed selling efforts (within the
 meaning of Regulation S) in the United States with respect to the New Shares;
 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
has not
 offered or sold and will not offer or sell New Shares in the United States by
 means of any form of general solicitation or general advertising within the 

41

	
 

	
 

	
 

	
 

	
 

	
 

	
meaning of
 Rule 502(c) under the Securities Act or in a manner involving a public
 offering within the meaning of Section 4(2) of the Securities Act; 

	
 

	
 

	
 

	
 

	
 

	
(C)

	
has only
 solicited and will only solicit subscriptions of and has only offered or sold
 and will only offer or sell the New Shares: 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
to persons
 that it reasonably believes are QIBs pursuant to an exemption from, or in a
 transaction not subject to, the registration requirements of the Securities
 Act, (“QIB Purchasers”) and only
 if such QIB Purchasers, have executed and delivered an investor letter in the
 form of Schedule 5 of this Agreement, which in the case of the Joint Sponsors
 does not need to be until the delivery of any New Shares to any such QIB
 Purchasers; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
to certain
 pre-identified US employees of the Company who are accredited investors (as
 defined in Rule 501 under the Securities Act) only if such employees have executed
 and delivered to the Company an investor letter in a form reasonably
 satisfactory to the Joint Sponsors and CGMEL in accordance with an applicable
 exemption from local securities laws; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
in reliance
 upon and in compliance with Regulation S; or 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

	
to
 Prohibited Shareholders in accordance with an applicable exemption from local
 securities laws and in reliance upon and in compliance with Regulation S; and
 

	
 

	
 

	
 

	
 

	
 

	
(D)

	
has complied
 and will comply with all applicable provisions of FSMA and all other
 applicable securities laws with respect to anything done by it in relation to
 any New Shares in, from or otherwise involving the United Kingdom. 

	
 

	
 

	
 

	
 

	
5.9

	
The Company
 acknowledges and agrees that it has not, directly or indirectly: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
made nor
 will it make offers or sales of any security; 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
solicited
 nor will it solicit offers or sales of any security; 

	
 

	
 

	
 

	
 

	
 

	
(C)

	
otherwise
 negotiated nor will it negotiate in respect of any security; 

	
 

	
 

	
 

	
 

	
 

	
(D)

	
taken nor
 will it take any other action, 

	
 

	
 

	
 

	
 

	
 

	
in any of
 the foregoing cases under circumstances that would require registration of
 the New Shares under the Securities Act. 

	
 

	
 

	
 

	
 

	
5.10

	
For so long
 as any New Shares are “restricted securities” within the meaning of Rule
 144(a)(3) under the Securities Act, the Company will during any period in
 which it is neither subject to Section 13 or 15(d) of the Exchange Act nor
 exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any
 holder or beneficial owner of such restricted securities or to any
 prospective purchaser of such restricted securities designated by such holder
 or beneficial owner, upon the request of such holder, 

42

	
 

	
 

	
 

	
 

	
 

	
beneficial
 owner or prospective purchaser, the information required to be provided by
 Rule 144A(d)(4) under the Securities Act; this undertaking is also for the
 benefit of the holders and beneficial owners from time to time of such
 restricted securities and prospective purchasers designated by such holders
 or beneficial owners from time to time. 

	
 

	
 

	
 

	
 

	
5.11

	
The Company
 shall ensure that each of its Affiliates and each person acting on behalf of
 the Company or its Affiliates (other than the Joint Sponsors or Joint
 Bookrunners and their respective Affiliates and persons acting on behalf of
 any of the Joint Sponsors or Joint Bookrunners and their respective
 Affiliates) has complied and will comply with clauses 5.6, 5.7, 5.8 and 5.9. 

	
 

	
 

	
 

	
 

	
5.12

	
Each of the
 Joint Sponsors and CGMEL shall ensure that each of its Affiliates and each
 person acting on its behalf or on behalf of its Affiliates has complied and
 will comply with clauses 5.6, 5.7, and 5.8. 

	
 

	
 

	
 

	
 

	
6.

	
HM TREASURY ACQUISITION 

	
 

	
 

	
 

	
 

	
6.1

	
For the
 purposes of this clause 6: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
“Accepted Shares” shall mean any New
 Shares in respect of which an Acceptance has been made before 11.00 a.m. on
 the Closing Date; 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
“Non-Accepted Shares” shall mean any New
 Shares which are not Accepted Shares together with any New Shares which are
 treated as Non-Accepted Shares pursuant to clauses 6.1(C); and 

	
 

	
 

	
 

	
 

	
 

	
(C)

	
the Company
 shall, with the consent of HM Treasury, be entitled to treat as Non-Accepted
 Shares: 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
any New
 Shares comprised in an Acceptance which has been validly rejected by the
 Company, with the consent of HM Treasury, not later than 2.00 p.m. on the
 Closing Date in accordance with the terms of the Open Offer, by reason of
 insufficient evidence as to identity having been received by that time in
 accordance with the procedures maintained by the Registrars under the Money
 Laundering Regulations 2007; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
any New
 Shares comprised in an Acceptance which has been validly withdrawn pursuant
 to the rights of investors to withdraw acceptances in accordance with Section
 87Q of FSMA; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
any New
 Shares comprised in an Acceptance in respect of which cleared payment has not
 been received by 5:00pm on the third Business Day following the Closing Date
 (the “Relevant Time”); and 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

	
any New
 Shares comprised in any other Acceptance which the Company, with the consent
 of HM Treasury, has elected not later than 2.00 p.m. on the Closing Date to
 treat as invalid, in accordance with the terms of the Open Offer. 

43

	
 

	
 

	
6.2

	
Without
 prejudice to clause 8, if there are no Non-Accepted Shares, obligations with
 regards to Non-Accepted Shares under this clause 6 will cease. 

	
 

	
 

	
6.3

	
If by the
 Relevant Time there are Non-Accepted Shares for which no Placees have been
 arranged and consented to by HM Treasury (being “Residual Shares”) and subject to the conditions set out in
 clause 2.1 having been satisfied or, where permitted by clauses 2.5 to 2.7,
 waived or treated as waived and to this Agreement not having been terminated
 under clause 2.8 or clause 13, and subject to clause 8.4, HM Treasury shall
 itself (or shall procure that its nominee shall) acquire such Residual Shares
 at the Issue Price and on the terms, subject to the conditions and on the
 basis of the information contained in the Issue Documents and in reliance on
 the Warranties given under clause 10 and HM Treasury shall, on the date of
 New Share Admission, pay the relevant acquisition monies to the bank account
 referred to in clause 2.4 which shall constitute a complete discharge of HM
 Treasury’s obligations to make payment in respect of the Residual Shares. If,
 following the Relevant Time, payment is dishonoured in respect of any
 Acceptances previously made, the relevant New Shares shall be dealt with in
 accordance with the terms of the Open Offer and shall not be Residual Shares.
 

	
 

	
 

	
6.4

	
As between
 the Company and the Joint Bookrunners and CGML, any amounts received by the
 Joint Bookrunners and CGML under clause 6.3 or from Placees or from Ordinary
 Shareholders shall be received and held by the relevant Joint Bookrunner, and
 the Company shall have no right to receive such amounts from the Joint
 Bookrunners or HM Treasury. Such amounts will be received by the Joint
 Bookrunners and shall be applied in payment for the JerseyCo Preference
 Shares. 

	
 

	
 

	
6.5

	
If HM
 Treasury (or its nominee) acquires New Shares pursuant to this clause 6, it
 has, in addition to any other rights and remedies it may have, the rights and
 remedies of a person acquiring New Shares on the basis of the Issue
 Documents. 

	
 

	
 

	
6.6

	
If HM
 Treasury (or its nominee) acquires New Shares pursuant to this clause 6, then
 the Company agrees that it shall, on the date of New Share Admission, enter
 into a registration rights agreement with HM Treasury in form and substance
 reasonably satisfactory to HM Treasury and the Company. 

	
 

	
 

	
6.7

	
Without
 prejudice to the obligations of UBS, Merrill Lynch and Citi pursuant to
 clause 3.5, the Company confirms to the Joint Bookrunners that any
 information which the Joint Bookrunners may obtain as to whether or not
 Placees have been procured to take up any Non-Accepted Shares or, if any such
 Placees have been so procured, as to the identities of any such persons, is
 not information obtained by the Joint Bookrunners as financial advisers to
 the Company. Accordingly (and notwithstanding any relationship which Joint
 Bookrunners may have with the Company as financial adviser), the Joint
 Bookrunners shall be under no obligation to disclose to the Company any of
 such information. 

	
 

	
 

	
6.8

	
Without
 prejudice to the condition in clause 2.1(Z), in the event that a
 Supplementary Prospectus is issued by the Company two or fewer Business Days
 prior to the Closing Date (or such later date as may be agreed between the
 parties) all references to the Closing Date in this Agreement (other than in
 this clause 6.8) shall be deemed to be the date which is three Business Days
 after the date of issue of the Supplementary 

44

	
 

	
 

	
 

	
 

	
Prospectus
 and all dates in this Agreement referenced to the Closing Date (excluding,
 without limitation, the date specified in clause 2.1(CC) (or such later date
 as HM Treasury may agree)) shall also be extended mutatis mutandis and the
 obligations of the parties under this Agreement shall, to the extent
 applicable, be required to be performed by the relevant party by reference to
 such extended dates. 

	
 

	
 

	
6.9

	
Each party
 shall execute such documents (including, without limitation, any agreement
 varying the terms of this Agreement) and do such acts and things as may be
 required for the purpose of giving full effect to the extension of the
 timetable for the Placing and Open Offer as contemplated by clause 6.8 above.
 

	
 

	
 

	
7.

	
CAPACITY 

	
 

	
 

	
7.1

	
Any
 transaction carried out by the Joint Bookrunners pursuant to clause 3.3 will
 constitute a transaction carried out in the capacity of agent at the request
 of the Company and not in respect of the Joint Bookrunners’ own account. 

	
 

	
 

	
7.2

	
Notwithstanding
 that the Joint Bookrunners may act as the Company’s agent in connection with
 the Placing and Open Offer, the Joint Bookrunners and any of their respective
 Affiliates and/or their agents may: 

	
 

	
 

	
 

	
(A)

	
receive and
 keep for their own benefit any commissions, fees, brokerage or other benefits
 paid to or received by them in connection with the Placing and Open Offer and
 shall not be liable to account to the Company for any such commissions, fees,
 brokerage or other benefits; and 

	
 

	
 

	
 

	
 

	
(B)

	
acting as
 investors for their own account, take-up their entitlements to, or subscribe
 for or purchase, New Shares in the Open Offer and, in that capacity, may
 retain, purchase, sell or offer to sell for their own account(s) such New
 Shares and any securities of the Company or related investments issued
 otherwise than in connection with the Placing and Open Offer. 

	
 

	
 

	
 

	
7.3

	
The Joint
 Bookrunners will not be responsible for any loss or damage to any person
 arising from any insufficiency or alleged insufficiency of the amount
 obtained from the Placing, the Open Offer or the Preference Share
 Subscription or from the timing of any such transaction. 

	
 

	
 

	
7.4

	
The Company
 acknowledges and agrees that HM Treasury and the Joint Sponsors and the Joint
 Bookrunners are acting solely pursuant to a contractual relationship with the
 Company on an arm’s length basis with respect to the Placing and Open Offer
 and the Preference Share Subscription (including in connection with
 determining the terms of the Placing and Open Offer and the Preference Share
 Subscription) and not, in relation to the Placing and Open Offer or the
 Preference Share Subscription, as financial advisers (except in the cases of
 UBS, Merrill Lynch and Citi, solely on and subject to the strict terms of the
 Engagement Letters) or fiduciaries to the Company or any other person.
 Additionally, the Company acknowledges that neither HM Treasury nor the Joint
 Sponsors nor CGMEL are advising the Company or any other person as to any
 legal, tax, investment, accounting or regulatory matters in any jurisdiction.
 The Company shall consult with its own advisors concerning such matters and
 shall be responsible for making its own independent investigation and
 appraisal of the 

45

	
 

	
 

	
 

	
 

	
transactions
 contemplated hereby and neither HM Treasury nor the Joint Sponsors nor the
 Joint Bookrunners shall have any responsibility or liability to the Company
 with respect thereto. The Company further acknowledges and agrees that any
 review by HM Treasury and/or the Joint Sponsors and/or the Joint Bookrunners
 (or their respective advisers and agents) of the Company, the Placing and
 Open Offer, the Issue Documents and other matters relating thereto will be
 performed solely for the benefit of HM Treasury and/or the Joint Sponsors
 and/or the Joint Bookrunners, as relevant, and shall not be on behalf of the
 Company or any other person. This is without prejudice to any obligations of
 the Joint Sponsors under the FSA Rules, including any obligations to make
 recommendations to the Company concerning the pricing and allocation of the
 Placing and Open Offer under the Engagement Letters. 

	
 

	
 

	
8.

	
FEES, COMMISSIONS, EXPENSES AND VAT 

	
 

	
 

	
8.1

	
Subject to
 clause 8.2, in consideration of HM Treasury and the Joint Sponsors and Joint
 Bookrunners agreeing to provide their services under this Agreement, the
 Company shall pay: 

	
 

	
 

	
 

	
(A)

	
to HM
 Treasury a commission of 0.5 per cent. of the aggregate value of the New
 Shares at the Issue Price per New Share; 

	
 

	
 

	
 

	
 

	
(B)

	
subject to
 New Share Admission occurring, to HM Treasury a further commission of 1 per
 cent. of the aggregate value of the New Shares acquired by Placees (including
 for the avoidance of doubt HM Treasury) at the Issue Price per New Share; and
 

	
 

	
 

	
 

	
 

	
(C)

	
each of HM
 Treasury’s and the Joint Sponsors’ and CGMEL’s legal and other costs and
 expenses (properly incurred in the case of the Joint Sponsors) and the costs and
 expenses of HM Treasury’s financial advisers, in each case incurred for the
 purpose of or in connection with the Placing and Open Offer, the Preference
 Share Subscription or any arrangements referred to in, or contemplated by,
 this Agreement, the Preference Share Subscription Agreement or the Placing
 Letters. 

	
 

	
 

	
 

	
8.2

	
With respect
 to the fees, commissions and expenses payable pursuant to clause 8.1 above: 

	
 

	
 

	
 

	
(A)

	
the
 commissions referred to in clause 8.1(A) shall be payable on the earlier of
 New Share Admission and the second Business Day after the day on which this
 Agreement is terminated; 

	
 

	
 

	
 

	
 

	
(B)

	
the
 commissions referred to in clause 8.1(B) shall be payable on the date of New
 Share Admission; and 

	
 

	
 

	
 

	
 

	
(C)

	
the expenses
 referred to in clause 8.1(C) shall be payable whether or not this Agreement
 becomes unconditional or is terminated for any reason and shall be payable on
 the earlier of New Share Admission and the second Business Day after the day
 on which this Agreement is terminated. 

46

	
 

	
 

	
 

	
8.3

	
Each of the
 Joint Sponsors and CGMEL shall agree with the Company the amount of any fee
 to be paid by the Company to the relevant Joint Sponsor and CGMEL for the
 services to be performed by such Joint Sponsor and CGMEL under this
 Agreement. The Company and the relevant Joint Sponsor shall consult with HM
 Treasury prior to agreeing such fee. 

	
 

	
 

	
8.4

	
HM Treasury
 may deduct the amount of the commissions and expenses payable under clause
 8.1 together with, in each case, an amount in respect of any VAT chargeable
 thereon, from any payment to be made by HM Treasury to the Company under
 clause 6.3. For the avoidance of doubt, HM Treasury acknowledges and agrees
 that the Company shall not be required to pay any commission except that
 provided for in clauses 8.1(A) and 8.1(B) in respect of any New Shares
 acquired by Placees other than HM Treasury. As such, any commission payable
 to such Placees shall be subject to separate negotiation between HM Treasury
 and the relevant Placees. 

	
 

	
 

	
8.5

	
Without
 prejudice to clause 8.1(C), the Company shall bear all reasonable costs and
 expenses of or incidental to the Placing and Open Offer and the matters
 contemplated by this Agreement, the Preference Share Subscription Agreement
 (including, for the avoidance of doubt, any applicable amounts in respect of
 VAT thereon, in accordance with clause 8.9), such expenses including, without
 limitation, the fees and expenses of its professional advisers, the cost of
 preparation, advertising, printing and distribution of the Issue Documents
 and all other documents connected with the Placing and Open Offer, the
 Preference Share Subscription Agreement, the Subscription and Transfer
 Agreement, the Option Agreement, costs and expenses of and/or related to
 JerseyCo, the Registrars’ fees, the listing fees of the FSA, any charges by
 CREST and the fees of the London Stock Exchange. The Company shall forthwith
 (and, in relation to VAT, in accordance with clause 8.9) upon demand by HM
 Treasury or any of the Joint Sponsors or CGMEL (accompanied by the relevant
 receipt therefor) reimburse such person the amount of any such expenses. This
 clause 8.5 shall not apply to any Tax (provision for which is, for the
 avoidance of doubt, made in clauses 8.6, 8.7, 8.8 and 8.9), except to the
 extent provided for in clauses 8.6, 8.7, 8.8 or 8.9. Any costs, charges, and
 expenses arising in connection with the Transfer and Subscription Agreement
 and/or the Option Agreement shall be dealt with in accordance with the terms
 of such agreements to the extent provided for therein. 

	
 

	
 

	
8.6

	
The Company
 shall pay and bear any Stamp Tax which is payable or paid (whether by HM
 Treasury, any of the Joint Sponsors, CGMEL or otherwise) in connection with
 the allotment and issue of the New Shares, the delivery of the New Shares
 and/or the acquisition of the New Shares in the manner contemplated by this
 Agreement or the execution, delivery, performance or enforcement of this
 Agreement, or in connection with any matters contemplated by the Subscription
 and Transfer Agreement and/or the Option Agreement, provided that this clause
 8.6 shall not apply to: 

	
 

	
 

	
 

	
(A)

	
any Stamp
 Tax payable in respect of transfers of, or agreements to transfer, New Shares
 subsequent to any such New Shares having been acquired by HM Treasury in the
 manner contemplated by this Agreement; or 

	
 

	
 

	
 

	
 

	
(B)

	
any stamp
 duty chargeable at a rate determined under section 67 or 70 of the Finance
 Act 1986 or SDRT chargeable under section 93 or 96 of the Finance Act 1986. 

47

	
 

	
 

	
 

	
 

	
References
 in this clause 8.6 to New Shares include any interest in or rights to
 allotment of New Shares. 

	
 

	
 

	
8.7

	
If any of
 the Joint Sponsors, HM Treasury or any other Indemnified Person is subject to
 Tax in respect of any sum payable under this Agreement, other than any fees
 or commission payable under clause 8.1, clause 8.2 or clause 8.3, or if any
 such sum is taken into account in computing the taxable profits or income of
 any of the Joint Sponsors or HM Treasury or such other Indemnified Person,
 the sum payable shall be increased to such amount as will ensure that after
 payment of such Tax (including, for the avoidance of doubt, any additional
 Tax payable as a result of such increase) the relevant Joint Sponsor, HM
 Treasury or the relevant Indemnified Person (as the case may be) retains a
 sum equal to the sum that it would have received and retained in the absence
 of such Tax. 

	
 

	
 

	
8.8

	
All sums
 (including, for the avoidance of doubt, any fees or commission payable under
 clause 8.1, clause 8.2 or clause 8.3) payable by the Company (the “Payer”) to HM Treasury, to the Joint
 Sponsors (or any of them) or to any other Indemnified Person (the “Payee”) pursuant to this Agreement are
 expressed exclusive of any amount in respect of VAT which is chargeable on
 the supply or supplies for which such sums (or any part thereof) is or are
 the whole or part of the consideration for VAT purposes. If any Payee makes
 (or is deemed for VAT purposes to make) any supply to the Payer pursuant to
 this Agreement and VAT is or becomes chargeable in respect of such supply, the
 Payer shall pay to the Payee (within 14 days of the receipt of a valid VAT
 invoice) an additional sum equal to the amount of such VAT. 

	
 

	
 

	
8.9

	
In any case
 where the Company is obliged to pay a sum to HM Treasury, to the Joint
 Sponsors (or any one of them) or to any other Indemnified Person under this
 Agreement by way of indemnity, reimbursement, damages or compensation for or
 in respect of any fee, liability, cost, charge or expense (the “Relevant Cost”), the Company shall pay to
 HM Treasury, to the Joint Sponsors (or any one of them) or to any other
 Indemnified Person (as the case may be) at the same time an additional amount
 determined as follows: 

	
 

	
 

	
 

	
(A)

	
if the
 Relevant Cost is for VAT purposes the consideration for a supply of goods or
 services made to HM Treasury, to the Joint Sponsors (or any one of them) or
 to any other Indemnified Person (including, for the avoidance of doubt, where
 such supply is made to HM Treasury, the Joint Sponsors (or any of them) or
 any other Indemnified Person acting as agent for the Company within the terms
 of section 47 VATA), such additional amount shall be equal to any input VAT
 which was incurred by HM Treasury, by any Joint Sponsor or by any other
 Indemnified Person (as the case may be) in respect of that supply and which
 it is not able to recover from the relevant Tax Authority; and 

	
 

	
 

	
 

	
 

	
(B)

	
if the
 Relevant Cost is for VAT purposes a disbursement incurred by HM Treasury, any
 Joint Sponsor or any other Indemnified Person as agent on behalf of the
 Company and the relevant supply is made to the Company for VAT purposes, such
 additional amount shall be equal to any amount in respect of VAT which was
 paid in respect of the Relevant Cost by HM Treasury, by any Joint Sponsor or
 by any other Indemnified Person, and HM Treasury, the relevant Joint Sponsor
 or the relevant other Indemnified Person shall use 

48

	
 

	
 

	
 

	
 

	
 

	
reasonable
 endeavours to procure that the relevant third party issues a valid VAT
 invoice in respect of the Relevant Cost to the Company.

	
 

	
 

	
 

	
9.

	
COVENANTS 

	
 

	
 

	
9.1

	
The Company
 shall comply in all material respects with the Companies Acts, FSMA, the
 Prospectus Rules, the Listing Rules, the DTRs and the Admission and
 Disclosure Standards and all other applicable laws and regulations, in each
 case insofar as they are relevant to the Placing and Open Offer (including,
 for the avoidance of doubt, the allotment and issue of the New Shares), the
 Preference Share Subscription, New Share Admission, Acquisition Share
 Admission or Preference Admission. 

	
 

	
 

	
9.2

	
Except for
 the publication of the Issue Documents, the Company undertakes to HM Treasury
 and to the Joint Sponsors that, until the close of business on the sixtieth
 day after the Closing Date, it shall not, and will procure that each Group
 Company does not, publish, make or despatch a public announcement or
 communication concerning, or which is reasonably likely to be material in the
 context of, the Placing and Open Offer or the Preference Share Subscription: 

	
 

	
 

	
 

	
(A)

	
where the
 announcement or communication is required by law, the FSA, the DTRs, the LSE,
 or under the Regulations or the rules, practices and procedures laid down by
 Euroclear, without prior consultation with HM Treasury and the Joint Sponsors
 (where legally permitted and practicable) and having due regard to all
 reasonable requests which HM Treasury or the Joint Sponsors may make; or 

	
 

	
 

	
 

	
 

	
(B)

	
in any other
 case, without the prior consent of HM Treasury and the Joint Sponsors as to
 the content, timing and manner of the publication, making or despatch of the
 announcement or communication (such consent not to be unreasonably withheld).
 

	
 

	
 

	
 

	
9.3

	
Between the
 date of this Agreement and the close of business on the sixtieth day after
 the Closing Date, the Company undertakes to HM Treasury and to the Joint
 Sponsors that it shall: 

	
 

	
 

	
 

	
(A)

	
not, and
 shall procure that each Group Company shall not, without the prior written
 consent of HM Treasury and the Joint Sponsors, take any steps (including,
 without limitation, making any public statement or issuing or publishing any
 material or document) which, in the opinion of HM Treasury or the Joint
 Sponsors (acting in good faith), would be materially inconsistent with any
 expression of policy or intention or statement contained in the Prospectus,
 subject in each case to applicable law and regulation (including the
 fiduciary duties of the Directors) (provided that where any Group Company
 considers itself or the directors thereof consider themselves bound by law or
 by regulation to take any such steps they shall consult with HM Treasury and
 the Joint Sponsors before doing so); 

	
 

	
 

	
 

	
 

	
(B)

	
use, and
 shall procure that each Group Company uses, all reasonable endeavours to
 ensure that the Company or Group Company concerned consults with HM Treasury
 and the Joint Sponsors as early as reasonably 

49

	
 

	
 

	
 

	
 

	
 

	
practicable
 in advance of the entry into or variation (other than in the ordinary course
 of business) of any commitment, agreement or arrangement, or any Group
 Company placing itself in a position where it is obliged to announce that any
 commitment, agreement or arrangement may be entered into or varied which, in any
 case, is either material in the context of the Group or may involve an
 increase in the issued capital of a Group Company (other than an increase in
 the issued capital of a Group Company where all the capital is to be issued
 to another Group Company); 

	
 

	
 

	
 

	
 

	
(C)

	
consult with
 HM Treasury and the Joint Sponsors as early as reasonably practicable in
 advance regarding any public statement or document which relates to the
 Group’s results, dividends or prospects, or to any acquisition, disposal,
 re-organisation, takeover, management development or any other significant
 matter (whether or not similar to the foregoing) and which it or any Group
 Company proposes to make or publish; and 

	
 

	
 

	
 

	
 

	
(D)

	
consult with
 HM Treasury and the Joint Sponsors as early as reasonably practicable in
 advance with respect to any other information which may be required to be
 notified to a Regulatory Information Service in accordance with Chapter 2 of
 the DTRs. 

	
 

	
 

	
 

	
9.4

	
The Company
 shall use all reasonable endeavours to procure that employees of the Company
 and its subsidiaries and advisers to and agents of the Company (other than
 the Joint Sponsors, Joint Bookrunners and their respective Affiliates) and
 its subsidiaries observe the restrictions set out in clauses 9.2 and 9.3 as
 if they were parties thereto. 

	
 

	
 

	
9.5

	
The Company
 shall not (without the prior written consent of HM Treasury) directly or
 indirectly, issue, offer, pledge, sell, contract to issue or sell, issue or
 sell any option or contract to purchase or subscribe, purchase any option or
 contract to sell or issue, grant any option, right or warrant to purchase,
 deposit into any depositary receipt facility or otherwise transfer or dispose
 of (or publicly announce any such issue, pledge, sale, grant, deposit,
 transfer or disposal of) any Ordinary Shares or any securities convertible
 into or exercisable or exchangeable for Ordinary Shares or enter into any
 swap or other agreement that transfers, in whole or in part, directly or
 indirectly any of the economic consequences of the ownership of Ordinary
 Shares at any time before the expiry of the period of 60 days following New
 Share Admission save in respect of (i) any Ordinary Shares and Preference
 Shares to be issued pursuant to the terms of the Acquisition and (ii) the New
 Shares and any Ordinary Shares to be issued pursuant to the grant or exercise
 of options, awards or other rights to acquire Ordinary Shares pursuant to any
 employee share scheme or the grant of options or making of awards under the
 Group’s employee share incentive plans provided that this clause 9.5 shall
 not prevent the Company from doing any thing or executing any document which
 is conditional upon this Agreement lapsing, failing to become unconditional
 or being terminated. 

	
 

	
 

	
9.6

	
The Company
 undertakes to make all such announcements concerning the Placing and Open
 Offer, the Preference Share Subscription and Acquisition Share Admission as
 shall be necessary to comply with the Listing Rules, the DTRs, the Prospectus
 Rules, the Admission and Disclosure Standards and section 118, sections 118A
 to 118C inclusive and section 397 of the FSMA, or which any of the Joint
 Sponsors or HM Treasury otherwise reasonably considers to be necessary or
 desirable and any of the 

50

	
 

	
 

	
 

	
 

	
Joint
 Sponsors and HM Treasury shall be entitled to make any such announcement if
 the Company fails (in the opinion of HM Treasury or such Joint Sponsor acting
 in good faith) promptly to fulfil its obligations under this Clause 9.6. 

	
 

	
 

	
9.7

	
The Company
 and the Joint Sponsors undertake to HM Treasury that they will, and the
 Company will procure that JerseyCo will, duly and punctually perform all of
 the obligations imposed on each of them respectively and JerseyCo pursuant
 and subject to the terms and conditions of the Subscription and Transfer Agreement.
 

	
 

	
 

	
9.8

	
The Company
 and the Joint Sponsors will procure that, once the Subscription and Transfer
 Agreement and the Option Agreement (and any side letters, cash flow or
 security arrangements related thereto) have been executed or, as the case may
 be, agreed, no amendments or waivers to, or discharges or releases of, the
 same shall be made or given without the prior consent of HM Treasury, such
 consent not to be unreasonably withheld. 

	
 

	
 

	
9.9

	
The Company
 undertakes to provide: 

	
 

	
 

	
 

	
(A)

	
publications,
 reports and other information with respect to the Company and its
 subsidiaries and affiliates and their businesses; and 

	
 

	
 

	
 

	
 

	
(B)

	
access to
 the books and records and management and other employees of the Company and
 its subsidiaries and affiliates and their businesses, 

	
 

	
 

	
 

	
 

	
as may be
 required in order to allow HM Treasury (including any agent or nominee of HM
 Treasury) to comply fully with all legal and regulatory and other
 requirements under the laws and regulations of any jurisdiction applicable to
 HM Treasury (and/or any such agent or nominee of HM Treasury) as a direct or
 indirect consequence of its shareholdings in the Company, including by
 acquisition of New Shares and Preference Shares. 

	
 

	
 

	
9.10

	
The Company
 will promptly provide to the Joint Sponsors, during the period commencing on
 the date hereof and ending on the date that is 90 days after the later of the
 date of New Share Admission and Acquisition Share Admission, as many copies
 of the Prospectus, the Circular and any Supplementary Prospectus as they may
 reasonably request. 

	
 

	
 

	
9.11

	
The Company
 will procure that each of the Circular and the Prospectus (and any amendments
 or supplements to either of them) is filed, published and /or issued in
 accordance with, or complies with, the Prospectus Rules and the Listing Rules
 (insofar as they apply) and that: 

	
 

	
 

	
 

	
(a) sufficient
 copies of the Prospectus and the Circular (and any amendment or supplement to
 either of them) are made available at the appropriate times to the public and
 at the offices of the Registrars and the Document Viewing Facility, in
 accordance with the requirements of the FSA and the London Stock Exchange;
 and 

	
 

	
 

	
 

	
 

	
(b) the
 documents described in the Prospectus and the Circular (and any amendment or
 supplement to any of them) as being available for inspection are made
 available as described. 

51

	
 
	
 
	
 
	
 

	
9.12
	
The Company
 undertakes to HM Treasury that it shall, promptly after New Share Admission,
 apply the proceeds of the issue of the New Shares in such manner, in such
 form and for such regulatory capital purposes as may be agreed with, HM
 Treasury, the Bank of England and the FSA. 

	
 
	
 

	
9.13
	
The Company
 undertakes to HM Treasury to comply in full with all statements, conditions
 and undertakings which are set out in either the Press Announcement or
 Schedule 6. HM Treasury agrees to discuss with the Company the obligations
 contained in paragraphs 1.1(C), (D), 1.2, 3 and 5 of Schedule 6 and consult
 the Company with a view to clarifying their scope. 

	
 
	
 

	
9.14
	
The Company
 undertakes to HM Treasury that, 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 or set aside any sum to provide for
 payment of any such dividend or distribution (save that the foregoing
 restriction shall not apply to a capitalisation issue effected after
 Acquisition Share Admission pursuant to which newly issued bonus shares are
 paid up out of undistributable reserves); or 

	
 
	
 
	
 

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

	
 
	
 
	
 

	
9.15
	
The Company
 undertakes to HM Treasury that it shall not issue any New Shares which are to
 be acquired by HM Treasury pursuant to this Agreement to any person referred
 to in section 67 or 70 of the Finance Act 1986 or section 93 or 96 of the
 Finance Act 1986 (such that stamp duty or SDRT would apply at the rate
 determined under any such section) unless HM Treasury requests that such New
 Shares are to be so issued. 

	
 
	
 

	
10.
	
REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 

	
 
	
 

	
10.1
	
The Company
 represents, warrants and undertakes to HM Treasury and to each of the Joint
 Sponsors and to CGMEL that, save as fairly disclosed in any Previous
 Announcement, the representations, warranties and undertakings set out in
 Part I of Schedule 3 are true, accurate and not misleading as at the date of
 this Agreement. 

	
 
	
 

	
10.2
	
The Company
 agrees: 

	
 
	
 

	
 
	
(A)
	with HM Treasury and with each of the
    Joint Sponsors and CGMEL that: 
	
 
	
 
	
 

	
 
	
(i)
	
save as
 fairly disclosed in the Circular, each Circular Warranty will be true,
 accurate and not misleading on the Circular Posting Date; and 

	
 
	
 
	
 
	
 

	
 
	
(ii)
	
save as
 fairly disclosed in the Circular or the Prospectus or any Supplementary
 Prospectus, each statement set out in Parts II and IIA of Schedule 3 (except
 to the extent that such statements relate to the Preference Prospectus or any
 Supplementary Preference Prospectus) will be true and accurate and not
 misleading on the Prospectus Posting Date, at such time as a Supplementary 

52

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Prospectus
 shall be issued in accordance with this Agreement, at each Time of Sale, if
 any, and immediately prior to New Share Admission, 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
with each of
 the Joint Sponsors that save as fairly disclosed in the Circular or the
 Prospectus or any Supplementary Prospectus, each statement set out in Parts
 II and IIA of Schedule 3 (except to the extent that such statements relate to
 the Preference Prospectus or any Supplementary Preference Prospectus) will be
 true and accurate and not misleading immediately prior to Acquisition Share
 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
 to be 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. 

	
 

	
 

	
 

	
10.3

	
For the
 purposes of Clause 10.2, the Company agrees with HM Treasury, each of the
 Joint Sponsors and CGMEL that (i) Warranties given on the Prospectus Posting
 Date are qualified by information fairly disclosed in the Prospectus, and
 (ii) Warranties given or repeated on any date after the Prospectus Posting
 Date are qualified by information fairly disclosed in the Prospectus as
 supplemented by information fairly disclosed in any Supplementary Prospectus
 published on or before that date. 

	
 

	
 

	
10.4

	
If it comes
 to the knowledge of the Company or any of the Directors that any of the
 Warranties was breached or untrue or inaccurate when made and/or that any of
 the Warranties is or would be breached or untrue or inaccurate if it were to
 be repeated by reference to the facts and circumstances or the knowledge,
 opinions, intentions or expectations of any of the Directors subsisting (i)
 at any time up to immediately prior to New Share Admission, it will notify HM
 Treasury, the Joint Sponsors and CGMEL immediately, and (ii) at any time from
 New Share Admission up to immediately prior to Acquisition Share Admission,
 it will notify the Joint Sponsors immediately. The Company will make
 reasonable enquiries to ascertain whether any of the Warranties was, or if so
 repeated would be, breached or untrue or inaccurate and as to whether a
 Specified Event has occurred. 

	
 

	
 

	
10.5 

	
If, (i) at
 any time prior to New Share Admission, HM Treasury and the Joint Sponsors and
 CGMEL, or (ii) at any time from New Share Admission and up to immediately
 prior to Acquisition Share Admission, the Joint Sponsors, shall receive a
 notice pursuant to clause 10.4 or otherwise become aware of any of the
 Warranties being or becoming or being likely (if repeated as referred to in
 clause 10.4) to become untrue or inaccurate, HM Treasury and the Joint
 Sponsors and CGMEL, as relevant, may (without prejudice to any other
 provision of this Agreement) require the Company, at its own expense, to make
 or procure the making of such announcement or announcements and/or despatch
 such communication to Ordinary Shareholders as HM Treasury and the Joint
 Sponsors and CGMEL, as relevant, shall, in their absolute discretion but
 after consultation with the Company, consider necessary. 

	
 

	
 

	
10.6

	
The
 Warranties shall remain in full force and effect notwithstanding completion
 of the Placing and Open Offer and the Preference Share Subscription and all
 other matters 

53

	
 

	
 

	
 

	
 

	
 

	
and
 arrangements referred to in or contemplated by this Agreement and the
 Preference Share Subscription Agreement. 

	
 

	
 

	
 

	
 

	
10.7

	
The Company
 will deliver (i) to HM Treasury and the Joint Sponsors and CGMEL a
 certificate in the form set out in Part A of Schedule 1 prior to and with
 effect immediately before New Share Admission and in the form set out in Part
 B of Schedule 1 prior to and with effect immediately before the issue of any
 Supplementary Prospectus or Supplementary Preference Prospectus and at each
 Time of Sale, if any, and (ii) to the Joint Sponsors a certificate in the
 form set out in Part C of Schedule 1 prior to and with effect immediately
 before Acquisition Share Admission. 

	
 

	
 

	
 

	
 

	
10.8

	
The Company
 acknowledges that HM Treasury and the Joint Sponsors and CGMEL are entering
 into this Agreement in reliance on the Warranties and each such
 representation, warranty and undertaking shall not be limited by reference
 (express or implied) to the terms of any other representation, warranty or
 undertaking or any other provision of this Agreement. 

	
 

	
 

	
 

	
 

	
10.9

	
To the
 extent that a Warranty in Part II or Part IIA of Schedule 3 relates to HBOS
 or any other member of the HBOS Group, such Warranty shall only be given so
 far as the Company is aware. 

	
 

	
 

	
 

	
 

	
10.10

	
For the
 purposes of this clause 10 and Schedule 3, where any of the Warranties is
 qualified by a reference to knowledge, awareness or belief, that reference
 shall be deemed to include a statement to the effect that it has been given
 after reasonable enquiry. 

	
 

	
 

	
 

	
 

	
10.11

	
The Company
 undertakes to HM Treasury and to the Joint Sponsors and CGMEL: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
promptly to
 give notice to HM Treasury and to the Joint Sponsors and CGMEL of the
 occurrence of any Specified Event, which shall come to the knowledge of the
 Company prior to the earlier of: 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
this
 Agreement being terminated in accordance with its terms; and 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
the date of
 allotment of the New Shares pursuant to clauses 4 and/or 6 (as appropriate)
 (whichever is later); and 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
not to cause
 and to use all reasonable endeavours not to permit, and to procure that each
 Group Company and the Directors do not cause and use all reasonable
 endeavours not to permit, any Specified Event to occur before the earlier of:
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
this
 Agreement being terminated in accordance with its terms; and 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
the date of
 allotment of the New Shares pursuant to clauses 4 and/or 6 (as appropriate)
 (whichever is later), 

	
 

	
 

	
 

	
 

	
 

	
 

	
provided
 that any breach of the covenant in this clause 10.11(B) will not give rise to
 a remedy in damages against the Company in respect of such breach in 

54

	
 

	
 

	
 

	
 

	
 

	
 

	
circumstances
 where this Agreement has been terminated pursuant to clause 13 as a result of
 a Specified Event. 

	
 

	
 

	
 

	
 

	
10.12

	
The Company
 undertakes to the Joint Sponsors: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
promptly to
 give notice to the Joint Sponsors of the occurrence of any Specified Event
 which shall come to the knowledge of the Company between the date of
 allotment of the New Shares pursuant clauses 4 and/or 6 (as appropriate)
 (whichever is later) and Acquisition Share Admission; and 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
not to cause
 and to use all reasonable endeavours not to permit, and to procure that each
 Group Company and the Directors do not cause and use all reasonable
 endeavours not to permit, any Specified Event to occur between the date of
 allotment of the New Shares pursuant clauses 4 and/or 6 (as appropriate)
 (whichever is later) and Acquisition Share Admission, 

	
 

	
 

	
 

	
 

	
 

	
 

	
provided
 that any breach of the covenant in this clause 10.12 will not give rise to a
 remedy in damages against the Company in respect of such breach in
 circumstances where a Joint Sponsor has exercised its rights pursuant to
 clause 13.5 of this Agreement. 

	
 

	
 

	
 

	
 

	
10.13

	
For the
 purposes of clauses 10.11(A), 10.11(B), 10.12(A) and 10.12(B), each of the
 Warranties and the undertakings contained in this clause 10 shall take effect
 with the exclusion of any qualification contained therein with respect to the
 knowledge, information, awareness or belief of the Company or any of the
 Directors or any other person. 

	
 

	
 

	
 

	
 

	
10.14

	
Each Joint
 Sponsor and CGMEL severally represents, warrants and undertakes to the
 Company that it is an “accredited investor” as defined in Rule 501(a) of
 Regulation D under the Securities Act. 

	
 

	
 

	
 

	
 

	
11.

	
INDEMNITIES 

	
 

	
 

	
 

	
 

	
11.1

	
The Company
 agrees to fully and effectively indemnify and hold harmless each Indemnified
 Person on an after-Tax basis from and against any and all Losses or Claims,
 whatsoever, as incurred, (and whether or not the relevant Loss or Claim is
 suffered or incurred or arises in respect of circumstances or events existing
 or occurring before, on or after the date of this Agreement and regardless of
 the jurisdiction in which such Loss or Claim is suffered or incurred) if such
 Losses or Claims, arise, directly or indirectly, out of, or are attributable
 to, or connected with, anything done or omitted to be done by any person
 (including by the relevant Indemnified Person) in connection with the Placing
 and Open Offer, the Preference Share Subscription, New Share Admission,
 Acquisition Share Admission, Preference Admission or the arrangements
 contemplated by the Issue Documents, the Preference Share Subscription
 Agreement or any of them (or any amendment or supplement to any of them), or
 this Agreement or any other agreement relating to the Placing and Open Offer
 (including, without limitation, the Subscription and Transfer Agreement and
 the Option Agreement) or the Preference Share Subscription, including but not
 limited to: 

55

	
 

	
 

	
 

	
 

	
 

	
(A)

	
any and all
 Losses or Claims whatsoever, as incurred, arising out of the Issue Documents,
 or any of them (or any amendment or supplement to any of them) not containing
 or fairly presenting, or being alleged not to contain or not to fairly
 present, all information required to be contained therein, or arising out of
 any untrue or inaccurate statement or alleged untrue or inaccurate statement
 of a material fact contained in the Issue Documents, or any of them (or any
 amendment or supplement to any of them), or the omission or alleged omission
 therefrom of a fact necessary in order to make the statements therein not
 misleading in any material respect, or any statement therein being or being
 alleged to be in any respect not based on reasonable grounds, in the light of
 the circumstances in which they were made; and/or 

	
 

	
 

	
 

	
 

	
(B)

	
any and all
 Losses or Claims whatsoever, as incurred, arising out of any breach or
 alleged breach by the Company or JerseyCo of any of its obligations,
 including any of the Warranties or the representations, covenants and
 undertakings set out in this Agreement or out of the arrangements
 contemplated by the Issue Documents or the Preference Share Subscription
 Agreement, or any of them (or any amendment or supplement to any of them) or
 this Agreement or any other agreement relating to the Placing and Open Offer
 (including, without limitation, the Subscription and Transfer Agreement and
 the Option Agreement) or the Preference Share Subscription; and/or 

	
 

	
 

	
 

	
 

	
(C)

	
any and all
 Losses or Claims whatsoever, as incurred, in connection with or arising out
 of the issue, publication or distribution of the Issue Documents, or any of
 them (or any amendment or supplement to any of them) and/or any other
 documents or materials relating to the applications for New Share Admission,
 Acquisition Share Admission or Preference Admission; and/or 

	
 

	
 

	
 

	
 

	
(D)

	
any and all
 Losses or Claims whatsoever, as incurred, in connection with or arising out
 of any failure or alleged failure by the Company or JerseyCo or any of the
 Directors or any of its or his agents, employees or advisers to comply with
 CA 1985, CA 2006, FSMA, the Listing Rules, the Prospectus Rules, the DTRs,
 the rules and regulations of the London Stock Exchange and the Admission and
 Disclosure Standards or any other requirement or statute or regulation in any
 jurisdiction in relation to the applications for New Share Admission,
 Acquisition Share Admission or Preference Admission, the Placing and Open
 Offer, or the arrangements contemplated by the Issue Documents and the
 Preference Share Subscription Agreement (including, without limitation, the
 issue and allotment of the New Shares and the Preference Shares), or any of
 them (or any amendment or supplement to any of them), or this Agreement or
 any other agreement relating to the Placing and Open Offer (including,
 without limitation, the Subscription and Transfer Agreement and the Option
 Agreement) or the Preference Share Subscription; and/or 

	
 

	
 

	
 

	
 

	
(E)

	
any and all
 Losses or Claims whatsoever, as incurred, suffered or incurred by such
 Indemnified Person: 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
as a person
 who has communicated or approved the contents of any financial promotion
 (other than the Issue Documents, or any of them, or any amendment or
 supplement to any of them) made in connection with 

56

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
the Placing
 and Open Offer or the Preference Share Subscription or the applications for
 New Share Admission or Acquisition Share Admission for the purpose of section
 21 of FSMA; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
(in the case
 of each of the Joint Sponsors only) in their capacity as sponsor to the
 Company’s applications for New Share Admission and Acquisition Share
 Admission and as sponsor in relation to the publication of the Circular; or 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
in
 connection with the performance of its obligations under the Subscription and
 Transfer Agreement or the Option Agreement or the arrangements contemplated
 or referred to therein (including, for the avoidance of doubt, any side
 letters, cashflow or security arrangements related thereto), 

	
 

	
 

	
 

	
 

	
 

	
PROVIDED
 THAT, the indemnity contained in this clause 11.1 shall not apply to any
 Losses or Claims (i) in respect of HM Treasury (otherwise than in connection
 with the matters referred to in clauses 11.1(A), (B), (C), (D) and (E)) to
 the extent finally and judicially determined to have arisen as a result of
 the fraud, bad faith or wilful default of that HMT Indemnified Person; (ii)
 in respect of UBS, Merrill Lynch and Citi (otherwise than in connection with
 the matters referred to in clauses 11.1(A), (B), (C) and (D)) to the extent
 judicially determined to have arisen as a result of the fraud, negligence,
 bad faith or wilful default of that UBS Indemnified Person or that Merrill
 Lynch Indemnified Person or that Citi Indemnified Person or (iii) if and to
 the extent arising out of a decline in market value of the New Shares
 suffered or incurred by HM Treasury as a result of it having been required to
 acquire New Shares pursuant to clause 6 or Preference Shares pursuant to the
 Preference Share Subscription Agreement, save to the extent such decline is
 caused by or results from or is attributable to or would not have arisen but
 for (in each case directly or indirectly) the neglect or default of the
 Company in relation to the content, publication, issue or distribution of the
 Issue Documents or any breach by the Company of any of its obligations under
 this Agreement, including any of the Warranties, representations,
 undertakings or covenants, or under the Preference Share Subscription
 Agreement. This clause 11.1 shall not
 apply to any Loss or Claim in respect of Tax which is covered by clauses 8.6,
 8.7, 8.8 and 8.9 (or which would have been so covered but for any exclusion
 contained therein). 

	
 

	
 

	
 

	
 

	
11.2

	
Each
 Indemnified Person shall and shall procure that its Indemnified Persons shall:
 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
give notice
 as promptly as reasonably practicable to the Company of any action commenced
 against it after receipt of a written notice of any Claim or the commencement
 of any action, claim, suit, investigation or proceeding in respect of which a
 Claim for indemnification may be sought under this clause 11; and 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
as promptly
 as reasonably practicable notify the Company after any such action is
 formally commenced (by way of service with a summons or other legal process
 giving information as to the nature and basis of the claim), 

	
 

	
 

	
 

	
 

	
 

	
and shall
 keep the Company informed of, and, to the extent reasonably practicable,
 consult with the Company in relation to, all material developments in respect
 thereof, but in each case, only insofar as may be consistent with the terms
 of any relevant 

57

	
 

	
 

	
 

	
 

	
 

	
insurance
 policy and provided (in each case) that to do so would not, in such
 Indemnified Person’s view (acting in good faith), be prejudicial to it (or to
 any Indemnified Person connected to it) or to any obligation of
 confidentiality or other legal or regulatory obligation which that
 Indemnified Person owes to any third party or to any regulatory request that
 has been made of it. However, the
 failure to so notify the Company and keep the Company informed shall not
 relieve the Company from any liability hereunder to the extent it is not
 materially prejudiced as a result thereof and in any event shall not relieve
 the Company from any liability which it may have otherwise than on account of
 the indemnity set out in this clause 11. 

	
 

	
 

	
11.3

	
Legal
 advisers for Indemnified Persons shall be selected by HM Treasury in respect
 of HMT Indemnified Persons, UBS in respect of UBS Indemnified Persons,
 Merrill Lynch in respect of Merrill Lynch Indemnified Persons and Citi in
 respect of Citi Indemnified Persons. The Company may participate at its own
 expense in the defence of any action commenced against it provided however
 that legal advisers for the Company shall not (except with the consent of the
 relevant Indemnified Person) also be legal advisers for the Indemnified
 Person. 

	
 

	
 

	
11.4

	
In no event
 shall the Company be liable for fees and expenses of more than one legal
 adviser (in addition to any local legal advisers) separate from its own legal
 advisers for all UBS Indemnified Persons, Merrill Lynch Indemnified Persons
 and Citi Indemnified Persons in connection with any one action or separate
 but similar or related actions in the same jurisdiction arising out of the
 same general allegations or circumstances. 

	
 

	
 

	
11.5

	
The Company
 shall not, without the prior written consent of the relevant Indemnified
 Persons (acting in good faith), settle or compromise or consent to the entry
 of any judgment with respect to any litigation, or any investigation or
 proceeding by any governmental agency or body, commenced or threatened, or
 any claim whatsoever in respect of which indemnification or contribution
 could be sought under this clause 11 or clause 12 (whether or not the
 Indemnified Persons are actual or potential parties thereto), unless such
 settlement, compromise or consent: 

	
 

	
 

	
 

	
(A)

	
includes an
 unconditional release of each Indemnified Person from all liability arising
 out of such litigation, investigation, proceeding or claim; and 

	
 

	
 

	
 

	
 

	
(B)

	
does not
 include a statement as to or an admission of fault, culpability or a failure
 to act by or on behalf of any Indemnified Person. 

	
 

	
 

	
 

	
11.6

	
The Company
 will promptly notify HM Treasury and each of the Joint Sponsors and CGMEL of
 any limitation (whenever arising) on the extent to which the Company and/or
 any of its respective subsidiary undertakings, affiliates, or associates may
 claim against any third party or parties and/or of any waiver or release of
 any right of the Company to so claim (each a “Limitation”) in respect of anything which may arise,
 directly or indirectly, out of or is based upon or is in connection with the
 Placing and Open Offer, the Preference Share Subscription, New Share
 Admission, Acquisition Share Admission, Preference Admission or the subject
 matter of the obligations or services to be performed under this Agreement or
 in connection with the Placing and Open Offer, the Preference Share
 Subscription, by HM Treasury or CGMEL or by the Joint Sponsors or on its or
 their behalf. Where any damage or loss
 is suffered by the Company for which any Indemnified Person would otherwise
 be jointly and severally liable with any 

58

	
 

	
 

	
 

	
third party or
 third parties to the Company, or any of its relevant subsidiary undertakings,
 affiliates, or associates, the extent to which such damage or loss will be
 recoverable from the Indemnified Person shall be limited so as to be in
 proportion to the contribution of the Indemnified Person to the overall fault
 for such damage or loss, as agreed between the parties, or, in the absence of
 agreement, as determined by a court of competent jurisdiction, but in any
 event, the Indemnified Person shall have no greater liability than if the
 Limitation did not apply.

	
 

	
 

	
11.7

	
The degree to
 which any Indemnified Person shall be entitled to rely on the work of any
 adviser to the Company or any other third party will be unaffected by any
 Limitation (as defined in clause 11.6) which the Company may have agreed with
 any third party. 

	
 

	
 

	
11.8

	
The provisions of
 this clause 11 will remain in full force and effect notwithstanding the
 completion of all matters and arrangements referred to in or contemplated by
 this Agreement. 

	
 

	
 

	
12.

	
CONTRIBUTION
 

	
 

	
 

	
12.1

	
If and to the
 extent that the indemnification provided for in clause 11 is unavailable to
 or insufficient to hold harmless (to the extent specified in clause 11) an
 Indemnified Person in respect of any Loss or Claim referred to therein, then
 the Company, in lieu of indemnifying such Indemnified Person thereunder,
 shall contribute to the amount paid or payable by such Indemnified Person as
 a result of such Loss or Claim (i) in such proportion as is appropriate to reflect
 the relative benefits received by the Company on the one hand and HM Treasury
 or the Joint Sponsors or CGMEL on the other hand from the Placing and Open
 Offer or (ii) if the allocation provided by sub-clause (i) above is not
 permitted by applicable law, in such proportion as is appropriate to reflect
 not only the relative benefits referred to in sub-clause (i) above but also
 the relative fault of the Company on the one hand and HM Treasury or the
 Joint Sponsors or CGMEL on the other in connection with the statements or
 omissions that resulted in such losses, claims, damages or liabilities, as
 well as any other relevant equitable considerations. The relative benefits
 received by the Company on the one hand and HM Treasury on the other shall be
 deemed to be in the same respective proportions respectively as the total
 fees received by HM Treasury pursuant to this Agreement bear to the aggregate
 Issue Price. The relative benefits received by the Company on the one hand
 and the Joint Sponsors and CGMEL on the other shall be deemed to be in the
 same respective proportions respectively as the amount paid up on the
 Consideration Shares by the Joint Bookrunners and the total fees received by
 the Joint Bookrunners and CGML, as set forth in the Engagement Letters and
 not paid to Placees, bear to the aggregate Issue Price. The relative fault of
 the Company on the one hand and HM Treasury or the Joint Sponsors and CGMEL
 on the other shall be determined by reference to, among other things, whether
 the untrue or alleged untrue statement of a material fact or the omission or
 alleged omission to state a material fact relates to information supplied by
 the Company or by HM Treasury or the Joint Sponsors or CGMEL and the parties’
 relative intent, knowledge, access to information and opportunity to correct
 or prevent such statement or omission. 

	
 

	
 

	
12.2

	
Notwithstanding
 the provisions of this clause 12, neither HM Treasury nor the Joint Sponsors
 nor CGMEL will be entitled to recover from the Company by way of contribution
 under clause 12.1 any amount in excess of the amount that the Company 

59

	
 

	
 

	
 

	
would have been
 liable to pay to HM Treasury or to the Joint Sponsors or CGMEL (as the case
 may be) had the indemnification provided for in clause 11 been available to
 the extent provided in that clause in respect of the relevant Loss or Claim.

	
 

	
 

	
12.3

	
The parties hereto
 agree that it would not be just and equitable if contribution pursuant to
 this clause 12 were determined by pro rata allocation (even if HM Treasury
 and the Joint Sponsors and CGMEL were treated as one entity for such
 purposes) or by any other method of allocation that does not take account of
 the equitable considerations referred to in clause 12.1. The amount paid or
 payable by an Indemnified Person as a result of the Loss or Claim referred to
 in clause 12.1 shall be deemed to include, any legal or other expenses
 incurred by such Indemnified Person in connection with investigating or
 defending any such action or claim. 

	
 

	
 

	
12.4

	
The indemnity and
 contribution agreements contained in this clause 12 are in addition to and
 shall not be construed to limit, affect or prejudice any liability which the
 Company may otherwise have to the Indemnified Persons referred to above or
 any other right or remedy in law or otherwise available to any Indemnified
 Person. 

	
 

	
 

	
13.

	
TERMINATION
 

	
 

	
 

	
13.1

	
If following the
 date of this Agreement but before New Share Admission it shall come to the
 notice of HM Treasury or any of the Joint Sponsors that: 

	
 

	
 

	
 

	
 

	
(A)

	
any statement
 contained in the Issue Documents (or any amendment or supplement thereto) has
 become or been discovered to be untrue, inaccurate or misleading; or 

	
 

	
 

	
 

	
 

	
(B)

	
matters have
 arisen or have been discovered which would, if any of the Issue Documents (or
 any amendment or supplement thereto) were to be issued at that time,
 constitute an omission therefrom and which would render any such Issue
 Documents (or any amendment or supplement thereto) to be misleading; or 

	
 

	
 

	
 

	
 

	
(C)

	
there has been a
 breach of any of the Warranties or of any other provision of this Agreement
 or of any representation, warranty or undertaking in or in terms of the
 Preference Share Subscription Agreement; or 

	
 

	
 

	
 

	
 

	
(D)

	
there has been a
 breach by the Company or the Joint Sponsors or any other party thereto of any
 obligations under the Subscription and Transfer Agreement or Option
 Agreement; or

	
 

	
 

	
 

	
 

	
(E)

	
a Specified Event
 has occurred; or 

	
 

	
 

	
 

	
 

	
(F)

	
the Company’s
 application to the UK Listing Authority for admission of the New Shares, the
 Acquisition Shares or the Preference Shares to the Official List and/or the
 Company’s application to the London Stock Exchange for admission to trading
 of the New Shares, the Acquisition Shares or the Preference Shares on the
 London Stock Exchange’s market for listed securities is withdrawn by the
 Company and/or refused by the UK Listing Authority or London Stock Exchange
 (as appropriate), 

60

	
 

	
 

	
 

	
 

	
which, in each
 case, is in HM Treasury’s or any of the Joint Sponsors’ sole judgement,
 material in the context of the Group and/or the context of the Placing and
 Open Offer, or the Preference Share Subscription, New Share Admission,
 Acquisition Share Admission or Preference Admission, HM Treasury or such
 Joint Sponsor may forthwith give notice thereof to the Company, in which case
 clause 13.4 shall apply.

	
 

	
 

	
 

	
13.2

	
If at any time
 after New Share Admission but before Acquisition Share Admission it shall
 come to the notice of any of the Joint Sponsors that: 

	
 

	
 

	
 

	
 

	
(A)

	
any statement
 contained in the Issue Documents (or any amendment or supplement thereto) has
 become or been discovered to be untrue, inaccurate or misleading; or 

	
 

	
 

	
 

	
 

	
(B)

	
matters have
 arisen or have been discovered which would, if any of the Issue Documents (or
 any amendment or supplement thereto) were to be issued at that time,
 constitute an omission therefrom and which would render any such Issue
 Documents (or any amendment or supplement thereto) to be misleading; or 

	
 

	
 

	
 

	
 

	
(C)

	
there has been a
 breach of any of the Warranties or of any other provision of this Agreement;
 or 

	
 

	
 

	
 

	
 

	
(D) 

	
a Specified Event
 has occurred; or

	
 

	
 

	
 

	
 

	
(E)

	
the Scheme has not
 occurred or been implemented or is not in full force and effect immediately
 prior to Acquisition Share Admission; or 

	
 

	
 

	
 

	
 

	
(F)

	
any of the
 documents specified in Part V of Schedule 2 has not been or is not likely to
 be duly delivered (or such later date as the Joint Sponsors may in their
 absolute discretion decide); or 

	
 

	
 

	
 

	
 

	
(G)

	
the Company’s
 application to the UK Listing Authority for admission of the Acquisition
 Shares to the Official List and/or the Company’s application to the London
 Stock Exchange for admission to trading of the Acquisition Shares on the
 London Stock Exchange’s main market for listed securities is withdrawn by the
 Company and/or refused by the UK Listing Authority or London Stock Exchange
 (as appropriate), 

	
 

	
 

	
 

	
 

	
which, in each
 case, is in any of the Joint Sponsors’ sole judgement, material in the
 context of the Group, the Enlarged Group or Acquisition Share Admission, such
 Joint Sponsor may forthwith give notice thereof to the Company, in which case
 clause 13.5 shall apply.

	
 

	
 

	
 

	
13.3

	
If following the
 date of this Agreement but before New Share Admission: 

	
 

	
 

	
 

	
 

	
(A)

	
in the sole
 opinion of HM Treasury (acting in good faith) there shall have been any
 Material Adverse Effect, whether or not foreseeable at the date of this
 Agreement; or 

61

	
 

	
 

	
 

	
 

	
 

	
(B)

	
any matter has
 arisen which would require the publication of a Supplementary Prospectus
 (save for any matter relating to the Acquisition unless such matter has arisen
 because of the failure, lapse, termination or withdrawal of the Acquisition);
 or 

	
 

	
 

	
 

	
 

	
 

	
(C)

	
there has been: 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
a change in
 national or international financial, political, economic or stock market
 conditions (primary or secondary); 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
an incident of
 terrorism, outbreak or escalation of hostilities, war, declaration of martial
 law or any other calamity or crisis; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
a suspension or
 material limitation in trading of the securities of the Company by the London
 Stock Exchange or on any exchange or over-the-counter market, or if trading
 generally on the New York Stock Exchange, the NASDAQ National Market or the
 London Stock Exchange has been suspended or limited, or minimum or maximum
 prices for trading have been fixed, or maximum ranges for prices have been
 required, by any of such exchanges or by such system or by order of the SEC,
 the National Association of Securities Dealers, Inc. or any governmental
 authority, or a material disruption has occurred in commercial banking or
 securities settlement or clearance services in the United States or in the
 EEA; or 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

	
a moratorium in
 commercial banking has been declared by the United States, the United Kingdom
 or a member state of the EEA, 

	
 

	
 

	
 

	
 

	
 

	
 

	
as would in the
 sole opinion of HM Treasury, acting in good faith, be likely to materially
 prejudice the success of the Placing and Open Offer or dealings in the New
 Shares in the secondary market, then HM Treasury may give notice of any such
 matter to the Company, in which case clause 13.4 shall apply.

	
 

	
 

	
 

	
 

	
13.4

	
Where this clause
 applies and:

	
 

	
 

	
 

	
 

	
 

	
(A)

	
notice has been
 given to the Company pursuant to clause 13.1 or 13.3 by HM Treasury, HM
 Treasury may in its sole discretion: 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
allow the Placing
 and Open Offer to proceed on the basis of the Issue Documents subject, if HM
 Treasury so requests, to (i) the publication of a Supplementary Prospectus or
 Supplementary Preference Prospectus pursuant to section 87G of FSMA (ii) the
 publication of a supplementary Circular and (iii) to any additional
 requirements of the Prospectus Rules or the FSA; or 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
if it does not
 consider it to be necessary that the arrangements contemplated by this
 Agreement and by the Preference Share Subscription Agreement proceed to
 completion in order to maintain the financial stability of the United
 Kingdom, give notice to the Company and to the Joint Sponsors at any time
 prior to New Share Admission to 

62

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
the effect that
 this Agreement shall terminate and cease to have effect; and/or

	
 

	
 

	
 

	
 

	
 

	
(B)

	
notice has been
 given to the Company pursuant to clause 13.1 by any of the Joint Sponsors,
 then clause 13.5 shall apply. 

	
 

	
 

	
 

	
 

	
13.5

	
Where this clause
 applies, the Joint Sponsor that gave notice to the Company pursuant to
 clauses 13.1 or 13.2 (the “Notifying
 Sponsor”) may, having consulted with HM Treasury and the UK
 Listing Authority, give notice to the Company and to HM Treasury terminating
 its appointment under this Agreement (and, if the Notifying Sponsor is CGML,
 CGMEL’s appointment under this Agreement) and all obligations of the
 Notifying Sponsor (and, if the Notifying Sponsor is CGML, all obligations of
 CGMEL) under this Agreement shall thereupon terminate and: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
if an application
 for New Share Admission and/or Acquisition Share Admission and/or a
 declaration on production of a circular has been submitted to the FSA, the
 Notifying Sponsor shall notify the FSA of the termination of its appointment
 as sponsor in respect of the Placing and Open Offer and/or the publication of
 the Circular and/or Acquisition Share Admission, as relevant; 

	
 

	
 

	
 

	
 

	
 

	
(B)

	
all references in
 this Agreement to the Joint Sponsors shall be deemed to be references to any
 Joint Sponsor that is not the Notifying Sponsor (if any) (and, if the
 Notifying Sponsor is CGML, all references to the Joint Bookrunners shall be
 deemed to be references to the Joint Bookrunners other than CGMEL); 

	
 

	
 

	
 

	
 

	
 

	
(C) 

	
in respect of the
 Notifying Sponsor (and, if the Notifying Sponsor is CGML, CGMEL), the
 Notifying Sponsor shall (and, if the Notifying Sponsor is CGML, CGMEL) have
 no claim against any other party to this Agreement and no other party to this
 Agreement shall have any claim against the Notifying Sponsor (and, if the
 Notifying Sponsor is CGML, CGMEL), in each case for fees, costs, damages,
 compensation or otherwise in respect of such resignation except that:

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
such termination
 shall be without prejudice to any accrued rights or obligations under this
 Agreement; 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
the provisions of
 this clause 13.5 and clauses 1, 8, 9.2, 9.3, 10, 11, 12, 14, 15, 16, 17, 18
 and 19 shall remain in full force and effect, 

	
 

	
 

	
 

	
 

	
 

	
 

	
and in particular
 the Company shall pay the commission and fees (to HM Treasury) and the costs
 and expenses as are payable in such circumstances under and in accordance
 with clause 8.1 and 8.2; and

	
 

	
 

	
 

	
 

	
 

	
(D)

	
the Company shall
 consult with HM Treasury and with any Joint Sponsor that is not the Notifying
 Sponsor to determine whether a further sponsor (and, where the Notifying
 Sponsor is CGML, a further bookrunner) should be appointed in relation to the
 Placing and Open Offer, Acquisition Share Admission and/or the publication of
 the Circular, as appropriate. 

	
 

	
 

	
 

	
 

	
13.6

	
HM Treasury and
 the Joint Sponsors shall have no right to terminate this Agreement on or
 after New Share Admission and the Joint Sponsors shall have no ability to
 exercise 

63

	
 

	
 

	
 

	
 

	
their rights under
 this clause 13 on or after Acquisition Share Admission, in each case without
 prejudice to any of the rights and remedies of HM Treasury and the Joint
 Sponsors in respect of any breach by the Company of its obligations under
 this Agreement.

	
 

	
 

	
 

	
13.7

	
In the event that
 this Agreement is terminated by HM Treasury pursuant to the provisions of
 this clause 13, no party to this Agreement will have any claim against any
 other party to this Agreement for fees, costs, damages, compensation or
 otherwise except that:

	
 

	
 

	
 

	
 

	
(A)

	
such termination
 shall be without prejudice to any accrued rights or obligations under this
 Agreement;

	
 

	
 

	
 

	
 

	
(B)

	
the Company shall
 pay the commissions, fees, costs and expenses as are payable in such
 circumstance under and in accordance with clause 8.1 and clause 8.2; and

	
 

	
 

	
 

	
 

	
(C)

	
the provisions of
 this clause 13.7 and clauses 1, 8, 9.2, 9.3, 9.11, 10, 11, 12, 14, 15, 16, 17,
 18 and 19 shall remain in full force and effect.

	
 

	
 

	
 

	
14.

	
EXCLUSIONS
 OF LIABILITY

	
 

	
 

	
 

	
14.1

	
Without prejudice
 to clause 14.2, no claim shall be made by the Company or any of its
 subsidiary undertakings, affiliates or associates or by HM Treasury, or any
 of the directors, officers or employees of any of them in any jurisdiction
 against any Indemnified Person to recover any Loss or Claim suffered or
 incurred by any person and which arises out of the carrying out by any
 Indemnified Person of obligations or services in connection with this
 Agreement, the Preference Share Subscription Agreement or any other
 agreements relating to the Placing and Open Offer or Preference Share
 Subscription, or in connection with the Placing and Open Offer or Preference
 Share Subscription itself except (otherwise than in connection with the
 matters referred to in clauses 11 or 12 or otherwise than as a result of a
 payment made or an obligation or liability to make payment arising under
 clauses 11 or 12) to the extent only that the Loss or Claim is determined in
 a final judgement by a court of competent jurisdiction, in the case of a HMT
 Indemnified Person, to have resulted from the fraud, bad faith or wilful
 default of such HMT Indemnified Person and, in the case of a UBS Indemnified Person,
 a Citi Indemnified Person, or a Merrill Lynch Indemnified Person is
 judicially determined, to have resulted from the fraud, bad faith, negligence
 or wilful default of that UBS Indemnified Person or Merrill Lynch Indemnified
 Person or Citi Indemnified Person.

	
 

	
 

	
 

	
14.2

	
Notwithstanding
 any rights or claims which the Company or any of its respective subsidiary
 undertakings, affiliates or associates or any of the directors, officers or
 employees of any of them may have or assert against the Joint Sponsors in
 connection with this Agreement, the Placing and Open Offer, or any of the
 other arrangements contemplated by the Issue Documents, or any of them, or
 this Agreement, no claim will be brought by the Company or by any of its
 respective subsidiary undertakings, affiliates or associates or any of the
 directors, officers or employees of any of them against any director or any
 other officer and/or employee of any Indemnified Person in respect of any
 conduct, action or omission by the individual concerned in connection with
 this

64

	
 

	
 

	
 

	
 

	
Agreement or the
 Placing and Open Offer, or any of the other arrangements contemplated by the
 Issue Documents, or any of them, or this Agreement.

	
 

	
 

	
 

	
15.

	
MISCELLANEOUS
 

	
 

	
 

	
 

	
15.1

	
For the avoidance
 of doubt, the Company acknowledges and agrees that it is responsible for its
 own due diligence carried out in relation to the Placing and Open Offer and
 the Preference Subscription and that neither HM Treasury nor any of the Joint
 Sponsors nor CGMEL shall be responsible to the Company or any Director for
 any due diligence of the Company in relation thereto unless it or they have
 agreed in writing to take specific responsibility for such due diligence. 

	
 

	
 

	
 

	
15.2

	
The Company agrees
 that for the purpose of the Placing and Open Offer (including for the
 purposes of seeking Placees for the New Shares) and the Preference Share
 Subscription and of obtaining New Share Admission, Acquisition Share
 Admission and Preference Admission, neither HM Treasury nor any of the Joint
 Sponsors or CGMEL shall be responsible for the provision of or obtaining
 advice as to the requirements of any applicable laws or regulations of any
 jurisdictions nor shall any such person be responsible where it or the
 Company has acted in the absence of such advice or in reliance on any advice
 obtained by the Company in respect thereof. 

	
 

	
 

	
 

	
15.3

	
For the avoidance
 of doubt, and without prejudice to the provisions of clauses 11, 12 and 14,
 any costs and expenses incurred by the Joint Sponsors in connection with the
 arrangements contemplated by this Agreement that do not fall to be paid by
 the Company pursuant to clause 8, shall be payable by the Joint Sponsors in
 such proportions as they may agree, failing which shall be payable as to one
 third by each Joint Sponsor. 

	
 

	
 

	
 

	
16.

	
GENERAL
 

	
 

	
 

	
 

	
16.1

	
Any liability to
 any party under this Agreement may in whole or in part be released,
 compounded or compromised and time or indulgence may be given by any party in
 its absolute discretion as regards any other person under such liability without
 in any way prejudicing or affecting the first party’s rights against such
 other person under the same or a similar liability, whether joint and several
 or otherwise. For the avoidance of doubt, any reference in this Agreement to
 the agreement or consent of, or any notice or waiver by, HM Treasury or the
 Joint Sponsors shall be construed as the agreement or consent of, or any
 notice or waiver by (as the case may be), HM Treasury and each of the Joint
 Sponsors, except where expressly provided to the contrary. 

	
 

	
 

	
 

	
16.2

	
No failure of any
 party to exercise, and no delay by it in exercising, any right, power or
 remedy in connection with this Agreement will operate as a waiver thereof,
 nor will any single or partial exercise of any such right preclude any other
 or further exercise of such right or the exercise of any other right. The
 rights provided in this Agreement are cumulative and not exclusive of any
 other rights (whether provided by law or otherwise). Any express waiver of
 any breach of this Agreement shall not be deemed a waiver of any subsequent
 breach. 

	
 

	
 

	
 

	
16.3

	
Each of the
 parties hereto acknowledges that the Warranties given by the Company and the
 indemnity contained in clause 11 are, subject as provided in clause 16.12,
 given to 

65

	
 

	
 

	
 

	
 

	
HM Treasury, the
 Joint Sponsors and the Indemnified Persons (as the case may be) for
 themselves and not to them as agent of, trustee for or otherwise for the
 benefit of any other person including (without limitation) any person who may
 subscribe or purchase any of the New Shares.

	
 

	
 

	
 

	
16.4

	
Time shall be of
 the essence of this Agreement, both as regards any dates, times or periods
 mentioned and as regards any dates, times or periods which may be substituted
 for them in accordance with this Agreement or by agreement in writing between
 the parties. 

	
 

	
 

	
 

	
16.5

	
This Agreement may
 be entered into in any number of counterparts and by the parties to it on
 separate counterparts, each of which when so executed and delivered shall be
 an original, but all the counterparts shall together constitute one and the
 same instrument. 

	
 

	
 

	
 

	
16.6

	
This Agreement,
 together with the Preference Share Subscription Agreement (in the case of the
 Company and HM Treasury) and together with the Engagement Letters (in the
 case of the Company, the Joint Sponsors and CGMEL) constitute the whole
 agreement and understanding between the parties in relation to the Placing
 and Open Offer, New Share Admission, Acquisition Share Admission and the
 publication of the Circular. 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 Placing
 and Open Offer, New Share Admission, Acquisition Share Admission or the
 publication of the Circular 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. In
 the event of any conflict between the terms of the Engagement Letters and
 this Agreement, this Agreement shall (as between the parties to the
 Engagement Letters) prevail. 

	
 

	
 

	
 

	
16.7

	
No variation of
 this Agreement shall be effective unless in writing and signed by or on
 behalf of each of the parties. 

	
 

	
 

	
 

	
16.8

	
At any time after
 the date of this Agreement, the Company and the Joint Sponsors and CGMEL
 shall, and shall use all reasonable endeavours to procure that any necessary
 third party shall, at the cost of that party execute such documents and do such
 acts and things as the party may reasonably require for the purpose of giving
 full effect to all the provisions of this Agreement by which it is bound. 

	
 

	
 

	
 

	
16.9

	
If any provision
 in this Agreement shall be held to be illegal, invalid or unenforceable, in
 whole or in part, under any enactment or rule of law, such provision or part
 shall to that extent be deemed not to form part of this Agreement but the
 legality, validity and enforceability of the remainder of this Agreement
 shall not be affected. 

	
 

	
 

	
 

	
16.10

	
All payments by
 the Company under this Agreement shall be paid without set-off or
 counterclaim, and free and clear of and without deduction or withholding for
 or on account of Tax, unless required by law. If any Tax is required by law
 to be deducted or withheld from or in connection with any such payment, the
 Company will: 

	
 

	
 

	
 

	
 

	
(A)

	
promptly upon
 becoming aware thereof, notify HM Treasury and the Joint Sponsors thereof; 

66

	
 

	
 

	
 

	
 

	
(B)

	
make that
 deduction or withholding and any payment of Tax required in connection with
 that deduction or withholding within the time allowed and in the minimum
 amount required by law; 

	
 

	
 

	
 

	
 

	
(C)

	
deliver to the
 payee such receipts, statements or other documents as the payee may
 reasonably request by way of evidence that the deduction or withholding has
 been made and any appropriate payment of Tax made to the relevant Tax
 Authority; and 

	
 

	
 

	
 

	
 

	
(D)

	
increase the
 amount payable so that the amount received by the payee (after such deduction
 or withholding, including for the avoidance of doubt any additional deduction
 or withholding required as a result of such increase) is equal to the amount
 which the payee would have received if no such deduction or withholding had
 been made. 

	
 

	
 

	
 

	
16.11

	
If the Company
 makes an increased payment to HM Treasury, any Joint Sponsor or any other
 Indemnified Person in accordance with clause 8.7 or 16.10 and HM Treasury,
 the relevant Joint Sponsor or such other Indemnified Person (as the case may
 be) determines in good faith that it has obtained, utilised and retained a
 relief from Tax or a refund of Tax which is attributable to such increased
 payment made by the Company, then HM Treasury, the relevant Joint Sponsor or
 such other Indemnified Person (as the case may be) shall reimburse to the
 Company as soon as reasonably practicable an amount equal to such proportion
 of the Tax so saved or refunded as will leave HM Treasury, the relevant Joint
 Sponsor or the relevant other Indemnified Person (as the case may be), after
 such reimbursement, in the same after-Tax position (having regard to the time
 value of money) that it would have been in if the circumstances giving rise
 to such additional payment had not arisen. For the avoidance of doubt,
 nothing in this Agreement shall require HM Treasury, a Joint Sponsor or such
 other Indemnified Person to disclose any information in relation to its Tax
 affairs to the Company or any person acting for or on behalf of the Company. 

	
 

	
 

	
 

	
16.12

	
Each Indemnified
 Person shall have the right under the Contracts (Rights of Third Parties) Act
 1999 (which shall apply to this Agreement only to the extent provided in this
 clause 16.12) to enforce its rights against the Company under clause 11,
 clause 12, this clause 16 or clause 19.3, provided that HM Treasury will have
 the sole conduct of any action to enforce such rights on behalf of the HMT
 Indemnified Persons, UBS will have the sole conduct of any action to enforce
 such rights on behalf of the UBS Indemnified Persons, Merrill Lynch will have
 the sole conduct of any action to enforce such rights on behalf of the
 Merrill Lynch Indemnified Persons and Citi will have the sole conduct of any
 action to enforce such rights on behalf of the Citi Indemnified Persons.
 Except as provided above and as provided in clause 5.10, a person who is not
 a party to this Agreement has no right under the Contracts (Rights of Third
 Parties) Act 1999 to enforce any term of this Agreement. HM Treasury, the
 Joint Sponsors and the Company may agree to terminate this Agreement or vary
 any of its terms without the consent of any Indemnified Person or any other
 third party. Neither HM Treasury nor the Joint Sponsors will have any
 responsibility to any Indemnified Person under or as a result of this
 Agreement. 

67

	
 

	
 

	
 

	
17.

	
ASSIGNMENT
 OR NOVATION 

	
 

	
 

	
 

	
17.1

	
Subject to clause
 17.2, HM Treasury shall be permitted to novate its rights and obligations
 under this Agreement (including any obligation to acquire New Shares) to any
 entity which is wholly owned, directly or indirectly, by HM Treasury (a “Wholly Owned Entity”) and each of the
 Company, UBS, Merrill Lynch and Citi 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 on substantially the same
 terms as are contained in the pro forma
 novation agreement set out in Schedule 4 to this Agreement. 

	
 

	
 

	
 

	
17.2

	
In the event that
 HM Treasury novates its rights and obligations under this Agreement pursuant
 to clause 17.1, HM Treasury shall procure that, immediately prior to any such
 Wholly Owned Entity ceasing to be wholly-owned directly or indirectly by HM
 Treasury, such rights and obligations under this Agreement shall be novated
 to HM Treasury or any other Wholly Owned Entity. 

	
 

	
 

	
 

	
17.3

	
Subject to clause
 17.1, no party to this Agreement 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 each other party. 

	
 

	
 

	
 

	
18.

	
NOTICES
 

	
 

	
 

	
 

	
18.1

	
Any notice, claim,
 demand or other communication in connection with this Agreement shall be in
 writing and shall be sufficiently given or served if delivered or sent: 

	
 

	
 

	
 

	
 

	
 

	
(A)

	
in the case of the
 Company to: 

	
 

	
 

	
 

	
 

	
 

	
Lloyds TSB Group
 plc

 Henry Duncan House 

 129 George St 

 Edinburgh
Scotland EH2 4LH

	
 

	
 

	
 

	
 

	
 

	
Attention: Company
 Secretary

	
 

	
 

	
 

	
 

	
(B)

	
in the case of the
 Joint Sponsors and CGMEL to:

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
UBS Limited

 1 Finsbury Avenue,

 London, EC2M 2PP

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Fax: 020 7567 4127

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Attention: Equity
 Capital Markets Group

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
With a copy to
 Transactions Legal

68

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Fax: 020 7567 2364

	
 

	
 

	
 

	
 

	
 

	
 

	
and

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
Merrill Lynch
 International

 Merrill Lynch Financial Centre,

 2 King Edward Street,

 London EC1A 1HQ

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Fax: 020 7995 2516

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Attention: Equity
 Capital Markets

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
Citigroup Global
 Markets Limited

 Citigroup Centre

 Canada Square

 Canary Wharf

 London E14 5LB

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Fax: 020 7986 1103

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Attention: ECM
 Syndicate

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

	
Citigroup Global
 Markets U.K. Equity Limited

 Citigroup Centre

 Canada Square

 Canary Wharf

 London E14 5LB

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Fax: 020 7986 1103

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Attention: ECM
 Syndicate

	
 

	
 

	
 

	
 

	
 

	
 

	
and

	
 

	
 

	
 

	
 

	
 

	
 

	
(C)

	
in the case of HM
 Treasury to:

	
 

	
 

	
 

	
 

	
 

	
 

	
Treasury Solicitor

 1 Horse Guards Road

 London SW1A 2HQ

	
 

	
 

	
 

	
 

	
 

	
 

	
Fax: 0207 270 4844

	
 

	
 

	
 

	
 

	
 

	
Attention: Nikhil
 Rathi (team leader, financial stability)

	
 

	
 

	
 

	
18.2

	
Any such notice or
 other communication shall be delivered by hand or sent by fax or pre-paid
 first class post. In the absence of evidence of earlier receipt, a notice or
 other communication is deemed given: (i) if delivered by hand, when left at
 the address referred to in clause 18.1; (ii) if sent by fax, when
 confirmation of its transmission has 

69

	
 

	
 

	
 

	
 

	
been recorded on
 the sender’s fax machine; and (iii) if sent by post, 48 hours from the time
 of posting.

	
 

	
 

	
 

	
18.3

	
Any notice given
 by HM Treasury or by a Joint Sponsor or CGMEL under clause 13.1 or 13.2 may
 also be given to the Company’s representative referred to in clause 18.1 or
 to any Director by any director or other authorised representative of HM
 Treasury or the Joint Sponsors or CGMEL either personally or by telephone (to
 be confirmed immediately in writing) and shall have immediate effect. 

	
 

	
 

	
 

	
18.4

	
Any party may
 notify the other party to this Agreement of a change of its name, relevant
 addressee, address or fax number for the purposes of clause 18.1 provided
 that such notification shall only be effective on: 

	
 

	
 

	
 

	
 

	
(A)

	
the date specified
 in the notification as the date on which the change is to take place; or 

	
 

	
 

	
 

	
 

	
(B)

	
if no date is
 specified or the date specified is less than five Business Days after the
 date on which notice is given, the date falling five Business Days after
 notice of any such change has been given. 

	
 

	
 

	
 

	
19.

	
GOVERNING
 LAW AND SUBMISSION TO JURISDICTION 

	
 

	
 

	
 

	
19.1

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

	
 

	
 

	
 

	
19.2

	
Subject to clause
 19.3, the courts of England have exclusive jurisdiction to hear and decide
 any suit, action or proceedings, and to settle any disputes (including claims
 for set-off and counterclaims), which may arise out of or in connection with
 this Agreement (respectively, “Proceedings”
 and “Disputes”) and, for these
 purposes, the Company and the Joint Sponsors and CGMEL irrevocably submit to
 the jurisdiction of the courts of England. 

	
 

	
 

	
 

	
19.3

	
Notwithstanding
 the provisions of clause 19.2, in the event that any Indemnified Person
 becomes subject to proceedings brought by a third party (the “Foreign Proceedings”) in the courts of
 any country other than England (including, without prejudice to the
 generality of the foregoing, in any court of competent jurisdiction in the
 United States) (the “Foreign Jurisdiction”),
 such Indemnified Person shall be entitled, without objection by the Company,
 to take such steps as are available in the Foreign Jurisdiction, in the
 circumstances of the Foreign Proceedings, including (if reasonably necessary)
 the issuing of separate proceedings, to ensure that any issues between any
 such Indemnified Person and the Company are determined in the Foreign
 Jurisdiction as part of, or as closely connected (as the procedure of the
 Foreign Jurisdiction will permit) with, the Foreign Proceedings and the
 Company hereby submits to the jurisdiction of the Foreign Jurisdiction for
 this purpose. 

	
 

	
 

	
 

	
19.4

	
The Company and
 the Joint Sponsors and CGMEL irrevocably waive any objection to the
 jurisdiction of any courts referred to in this clause 19. 

	
 

	
 

	
 

	
19.5

	
The Company and
 the Joint Sponsors and CGMEL irrevocably agree that a judgment and/or order
 of any court referred to in this clause 19 based on any matter arising out of
 

70

	
 

	
 

	
 

	
 

	
or in connection
 with this Agreement (including but not limited to the enforcement of any
 indemnity) shall be conclusive and binding on it and may be enforced against
 it in any other jurisdiction, whether or not (subject to due process having
 been served on it) it participates in the relevant proceedings.

	
 

	
 

	
 

	
19.6

	
The Company agrees
 to appoint an agent for service of process in any Foreign Jurisdiction other
 than England in which any other party is subject to legal suit, action or
 proceedings based on or arising under this Agreement within 14 days of
 receiving written notice of such legal suit, action or proceedings and the
 request to appoint such agent for service. In the event that the Company does
 not appoint such an agent within 14 days of the notice requesting it to so,
 such other party may appoint a commercial agent for service for the Company
 on the Company’s behalf and at the Company’s expense and the Company agrees
 that subject to being notified of such appointment in writing, service upon
 such commercial agent will constitute service upon the Company.

	
 

	
 

	
 

	
19.7

	
The Company
 irrevocably appoints Lloyds TSB Bank plc of 25 Gresham Street, London EC2V
 7HN to be its agent for the receipt of Service Documents. It agrees that any
 Service Document may be effectively served on it in connection with
 Proceedings in England and Wales by service on its agent effected in any
 manner permitted by the Civil Procedure Rules. 

	
 

	
 

	
 

	
 

	
“Service Document” means a claim form,
 application notice, order, judgment or other document relating to any
 Proceedings.

	
 

	
 

	
 

	
19.8

	
If the agent at
 any time ceases for any reason to act as such, the Company shall appoint a
 replacement agent having an address for service in England or Wales and shall
 notify HM Treasury and the Joint Sponsors of the name and address of the replacement
 agent. Failing such appointment and notification, HM Treasury and the Joint
 Sponsors shall be entitled by notice to the Company to appoint a replacement
 agent to act on behalf of the Company. The provisions of this clause applying
 to service on an agent apply equally to service on a replacement agent. 

	
 

	
 

	
 

	
19.9 

	
Process by which
 any Proceedings are begun in England may be served on a party by being
 delivered in accordance with clause 18. Nothing contained in this clause 19.9
 affects the right to serve process in another manner permitted by law.

SCHEDULE 1

CERTIFICATES TO BE DELIVERED

Part A

Certificate to be delivered pursuant to clause 10.7 prior to and 

with effect immediately before New Share Admission

[Company Letterhead]

	
 

	
 

	
To:

	
The Commissioners
 of Her Majesty’s Treasury

	
 

	
1 Horse Guards Road

	
 

	
London SW1A 2HQ

	
 

	
 

	
 

	
Attention of:
 Nikhil Rathi

	
 

	
 

	
 

	
UBS Limited

	
 

	
1 Finsbury Avenue,
 

	
 

	
London, EC2M 2PP 

	
 

	
 

	
 

	
Attention of:
 Equity Capital Markets Group

	
 

	
 

	
 

	
Merrill Lynch
 International

	
 

	
Merrill Lynch
 Financial Centre,

	
 

	
2 King Edward
 Street, 

	
 

	
London EC1A 1HQ 

	
 

	
 

	
 

	
Attention of:
 Equity Capital Markets Group

	
 

	
 

	
 

	
Citigroup Global
 Markets Limited

	
 

	
Citigroup Centre

	
 

	
Canada Square

	
 

	
Canary Wharf

	
 

	
London E14 5LB 

	
 

	
 

	
 

	
Attention of:
 Equity Capital Markets Group

	
 

	
 

	
 

	
Citigroup Global
 Markets U.K. Equity Limited

	
 

	
Citigroup Centre

	
 

	
Canada Square

	
 

	
Canary Wharf

	
 

	
London E14 5LB

	
 

	
 

	
 

	
Attention of:
 Equity Capital Markets Group

[date]

Dear Sirs

Proposed Placing and
Open Offer of 2,596,653,203 Ordinary Shares of 25 pence each (the “Placing and
Open Offer”)

Further to the placing and open offer agreement between us effective as
of 13 October 2008 (the “Agreement”), we confirm that:

72

	
 

	
 

	
(a)

	
the FSA has agreed
 to admit the New Shares and the Preference Shares to the Official List
 subject only to the making of an announcement in accordance with paragraph
 3.2.7G of the Listing Rules;

	
 

	
 

	
(b)

	
the LSE has agreed
 to admit the New Shares and the Preference Shares to trading on the LSE
 subject only to the making of an announcement in accordance with paragraph
 2.1 of the Admission and Disclosure Standards;

	
 

	
 

	
(c)

	
it has not come to
 the notice of any Director that there is any fact or circumstance which
 constitutes a breach of any of the Warranties given under the Agreement or
 which has caused or would or might cause any of the Warranties given pursuant
 to the Agreement to become untrue, inaccurate or misleading by reference to
 the facts or circumstances existing at 8.00 a.m. on [●];

	
 

	
 

	
(d)

	
it has not come to
 the notice of any Director that a Material Adverse Effect has occurred;

	
 

	
 

	
(e)

	
it has not come to
 the notice of any Director that any other event has occurred that would
 entitle HM Treasury to terminate the Agreement;

	
 

	
 

	
(f)

	
the Resolutions
 have been passed without amendment at the GM;

	
 

	
 

	
(g)

	
it has not come to
 the notice of any Director that the Company is in breach of any of its
 obligations under the Agreement; and

	
 

	
 

	
(h)

	
insofar as the
 Directors are aware (subject only to the giving of this letter and excluding
 any conditions set out in clause 2.1 of the Agreement, the satisfaction of
 which has been waived by HM Treasury pursuant to clause 2.5 of the Agreement
 or by the Company pursuant to clause 2.6 of the Agreement, or which is
 treated as waived pursuant to clause 2.7 of the Agreement) the conditions set
 out in clause 2.1 of the Agreement (other than conditions 2.1(BB) and
 2.1(DD)) have all been fulfilled.

For the purposes of this letter, where in a representation, warranty or
undertaking there is an express or implied reference to the “date of this
Agreement”, that reference is to be construed as a reference to “immediately
prior to New Share Admission”.

Yours faithfully

Director

for and on behalf of

Lloyds TSB Group PLC

Part B

Certificate to be delivered pursuant to clause 10.7 prior to and with effect 

immediately before the issue of any Supplementary Prospectus 

or Supplementary Preference Prospectus and at each Time of Sale, if any

	
 

	
 

	
To:

	
The Commissioners
 of Her Majesty’s Treasury

	
 

	
1 Horse Guards
 Road

	
 

	
London SW1A 2HQ

	
 

	
 

	
 

	
Attention of:
 Nikhil Rathi

	
 

	
 

	
 

	
UBS Limited

	
 

	
1 Finsbury Avenue,
 

	
 

	
London, EC2M 2PP

	
 

	
 

	
 

	
Attention of: [●]

	
 

	
 

	
 

	
Merrill Lynch
 International

	
 

	
Merrill Lynch
 Financial Centre,

	
 

	
2 King Edward
 Street, 

	
 

	
London EC1A 1HQ

	
 

	
 

	
 

	
Attention of: [●]

	
 

	
 

	
 

	
Citigroup Global
 Markets Limited

	
 

	
Citigroup Centre

	
 

	
Canada Square

	
 

	
Canary Wharf

	
 

	
London E14 5LB

	
 

	
 

	
 

	
Attention of:
 Equity Capital Markets Group

	
 

	
 

	
 

	
Citigroup Global
 Markets U.K. Equity Limited

	
 

	
Citigroup Centre

	
 

	
Canada Square

	
 

	
Canary Wharf

	
 

	
London E14 5LB

	
 

	
 

	
 

	
Attention of:
 Equity Capital Markets Group

[date]

Dear Sirs

Proposed Placing and
Open Offer of up to 2,596,653,203 ordinary shares of 25 pence each (the
“Placing and Open Offer”)

Further to the placing and open offer agreement between us effective as
of 13 October 2008 (the “Agreement”), we confirm that:

	
 

	
 

	
(a)

	
it has not come to
 the notice of any Directors that there is any fact or circumstance which
 constitutes a breach of any of the Warranties given under the Agreement or
 which 

74

	
 

	
 

	
 

	
has caused or
 would or might cause a Warranty to become untrue, inaccurate or misleading by
 reference to the facts or circumstances existing at 8.00 a.m. on [●]; and

	
 

	
 

	
(b)

	
it has not come to
 the notice of any Director that the Company is in breach of any of its
 obligations under the Agreement;

	
 

	
 

	
(c)

	
it has not come to
 the notice of any Director that a Material Adverse Effect has occurred; and

	
 

	
 

	
(d)

	
it has not come to
 the notice of any Director that any other event has occurred that would
 entitle HM Treasury to terminate the Agreement.

For the purposes of this letter, where in a representation, warranty or
undertaking there is an express or implied reference to the “date of this
Agreement”, that reference is to be construed as a reference to “immediately
prior to [●]”.

Yours faithfully

Director

for and on behalf of

Lloyds TSB Group PLC

75

Part C

Certificate to be delivered pursuant to clause 10.7 prior to and 

with effect immediately before Acquisition Share Admission

[Company Letterhead]

	
 

	
 

	
To:

	
UBS Limited

	
 

	
1 Finsbury Avenue,
 

	
 

	
London, EC2M 2PP 

	
 

	
 

	
 

	
Attention of:
 Equity Capital Markets Group

	
 

	
 

	
 

	
Merrill Lynch
 International

	
 

	
Merrill Lynch
 Financial Centre,

	
 

	
2 King Edward
 Street, 

	
 

	
London EC1A 1HQ 

	
 

	
 

	
 

	
Attention of:
 Equity Capital Markets Group

	
 

	
 

	
 

	
Citigroup Global
 Markets Limited

	
 

	
Citigroup Centre

	
 

	
Canada Square

	
 

	
Canary Wharf

	
 

	
London E14 5LB 

	
 

	
 

	
 

	
Attention of:
 Equity Capital Markets Group

[date]

Dear Sirs

Further to the placing and open offer agreement between us and others
effective as of 13 October 2008 (the “Agreement”), we confirm that:

	
 

	
 

	
(a)

	
the FSA has agreed
 to admit the Acquisition Shares to the Official List subject only to the
 making of an announcement in accordance with paragraph 3.2.7G of the Listing
 Rules;

	
 

	
 

	
(b)

	
the LSE has agreed
 to admit the Acquisition Shares to trading on the LSE subject only to the
 making of an announcement in accordance with paragraph 2.1 of the Admission
 and Disclosure Standards;

	
 

	
 

	
(c)

	
it has not come to
 the notice of any Director that there is any fact or circumstance which
 constitutes a breach of any of the Warranties given under the Agreement or
 which has caused or would or might cause any of the Warranties given pursuant
 to the Agreement to become untrue, inaccurate or misleading by reference to
 the facts or circumstances existing at 8.00 a.m. on [●];

	
 

	
 

	
(d)

	
it has not come to
 the notice of any Director that a Material Adverse Effect has occurred;

76

	
 

	
 

	
(e)

	
it has not come to
 the notice of any Director that any other event has occurred that would
 entitle the Joint Sponsors to exercise their rights under clause 13.5 of the
 Agreement; and

	
 

	
 

	
(g)

	
it has not come to
 the notice of any Director that the Company is in breach of any of its
 obligations under the Agreement.

For the purposes of this letter, where in a representation, warranty or
undertaking there is an express or implied reference to the “date of this
Agreement”, that reference is to be construed as a reference to “immediately
prior to Acquisition Share Admission”.

Yours faithfully

Director

for and on behalf of

Lloyds TSB Group PLC

SCHEDULE 2

DOCUMENTS TO BE DELIVERED

PART I

Documents to be delivered prior to or on execution of this Agreement

The following documents are to be delivered by the Company to HM
Treasury and to the Joint Sponsors at or as soon as practical after execution of
this Agreement: 

	
 

	
 

	
1.

	
four certified
 copies of an extract of the minutes of a meeting of the Board (or of the duly
 authorised committee of such Board) approving and authorising, the execution
 of this Agreement and, the issue of the Press Announcement (and, if the said
 resolution is of such a committee, a certified copy of the resolution of the
 Board appointing such committee); and 

	
 

	
 

	
2.

	
four certified
 copies of the Press Announcement. 

78

PART II

Documents to be delivered on the
Circular Posting Date under clause 3.18

The following documents are to be delivered by the Company to the Joint
Sponsors and HM Treasury on the Circular Posting Date as referred to in clause
3.18: 

	
 

	
 

	
1.

	
four copies of the
 Circular bearing evidence of the formal approval of the FSA pursuant to the
 Listing Rules; 

	
 

	
 

	
2.

	
four original
 letters, in a form acceptable to the Joint Sponsors, acting reasonably, duly
 signed by the Company’s counsel in relation to paragraphs 8.4.12R and 8.4.13R
 of the UK Listing Rules and dated the Circular Posting Date; 

	
 

	
 

	
3.

	
four original
 letters, in a form acceptable to the Joint Sponsors, acting reasonably, duly
 signed by the Company in relation to paragraphs 8.4.12R and 8.4.13R of the UK
 Listing Rules and dated the Circular Posting Date; 

	
 

	
 

	
4.

	
four original
 letters, in a form acceptable to the Joint Sponsors, acting reasonably, duly
 signed by the Auditors in relation to paragraphs 8.4.12R(1) and 8.4.13R(3) of
 the UK Listing Rules and dated the Circular Posting Date; 

	
 

	
 

	
5.

	
four certified
 copies of letters in a form acceptable to the Joint Sponsors, acting
 reasonably, signed by each of the Directors authorising the publication of
 the Circular and accepting responsibility for the Circular and including a
 power of attorney in favour of each of the other Directors; 

	
 

	
 

	
6.

	
four certified
 copies of the Verification Materials prepared in connection with the Circular
 signed by or on behalf of each person to whom responsibility is therein
 assigned and copies of all evidence supporting answers in the notes; 

	
 

	
 

	
7.

	
four certified
 copies of the resolution of the Board of Directors (or of the duly authorised
 Committee of such Board) approving and authorising the issue of the Circular
 and the Form of Proxy (and if the said resolution is of such a Committee, a
 certified copy of the resolution of the Board of Directors appointing such
 Committee); 

	
 

	
 

	
8.

	
four original
 copies of the pro forma financial information report incorporated in the
 Circular duly signed by the Auditors and dated the Circular Posting Date; 

	
 

	
 

	
9.

	
four original
 copies of the report on the reconciliation of the historical financial
 information of HBOS duly signed by the Auditors and dated the Circular
 Posting Date; 

	
 

	
 

	
10.

	
four original
 copies of the PwC Working Capital Report relating to the Group and the
 Enlarged Group duly signed by the Auditors, in a form acceptable to the Joint
 Sponsors, acting reasonably, and dated the Circular Posting Date; 

	
 

	
 

	
11.

	
four certified
 copies of a memorandum to the Directors from Linklaters LLP in connection
 with the Placing and Open Offer explaining the nature of their
 responsibilities and obligations as directors of a listed company under the
 Listing Rules and DTRs, in a form acceptable to the Joint Sponsors, acting
 reasonably; 

79

	
 

	
 

	
12.

	
four original
 copies of the letter, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by the Auditors and dated the Circular Posting Date: 

	
 

	
 

	
(a)

	
providing comfort
 on there being no significant change in the financial and trading position (including
 indebtedness) of the Group since 30 June 2008; 

	
 

	
 

	
(b)

	
providing comfort
 on the proper and accurate extraction of financial information relating to
 the Group contained in the Circular; 

	
 

	
 

	
(c)

	
providing comfort
 on the financial reporting procedures of the Company and the Enlarged Group; 

	
 

	
 

	
(d)

	
providing comfort
 on UK taxation as contained in the Circular; 

	
 

	
 

	
(e)

	
giving consent to
 the inclusion in the Circular of their respective reports and letters in the
 form and context in which they are respectively included; 

	
 

	
 

	
13.

	
four original
 copies of the letter, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by the Company and dated the Circular Posting Date
 providing comfort on there being no significant change in the financial and
 trading position (including indebtedness) of the Group since 30 June 2008; 

	
 

	
 

	
14.

	
four original
 copies of the letter, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by HBOS and dated the Circular Posting Date providing
 comfort on there being no significant change in the financial and trading
 position (including indebtedness) of the HBOS Group since 30 June 2008; 

	
 

	
 

	
16.

	
four original
 copies of the KPMG Working Capital Report relating to the HBOS Group duly
 signed by KPMG, in a form acceptable to the Joint Sponsors, acting
 reasonably, and dated the Circular Posting Date; 

	
 

	
 

	
17.

	
four original
 copies of the letter, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by KPMG and dated the Circular Posting Date: 

	
 

	
 

	
(a)

	
providing comfort
 on there being no significant change in the financial and trading position
 (including indebtedness) of the HBOS Group since 30 June 2008; and 

	
 

	
 

	
(b)

	
confirming the
 proper and accurate extraction of financial information relating to the HBOS
 Group contained in the Circular; 

	
 

	
 

	
18.

	
four original
 copies of the letters, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by KPMG in relation to paragraphs 8.4.12R(1) and
 8.4.13R(3) of the UK Listing Rules and dated the Circular Posting Date 

	
 

	
 

	
18.

	
four certified
 copies of any press release relating to the posting of the Circular; 

	
 

	
 

	
19.

	
four copies of the
 Form of Proxy; and 

	
 

	
 

	
20.

	
such other
 documents as may be reasonably required by HM Treasury and/or the Joint
 Sponsors. 

PART III

Documents to be delivered on the Prospectus Posting Date under clause 3.19

The following documents are to be delivered by the Company to the Joint
Sponsors and HM Treasury on the Prospectus Posting Date as referred to in
clause 3.19 and the date of publication of each Supplementary Prospectus: 

	
 

	
 

	
1.

	
four certified
 copies of (i) the signed application for admission to the Official List of
 the New Shares, and (ii) the signed application for admission to the Official
 List of the Acquisition Shares; 

	
 

	
 

	
2.

	
four certified
 copies of (i) the signed application for admission to trading of the New
 Shares on the London Stock Exchange, and (ii) the signed application for
 admission to trading of the Acquisition Shares on the London Stock Exchange; 

	
 

	
 

	
3.

	
four certified
 copies of the passporting confirmation for the Prospectus issued by the
 competent authority in the Relevant Member State into which the Prospectus is
 being passported; 

	
 

	
 

	
4.

	
four certified
 copies of the completed ‘Form A’, to be submitted to the FSA in accordance
 with paragraph 3.1.1(1) of the Prospectus Rules for approval of a prospectus
 in accordance with Part VI of the FSMA; 

	
 

	
 

	
5.

	
four certified
 copies of the Prospectus bearing evidence of the formal approval of the FSA
 pursuant to the Listing Rules; 

	
 

	
 

	
6.

	
four original
 letters, in a form acceptable to the Joint Sponsors, acting reasonably, duly
 signed by the Company’s counsel in relation to paragraph 8.3.4R of the UK
 Listing Rules and dated the Prospectus Posting Date; 

	
 

	
 

	
7.

	
four original
 letters, in a form acceptable to the Joint Sponsors, acting reasonably, duly
 signed by the Company’s counsel in relation to paragraphs 8.4.8R and 8.4.9R
 of the UK Listing Rules and dated the Prospectus Posting Date; 

	
 

	
 

	
8.

	
four original
 letters, in a form acceptable to the Joint Sponsors, acting reasonably, duly
 signed by the Company in relation to paragraphs 8.4.8R and 8.4.9R of the UK
 Listing Rules and dated the Prospectus Posting Date; 

	
 

	
 

	
9.

	
four original letters,
 in a form acceptable to the Joint Sponsors, acting reasonably, duly signed by
 the Auditors in relation to paragraphs 8.4.8(1), 8.4.8(2) and 8.4.9(3) of the
 UK Listing Rules and dated the Prospectus Posting Date; 

	
 

	
 

	
10.

	
four original
 letters, in a form acceptable to the Joint Sponsors, acting reasonably,
 signed by each of the Directors authorising the publication of the
 Prospectus, accepting responsibility for information contained in the
 Prospectus and any Supplementary Prospectus and acknowledging their
 understanding of their responsibilities under the UK Listing Rules and the
 Disclosure Rules in accordance with paragraph 8.3.4R of the UK Listing Rules
 and dated the Prospectus Posting Date; 

81

	
 

	
 

	
 

	
11.

	
four certified
 copies of the Verification Materials prepared in connection with the
 Prospectus signed by or on behalf of each person to whom responsibility is
 therein assigned and copies of all evidence supporting answers in the notes; 

	
 

	
 

	
 

	
12.

	
four certified
 copies of the resolution of the Board of Directors (or of the duly authorised
 Committee of such Board) approving and authorising the issue of the
 Prospectus and the execution of the Subscription and Transfer Agreement and
 the Option Agreement (and if the said resolution is of such a Committee, a
 certified copy of the resolution of the Board of Directors appointing such
 Committee); 

	
 

	
 

	
 

	
13.

	
four original
 copies of any pro forma financial information report incorporated in the
 Prospectus, duly signed by the Auditors and dated the Prospectus Posting
 Date; 

	
 

	
 

	
 

	
14.

	
four certified
 copies of each of the documents stated in the Prospectus as being available
 for inspection and incorporated by reference into the Prospectus; 

	
 

	
 

	
 

	
15.

	
four original
 copies of the letter, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by the Auditors and dated the Prospectus Posting
 Date: 

	
 

	
 

	
 

	
 

	
(a)

	
providing comfort
 on there being no significant change in the financial and trading position
 (including indebtedness) of the Group since 30 June 2008; 

	
 

	
 

	
 

	
 

	
(b)

	
providing comfort
 on the proper and accurate extraction of financial information relating to
 the Group contained in the Prospectus; 

	
 

	
 

	
 

	
 

	
(c)

	
providing comfort
 on the financial reporting procedures of the Company and the Enlarged Group; 

	
 

	
 

	
 

	
 

	
(d)

	
providing comfort
 on UK taxation information as contained in the Prospectus; 

	
 

	
 

	
 

	
 

	
(e)

	
providing comfort
 on the capitalisation and indebtedness statement included in the Prospectus; 

	
 

	
 

	
 

	
 

	
(f)

	
providing comfort
 on omission of information from the Prospectus; and 

	
 

	
 

	
 

	
 

	
(g)

	
giving consent to
 the inclusion in the Prospectus of their respective reports and letters in
 the form and context in which they are respectively included; 

	
 

	
 

	
 

	
16.

	
four original
 copies of letters, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by the Auditors and dated the same date as the
 Prospectus on the matters contemplated in the U.S. Statement of Auditing
 Standards No. 72 (and including four original copies of a “SAS 72
 look-a-like” letter) with respect to the financial statements and certain
 financial information relating to the Group contained, or incorporated by
 reference, in the Prospectus; 

	
 

	
 

	
 

	
17.

	
four original
 copies of letters, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by KPMG LLP and dated the same date as the Prospectus
 on the matters contemplated in the U.S. Statement of Auditing Standards No.
 72 (and including four original copies of a “SAS 72 look-a-like” letter) with
 respect to the financial 

82

	
 

	
 

	
 

	
 

	
statements and
 certain financial information relating to the HBOS Group contained, or
 incorporated by reference, in the Prospectus; 

	
 

	
 

	
 

	
18.

	
four original
 copies of the letter, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by the Company and dated the Prospectus Posting Date
 providing comfort on there being no significant change in the financial and
 trading position (including indebtedness) of the Group since 30 June 2008; 

	
 

	
 

	
 

	
19.

	
four original
 copies of a rule 10b-5 disclosure letter and no-registration, tax disclosure
 and “investment company” opinions from Linklaters LLP (as U.S. counsel for
 the Company), a rule 10b-5 disclosure letter and no-registration opinion from
 Freshfields Bruckhaus Deringer LLP (as US Counsel for the Joint Sponsors) and
 a rule 10b-5 disclosure letter from Allen & Overy LLP (as US counsel for
 HBOS), in each case, in a form acceptable to the Joint Sponsors and to HM
 Treasury, acting reasonably; 

	
 

	
 

	
 

	
20.

	
four original
 copies of each of the Subscription and Transfer Agreement and the Option
 Agreement, duly executed by each of the Company and JerseyCo; 

	
 

	
 

	
 

	
21.

	
four certified
 copies of a memorandum to the Directors from Linklaters LLP in connection
 with the Placing and Open Offer explaining the nature of their
 responsibilities and obligations as directors of a listed company under the
 Listing Rules and DTRs, in a form acceptable to the Joint Sponsors, acting
 reasonably; 

	
 

	
 

	
 

	
22.

	
four original
 copies of the PwC Working Capital Report relating to the Group and the
 Enlarged Group duly signed by the Auditors, in a form acceptable to the Joint
 Sponsors, acting reasonably, and dated the Prospectus Posting Date; 

	
 

	
 

	
 

	
23.

	
four original
 copies of the KPMG Working Capital Report relating to the HBOS Group duly signed
 by KPMG, in a form acceptable to the Joint Sponsors, acting reasonably, and
 dated the Prospectus Posting Date; 

	
 

	
 

	
 

	
24.

	
four original
 copies of the letter, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by KPMG and dated the Prospectus Posting Date: 

	
 

	
 

	
 

	
 

	
(a)

	
providing comfort
 on there being no significant change in the financial and trading position
 (including indebtedness) of the HBOS Group since 30 June 2008; and 

	
 

	
 

	
 

	
 

	
(b)

	
confirming the
 proper and accurate extraction of financial information relating to the HBOS
 Group contained in the Prospectus; 

	
 

	
 

	
 

	
25.

	
four original
 copies of letters, in a form acceptable to the Joint Sponsors, acting
 reasonably, duly signed by KPMG in relation to paragraphs 8.4.8(1), 8.4.8(2)
 and 8.4.9(3) of the UK Listing Rules and dated the Prospectus Posting Date 

	
 

	
 

	
 

	
26.

	
four certified
 copies of the resolution of the board of directors of JerseyCo approving and
 authorising the execution of the Subscription and Transfer Agreements and the
 Option Agreement; 

83

	
 

	
 

	
27.

	
a letter from the
 Auditors addressed to the Company, in a form acceptable to HM Treasury and
 the Joint Sponsors, acting reasonably, confirming the effect on the
 distributable reserves of the Company of implementing the Placing and Open
 Offer, such letter to expressly state that a copy of such letter may be
 provided to HM Treasury and to the Joint Sponsors on a no reliance basis; 

	
 

	
 

	
28.

	
four certified
 copies of the registrar’s agreement entered into by the Company with the
 Registrar in relation to the Placing and Open Offer; 

	
 

	
 

	
29.

	
four certified
 copies of the press release relating to the posting of the Prospectus; 

	
 

	
 

	
30.

	
four certified
 copies of the Memorandum and Articles of Association of the Company; and 

	
 

	
 

	
31.

	
four certified
 copies of the Memorandum and Articles of Association of JerseyCo; 

	
 

	
 

	
32.

	
four original
 copies of a written Jersey opinion, in a form acceptable to the Joint
 Sponsors, acting reasonably, from Jersey counsel to the Company; 

	
 

	
 

	
33.

	
four certified copies
 of any power of attorney pursuant to which any Director signed any of the
 documents mentioned above in a form acceptable to the Joint Sponsors, acting
 reasonably; and 

	
 

	
 

	
34.

	
such other
 documents as may be reasonably required by HM Treasury and/or the Joint
 Sponsors. 

84

PART IV

Documents to be delivered immediately prior to New Share Admission and at each
Time of Sale, if any 

The following documents are to be delivered by the Company to HM
Treasury and to the Joint Sponsors not later than 5.00 p.m. on the Dealing Day immediately
preceding the proposed date of New Share Admission or Time of Sale, if any
(where indicated): 

	
 

	
 

	
1.

	
four certified
 copies of the Resolutions; 

	
 

	
 

	
2.

	
four certified
 copies of the resolution of the Board (or of the duly authorised committee of
 the Board) provisionally allotting the New Shares (and, if the said
 resolution is of such a committee, a certified copy of the resolution of the
 Board appointing such committee (if not previously delivered to the HM
 Treasury and the Joint Sponsors)); 

	
 

	
 

	
3.

	
four certified
 copies of the resolution of the Board of Directors (or of the duly authorised
 committee of the Board) allotting the Preference Shares on the terms of the
 Preference Share Subscription Agreement (and, if the said resolution is of
 such a committee, a certified copy of the resolution of the Board appointing
 such committee (if not previously delivered to HM Treasury and to the Joint
 Sponsors)); 

	
 

	
 

	
4.

	
four original
 copies of a letter addressed to HM Treasury and to the Joint Sponsors in the
 form set out in Part A of Schedule 1 dated as of the date of New Share
 Admission (such letter also to be delivered at each Time of Sale, if
 any); 

	
 

	
 

	
5.

	
four original
 copies of updating versions of the letters referred to in paragraphs 9, 15,
 16, 17, 18, 19, 20, 25 and 26 of Part III of this Schedule 2 to the extent in
 each case such letters related to the Prospectus and written opinions in the
 form previously provided to HM Treasury and the Joint Sponsors from
 Linklaters LLP, Freshfields Bruckhaus Deringer LLP, Allen & Overy LLP,
 Scottish counsel to the Company and Jersey counsel to the Company, all dated
 the date of New Share Admission (and, in the case of the items referred to in
 paragraph 19, also referencing each Time of Sale, if any); 

	
 

	
 

	
6.

	
as of each Time of
 Sale, if any, four original copies of “bring down” letters with respect to
 the matters referred to in paragraphs 15, 16 and 17 of Part III of this
 Schedule 2; and 

	
 

	
 

	
7.

	
such other
 documents as may be reasonably required by HM Treasury and/or the Joint
 Sponsors. 

	
 

	
 

	
 

	
Note: It is agreed that, other than in respect
 of the Linklaters LLP, Freshfields Bruckhaus Deringer LLP and Allen & Overy LLP opinions, the parties will
 discuss (acting reasonably) the extent, to which it is necessary and customary
 to update all of the documents referred to in paragraph 5.

85

PART V 

Documents to be delivered immediately prior to Acquisition Share Admission

The following documents are to be delivered by the Company to the Joint
Sponsors not later than 5.00 p.m. on the Dealing Day immediately preceding the
proposed date of Acquisition Share Admission: 

	
 

	
 

	
1.

	
three certified
 copies of the resolution of the Board (or of the duly authorised committee of
 the Board) allotting the Acquisition Shares (and, if the said resolution is
 of such a committee, a certified copy of the resolution of the Board
 appointing such committee (if not previously delivered to the Joint
 Sponsors)); 

	
 

	
 

	
2.

	
three original
 copies of a letter addressed to the Joint Sponsors in the form set out in
 Part C of Schedule 1 dated as of the date of Acquisition Share Admission; 

	
 

	
 

	
3.

	
three original
 copies of updating versions of the letters referred to in paragraphs 9, 15,
 16, 17, 18, 20, 25 and 26 of Part III of this Schedule 2 to the extent in
 each case such letters related to the Prospectus and written opinions in the
 form previously provided to HM Treasury and the Joint Sponsors from
 Linklaters LLP, Freshfields Bruckhaus Deringer LLP, Allen & Overy LLP,
 Scottish counsel to the Company and Jersey counsel to the Company, all dated
 the date of Acquisition Share Admission; and 

	
 

	
 

	
4.

	
such other
 documents as may be reasonably required by the Joint Sponsors. 

86

PART VI 

Documents to be delivered on Preference Admission

The following documents are to be delivered by the Company to HM
Treasury not later than 5.00 pm on the Dealing Day immediately preceding the
proposed date of Preference Admission: 

	
 

	
 

	
1.

	
a certified copy
 of the signed application for admission to the Official List of the
 Preference Shares (certified by a Director or the Secretary of the
 Company); 

	
 

	
 

	
2.

	
a certified copy
 of the signed application for admission to trading of the Preference Shares
 issued by the London Stock Exchange (certified by a Director or the Secretary
 of the Company); 

	
 

	
 

	
3.

	
a certified copy
 of the CREST enablement letter confirming that the conditions for admission
 of the Preference Shares to CREST are satisfied (certified by a Director or
 the Secretary of the Company); 

	
 

	
 

	
4.

	
a copy of the
 Preference Prospectus and any Supplementary Preference Prospectus bearing
 evidence of the formal approval of the FSA pursuant to the Listing Rules; 

	
 

	
 

	
5.

	
a copy of the
 Preference Prospectus and any Supplementary Preference Prospectus signed by
 each of the Directors (or by their agents or attorneys); 

	
 

	
 

	
6.

	
two original
 letters in a form acceptable to HM Treasury, acting reasonably, signed by
 each of the Directors authorising the publication of the Preference
 Prospectus and any Supplementary Preference Prospectus; 

	
 

	
 

	
7.

	
the due diligence
 questionnaire prepared in connection with the Preference Prospectus; 

	
 

	
 

	
8.

	
a certified copy
 of the resolution of the Board of Directors (or of the duly authorised
 committee of such Board) approving and authorising the issue of the
 Preference Prospectus (and if the said resolution is of such a committee, a
 copy of the resolution of the Board of Directors appointing such committee)
 (in each case, certified by a Director or the Secretary of the Company); 

	
 

	
 

	
9.

	
a certified copy
 of any ordinary or special resolutions of the Company in general meeting
 authorising the Directors under section 80 of the Companies Act to allot the
 Preference Shares (certified by a Director or the Secretary of the Company); 

	
 

	
 

	
10. 

	
a certified copy
 of each of the documents stated in the Preference Prospectus as being
 available for inspection (certified by a Director or the Secretary of the
 Company); 

	
 

	
 

	
11. 

	
two written
 opinions in a form acceptable to HM Treasury, acting reasonably, one from
 Linklaters LLP (as English counsel for the Company) and one from Scottish
 counsel to the Company; and

	
 

	
 

	
12. 

	
such other
 documents as may be reasonably required by HM Treasury and/or the Joint
 Sponsors.

SCHEDULE 3

WARRANTIES

PART I

Representations, warranties and
undertakings given on the date of this Agreement

	
 

	
 

	
1.

	
Compliance
 

	
 

	
 

	
1.1

	
Each Group Company
 has been duly incorporated and is validly existing as a company with limited
 liability under the laws of the country of its incorporation with full
 corporate power and authority to own, lease and operate the properties which
 it owns, leases and operates and to own its other assets and carry on its
 business as presently carried on and as intended to be carried on as
 described in the Prospectus, when published. 

	
 

	
 

	
1.2

	
All licences,
 permissions, authorisations and consents which are material for carrying on
 the business of the Group have been obtained and are in full force and effect
 and, so far as the Company is aware, there are no circumstances which might
 lead to any of such licences, permissions, authorisations and consents being
 revoked, suspended, varied or refused renewal to an extent which would, or
 would be reasonably likely to, be (singly or in the aggregate) material in
 the context of the Placing and Open Offer, any acquisition of New Shares or subscription
 for the Preference Shares by HM Treasury, Ordinary Shareholders or Placees,
 Admission, Preference Admission or post-Admission dealing in the Ordinary
 Shares. 

	
 

	
 

	
1.3

	
All sums due in
 respect of the issued share capital of the Company at the date of this
 Agreement have been paid to and received by the Company. No owner or holder of any of the share
 capital of the Company shall, with effect from Admission, have any right, in
 his capacity as such, in relation to the Group other than as set out in the
 memorandum and articles of association of the Company. 

	
 

	
 

	
1.4

	
The Company is the
 beneficial owner free from all Adverse Interests of the shares it holds in
 each of its subsidiary undertakings. 

	
 

	
 

	
1.5

	
The Company and
 the Directors have at all times complied with the provisions of the Company’s
 memorandum and articles of association and the Companies Acts and, subject to
 the passing of the Resolutions, have or will have the right, power and
 authority under the memorandum and articles of association of the Company, or
 pursuant to resolution passed in general meeting, to enter into and perform
 this Agreement (including, without limitation, the power to pay commissions,
 fees, costs and expenses provided for in this Agreement) and the Preference
 Share Subscription Agreement, to make the Placing and Open Offer, to allot
 and issue the New Shares in certificated and uncertificated form and the
 Preference Shares in certificated form, to issue the Issue Documents in the
 manner proposed without any sanction or consent by members of the Company or
 any class of them and, subject to Admission and Preference Admission, there
 are no other consents, authorisations or approvals required by the Company in
 connection with the entering into and the performance of this Agreement, the
 Subscription and Transfer Agreement, the Option Agreement or the Preference
 Share Subscription Agreement and the actions referred to in this paragraph
 1.5 which have not been irrevocably and unconditionally obtained. The Company’s 

88

	
 

	
 

	
 

	
existing Ordinary
 Shares are participating securities in, and have not been suspended from,
 CREST.

	
 

	
 

	
1.6

	
The allotment and
 issue of the New Shares and the Preference Shares, the Placing and Open
 Offer, the issue and distribution of the Issue Documents and any other
 document by or on behalf of the Company in connection with Admission, the
 Placing and Open Offer or the allotment and issue of the Preference Shares
 will comply in all material respects with all agreements to which any Group
 Company is a party or by which any such Group Company is bound and will
 comply with: (a) all applicable laws and regulations of the United Kingdom
 (including, without limitation, the Companies Acts, FSMA, the Listing Rules,
 the Prospectus Rules, the DTRs and the Admission and Disclosure Standards)
 and all applicable United States laws and regulations and (in all material
 respects) with, all applicable laws and regulations of any relevant
 jurisdiction; (b) the memorandum and articles of association of the Company;
 and (c) when published, the Working Capital Report; and will not exceed or
 infringe any restrictions or the terms of any contract, indenture, security,
 obligation, commitment or arrangement by or binding upon the board of
 directors of any Group Company or their respective properties, revenues or
 assets or result in the implementation of any right of pre emption or any
 other material provision thereof, or result in the imposition or variation of
 any material rights or obligations of any Group Company. 

	
 

	
 

	
1.7

	
The statement set
 out in clause 2.1(M) is true and accurate and not misleading. 

	
 

	
 

	
1.8

	
The New Shares
 will, upon allotment, be free from all Adverse Interests and will rank pari
 passu in all respects with the existing issued shares in the issued share
 capital of the Company. 

	
 

	
 

	
1.9

	
The Preference
 Shares will, upon allotment be free from all Adverse Interests and will have
 the rights and be subject to the restrictions as set out in Schedule 1 of the
 Preference Share Subscription Agreement. 

	
 

	
 

	
1.10

	
The Company has complied
 in all material respects with the requirements of Euroclear and the
 Regulations. 

	
 

	
 

	
1.11

	
No member of the
 Group or any person acting on its behalf has taken, directly or indirectly,
 any action designed to or which has constituted or which might reasonably be
 expected to cause or result in stabilisation or manipulation of the price of
 any security of the Company. 

	
 

	
 

	
1.12

	
The Company has
 not paid or agreed to pay to any person any compensation for soliciting
 another to purchase any New Shares (except as contemplated in this
 Agreement). 

	
 

	
 

	
1.13

	
All information
 provided by the Company, its subsidiary undertakings or any of its or their
 officers or employees to HM Treasury and/or to the Joint Sponsors and/or the
 Auditors in connection with its or their due diligence enquiries or similar
 requests for information has been supplied in good faith and such information
 was when supplied, and remains, true and accurate in all material respects
 and no further information requested has been withheld, the absence of which
 might reasonably be considered to be material to such due diligence enquiries
 or requests for information. 

89

	
 

	
 

	
 

	
2.

	
Announcements
 

	
 

	
 

	
2.1

	
The Press
 Announcement does not contain any untrue statement of a material fact or omit
 to state a material fact necessary in order to make the statements therein,
 in light of the circumstances under which they were made, not misleading,
 provided that this warranty shall not cover information contained in the
 Press Announcement which is furnished in writing to the Company by the Joint
 Sponsors expressly for use therein; and all expressions of opinion,
 intention, belief or expectation of the Company or the Directors contained in
 the Press Announcement are truly and honestly held and made on reasonable grounds
 after due and careful enquiry. 

	
 

	
 

	
 

	
2.2

	
With respect to
 all Previous Announcements, all statements of fact contained therein were at
 the date of the relevant Previous Announcement and, save to the extent
 corrected, amended or supplemented in any document or announcement issued or
 made by or on behalf of the Company or any member of the Group subsequent
 thereto, remain true and accurate in all material respects and not misleading
 in any material respect and all estimates, expressions of opinion or intention
 or expectation of the Directors contained therein were made on reasonable
 grounds and were honestly held by the Directors and were fairly based and
 there were no facts known (or which could on reasonable enquiry have been
 known by the Directors) the omission of which would make any statement of
 fact or estimate or statement or expression of opinion, intention or
 expectation in any of the Previous Announcements misleading and all Previous
 Announcements complied with the memorandum and articles of association of the
 Company, the Listing Rules, the DTRs, the Prospectus Rules, the Companies
 Acts, FSMA, all applicable rules and requirements of the London Stock
 Exchange, the FSA all applicable US laws and regulations and (in all material
 respects) all other applicable requirements of statute, statutory regulation
 or any regulatory body. There is no
 existing profit forecast outstanding in respect of the Company, the Group
 taken as a whole, or any member thereof. 

	
 

	
 

	
 

	
3.

	
Accounts
 

	
 

	
 

	
 

	
3.1

	
The Accounts: 

	
 

	
 

	
 

	
 

	
(A)

	
have been prepared
 and audited in accordance and comply with IFRS, the Companies Acts and all
 applicable laws and regulations; 

	
 

	
 

	
 

	
 

	
(B)

	
give a true and
 fair view of the financial condition and of the state of affairs of the
 Company and the Group as at the end of each of the relevant financial periods
 (including the Accounts Date) and of the profit, loss, cash flow and changes
 in equity of the Company and the Group for such periods; and 

	
 

	
 

	
 

	
 

	
(C)

	
either made proper
 provision for, or, where appropriate, in accordance with IFRS, include a note
 in respect of all liabilities or commitments, whether actual, deferred,
 contingent or disputed, of the Group. 

	
 

	
 

	
 

	
3.2

	
The Interim
 Accounts: 

	
 

	
 

	
 

	
 

	
(A)

	
have been prepared
 in accordance with, and comply with, IFRS and all applicable laws and
 regulations; 

90

	
 

	
 

	
 

	
 

	
(B)

	
present fairly in
 all material respects the financial position of the Group as at 30 June 2008
 and the results of operations and the cash flows of the Group for the
 financial period ended on 30 June 2008; and 

	
 

	
 

	
 

	
 

	
(C)

	
either made proper
 provision for, or, where appropriate, in accordance with IFRS, include a note
 in respect of all liabilities or commitments, whether actual, deferred,
 contingent or disputed, of the Group. 

	
 

	
 

	
 

	
3.3

	
The Directors have
 established procedures which provide a reasonable basis for them to make
 proper judgements on an ongoing basis as to the financial position and
 prospects of the Company and each Group Company. 

	
 

	
 

	
3.4

	
There are no, and
 during the past five years have been no: (i) material weaknesses in the
 Company’s internal controls over financial reporting (whether or not
 remediated) of the Company or the Group; (ii) changes in the Company’s
 internal controls over financial reporting of the Company or the Group that have
 materially adversely affected, or would be reasonably likely to materially
 adversely affect, the Company’s internal controls over financial reporting of
 the Company or the Group; or (iii) fraud that involves any current member of
 management of the Company or (so far as the Company is aware) of any member
 of the Group and no material fraud that involves any employee of the Company
 or (so far as the Company is aware) of any member of the Group. 

	
 

	
 

	
4.

	
Guarantees,
 indemnities, borrowings and default 

	
 

	
 

	
 

	
4.1

	
Save for: 

	
 

	
 

	
 

	
 

	
(A)

	
guarantees or
 indemnities given by any Group Company in the ordinary course of business;
 and 

	
 

	
 

	
 

	
 

	
(B)

	
any indemnities
 given by the Company to HM Treasury and/or the Joint Sponsors, 

	
 

	
 

	
 

	
 

	
no Group Company
 has given or has agreed to give any guarantee or indemnity or similar
 obligation in favour of a third party and no Group Company has any current or
 known future liability, howsoever arising which, in any of the foregoing
 cases, would, or would be reasonably likely to, be (singly or in the
 aggregate) material in the context of the Placing and Open Offer, the
 Preference Share Subscription, any acquisition of New Shares or subscription
 for Preference Shares by HM Treasury, Ordinary Shareholders or Placees,
 Admission, Preference Admission or post-Admission dealings in the Ordinary
 Shares.

	
 

	
 

	
 

	
4.2

	
No event has
 occurred nor have any circumstances arisen (and the making and completion of
 the Placing and Open Offer and the allotment and issue of the New Shares and
 the Preference Shares will not give rise to any such event or circumstance)
 so that any person is or would be entitled, or could, with the giving of
 notice or lapse of time or the fulfilment of any condition or the making of
 any determination, become entitled, to require repayment before its stated
 maturity of, or to take any step to enforce any security for, any
 indebtedness of any member of the Group and no person to whom any
 indebtedness, of any member of the Group which is payable on demand is owed
 has demanded or threatened to demand repayment of, or taken or threatened to
 take 

91

	
 

	
 

	
 

	
any step to
 enforce any guarantee, indemnity or other security for, the same, which, in
 any of the foregoing cases, would, or would be reasonably likely to, be
 (singly or in the aggregate) material or have material consequences in each
 case in the context of the Placing and Open Offer, any acquisition of New
 Shares, or subscription for Preference Shares, by HM Treasury, Ordinary
 Shareholders or Placees, Admission, Preference Admission or post-Admission
 dealings in the Ordinary Shares or the business of the Group.

	
 

	
 

	
4.3

	
There are no
 companies, undertakings, partnerships or joint ventures in existence in which
 any Group Company has an ownership interest but whose results are not
 consolidated with the results of the Group, but whose default would affect
 the indebtedness or increase the contingent liabilities of the Group to an
 extent which would, or would be reasonably likely to, be (singly or in the
 aggregate) material in the context of the Placing and Open Offer, any
 acquisition of New Shares, or subscription for Preference Shares by HM
 Treasury, Ordinary Shareholders or Placees, Admission, Preference Admission
 or post-Admission dealings in the Ordinary Shares. 

	
 

	
 

	
4.4

	
No event or
 circumstance exists, has occurred or arisen or, so far as the Company is
 aware, is about to occur which constitutes or results in, or would with the
 giving of notice and/or lapse of time and/or the making of a relevant
 determination, constitute, or result in, termination of or a default or the
 acceleration or breach of any obligation under any agreement, instrument or
 arrangement to which any Group Company is a party or by which any such Group
 Company or any of its properties, revenues or assets are bound, in any of the
 foregoing cases to an extent which would, or would be reasonably likely to,
 be (singly or in the aggregate) material in the context of the Placing and
 Open Offer, any acquisition of New Shares, or subscription for Preference
 Shares, by HM Treasury, Ordinary Shareholders or Placees, Admission,
 Preference Admission or post-Admission dealings in the Ordinary Shares. 

	
 

	
 

	
5.

	
Taxation
 

	
 

	
 

	
 

	
No stamp duty,
 SDRT or other issuance or transfer taxes or similar duties are payable in
 connection with the allotment, issue and delivery of the New Shares, or the
 Preference Shares, by the Company in accordance with the terms of this
 Agreement or, as the case may be, the Preference Share Subscription Agreement
 or otherwise in connection with the making or implementation of the Placing
 and Open Offer or any subscription for the Preference Shares, save for any
 stamp duty or SDRT payable under sections 67, 70, 93 or 96 of the Finance Act
 1986 in relation to the issue of the New Shares or the Preference Shares. 

	
 

	
 

	
6.

	
Intellectual
 property 

	
 

	
 

	
6.1 

	
Except to an
 extent that would not (singly or in the aggregate) be material in the context
 of the Placing and Open Offer, any acquisition of New Shares or subscription
 for Preference Shares by HM Treasury, Ordinary Shareholders or Placees,
 Admission, Preference Admission or post-Admission dealings in the Ordinary
 Shares, and so far as the Company is aware, the Group does not infringe the
 Intellectual Property Rights of any third party nor so far as the Company is
 aware does any third party infringe the Intellectual Property Rights owned or
 used by the Group.

92

	
 

	
 

	
6.2

	
All material
 Intellectual Property Rights used by the Group are either legally or
 beneficially owned by the Group in all material respects or are used under a
 licence and are not subject to any Adverse Interests to an extent that would
 or might (singly or in the aggregate) be material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees,
 Admission, Preference Admission or post-Admission dealings in the Ordinary
 Shares.

	
 

	
 

	
6.3

	
Save as would not
 (singly or in the aggregate) be material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, Admission,
 Preference Admission or post-Admission dealings in the Ordinary Shares, (i)
 all Intellectual Property Rights registered in the name of a Group Company
 (if any) are beneficially owned by it and subsisting and if granted not
 subject to revocation and (ii) all requisite registration and renewal fees in
 respect thereof have been duly and timeously paid.

	
 

	
 

	
6.4

	
Save as would not
 (singly or in the aggregate) be material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, Admission,
 Preference Admission or post-Admission dealings in the Ordinary Shares, (i)
 all Intellectual Property Rights owned and used or reasonably likely to be
 used by the Group and capable of legal protection are subject to appropriate
 and enforceable protection (including, where reasonably appropriate, by
 registration), and (ii) so far as the Company is aware there is no
 restriction of the Group’s rights to use any Intellectual Property Rights
 owned by or licensed to the Company to engage in any of the activities
 presently or proposed to be undertaken by it.

	
 

	
 

	
7.

	
Insurance

	
 

	
 

	
 

	
The Group is
 insured to adequate levels against all risks which the Company reasonably believes
 to be commonly insured against by persons carrying on the same or similar
 businesses as those carried on by the Group and against all risks against
 which the Group might reasonably be expected to insure in the particular
 circumstances of the businesses carried on by each Group Company, all such
 insurances are in full force and effect and to the best knowledge,
 information and belief of the Company, there are no circumstances which could
 render any such insurances void or voidable and there is no material
 insurance claim, pending, threatened or outstanding against any Group Company
 and all premiums due in respect of all insurances have been duly paid.

	
 

	
 

	
8.

	
Rating

	
 

	
 

	
 

	
Except as publicly
 announced the Company has not received notice of any intended or potential
 downgrading of the rating assigned to any of the Company’s (or any other
 member of its Group’s) credit or debt by a ratings agency.

	
 

	
 

	
9.

	
Insolvency

	
 

	
 

	
9.1

	
No Group Company
 is unable to pay its debts within the meaning of section 123 of the Insolvency
 Act 1986 or is otherwise insolvent.

93

	
 

	
 

	
9.2

	
Save in the
 context of a solvent voluntary winding up or otherwise as would not (singly
 or in the aggregate) be material in the content of the Placing and Open
 Offer, any acquisition of New Shares or subscription for Preference Shares by
 HM Treasury, Admission, Preference Admission or post-Admission dealings in
 the Ordinary Shares, no order has been made, petition presented or
 resolutions passed for the winding up of any Group Company and no meeting has
 been convened for the purpose of winding up any Group Company. No Group
 Company has been a party to any transaction which could be avoided in a
 winding up.

	
 

	
 

	
9.3

	
No steps have been
 taken for the appointment of an administrator or receiver (including an
 administrative receiver) of all or any part of the assets of any Group
 Company.

	
 

	
 

	
9.4

	
By reason of
 actual or anticipated financial difficulties, no Group Company has commenced
 negotiations with its creditors or any class of its creditors with a view to
 rescheduling any of its indebtedness or has made or proposed any arrangement
 or composition with its creditors or any class of its creditors.

	
 

	
 

	
10.

	
Regulatory

	
 

	
 

	
10.1

	
Each Group Company
 required to be licensed (as a bank or otherwise) is duly licensed in its
 jurisdiction of incorporation and domicile and, except as would not
 reasonably be expected to be material, is duly licensed or authorised in each
 other jurisdiction where it is required to be licensed or authorised to
 conduct its business.

	
 

	
 

	
10.2

	
Save as otherwise
 as would not (singly or in the aggregate) be material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees,
 Admission, Preference Admission or post-Admission dealings in the Ordinary
 Shares, the Company is not subject to any special or additional surveillance
 or supervision by the FSA or to any special or additional reporting
 requirements in relation to its assets, liquidity position, funding position
 or otherwise and the Company has not been subject to any visits, beyond
 customary visits, by the FSA.

	
 

	
 

	
10.3

	
The operations of
 each Group Company are and have been conducted at all times in material
 compliance with the money laundering statutes of all jurisdictions, the rules
 and regulations thereunder and any related or similar rules, regulations or
 guidelines, issued, administered or enforced by any governmental agency
 (collectively, the “Money Laundering Laws”) and no material
 action, suit or proceeding by or before any court or governmental agency,
 authority or body or any arbitrator involving any Group Company with respect
 to the Money Laundering Laws is pending or, to the best knowledge of the
 Company, threatened.

	
 

	
 

	
10.4

	
Except as
 previously disclosed by the Company, none of the Company, any other member of
 the Group or, to the knowledge of the Company, any director, officer, agent,
 employee or Affiliate of the Company is currently subject to any sanctions
 administered by the U.S. Department of the Treasury (“OFAC”) or any similar
 sanctions imposed by the European Union, the United Nations or any other
 body, governmental or other, to which the Company or any of its Affiliates is
 subject (collectively, “other economic sanctions”); and the
 Company will not directly or indirectly use the proceeds of the Placing and
 Open Offer, or lend, contribute or otherwise make available such proceeds

94

	
 

	
 

	
 

	
to
 any other member of the Group, joint venture partner or other person or
 entity, for the purpose of financing the activities of any person currently
 subject to any sanctions administered by OFAC or any other economic
 sanctions.

	
 

	
 

	
10.5

	
None of the
 Company, any other member of the Group or, to the knowledge of the Company,
 any director, officer, agent, employee or Affiliate of the Company, is aware
 of or has taken any action, directly or indirectly, that could result in a
 violation by such persons of the U.S. Foreign Corrupt Practices Act of 1977,
 as amended, or the rules and regulations thereunder (the FCPA) (including,
 without limitation, making use of the mail or any means or instrument of
 interstate commerce corruptly in furtherance of an offer, payment, promise to
 pay or authorisation of the payment of any money, or other property, gift, promise
 to give, or authorisation of the giving of anything of value to any “foreign
 official” (as such term is defined in the FCPA) or any foreign political
 office, in contravention of the FCPA), the OECD Convention on Bribery of
 Foreign Public Officials in International Business Transactions (the OECD
 Convention) or any similar law or regulation, to which the Company, any other
 member of the Group, any director, officer, agent, employee of any member of
 the Group or, to the knowledge of the Company, any Affiliate is subject; and
 the Company, each member of the Group and, to the knowledge of the Company,
 its Affiliates have conducted their businesses in compliance with the FCPA,
 the OECD Convention and any applicable similar law or regulation and have
 instituted and maintain policies and procedures designed to ensure, and which
 are reasonably expected to continue to ensure, continued compliance
 therewith.

	
 

	
 

	
11.

	
United States Securities Regulations

	
 

	
 

	
11.1

	
The Company is a
 “foreign issuer” (as defined in Regulation S under the Securities Act). 

	
 

	
 

	
11.2

	
The Company
 reasonably believes that there is no “substantial US market interest” (as
 defined in Rule 902(j) of Regulation S under the Securities Act) in any of
 the New Shares.

	
 

	
 

	
11.3

	
The Company does
 not believe that it is and does not expect to become (whether as a result of
 the receipt and application of the proceeds of the sale of the New Shares or
 otherwise) a “passive foreign investment company” within the meaning of
 section 1297 of the US Internal Revenue Code of 1986.

	
 

	
 

	
11.4

	
The Company is
 not, and, immediately after giving effect to the offering and sale of the New
 Shares and the application of the proceeds thereof as set forth in the Draft
 Prospectus and, when published, the Prospectus, will not be, an “investment
 company” as such term is defined in the US Investment Company Act of 1940.

	
 

	
 

	
11.5

	
There are no
 persons with registration rights or other similar rights to have any shares
 registered by the Company under the Securities Act.

	
 

	
 

	
11.6

	
During the period
 of six months after Admission, the Company will not, and will not permit any
 of its Affiliates to, resell any New Shares which constitute “restricted
 securities” under Rule 144 that have been reacquired by any of them other
 than in transactions that meet the applicable requirements of Regulation S.

	
 

	
 

	
12.

	
Panel Confirmation

95

	
 

	
 

	
The Panel has
 confirmed that:

	
 

	
(A)

	
subject to the
 independent shareholders of the Company voting in favour of the Whitewash
 Resolution, the Panel will disapply the requirement to make a general offer
 under the terms of Rule 9 of the City Code on Takeovers and Mergers which
 would otherwise be required by the acquisition by HM Treasury (or its
 nominee) of the New Shares; and

	
 

	
 

	
(B)

	
it has consented
 to the amendment to the terms of the Acquisition as announced in the Press
 Announcement.

PART II

	
 

	
 

	
Representations, warranties and
 undertakings given on the Circular Posting Date (other than the Warranties
 contained in paragraphs 1.5, 1.7, 2, 3, and 4), the Prospectus Posting Date,
 on the date of publication of each Supplementary Prospectus, at each Time of
 Sale, if any, and immediately prior to New Share Admission and Acquisition
 Share Admission

	
 

	
All Warranties in
 paragraphs 5 to 13 and paragraph 15 of this Part II of Schedule 3 are
 qualified by reference to matters which are fairly disclosed in the Circular
 or the Prospectus or, if such Warranties are given on or after the
 publication of any Supplementary Prospectus, as fairly disclosed in the
 Prospectus as supplemented by such Supplementary Prospectus.

	
 

	
1.

	
The Issue Documents

	
 

	
 

	
1.1

	
The Issue
 Documents contain all particulars and information required by, and comply in
 all respects with the memorandum and articles of association of the Company,
 the Companies Acts, FSMA, the Listing Rules, the DTRs, the Prospectus Rules,
 the City Code on Takeovers and Mergers, all applicable rules and requirements
 of the London Stock Exchange, the FSA and all applicable US laws and
 regulations and all other applicable requirements of statute, statutory
 regulation or any regulatory body.

	
 

	
 

	
1.2

	
The Issue
 Documents (and any amendments or supplements thereto) do not and will not
 contain any untrue statement of a material fact or omit to state any material
 fact necessary to make the statements therein, in the light of the
 circumstances under which they were made, not misleading.

	
 

	
 

	
1.3

	
All expressions of
 opinion, intention or expectation contained in any Issue Document are, and
 were on the respective dates of such Issue Document, honestly held by the
 Directors and are fairly based and have been made on reasonable grounds after
 due and careful consideration and enquiry.

	
 

	
 

	
1.4

	
There are no facts
 or matters known, or which could on reasonable enquiry have been known, to
 the Company or any of the Directors and which are omitted from any Issue
 Document, the omission of which would make any statement of fact or
 expression of opinion, intention or expectation contained in a Issue Document
 misleading.

	
 

	
 

	
1.5

	
Having regard to
 the particular nature of the Company, HBOS, the Group and the Enlarged Group
 and the Company’s share capital and the other matters referred to in section
 87A of the FSMA, the Issue Documents contain all information about the Group,
 the HBOS Group and the Enlarged Group which is or might be material for
 disclosure to potential investors and their professional advisers and which
 they would reasonably require and reasonably expect to find there for the
 purpose of making an informed assessment of the matters specified in section 87A(2)
 of the FSMA.

	
 

	
 

	
1.6

	
All statements
 made or information provided by or on behalf of and with the knowledge of the
 Company to the FSA or to any of the Joint Sponsors (including in connection
 with any application for certain information to be omitted from the
 Prospectus and/or the Circular), are (or, when made, will be) true and
 accurate in all material respects and are not (or, when made, will not be)
 misleading and there are no facts which have not been disclosed to the FSA in
 connection therewith which by their omission make any such

97

	
 

	
 

	
 

	
statements
 misleading or which are material for disclosure to the FSA. All expressions
 of opinion, intention, belief or expectation made by or on behalf of and with
 the knowledge of the Company to the FSA or to any of the Joint Sponsors
 (including in connection with any application for certain information to be
 omitted from the Prospectus and/or the Circular), are (or, when made, will
 be) truly and honestly held and have been (or, when made, will be) made on
 reasonable grounds after due and careful consideration and enquiry.

	
 

	
 

	
1.7

	
There is no fact
 or circumstance which is not disclosed with sufficient prominence in the
 Issue Documents which ought to be taken into account by the UK Listing
 Authority in considering the application for listing of the New Shares or the
 application for listing of the Acquisition Shares.

	
 

	
 

	
1.8

	
The Placing and
 Open Offer (including without limitation, the creation, allotment and issue
 of the New Shares and the publication and distribution of the Issue
 Documents) has been and will be conducted in all material respects in
 accordance with the terms and conditions of the Issue Documents and the
 Company has complied and will comply with all laws, rules and regulations
 applicable to the Placing and Open Offer in each jurisdiction in which the
 New Shares are offered.

	
 

	
 

	
1.9

	
The Verification
 Materials have been prepared with due care and attention by persons who,
 collectively, have appropriate knowledge and responsibility to enable them to
 provide appropriate supporting materials for the statements in the Issue
 Documents in respect of which they are compiled. 

	
 

	
 

	
2.

	
Provision of Information

	
 

	
 

	
2.1

	
The pro forma
 financial information on the Enlarged Group incorporated by reference in the
 Prospectus has been duly and carefully prepared on the bases incorporated by
 reference in the Prospectus, in accordance with the Prospectus Rules and is
 presented on a basis consistent with the accounting principles, standards and
 practices normally applied by the Company. 

	
 

	
 

	
2.2

	
The summary and
 selected financial information on the Group set out in the Prospectus has
 been duly and carefully extracted from the Accounts and has been properly
 compiled on a basis consistent with the accounting policies applied in the Accounts.

	
 

	
 

	
2.3

	
The capitalisation
 and indebtedness table in relation to the Group and the Enlarged Group set
 out in the Prospectus has been properly compiled on a basis that is
 consistent with the accounting policies applied in the Accounts. 

	
 

	
 

	
2.4

	
No member of the
 Group or of the HBOS Group has any off balance sheet financing, investment or
 liability material for disclosure in the Prospectus that is not so fairly
 disclosed.

	
 

	
 

	
2.5

	
The unaudited
 reconciliation of HBOS Group financial information set out, or incorporated
 by reference, in the Prospectus accurately presents and explains all material
 adjustments which reconcile the HBOS Group’s audited consolidated income
 statement and consolidated net assets for each of the three years ended 31
 December 2005, 2006 and 2007 and the unaudited results for the six months
 ended 30 June 2008,

98

	
 

	
 

	
 

	
as previously
 reported by the HBOS Group, to estimates of those that would have been
 reported had the HBOS Group applied the accounting policies applied by the
 Group in the preparation of its interim results for the six months ended 30
 June 2008. All estimates upon which the reconciliation is based are
 incorporated by reference in the Prospectus, are reasonable and the
 adjustments are appropriate for the purpose of presenting the financial
 information (as adjusted) on a basis consistent in all material respects with
 the accounting policies of the Group.

	
 

	
 

	
2.6

	
There are no facts
 or circumstances, which have not been included the Prospectus or any other
 information provided to the UK Listing Authority, which would cause the UK
 Listing Authority not to be satisfied that the Company’s capital adequacy is
 regulated by the FSA or suitably regulated by another regulatory body.

	
 

	
 

	
2.7

	
The particulars of
 the employees schemes contained in the Prospectus or, when published, any
 Supplementary Prospectus and, in particular, the information as to the dates
 on which options or other rights may be exercised and the number of options
 or other rights granted (conditionally or otherwise) on or before the date of
 this Agreement are accurate in all material respects and not misleading.

	
 

	
 

	
2.8

	
The share capital
 of the Company will, upon New Share Admission and Acquisition Share
 Admission, be as described in paragraph 3 of Part XI of the Circular and
 incorporated by reference into the Prospectus in all material respects; all
 of the New Shares will, upon New Share Admission, be duly and validly
 allotted, authorised and issued and fully paid or credited as fully paid; all
 of the Acquisition Shares will, upon Acquisition Share Admission, be duly and
 validly allotted, authorised and issued and fully paid or credited as fully
 paid; and, except as disclosed in any previous announcements made by or on
 behalf of the Company or any other member of the Group in respect of public
 debt or preference share issuance, no person has the right (whether
 exercisable now or in the future and whether contingent or not) to call for
 the allotment, conversion, issue, sale or transfer of any share or loan
 capital or any other security giving rise to a right over the capital of the
 Company or any member of the Group under any option or other agreement
 (including conversion rights and rights of pre emption); all of the issued
 share capital of each other member of the Group has been duly and validly
 authorised and issued and fully paid or credited as fully paid and is owned
 by the Company or one or more wholly owned subsidiaries of the Company and is
 free of all encumbrances.

	
 

	
 

	
3.

	
Reports 

	
 

	
 

	
3.1

	
All information
 supplied by the Company or any member of the Group to the Joint Sponsors
 and/or the Auditors for the purposes of the PwC Working Capital Report and/or
 any other report or letter prepared by the Auditors in connection with the
 Placing and Open Offer and in respect of any updates thereto, has been
 supplied to them in good faith; and such information was when supplied and
 remains true and accurate in all material respects and not misleading, and no
 information has been withheld the absence of which might reasonably have
 affected the contents of the Working Capital Report and/or any other such
 report or letter.

	
 

	
 

	
3.2

	
All information
 supplied by HBOS or any member of the HBOS Group to KPMG for the purposes of
 the KPMG Working Capital Report and/or any other report or letter

99

	
 

	
 

	
 

	
prepared by KPMG
 in connection with the Placing and Open Offer and in respect of any updates
 thereto, has been supplied to them in good faith; and such information was
 when supplied and remains true and accurate in all material respects and not
 misleading, and no information has been withheld the absence of which might
 reasonably have affected the contents of the KPMG Working Capital Report
 and/or any other such report or letter. 

	
 

	
 

	
3.3

	
The Reports are
 fairly presented and all information contained in the Reports is true and
 accurate in all material respects and is not misleading and no fact or matter
 has been omitted from the Reports which would be necessary to make the
 information therein not misleading; and the Company has read and does not disagree
 with the statements of opinion contained in, or the contents of, the Reports
 and (where relevant) the statements of opinion, intention or expectation
 attributed to the Group, the HBOS Group or the Enlarged Group in the Reports
 are accurate statements of the opinions, intentions or expectations held by
 the Group and/or the HBOS Group, which are fairly based upon facts within the
 knowledge of the Company and/or HBOS, and have been made after due and
 careful consideration and enquiry. 

	
 

	
 

	
3.4

	
The PwC Working
 Capital Report has been approved by the Directors or a duly authorised
 committee thereof and the KPMG Working Capital Report has been approved by
 the board of directors of HBOS or a duly authorised committee thereof, the
 cashflow and working capital projections contained in the Working Capital
 Reports have been prepared after due and careful consideration and enquiry,
 all assumptions on which such projections are based are set out in the
 Working Capital Reports and are reasonable and such projections take into
 account all material matters of which the Company and/or HBOS is aware
 concerning the Company, HBOS, the other members of the Group, the other
 members of the HBOS Group and the Enlarged Group or the markets in which any
 of them is carrying on, or is expecting to carry on, business and all factual
 information supplied to PwC by the Company or any other member of the Group
 or any of such person’s officers or to KPMG by HBOS or any other member of
 the HBOS Group or any of such person’s officers for the purpose of enabling
 PwC and KPMG respectively to identify or evaluate the assumptions underlying
 the relevant projections is true, accurate and not misleading and all other
 information (including any forecast or projection) supplied for that purpose
 was carefully prepared and given in good faith. 

	
 

	
 

	
4.

	
Derogation
 

	
 

	
 

	
 

	
Each statement
 made by or on behalf of the Company (and of which the Company is aware) in
 connection with any application to the London Stock Exchange or the UK
 Listing Authority for information to be omitted from the Prospectus is true,
 complete and accurate and not misleading. There is no information which has
 not been disclosed in writing to the London Stock Exchange or the UK Listing
 Authority in connection with such an application which by its omission makes
 such a statement untrue, inaccurate or misleading. 

	
 

	
 

	
5.

	
Compliance
 

	
 

	
 

	
5.1

	
Each member of the
 Group and of the HBOS Group has conducted its business in all material
 respects in accordance with all applicable laws and regulations of the United
 

100

	
 

	
 

	
 

	
 

	
Kingdom and all
 relevant foreign countries or authorities, and there is no order, decree or
 judgment of any court or any governmental or other competent authority or
 agency of the United Kingdom or any foreign country outstanding against any
 member of the Group or of the HBOS Group or any person for whose acts any
 member of the Group or of the HBOS Group is vicariously liable which in any
 of the foregoing cases would, or would be reasonably likely to, be (singly or
 in the aggregate) material in the context of the Placing and Open Offer, any
 acquisition of New Shares or subscription for Preference Shares by HM
 Treasury, Ordinary Shareholders or Placees, New Share Admission, Acquisition
 Share Admission, Preference Admission or post-New Share Admission or
 post-Acquisition Share Admission dealings in the Ordinary Shares. 

	
 

	
 

	
5.2

	
This Agreement,
 the Preference Share Subscription Agreement and the other agreements to be
 entered into by the Company in connection with New Share Admission,
 Acquisition Share Admission, Preference Admission and the Placing and Open
 Offer and the allotment and issue of the Preference Shares have been or will
 be duly authorised, executed and delivered on behalf of the Company and
 assuming due authorisation, execution and delivery by the other parties
 thereto, do or will constitute valid and binding obligations of the Company
 enforceable against it in accordance with their terms (subject to mandatory
 rules of law relating to insolvency). 

	
 

	
 

	
5.3

	
Other than pursuant
 to (i) the Preference Share Subscription Agreement and (ii) options or other
 rights granted under the Group’s share option schemes and save as otherwise
 would not (singly or in the aggregate) be material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New Share
 Admission, Acquisition Share Admission, Preference Admission or post-New
 Share Admission or post-Acquisition Share Admission dealings in the Ordinary
 Shares, there are no rights (conditional or otherwise) (i) to require the
 issue of any shares or other securities (including without limitation, any
 loan capital) or securities convertible into or exchangeable for, or
 warrants, rights or options to purchase, or obligations, commitments or
 intentions to create the same or (ii) to sell or otherwise dispose of any
 shares or other securities of a Group Company (other than to another Group
 Company, as the case may be) which are outstanding and in force. 

	
 

	
 

	
6.

	
Position
 since Accounts Date and HBOS Accounts Date 

	
 

	
 

	
6.1

	
Since the Accounts
 Date and save as disclosed in the Interim Accounts, the Press Announcement or
 via a Regulatory Information Service: 

	
 

	
 

	
 

	
(A)

	
each Group Company
 has carried on its respective business in the ordinary course in all material
 respects, and there has been no Material Adverse Effect; 

	
 

	
 

	
 

	
 

	
(B)

	
there has been no
 material impairment to charges in respect of any assets of the Company or of
 any Group Company, and there has been no increase in the provisions in
 respect of losses in relation to any mortgage, loans or other assets of the
 Company or of any Group Company that, in any of the foregoing cases, would,
 or would be reasonably likely to, be (singly or in the aggregate) material in
 the context of the Placing and Open Offer, any acquisition of New Shares or
 subscription for Preference Shares by HM Treasury, Ordinary Shareholders or
 Placees, New Share Admission, Acquisition Share Admission, Preference 

101

	
 

	
 

	
 

	
Admission or
 post-New Share Admission or post-Acquisition Share Admission dealings in the
 Ordinary Shares; 

	
 

	
 

	
(C)

	
save for the
 Preference Share Subscription Agreement and any utilisation by the Company of
 the short-term liquidity measures being made available by the Bank of England
 (in the form notified by HM Government to the European Commission on 12
 October 2008), no Group Company has, otherwise than in the ordinary course of
 business, entered into or assumed or incurred any contract, commitment
 (whether in respect of capital expenditure or otherwise), borrowing,
 indebtedness in the nature of borrowing, guarantee, liability (including
 contingent liability) or any other agreement or obligation that, in any of
 the foregoing cases, would, or would be reasonably likely to, be (singly or
 in the aggregate) material in the context of the Placing and Open Offer, any
 acquisition of New Shares or subscription for Preference Shares by HM
 Treasury, Ordinary Shareholders or Placees, New Share Admission, Acquisition
 Share Admission, Preference Admission or post-New Share Admission or
 post-Acquisition Share Admission dealings in the Ordinary Shares; 

	
 

	
 

	
(D)

	
other than in the
 ordinary course of business, no debtor has been released by the Company to an
 extent which (singly or in the aggregate) is material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New Share
 Admission, Acquisition Share Admission, Preference Admission or post-New
 Share Admission or post-Acquisition Share Admission dealings in the Ordinary
 Shares on terms that he pays less than the book value of his debt and no debt
 of such material amount owing to the Company or any Group Company has been deferred,
 subordinated or written off or has proven irrecoverable to any material
 extent; 

	
 

	
 

	
(E)

	
no Group Company
 has been involved in any transaction (other than any transaction provided for
 in this Agreement or in the Preference Share Subscription Agreement) which
 has resulted or would be reasonably likely to result (singly or in the
 aggregate) in any liability for Tax on the Company or any Group Company,
 which, in any of the foregoing cases, would, or would be reasonably likely
 to, be (singly or in the aggregate) material in the context of the Placing
 and Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares other
 than a transaction in the ordinary course of business; and 

	
 

	
 

	
(F)

	
no Group Company
 has been in default in any material respect under any agreement or arrangement
 to which any Group Company is a party and which is or is reasonably likely to
 be material and there are no circumstances likely to give rise to such
 default, to an extent which (singly or in the aggregate) would, or would be
 reasonably likely to, be material in the context of the Placing and Open
 Offer, any acquisition of New Shares or subscription for Preference Shares by
 HM Treasury, Ordinary Shareholders or Placees, New Share 

102

	
 

	
 

	
 

	
 

	
 

	
Admission,
 Acquisition Share Admission or post-New Share Admission or post-Acquisition
 Share Admission dealings in the Ordinary Shares. 

	
 

	
 

	
 

	
6.2

	
Since the HBOS
 Accounts Date and save as disclosed in the HBOS Interim Accounts or via a
 Regulatory Information Service: 

	
 

	
 

	
 

	
(A)

	
each member of the
 HBOS Group has carried on its respective business in the ordinary course in
 all material respects, and there has been no HBOS Material Adverse Effect; 

	
 

	
 

	
 

	
 

	
(B)

	
there has been no
 material impairment to charges in respect of any assets of HBOS or any other
 member of the HBOS Group, and there has been no increase in the provisions in
 respect of losses in relation to any mortgage, loans or other assets of HBOS
 or any other member of the HBOS Group, that, in any of the foregoing cases,
 would, or would be reasonably likely to, be (singly or in the aggregate)
 material in the context of the Placing and Open Offer, any acquisition of New
 Shares or subscription for Preference Shares by HM Treasury, Ordinary
 Shareholders or Placees, New Share Admission, Acquisition Share Admission, Preference
 Admission or post-New Share Admission or post-Acquisition Share Admission
 dealings in the Ordinary Shares; 

	
 

	
 

	
 

	
 

	
(C)

	
save for the HBOS
 Preference Share Subscription Agreement and any utilisation by HBOS of the
 short-term liquidity measures being made available by the Bank of England (in
 the form notified by HM Government to the European Commission on 12 October
 2008), no member of the HBOS Group has, otherwise than in the ordinary course
 of business, entered into or assumed or incurred any contract, commitment
 (whether in respect of capital expenditure or otherwise), borrowing,
 indebtedness in the nature of borrowing, guarantee, liability (including
 contingent liability) or any other agreement or obligation that, in any of
 the foregoing cases, would, or would be reasonably likely to, be (singly or
 in the aggregate) material in the context of the Placing and Open Offer, any
 acquisition of New Shares or subscription for Preference Shares by HM
 Treasury, Ordinary Shareholders or Placees, New Share Admission, Acquisition
 Share Admission, Preference Admission or post-New Share Admission or
 post-Acquisition Share Admission dealings in the Ordinary Shares; 

	
 

	
 

	
 

	
 

	
(D)

	
other than in the
 ordinary course of business, no debtor has been released by HBOS to an extent
 which (singly or in the aggregate) is material in the context of the Placing
 and Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares on terms
 that he pays less than the book value of his debt and no debt of such
 material amount owing to HBOS or any other member of the HBOS Group has been
 deferred, subordinated or written off or has proven irrecoverable to any
 material extent; 

	
 

	
 

	
 

	
 

	
(E)

	
no member of the
 HBOS Group has been involved in any transaction (other than any transaction
 provided for in the HBOS Placing and Open Offer Agreement or in the HBOS
 Preference Share Subscription Agreement) which 

103

	
 

	
 

	
 

	
 

	
 

	
has resulted or
 would be reasonably likely to result (singly or in the aggregate) in any
 liability for Tax on HBOS or any other member of the HBOS Group, which, in
 any of the foregoing cases, would, or would be reasonably likely to, be
 (singly or in the aggregate) material in the context of the Placing and Open
 Offer, any acquisition of New Shares or subscription for Preference Shares by
 HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares other
 than a transaction in the ordinary course of business; and 

	
 

	
 

	
 

	
 

	
(F)

	
no member of the
 HBOS Group has been in default in any material respect under any agreement or
 arrangement to which any member of the HBOS Group is a party and which is or
 is reasonably likely to be material and there are no circumstances likely to
 give rise to such default, to an extent which (singly or in the aggregate)
 would, or would be reasonably likely to, be material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New Share
 Admission, Acquisition Share Admission or post-New Share Admission or
 post-Acquisition Share Admission dealings in the Ordinary Shares 

	
 

	
 

	
 

	
7.

	
Litigation
 

	
 

	
 

	
7.1

	
No member of the
 Group or of the HBOS Group or any of their respective officers or agents or
 employees is involved, or has during the recent past (being not less than 12
 months ending on the date of this Agreement) been involved in any civil,
 criminal, arbitration, administrative, governmental or other proceedings or
 governmental regulatory or similar investigation or enquiry, whether as
 plaintiff, defendant or otherwise which, by itself or with other proceedings,
 which would be, or is reasonably likely to be, material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New Share
 Admission, Acquisition Share Admission, Preference Admission or post-New
 Share Admission or post-Acquisition Share Admission dealings in the Ordinary
 Shares. 

	
 

	
 

	
7.2

	
No litigation or
 arbitration, administrative, governmental, civil, criminal or other
 proceedings nor governmental, regulatory or similar investigation or enquiry
 are pending or have been threatened by or against any Group Company or any
 member of the HBOS Group or any of their respective officers, agents or
 employees in relation to the affairs of any Group Company or any member of
 the HBOS Group and, to the best of the knowledge, information and belief of
 the Company and the Directors, there are no facts or circumstances likely to
 give rise to any such litigation or arbitration, administrative, criminal,
 governmental, civil, or other proceedings or governmental, regulatory or
 similar investigation or enquiry, in each case, to an extent which, by itself
 or with other proceedings, would be, or is reasonably likely to be, material
 in the context of the Placing and Open Offer, any acquisition of New Shares
 or subscription for Preference Shares by HM Treasury, Ordinary Shareholders
 or Placees, New Share Admission, Acquisition Share Admission, Preference
 Admission or post-New Share Admission or post-Acquisition Share Admission
 dealings in the Ordinary Shares.

104

	
 

	
 

	
7.3

	
No member of the
 Group or of the HBOS Group or any of their respective officers or agents or
 employees in relation to the affairs of any Group Company or any member of
 the HBOS Group has been a party to any undertaking or assurance given to any
 court or governmental agency or the subject of any injunction which in any of
 the foregoing cases is still in force and which, by itself or with other
 proceedings, which would be, or is reasonably likely to be, material in the
 context of the Placing and Open Offer, any acquisition of New Shares or subscription
 for Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New
 Share Admission, Acquisition Share Admission Preference Admission or post-New
 Share Admission or post-Acquisition Share Admission dealings in the Ordinary
 Shares. 

	
 

	
 

	
7.4

	
For the purpose of
 this paragraph 7, proceedings includes any action by any governmental, public
 or regulatory authority (including any investment exchange or any authority
 or body which regulates investment business or takeovers or which is
 concerned with regulatory, licensing, competition, taxation matters or
 matters concerning Intellectual Property Rights). 

	
 

	
 

	
8.

	
Arrangements
 with directors and shareholders 

	
 

	
 

	
8.1

	
Save for the
 articles of association of the Company, the Preference Share Subscription
 Agreement, any service agreement with a Director and any contracts entered
 into in the ordinary course of business, there are no existing contracts or
 engagements or other arrangements to which any Group Company is a party and
 in which any of the directors of any Group Company and/or any associate of
 any of them is interested which would be material in the context of the
 Placing and Open Offer, any subscription for New Shares or the Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission or post-New Share Admission or post-Acquisition
 Share Admission dealings in the Ordinary Shares; and to the extent that any
 such contracts, engagements or other arrangements exist they comply with the
 related party requirements of the Listing Rules of the UK Listing Authority
 (or other relevant regulator). 

	
 

	
 

	
8.2

	
No Shareholder has
 any rights, in his capacity as such, in relation to any Group Company other
 than as set out in the articles of association of the Company or the
 Preference Share Subscription Agreement. 

	
 

	
 

	
8.3

	
The Company is not
 aware of any claim, demand or right of action against any member of the Group
 or of the HBOS Group otherwise than for accrued remuneration in accordance
 with their contracts of employment by any officer or employee (or former
 officer or employee) of the Group or of the HBOS Group and/or any associate
 of them in any of the foregoing cases, to an extent that (singly or in the
 aggregate) would, or would be reasonably likely to, be material in the
 context of the Placing and Open Offer, any acquisition of New Shares or
 subscription for Preference Shares by HM Treasury, Ordinary Shareholders or
 Placees, New Share Admission, Acquisition Share Admission, Preference
 Admission or post-New Share Admission or post-Acquisition Share Admission
 dealings in the Ordinary Shares. 

	
 

	
 

	
8.4

	
So far as the
 Company is aware, no Director or director of HBOS nor any person connected
 with such Director or director of HBOS nor any of the employees of the Group
 or of the HBOS Group nor any person connected with any such employee is in 

105

	
 

	
 

	
 

	
 

	
breach of any
 restrictive covenant, employment agreement or contract for services which
 would, or would be reasonably likely to, affect the Company, HBOS, any other
 member of the Group or of the HBOS Group and so far as the Company is aware,
 there are no circumstances which might give rise to any claim of such a
 breach or any other dispute with any employer, former employer or other
 person for whom any Director or any director of HBOS or employee of the Group
 or of the HBOS Group provides or has provided services, in any of the
 foregoing cases to an extent that (singly or in the aggregate) would, or
 would be reasonably likely to, be material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares. 

	
 

	
 

	
8.5

	
For the purpose of
 this paragraph 8, associate has the meaning: 

	
 

	
 

	
 

	
(A)

	
in the case of an
 individual, given to “connected person” under section 96B(2) of FSMA; and 

	
 

	
 

	
 

	
 

	
(B)

	
in the case of a body
 corporate, given to “associated company” in sections 416 et seq. of the Income and Corporation
 Taxes Act 1988. 

	
 

	
 

	
 

	
9.

	
Information
 technology 

	
 

	
 

	
 

	
Save as otherwise
 would not (singly or in the aggregate) be material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New Share
 Admission, Acquisition Share Admission, Preference Admission or post-New
 Share Admission or post-Acquisition Share Admission dealings in the Ordinary
 Shares: 

	
 

	
 

	
 

	
(A)

	
systems used or
 planned to be used in connection with the businesses of the Group and the
 HBOS Group are all the systems required for the present needs of the business
 of the Group and the HBOS Group, including, without limitation, as to system
 capacity and ability to process current peak volumes and anticipated volumes
 in a timely manner; 

	
 

	
 

	
 

	
 

	
(B)

	
in the 12 months
 prior to the date of this Agreement, neither the Group nor the HBOS Group has
 suffered any failures or bugs in or breakdowns of any systems used in
 connection with the businesses of the Group or the HBOS Group which have
 caused any substantial disruption or interruption in or to its use and the
 Company is not aware of any fact or matter which may so disrupt or interrupt
 or affect the use of such equipment following the date of this Agreement on
 the same basis as it is presently used; 

	
 

	
 

	
 

	
 

	
(C)

	
all hardware
 comprised in any systems, excluding any software and any external
 communications lines, used in the businesses of the Group and the HBOS Group
 are owned (except those items which are subject to finance leases) and
 operated by and are under the control of a member of the Group or the HBOS
 Group and are not wholly or partly dependent on any facilities which are not
 under the ownership, operation or control of the Group or the HBOS 

106

	
 

	
 

	
 

	
 

	
 

	
Group or (where
 governed by outsourcing or other similar arrangements) are otherwise openly
 accessible to the Group or the HBOS Group; and 

	
 

	
 

	
 

	
 

	
(D)

	
each member of the
 Group and of the HBOS Group is validly licensed to use the software used in
 its business. 

	
 

	
 

	
 

	
10.

	
Share
 Schemes 

	
 

	
 

	
 

	
Save as required
 by the Preference Share Subscription Agreement, as required for the
 implementation of the Acquisition in the manner contemplated by the Press
 Announcement and this Agreement, and as otherwise would not (singly or in the
 aggregate) be material in the context of the Placing and Open Offer, any
 acquisition of New Shares or subscription for Preference Shares by HM
 Treasury, New Share Admission, Acquisition Share Admission, Preference
 Admission or post-New Share Admission or post-Acquisition Share Admission
 dealings in the Ordinary Shares, and except for options or other rights
 granted under the Company’s approved share option schemes or other employee
 incentive arrangements in accordance with normal practice, there are no
 arrangements which (contingently or otherwise) may give rise to an obligation
 on the Company or any Group Company to allot, issue or grant any relevant
 securities as defined in section 80 of the CA 1985. 

	
 

	
 

	
11.

	
Pension
 schemes 

	
 

	
 

	
 

	
Save as would
 otherwise not (singly or in the aggregate) be material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, New Share Admission, Acquisition Share Admission,
 Preference Admission or post-New Share Admission or post-Acquisition Share
 Admission dealings in the Ordinary Shares, the Group is not paying, and is
 not under any liability (actual or contingent) to pay or secure (other than
 by payment of employers’ contributions under national insurance or social
 security legislation), any pension or other benefit on retirement, death or
 disability or on the attainment of a specified age or on the completion of a
 specified number of years of service. 

	
 

	
 

	
12.

	
Agreements
 

	
 

	
 

	
 

	
Save for the
 Preference Share Subscription Agreement, as required for the implementation
 of the Acquisition in the manner contemplated by the Press Announcement and
 this Agreement, or as otherwise disclosed in any previous announcements made
 by or on behalf of the Company or any member of the Group in respect of
 public debt or preference share issuance and otherwise as would not (singly
 or in the aggregate) be material in the context of the Placing and Open
 Offer, any acquisition of New Shares or subscription for Preference Shares by
 HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares, there is
 no agreement, undertaking, instrument or arrangement requiring the creation,
 allotment, issue, redemption or repayment, or the grant to any person of the
 right (whether conditional or not) to require the allotment, issue,
 redemption or repayment, of any shares in the capital of the Company or any
 subsidiary undertaking of the Company (including, without limitation, an
 option or right of pre-emption or conversion). 

	
 

	
 

	
107

	
 

	
 

	
13.

	
Regulatory

	
 

	
 

	
13.1

	
No member of the
 Group or of the HBOS Group or any of their respective officers has failed to
 comply with any statutory provision or any rules, regulations, directions,
 requirements, notices and provisions of the FSA or any other regulatory body
 applying to such member of the Group or member of the HBOS Group in relation
 to its business including (without limitation) in respect of the maintenance
 of its Capital Resources Requirement and satisfaction of the Overall Financial
 Resources Rule and any equivalent capital requirements in any other
 jurisdiction that are applicable to any member of the Group or of the HBOS
 Group; no obligation has arisen in respect of the general notification
 requirements under Chapter 15.3 of SUP, save in any of the foregoing cases to
 an extent which would not (singly or in the aggregate) be material in the
 context of the Placing and Open Offer, any acquisition of New Shares or
 subscription for Preference Shares by HM Treasury, Ordinary Shareholders or
 Placees, New Share Admission, Acquisition Share Admission, Preference
 Admission or post-New Share Admission or post-Acquisition Share Admission
 dealings in the Ordinary Shares.

	
 

	
 

	
13.2

	
Save as otherwise
 as would not (singly or in the aggregate) be material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New Share
 Admission, Acquisition Share Admission, Preference Admission or post-New Share
 Admission or post-Acquisition Share Admission dealings in the Ordinary
 Shares, no member of the Group or of the HBOS Group is the subject of any
 investigation, enforcement action (including, without limitation to vary the
 terms of any permission of licence) or disciplinary proceeding by the FSA or
 any other regulatory body having jurisdiction over such member of the Group
 or of the HBOS Group, and no such investigation, enforcement action or
 disciplinary proceeding is threatened or pending. 

	
 

	
 

	
14.

	
Cash
 box

	
 

	
 

	
14.1

	
JerseyCo has not
 undertaken any obligations or liabilities except pursuant to or as
 contemplated by the Subscription and Transfer Agreement and the Option
 Agreement.

	
 

	
 

	
14.2

	
JerseyCo is and
 will remain resident in the United Kingdom and nowhere else for United
 Kingdom tax purposes.

	
 

	
 

	
14.3

	
No share register
 of JerseyCo is located or kept in the United Kingdom.

	
 

	
 

	
14.4

	
Neither the
 Company nor JerseyCo has caused or permitted any issue or transfer of shares
 or debentures in JerseyCo which is unlawful for the purposes of Section 765
 of the Income and Corporation Taxes Act 1988.

	
 

	
 

	
15.

	
Competition

	
 

	
 

	
15.1

	
No member of the
 Group or of the HBOS Group is a party to (or is concerned in) any agreement,
 arrangement, concerted practice or course of conduct which infringes, or of
 which particulars have or should have been delivered to any relevant
 governmental or other authority in any jurisdiction under any relevant
 legislation in any territory regarding anti-competitive or restrictive trade
 or business practices or which falls within Articles 81 and/or 82 of the EC
 Treaty, or otherwise, in any of the foregoing cases to an extent that 

	
 

	
 

	
108

	
 

	
 

	
 

	
(singly or in the
 aggregate) would, or would be reasonably likely to, be material in the
 context of the Placing and Open Offer, any acquisition of New Shares or
 subscription for Preference Shares by HM Treasury, Ordinary Shareholders or
 Placees, New Share Admission, Acquisition Share Admission, Preference
 Admission or post-New Share Admission or post-Acquisition Share Admission
 dealings in the Ordinary Shares.

	
 

	
 

	
15.2

	
No member of the
 Group or of the HBOS Group is, or has been, in connection with its business
 or that of any other member of the Group or of the HBOS Group, engaged in any
 practice which contravenes any such legislation as is referred to in the
 preceding paragraph or which is under investigation by any authority referred
 to in the preceding paragraph or which is the subject of undertakings to any
 such authority and, so far as the Company is aware, none of the practices
 carried on by any member of the Group or of the HBOS Group contravenes or may
 contravene any such legislation or is reasonably likely to be subject to such
 investigation, in any of the foregoing cases to an extent that would, or would
 be reasonably likely to, be (singly or in the aggregate) material in the
 context of the Placing and Open Offer, any acquisition of New Shares or
 subscription for Preference Shares by HM Treasury, Ordinary Shareholders or
 Placees, New Share Admission, Acquisition Share Admission, Preference
 Admission or post-New Share Admission or post-Acquisition Share Admission
 dealings in the Ordinary Shares.

	
 

	
 

	
16.

	
Compliance

	
 

	
 

	
16.1

	
Each member of the
 Group, other than those undertakings in which the Company holds a proportion
 of the capital that is not likely to have a significant effect on the
 assessment of its own assets and liabilities, financial position or profits
 and losses, and JerseyCo and each member of the HBOS Group has been duly
 incorporated and is validly existing as a company with limited liability
 under the laws of the country of its incorporation with full corporate power
 and authority to own, lease and operate the properties which it owns, leases
 and operates and to own its other assets and carry on its business as
 presently carried on and as intended to be carried on in all material
 respects as described in the Circular and the Prospectus and, in relation to
 each member of the Group and JerseyCo and each member of the HBOS Group, to
 enter into and perform its obligations pursuant to the Placing and Open Offer
 and the Acquisition and to enter into and consummate all transactions in
 connection therewith.

	
 

	
 

	
16.2

	
The Company has
 duly authorised, executed and delivered this Agreement and the other agreements
 to be entered into by it in connection with the Placing and Open Offer and
 the Acquisition and each of them constitute valid and binding obligations
 enforceable against it in accordance with their respective terms.

	
 

	
 

	
16.3

	
All licences,
 permissions, authorisations and consents which are material for carrying on
 the business of the Group and the HBOS Group have been obtained and are in
 full force and effect and, so far as the Company is aware, there are no
 circumstances which might lead to any of such licences, permissions,
 authorisations and consents being revoked, suspended, varied or refused
 renewal to an extent which would, or would be reasonably likely to, be
 (singly or in the aggregate) material in the context of the Placing and Open
 Offer, any acquisition of New Shares or subscription for the Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealing in the Ordinary Shares.

	
 

	
 

	
109

	
 

	
 

	
16.4

	
Save as would not
 be (singly or in the aggregate) material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares, all sums
 due in respect of the issued share capital of the Company and HBOS at the
 date of this Agreement have been paid to and received by the Company or HBOS.
 No owner or holder of any of the share capital of the Company or HBOS shall,
 with effect from New Share Admission or Acquisition Share Admission, have any
 right, in his capacity as such, in relation to the Group other than as set
 out in the memorandum and articles of association of the Company or of HBOS
 respectively.

	
 

	
 

	
16.5

	
Save as would not
 be (singly or in the aggregate) material in the context of the Placing and Open
 Offer, any acquisition of New Shares or subscription for Preference Shares by
 HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares, each of
 the Company and HBOS is the beneficial owner free from all Adverse Interests
 of the shares it holds in each of its subsidiary undertakings.

	
 

	
 

	
16.6

	
Save as would not
 be (singly or in the aggregate) material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares, the
 Company and the Directors have at all times complied with the provisions of
 the Company’s memorandum and articles of association and the Companies Acts
 and, subject to the passing of the Resolutions, have or will have the right,
 power and authority under the memorandum and articles of association of the
 Company, or pursuant to resolution passed in general meeting, to enter into
 and perform this Agreement (including, without limitation, the power to pay
 commissions, fees, costs and expenses provided for in this Agreement) and the
 Preference Share Subscription Agreement, to make the Placing and Open Offer,
 to allot and issue the New Shares in certificated and uncertificated form and
 the Preference Shares in certificated form, to allot and issue the
 Acquisition Shares in certificated and uncertificated form, to issue the
 Issue Documents in the manner proposed without any sanction or consent by
 members of the Company or any class of them and, subject to New Share
 Admission, Acquisition Share Admission and Preference Admission, there are no
 other consents, authorisations or approvals required by the Company in
 connection with the entering into and the performance of this Agreement, the Subscription
 and Transfer Agreement, the Option Agreement or the Preference Share
 Subscription Agreement and the actions referred to in this paragraph 1.5
 which have not been irrevocably and unconditionally obtained. The Company’s
 existing Ordinary Shares are participating securities in, and have not been
 suspended from, CREST.

	
 

	
 

	
16.7

	
Save as would not
 be (singly or in the aggregate) material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares, the
 allotment and issue of  

	
 

	
 

	
110

	
 

	
 

	
 

	
the New Shares, the Acquisition Shares and the
 Preference Shares, the Placing and Open Offer, the issue and distribution of
 the Issue Documents and any other document by or on behalf of the Company in
 connection with New Share Admission, Acquisition Share Admission, the Placing
 and Open Offer or the allotment and issue of the Preference
 Shares will comply with all agreements to which any Group Company is a party
 or by which any such Group Company is bound and will comply with: (a) all
 applicable laws and regulations of the United Kingdom (including, without
 limitation, the Companies Acts, FSMA, the Listing Rules, the Prospectus
 Rules, the DTRs and the Admission and Disclosure Standards) and all
 applicable United States laws and regulations and with all applicable laws
 and regulations of any relevant jurisdiction; (b) the memorandum and articles
 of association of the Company; and (c) when published, the PwC Working
 Capital Report; and will not exceed or infringe any restrictions or the terms
 of any contract, indenture, security, obligation, commitment or arrangement
 by or binding upon the board of directors of any Group Company or their
 respective properties, revenues or assets or result in the implementation of
 any right of pre emption or any other material provision thereof, or result
 in the imposition or variation of any material rights or obligations of any
 Group Company.

	
 

	
 

	
16.8

	
Save as would not
 be (singly or in the aggregate) material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares, none of
 the Company, any other member of the Group, HBOS or any other member of the
 HBOS Group is and, so far as the Company is aware, no event is about to occur
 which would result in the Company, any other member of the Group, HBOS or any
 other member of the HBOS Group being (a) in violation of its memorandum or
 articles of association or other governing or constitutional documents or (b)
 in breach or default in the performance or observance of any obligation,
 agreement, covenant or condition contained in any Agreement or Instruments,
 or (c) in violation of any applicable law, statute, rule, regulation,
 judgment, order, writ, claim form or decree of any government, government
 instrumentality or court, domestic or foreign, having jurisdiction over the
 Company, any other member of the Group, HBOS or any other member of the HBOS
 Group or any of their respective assets, revenues or properties. Save as
 would not be (singly or in the aggregate) material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New Share
 Admission, Acquisition Share Admission, Preference Admission or post-New
 Share Admission or post-Acquisition Share Admission dealings in the Ordinary
 Shares, the Company, each other member of the Group, HBOS and each other
 member of the HBOS Group has complied and will comply with applicable
 securities laws and regulations in relation to the Placing and Open Offer and
 the Acquisition.

	
 

	
 

	
16.9

	
The statement set
 out in clause 2.1(M) is true and accurate and not misleading.

	
 

	
 

	
16.10

	
The New Shares and
 the Acquisition Shares will, upon allotment, be free from all Adverse
 Interests and will rank pari passu in all respects with the existing issued
 shares in the issued share capital of the Company.

	
 

	
 

	
111

	
 

	
 

	
16.11

	
The Preference
 Shares will, upon allotment be free from all Adverse Interests and will have
 the rights and be subject to the restrictions as set out in Schedule 1 of the
 Preference Share Subscription Agreement.

	
 

	
 

	
16.12

	
Each of the
 Company and HBOS has complied in all material respects with the requirements
 of Euroclear and the Regulations.

	
 

	
 

	
16.13

	
No member of the
 Group or any person acting on its behalf has taken, directly or indirectly,
 any action designed to or which has constituted or which might reasonably be
 expected to cause or result in stabilisation or manipulation of the price of
 any security of the Company.

	
 

	
 

	
16.14

	
The Company has
 not paid or agreed to pay to any person any compensation for soliciting
 another to purchase any New Shares (except as contemplated in this
 Agreement).

	
 

	
 

	
16.15

	
All information
 provided by the Company, HBOS, any of their subsidiary undertakings or any of
 its or their officers or employees to HM Treasury and/or to the Joint
 Sponsors and/or the Auditors and/or KPMG in connection with its or their due
 diligence enquiries or similar requests for information has been supplied in
 good faith and such information was when supplied, and remains, true and
 accurate in all material respects and no further information requested has
 been withheld, the absence of which might reasonably be considered to be
 material to such due diligence enquiries or requests for information.

	
 

	
 

	
17.

	
Announcements

	
 

	
 

	
17.1

	
The Press
 Announcement does not contain any untrue statement of a material fact or omit
 to state a material fact necessary in order to make the statements therein,
 in light of the circumstances under which they were made, not misleading,
 provided that this warranty shall not cover information contained in the
 Press Announcement which was furnished in writing to the Company by the Joint
 Sponsors expressly for use therein; and all expressions of opinion,
 intention, belief or expectation of the Company or the Directors contained in
 the Press Announcement are truly and honestly held and made on reasonable
 grounds after due and careful enquiry.

	
 

	
 

	
17.2

	
With respect to
 all Previous Announcements, all statements of fact contained therein were at
 the date of the relevant Previous Announcement and, save to the extent
 corrected, amended or supplemented in any document or announcement issued or
 made by or on behalf of the Company or any member of the Group subsequent
 thereto, remain true and accurate in all material respects and not misleading
 in any material respect and all estimates, expressions of opinion or
 intention or expectation of the Directors contained therein were made on
 reasonable grounds and were honestly held by the Directors and were fairly
 based and there were no facts known (or which could on reasonable enquiry
 have been known by the Directors) the omission of which would make (i) any
 material statement of fact, or (ii) any estimate or statement or expression
 of opinion, intention or expectation in any of the Previous Announcements
 misleading and all Previous Announcements complied in all material respects
 with the memorandum and articles of association of the Company, the Listing
 Rules, the DTRs, the Prospectus Rules, the Companies Acts, FSMA, all applicable
 rules and 

	
 

	
 

	
112

	
 

	
 

	
 

	
requirements of
 the London Stock Exchange and the FSA, all applicable US laws and regulations
 and (in all material respects) all other applicable requirements of statute,
 statutory regulation or any regulatory body. There is no existing profit
 forecast outstanding in respect of the Company, the Group taken as a whole,
 or any member thereof.

	
 

	
 

	
18.

	
Accounts

	
 

	
 

	
 

	
18.1

	
The Accounts
 incorporated by reference into paragraph 20 of Part XI of the Circular and
 Part A of Part XVI of the Prospectus:

	
 

	
 

	
 

	
 

	
(A)

	
have been prepared
 and audited in accordance and comply with IFRS, the Companies Acts and all
 applicable laws and regulations;

	
 

	
 

	
 

	
 

	
(B)

	
give a true and
 fair view of the financial condition and of the state of affairs of the Company
 and the Group as at the end of each of the relevant financial periods
 (including the Accounts Date) and of the profit, loss, cash flow and changes
 in equity of the Company and the Group for such periods; and

	
 

	
 

	
 

	
 

	
(C)

	
either made proper
 provision for, or, where appropriate, in accordance with IFRS, include a note
 in respect of all liabilities or commitments, whether actual, deferred,
 contingent or disputed, of the Group.

	
 

	
 

	
 

	
18.2

	
The Interim
 Accounts incorporated by reference into paragraph 20 Part XI of the Circular
 and Part B of Part XVI of the Prospectus:

	
 

	
 

	
 

	
 

	
(A)

	
have been prepared
 in accordance with, and comply with, IFRS and all applicable laws and
 regulations;

	
 

	
 

	
 

	
 

	
(B)

	
present fairly in
 all material respects the financial position of the Group as at 30 June 2008
 and the results of operations and the cash flows of the Group for the
 financial period ended on 30 June 2008; and

	
 

	
 

	
 

	
 

	
(C)

	
either made proper
 provision for, or, where appropriate, in accordance with IFRS, include a note
 in respect of all liabilities or commitments, whether actual, deferred,
 contingent or disputed, of the Group.

	
 

	
 

	
 

	
18.3

	
The HBOS Accounts
 incorporated by reference into Part A of Part VIII of the Circular and Part A
 of Part XVII of the Prospectus:

	
 

	
 

	
 

	
 

	
(A)

	
have been prepared
 and audited in accordance and comply with IFRS, the Companies Acts and all
 applicable laws and regulations;

	
 

	
 

	
 

	
 

	
(B)

	
give a true and
 fair view of the financial condition and of the state of affairs of HBOS and
 the HBOS Group as at the end of each of the relevant financial periods
 (including the HBOS Accounts Date) and of the profit, loss, cash flow and
 changes in equity of HBOS and the HBOS Group for such periods; and

	
 

	
 

	
 

	
113

	
 

	
 

	
 

	
 

	
(C)

	
either made proper
 provision for, or, where appropriate, in accordance with IFRS, include a note
 in respect of all liabilities or commitments, whether actual, deferred,
 contingent or disputed, of the HBOS Group.

	
 

	
 

	
 

	
18.4

	
The HBOS Interim
 Accounts incorporated by reference into Part B of Part VIII of the Circular
 and Part B of Part XVII of the Prospectus:

	
 

	
 

	
 

	
 

	
(A)

	
have been prepared
 in accordance with, and comply with, IFRS and all applicable laws and
 regulations;

	
 

	
 

	
 

	
 

	
(B)

	
present fairly in
 all material respects the financial position of the HBOS Group as at 30 June 2008
 and the results of operations and the cash flows of the HBOS Group for the
 financial period ended on 30 June 2008; and

	
 

	
 

	
 

	
 

	
(C)

	
either made proper
 provision for, or, where appropriate, in accordance with IFRS, include a note
 in respect of all liabilities or commitments, whether actual, deferred,
 contingent or disputed, of the HBOS Group.

	
 

	
 

	
 

	
18.5

	
The Directors have
 established procedures which provide a reasonable basis for them to make
 proper judgements on an ongoing basis as to the financial position and
 prospects of the Company, the Group and, following the effective date of the
 Scheme, the Enlarged Group.

	
 

	
 

	
 

	
18.6

	
The directors of
 HBOS have established procedures which provide a reasonable basis for them to
 make proper judgements on an ongoing basis as to the financial position and
 prospects of HBOS and the HBOS Group.

	
 

	
 

	
 

	
18.7

	
There are no, and
 during the past five years have been no: (i) material weaknesses in the
 Company’s internal controls over financial reporting (whether or not
 remediated) of the Company or the Group; (ii) changes in the Company’s
 internal controls over financial reporting of the Company or the Group that
 have materially adversely affected, or would be reasonably likely to
 materially adversely affect, the Company’s internal controls over financial
 reporting of the Company or the Group; or (iii) material fraud that involves
 any current member of management of the Company or (so far as the Company is
 aware) of any other member of the Group and no material fraud that involves any
 employee of the Company or (so far as the Company is aware) of any other
 member of the Group.

	
 

	
 

	
 

	
19.

	
Guarantees,
 indemnities, borrowings and default

	
 

	
 

	
 

	
19.1

	
Save for: 

	
 

	
 

	
 

	
 

	
(A)

	
guarantees or
 indemnities given by any member of the Group or of the HBOS Group in the
 ordinary course of business; and 

	
 

	
 

	
 

	
 

	
(B)

	
any indemnities
 given by the Company or HBOS to HM Treasury and/or the Joint Sponsors and/or
 Morgan Stanley & Co. International plc and/or Dresdnder Kleinwort
 Limited, 

	
 

	
 

	
 

	
114

	
 

	
 

	
 

	
 

	
no member of the
 Group or of the HBOS Group has given or has agreed to give any guarantee or
 indemnity or similar obligation in favour of a third party and no member of
 the Group or of the HBOS Group has any current or known future liability,
 howsoever arising which, in any of the foregoing cases, would, or would be
 reasonably likely to, be (singly or in the aggregate) material in the context
 of the Placing and Open Offer, the Preference Share Subscription, any
 acquisition of New Shares or subscription for Preference Shares by HM
 Treasury, Ordinary Shareholders or Placees, New Share Admission, Acquisition
 Share Admission, Preference Admission or post-New Share Admission or
 post-Acquisition Share Admission dealings in the Ordinary Shares.

	
 

	
 

	
 

	
19.2

	
No event has
 occurred nor have any circumstances arisen (and the making and completion of
 the Placing and Open Offer and the allotment and issue of the New Shares, the
 Acquisition Shares and the Preference Shares will not give rise to any such
 event or circumstance) so that any person is or would be entitled, or could,
 with the giving of notice or lapse of time or the fulfilment of any condition
 or the making of any determination, become entitled, to require repayment
 before its stated maturity of, or to take any step to enforce any security
 for, any indebtedness of any member of the Group or of the HBOS Group and no
 person to whom any indebtedness, of any member of the Group or of the HBOS
 Group which is payable on demand is owed has demanded or threatened to demand
 repayment of, or taken or threatened to take any step to enforce any
 guarantee, indemnity or other security for, the same, which, in any of the
 foregoing cases, would, or would be reasonably likely to, be (singly or in
 the aggregate) material or have material consequences in each case in the
 context of the Placing and Open Offer, any acquisition of New Shares, or
 subscription for Preference Shares, by HM Treasury, Ordinary Shareholders or
 Placees, New Share Admission, Acquisition Share Admission, Preference
 Admission or post-New Share Admission or post-Acquisition Share Admission
 dealings in the Ordinary Shares or the business of the Group or the HBOS
 Group.

	
 

	
 

	
 

	
19.3

	
There are no
 companies, undertakings, partnerships or joint ventures in existence in which
 any member of the Group or of the HBOS Group has an ownership interest but
 whose results are not consolidated with the results of the Group or of the
 HBOS Group, but whose default would affect the indebtedness or increase the
 contingent liabilities of the Group or of the HBOS Group to an extent which
 would, or would be reasonably likely to, be (singly or in the aggregate)
 material in the context of the Placing and Open Offer, any acquisition of New
 Shares, or subscription for Preference Shares by HM Treasury, Ordinary
 Shareholders or Placees, New Share Admission, Acquisition Share Admission,
 Preference Admission or post-New Share Admission or post-Acquisition Share
 Admission dealings in the Ordinary Shares.

	
 

	
 

	
 

	
19.4

	
No event or
 circumstance exists, has occurred or arisen or, so far as the Company is
 aware, is about to occur which constitutes or results in, or would with the
 giving of notice and/or lapse of time and/or the making of a relevant
 determination, constitute, or result in, termination of or a default or the acceleration
 or breach of any obligation under any agreement, instrument or arrangement to
 which any member of the Group or of the HBOS Group is a party or by which any
 such member of the Group or of the HBOS Group or any of its properties,
 revenues or assets are bound, in any of the foregoing cases to an extent
 which would, or would be reasonably likely to, be (singly or in the
 aggregate) material in the context of the Placing and Open Offer, any
 acquisition of New Shares, or subscription for Preference Shares, by HM
 Treasury, Ordinary Shareholders 

	
 

	
 

	
 

	
115

	
 

	
 

	
 

	
 

	
or Placees, New
 Share Admission, Acquisition Share Admission, Preference Admission or
 post-New Share Admission or post-Acquisition Share Admission dealings in the
 Ordinary Shares.

	
 

	
 

	
20.

	
Taxation

	
 

	
 

	
 

	
 

	
No stamp duty,
 SDRT or other issuance or transfer taxes or similar duties are payable in
 connection with the allotment, issue and delivery of the New Shares, or the
 Preference Shares, by the Company in accordance with the terms of this
 Agreement or, as the case may be, the Preference Share Subscription Agreement
 or otherwise in connection with the making or implementation of the Placing
 and Open Offer or any subscription for the Preference Shares, save for any
 stamp duty or SDRT payable under sections 67, 70, 93 or 96 of the Finance Act
 1986 in relation to the issue of the New Shares or the Preference Shares.

	
 

	
 

	
 

	
21.

	
Intellectual
 property

	
 

	
 

	
 

	
21.1

	
Except to an
 extent that would not (singly or in the aggregate) be material in the context
 of the Placing and Open Offer, any acquisition of New Shares or subscription
 for Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New
 Share Admission, Acquisition Share Admission, Preference Admission or
 post-New Share Admission or post-Acquisition Share Admission dealings in the
 Ordinary Shares, and so far as the Company is aware, neither the Group nor
 the HBOS Group infringes the Intellectual Property Rights of any third party
 nor so far as the Company is aware does any third party infringe the Intellectual
 Property Rights owned or used by the Group or the HBOS Group.

	
 

	
 

	
 

	
21.2

	
All material
 Intellectual Property Rights used by the Group and the HBOS Group are either
 legally or beneficially owned by the Group or the HBOS Group in all material
 respects or are used under a licence and are not subject to any Adverse
 Interests to an extent that would or might (singly or in the aggregate) be
 material in the context of the Placing and Open Offer, any acquisition of New
 Shares or subscription for Preference Shares by HM Treasury, Ordinary
 Shareholders or Placees, New Share Admission, Acquisition Share Admission,
 Preference Admission or post-New Share Admission or post-Acquisition Share
 Admission dealings in the Ordinary Shares.

	
 

	
 

	
 

	
21.3

	
Save as would not
 (singly or in the aggregate) be material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares, (i) all
 Intellectual Property Rights registered in the name of a member of the Group
 or of the HBOS Group (if any) are beneficially owned by it and subsisting and
 if granted not subject to revocation and (ii) all requisite registration and
 renewal fees in respect thereof have been duly and timeously paid.

	
 

	
 

	
 

	
21.4

	
Save as would not
 (singly or in the aggregate) be material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-

116

	
 

	
 

	
 

	
Acquisition Share
 Admission dealings in the Ordinary Shares, (i) all Intellectual Property
 Rights owned and used or reasonably likely to be used by the Group and the
 HBOS Group and capable of legal protection are subject to appropriate and
 enforceable protection (including, where reasonably appropriate, by
 registration), and (ii) so far as the Company is aware there is no
 restriction of the rights of the Group or the HBOS Group to use any
 Intellectual Property Rights owned by or licensed to the Company or HBOS to
 engage in any of the activities presently or proposed to be undertaken by it.
 

	
 

	
 

	
22.

	
Insurance

	
 

	
 

	
 

	
Save as would not
 be (singly or in the aggregate) material in the context of the Placing and
 Open Offer, any acquisition of New Shares or subscription for Preference
 Shares by HM Treasury, Ordinary Shareholders or Placees, New Share Admission,
 Acquisition Share Admission, Preference Admission or post-New Share Admission
 or post-Acquisition Share Admission dealings in the Ordinary Shares, each of
 the Group and the HBOS Group is insured to adequate levels against all risks
 which the Company reasonably believes to be commonly insured against by
 persons carrying on the same or similar businesses as those carried on by the
 Group and the HBOS Group and against all risks against which the Group and
 the HBOS Group might reasonably be expected to insure in the particular
 circumstances of the businesses carried on by each member of the Group and of
 the HBOS Group, all such insurances are in full force and effect and to the
 best knowledge, information and belief of the Company, there are no
 circumstances which could render any such insurances void or voidable and
 there is no material insurance claim, pending, threatened or outstanding
 against any member of the Group or of the HBOS Group and all premiums due in
 respect of all insurances have been duly paid. 

	
 

	
 

	
23.

	
Rating

	
 

	
 

	
 

	
Except as publicly
 announced the Company has not received notice of any intended or potential
 downgrading of the rating assigned to any of the Company’s or HBOS’s (or any
 other member of its Group’s or any other member of the HBOS Group’s) credit
 or debt by a ratings agency. 

	
 

	
 

	
24.

	
Insolvency
 

	
 

	
 

	
24.1

	
No member of the
 Group or of the HBOS Group is unable to pay its debts within the meaning of
 section 123 of the Insolvency Act 1986 or is otherwise insolvent. 

	
 

	
 

	
24.2

	
Save in the
 context of a solvent voluntary winding up or otherwise as would not (singly
 or in the aggregate) be material in the content of the Placing and Open
 Offer, any acquisition of New Shares or subscription for Preference Shares by
 HM Treasury, New Share Admission, Acquisition Share Admission, Preference
 Admission or post-New Share Admission or post-Acquisition Share Admission
 dealings in the Ordinary Shares, no order has been made, petition presented
 or resolutions passed for the winding up of any member of the Group or of the
 HBOS Group and no meeting has been convened for the purpose of winding up any
 member of the Group or of the HBOS Group. No member of the Group or of the
 HBOS Group has been a party to any transaction which could be avoided in a
 winding up. 

	
 

	
 

117

	
 

	
 

	
24.3

	
No steps have been
 taken for the appointment of an administrator or receiver (including an
 administrative receiver) of all or any part of the assets of any member of
 the Group or of the HBOS Group. 

	
 

	
 

	
24.4

	
By reason of
 actual or anticipated financial difficulties, no member of the Group or of
 the HBOS Group has commenced negotiations with its creditors or any class of
 its creditors with a view to rescheduling any of its indebtedness or has made
 or proposed any arrangement or composition with its creditors or any class of
 its creditors. 

	
 

	
 

	
25.

	
Regulatory
 

	
 

	
 

	
25.1

	
Each member of the
 Group and of the HBOS Group required to be licensed (as a bank or otherwise)
 is duly licensed in its jurisdiction of incorporation and domicile and,
 except as would not reasonably be expected to be material, is duly licensed
 or authorised in each other jurisdiction where it is required to be licensed
 or authorised to conduct its business. 

	
 

	
 

	
25.2

	
Save as otherwise
 as would not (singly or in the aggregate) be material in the context of the
 Placing and Open Offer, any acquisition of New Shares or subscription for
 Preference Shares by HM Treasury, Ordinary Shareholders or Placees, New Share
 Admission, Acquisition Share Admission, Preference Admission or post-New
 Share Admission or post-Acquisition Share Admission dealings in the Ordinary
 Shares, neither the Company nor HBOS is subject to any special or additional
 surveillance or supervision by the FSA or to any special or additional
 reporting requirements in relation to its assets, liquidity position, funding
 position or otherwise and neither the Company nor HBOS has been subject to
 any visits, beyond customary visits, by the FSA. 

	
 

	
 

	
25.3

	
The operations of
 each member of the Group and of the HBOS Group are and have been conducted at
 all times in material compliance with the money laundering statutes of all
 jurisdictions, the rules and regulations thereunder and any related or
 similar rules, regulations or guidelines, issued, administered or enforced by
 any governmental agency (collectively, the “Money
 Laundering Laws”) and no material action, suit or proceeding by or
 before any court or governmental agency, authority or body or any arbitrator
 involving any member of the Group or of the HBOS Group with respect to the
 Money Laundering Laws is pending or, to the best knowledge of the Company,
 threatened. 

	
 

	
 

	
25.4

	
Except as
 previously disclosed by the Company, none of the Company, any other member of
 the Group or, to the knowledge of the Company, any director, officer, agent,
 employee or Affiliate of the Company is currently subject to any sanctions
 administered by the U.S. Department of the Treasury (“OFAC”) or any similar sanctions imposed
 by the European Union, the United Nations or any other body, governmental or
 other, to which the Company or ay of its Affiliates is subject (collectively,
 “other economic sanctions”); and
 the Company will not directly or indirectly use the proceeds of the Placing
 and Open Offer, or lend, contribute or otherwise make available such proceeds
 to any other member of the Group, joint venture partner or other person or
 entity, for the purpose of financing the activities of any person currently
 subject to any sanctions administered by OFAC or any other economic
 sanctions. 

	
 

	
 

	
25.5

	
None of the
 Company, any other member of the Group or, to the knowledge of the Company,
 any director, officer, agent, employee or Affiliate of the Company, is aware
 of 

118

	
 

	
 

	
 

	
or has taken any
 action, directly or indirectly, that could result in a violation by such
 persons of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the
 rules and regulations thereunder (the FCPA) (including, without limitation,
 making use of the mail or any means or instrument of interstate commerce
 corruptly in furtherance of an offer, payment, promise to pay or
 authorisation of the payment of any money, or other property, gift, promise
 to give, or authorisation of the giving of anything of value to any “foreign
 official” (as such term is defined in the FCPA) or any foreign political
 office, in contravention of the FCPA), the OECD Convention on Bribery of
 Foreign Public Officials in International Business Transactions (the OECD
 Convention) or any similar law or regulation, to which the Company, any other
 member of the Group, any director, officer, agent, employee of any member of
 the Group or, to the knowledge of the Company, any Affiliate is subject; and
 the Company, each member of the Group and, to the knowledge of the Company,
 its Affiliates have conducted their businesses in compliance with the FCPA,
 the OECD Convention and any applicable similar law or regulation and have
 instituted and maintain policies and procedures designed to ensure, and which
 are reasonably expected to continue to ensure, continued compliance
 therewith. 

	
 

	
 

	
26.

	
United
 States Securities Regulations

	
 

	
 

	
26.1

	
The Company is a
 “foreign issuer” (as defined in Regulation S under the Securities Act).

	
 

	
 

	
26.2

	
The Company
 reasonably believes that there is no “substantial US market interest” (as
 defined in Rule 902(j) of Regulation S under the Securities Act) in any of
 the New Shares.

	
 

	
 

	
26.3

	
The Company does
 not believe that it is and does not expect to become (whether as a result of
 the receipt and application of the proceeds of the sale of the New Shares or
 otherwise) a “passive foreign investment company” within the meaning of
 section 1297 of the US Internal Revenue Code of 1986.

	
 

	
 

	
26.4

	
The Company is not,
 and, immediately after giving effect to the offering and sale of the New
 Shares and the application of the proceeds thereof as set forth in the Draft
 Prospectus and, when published, the Prospectus, will not be, an “investment
 company” as such term is defined in the US Investment Company Act of 1940.

	
 

	
 

	
26.5

	
There are no
 persons with registration rights or other similar rights to have any shares
 registered by the Company under the Securities Act.

	
 

	
 

	
26.6

	
During the period
 of six months after New Share Admission, the Company will not, and will not
 permit any of its Affiliates to, resell any New Shares which constitute
 “restricted securities” under Rule 144 that have been reacquired by any of
 them other than in transactions that meet the applicable requirements of
 Regulation S.

	
 

	
 

	
26.7

	
The Acquisition,
 including any offer and/or issuance of New Shares and New ADSs to HBOS
 shareholders and holders of HBOS ADRs, respectively, will be conducted in
 compliance with the exemption from the registration requirements of the
 Securities Act provided by Section 3(a)(10) thereof and in compliance with
 any applicable state securities laws in the United States, or, should the
 Company elect to effect the Acquisition by means of a takeover offer,
 pursuant to a valid registration statement, or

119

	
 

	
 

	
 

	
 

	
an exemption from
 registration, under the Securities Act and in compliance with the applicable
 tender offer rules under the Exchange Act. 

	
 

	
 

	
28.

	
Panel
 Confirmation

	
 

	
 

	
 

	
The Panel has
 confirmed that: 

	
 

	
 

	
 

	
(A)

	
subject to the
 independent shareholders of the Company voting in favour of the Whitewash
 Resolution, the Panel will disapply the requirement to make a general offer
 under the terms of Rule 9 of the City Code on Takeovers and Mergers which
 would otherwise be required by the acquisition by HM Treasury (or its
 nominee) of the New Shares; and 

	
 

	
 

	
 

	
 

	
(B)

	
it has consented
 to the amendment to the terms of the Acquisition as announced in the Press
 Announcement. 

120

	
 

	
 

	
Part IIA

	
 

	
Additional representations,
 warranties and undertakings given in respect of the Circular
 on the Circular
 Posting Date by reference to the facts and circumstances then existing

	
 

	
1.

	
Pro
 forma and reconciliation

	
 

	
 

	
1.1

	
The pro forma
 financial information on the Enlarged Group set out in the Circular has been
 duly and carefully prepared on the bases set out in the Circular, in
 accordance with the Prospectus Rules and is presented on a basis consistent
 with the accounting principles, standards and practices normally applied by
 the Company.

	
 

	
 

	
1.2

	
The unaudited
 reconciliation of HBOS Group financial information set out in Part IX of the
 Circular accurately presents and explains all material adjustments which
 reconcile the HBOS Group’s audited consolidated income statement and
 consolidated net assets for each of the three years ended 31 December 2005,
 2006 and 2007 and the unaudited results for the six months ended 30 June
 2008, as previously reported by the HBOS Group, to estimates of those that
 would have been reported had HBOS Group applied the accounting policies
 applied by the Company in the preparation of its interim results for the six
 months ended 30 June 2008. All estimates upon which the reconciliation is
 based are set out and fairly presented in Part IX of the Circular, are
 reasonable and the adjustments are appropriate for the purpose of presenting
 the financial information (as adjusted) on a basis consistent in all material
 respects with the accounting policies of the Group.

	
 

	
 

	
2.

	
Reports

	
 

	
 

	
2.1

	
All information
 supplied by the Company or any member of the Group to the Joint Sponsors
 and/or the Auditors for the purposes of the PwC Working Capital Report and/or
 any other report or letter prepared by the Auditors in connection with the
 Placing and Open Offer and in respect of any updates thereto, has been
 supplied to them in good faith; and such information was when supplied and
 remains true and accurate in all material respects and not misleading, and no
 information has been withheld the absence of which might reasonably have
 affected the contents of the Working Capital Report and/or any other such
 report or letter.

	
 

	
 

	
2.4

	
All information
 supplied by HBOS or any member of the HBOS Group to KPMG for the purposes of
 the KPMG Working Capital Report and/or any other report or letter prepared by
 KPMG in connection with the Placing and Open Offer and in respect of any
 updates thereto, has been supplied to them in good faith; and such
 information was when supplied and remains true and accurate in all material
 respects and not misleading, and no information has been withheld the absence
 of which might reasonably have affected the contents of the KPMG Working
 Capital Report and/or any other such report or letter.

	
 

	
 

	
2.5

	
The Reports are
 fairly presented and all information contained in the Reports is true and
 accurate in all material respects and is not misleading and no fact or matter
 has been omitted from the Reports which would be necessary to make the
 information therein not misleading; and the Company has read and does not
 disagree with the statements of opinion contained in, or the contents of, the
 Reports and (where relevant) the

121

	
 

	
 

	
 

	
statements of
 opinion, intention or expectation attributed to the Group, the HBOS Group or
 the Enlarged Group in the Reports are accurate statements of the opinions,
 intentions or expectations held by the Group and/or the HBOS Group, which are
 fairly based upon facts within the knowledge of the Company and/or HBOS, and
 have been made after due and careful consideration and enquiry. 

	
 

	
 

	
2.6

	
The PwC Working
 Capital Report has been approved by the Directors or a duly authorised
 committee thereof, the KPMG Working Capital Report has been approved by the
 board of directors of HBOS or a duly authorised committee thereof, the
 cashflow and working capital projections contained in the Working Capital
 Reports have been prepared after due and careful consideration and enquiry,
 all assumptions on which such projections are based are set out in the
 Working Capital Reports and are reasonable and such projections take into
 account all material matters of which the Company and/or HBOS is aware
 concerning the Company, HBOS, the other members of the Group, the other
 members of the HBOS Group and the Enlarged Group or the markets in which any
 of them is carrying on, or is expecting to carry on, business and all factual
 information supplied to PwC by the Company or any other member of the Group
 or any of such person’s officers or to KPMG by HBOS or any other member of
 the HBOS Group or any of such person’s officers for the purpose of enabling
 PwC and KPMG respectively to identify or evaluate the assumptions underlying
 the relevant projections is true, accurate and not misleading and all other
 information (including any forecast or projection) supplied for that purpose
 was carefully prepared and given in good faith.

	
 

	
 

	
2.7

	
So far as the
 Company is aware, there is no fact or circumstance which is not disclosed
 with sufficient prominence in the Circular which ought to be taken into
 account by the UK Listing Authority in considering the declaration on
 production of a circular to be submitted to the FSA by each of the Joint
 Sponsors.

SCHEDULE 4 

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.

	
LLOYDS
 TSB GROUP PLC, a company incorporated in Scotland with
 registered number 095000 and whose registered office is at Henry Duncan
 House, 120 George St, Edinburgh, Scotland EH2 4LH (the “Lloyds”); 

	
 

	
 

	
3.

	
UBS
 LIMITED, a company incorporated in England and Wales with registered number
 2035362 whose registered office is at 1 Finsbury Avenue, London EC2M 2PP (“UBS”); 

	
 

	
 

	
4.

	
MERRILL
 LYNCH INTERNATIONAL, a company incorporated in England and Wales with
 registered number 02312079 and whose registered office is at Merrill Lynch
 Financial Centre, 2 King Edward Street, London EC1A 1HQ (“Merrill Lynch”); 

	
 

	
 

	
5.

	
CITIGROUP
 GLOBAL MARKETS LIMITED, a company incorporated in England and Wales with
 registered number 01763297 and whose registered office is at Citigroup
 Centre, Canada Square, Canary Wharf, London E14 5LB (“CGML”); 

	
 

	
 

	
6.

	
CITIGROUP
 GLOBAL MARKETS U.K. EQUITY LIMITED of a company incorporated in England and Wales
 with registered number 2079774 and whose registered office is at Citigroup
 Centre, Canada Square, Canary Wharf, London E14 5LB (the “CGMEL” and, together with CGML, “Citi”);
and 

	
 

	
 

	
7.

	
[                         ]
 of

[                                   
            ]
 [(registered in England No.

[                              
])] (the “Company”) 

WHEREAS:

	
 

	
 

	
(A)

	
HMT, Lloyds, UBS,
 Merrill Lynch, and the Company have entered into the Placing Agreement (as
 defined in this agreement). 

	
 

	
 

	
(B)

	
HMT wishes to be
 released and discharged from the Placing Agreement and the Company, UBS,
 Merrill Lynch and Citi have agreed to release and discharge HMT from the
 Placing Agreement upon the terms of the Company’s undertaking to perform the
 Placing 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 Placing
 Agreement. 

NOW IT IS AGREED as follows:- 

	
 

	
 

	
1.

	
INTERPRETATION
 

123

	
 

	
 

	
1.1

	
In this agreement:
 

	
 

	
 

	
 

	
“Placing
 Agreement”

	
 

	
means the
 agreement effective as of 13 October 2008 between HMT, Lloyds, UBS, and
 Merrill Lynch and Citi relating to, inter alia, the placing and open offer of
 a number of Lloyds ordinary shares; and 

	
 

	
 

	
 

	
“Continuing
 Parties”

	
 

	
means, Lloyds UBS,
 Merrill Lynch and Citi and “Continuing
 Party” shall be construed accordingly. 

	
 

	
 

	
 

	
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 the
 Continuing Parties in clause 3, the Company hereby undertakes to
 observe, perform, discharge and be bound by the Placing 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 Placing
 Agreement falling due for performance, or which should have been performed,
 before the date of this agreement; 

	
 

	
 

	
 

	
 

	
(B)

	
make the Company
 liable for any act, neglect, default or omission in respect of the Placing
 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 Placing Agreement before the date of this agreement. 

	
 

	
 

	
 

	
3.

	
CONTINUING
 PARTIES’ 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, each of the Continuing Parties
 hereby: 

	
 

	
 

	
 

	
 

	
(A)

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

	
 

	
 

	
 

124

	
 

	
 

	
 

	
 

	
 

	
(B)

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

	
 

	
 

	
 

	
 

	
 

	
(C)

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

	
 

	
 

	
 

	
 

	
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 any Continuing Party
 may have against HMT in relation to the Placing Agreement and arising out of
 matters prior to the date of this agreement. 

	
 

	
 

	
 

	
 

	
4.

	
HMT’S
 UNDERTAKING AND RELEASE OF THE CONTINUING PARTIES 

	
 

	
 

	
 

	
 

	
 

	
With effect from
 the date of this agreement and in consideration of the undertakings given by
 the Continuing Parties in clause 3, HMT hereby releases and discharges
 each of the Continuing Parties from all obligations to observe, perform,
 discharge and be bound by the Placing Agreement. Notwithstanding this
 undertaking and release, nothing in this agreement shall affect or prejudice
 any claim or demand whatsoever which HMT may have against any Continuing
 Party in relation to the Placing Agreement and arising out of matters prior
 to the date of this agreement. 

	
 

	
 

	
 

	
 

	
5.

	
GUARANTEE
 AND INDEMNITY 

	
 

	
 

	
 

	
 

	
5.1

	
In consideration
 of the undertakings given by the Continuing Parties in clause 3, HMT
 hereby unconditionally and irrevocably guarantees to each Continuing Party
 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 each Continuing Party on an after-tax basis 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 Placing 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 and so that the same benefits shall be conferred on
 each Continuing Party as such party 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 any Continuing Party may now or hereafter have or hold for the
 performance and 

125

	
 

	
 

	
 

	
 

	
observance of the obligations,
 commitments and undertakings of the Company under or in connection with this
 agreement. 

	
 

	
 

	
 

	
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 Placing 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 Placing 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
 CEASES 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.
 The Continuing Parties agree to consent to, and to execute and deliver all
 such documentation as may be necessary to effect, such novation. 

	
 

	
 

	
 

	
7.

	
NOTICES
 

	
 

	
 

	
 

	
 

	
For the purposes
 of all provisions in the Placing 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 Placing 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 

	
 

	
 

	
 

	
 

	
The Continuing
 Parties and the Company hereby agree that 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 and that the courts
 of England and Wales are to have exclusive jurisdiction to settle any matter,
 claim or dispute arising hereunder and submits to the jurisdiction of the
 English Courts. 

126

	
 

	
 

	
 

	
10.

	
AGENT
 FOR SERVICE OF PROCESS 

	
 

	
 

	
 

	
 

	
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 Lloyds, Citi, Merrill Lynch, UBS and HMT
 of the name and address of such replacement agent. If the Company fails to
 appoint another agent, Lloyds, having consulted with Citi, Merrill Lynch and
 UBS, shall be entitled to appoint one on the Company’s behalf and at the
 Company’s expense. 

127

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

 UBS Limited

	
 

	
 

	
 

	

	
 

	
For and on behalf
 of

 Merrill Lynch International

	
 

	
 

	
 

	

	
 

	
For and on behalf
 of

 Citigroup Global Markets Limited

	
 

	
 

	
 

	

	
 

	
For and on behalf
 of

 Citigroup Global Markets U.K. Equity Limited

	
 

	
 

	
 

	

	
 

	

 For and on
 behalf of 
Lloyds TSB Group plc

	
 

	
 

	
 

	

	
 

	
For and on behalf
 of

 [Insert name of the
 Company] 

	
 

128

SCHEDULE 5

US INVESTOR LETTER

[Name,
address, fax number and 

attention details for the Company]

[Names,
addresses, fax numbers and 

attention details for the Placing Agents]

cc: [You must fax a copy
of this letter 

to the financial intermediary through 

which your existing ordinary shares 

are held. Accordingly please insert 

here name, address and contact 

details of the relevant financial 

intermediary.]

_________________, 2008

Ladies and Gentlemen

In connection with our proposed acquisition of new shares (the “New Shares”)
of [insert
name of
company] (the “Company”), which are being offered by way
of a placing and open offer (the “Placing and Open Offer”), we represent,
warrant, agree and confirm that: 

	
 

	
 

	
1.

	
To the extent we
 are an existing shareholder of the Company, we are the beneficial holder of
 and/or exercise full investment discretion with respect to our ordinary
 shares of the Company. 

	
 

	
 

	
2.

	
We are an
 institution which (a) has such knowledge and experience in financial and
 business matters that we are capable of evaluating the merits and risks of
 our investments in the New Shares, and (b) we, and any accounts for which we
 are acting, are able to bear the economic risk, and sustain a complete loss,
 of such investment in the New Shares. 

	
 

	
 

	
3.

	
We are a
 “qualified institutional buyer” (a “QIB”) as defined in Rule 144A (“Rule 144A”)
 under the US Securities Act of 1933, as amended (the “Securities Act”).
 Further, if we are acquiring the New Shares as a fiduciary or agent for one
 or more investor accounts, (a) each such account is a QIB, (b) we have
 investment discretion with respect to each account, and (c) we have full
 power and authority to make the representations, warranties, agreements and
 acknowledgements herein on behalf of each such account.

129

	
 

	
 

	
4.

	
We will base our
 investment decision on a copy of the Company’s prospectus dated [●],
 2008, including the documents incorporated by reference therein (the “Prospectus”).
 We acknowledge that neither the Company nor any of its affiliates nor any
 other person (including [insert names of placing agents]
 (together, the “Placing Agents”)) has made any
 representations, express or implied, to us with respect to the Company, the
 Placing and Open Offer, the New Shares or the accuracy, completeness or
 adequacy of any financial or other information concerning the Company, the
 Placing and Open Offer or the New Shares, other than (in the case of the
 Company and its affiliates only) the information contained or incorporated by
 reference in the Prospectus. We acknowledge that we have not relied on any
 information contained in any research reports prepared by the Placing Agents
 or any of their respective affiliates. We understand that the Prospectus has
 been prepared in accordance with UK format, style and content, which differs
 from US format, style and content. In particular, but without limitation, the
 financial information contained in the Prospectus have been prepared in
 accordance with International Financial Reporting Standards, and thus may not
 be comparable to financial statements of US companies prepared in accordance
 with US generally accepted accounting principles. We will not distribute,
 forward, transfer or otherwise transmit the Prospectus, or any other
 presentational or other materials concerning the Placing and Open Offer
 (including electronic copies thereof) to any person within the United States
 (other than a QIB on behalf of which we act). We acknowledge that we have
 read and agreed to the matters set forth under the heading “[insert
 name of relevant section of Prospectus containing notices to oversees
 investors, including US investors]” in the Prospectus.

	
 

	
 

	
5.

	
We will make our
 own independent investigation and appraisal of the business, results,
 financial condition, prospects, creditworthiness, status and affairs of the
 Company and we will make our own investment decision to acquire the New
 Shares. We understand that there may be certain consequences under US and
 other tax laws resulting from an investment in the New Shares, including that
 we must bear the economic risk of an investment in the New Shares for an
 indefinite period of time, and we will make such investigation and consult
 such tax and other advisors with respect thereto as we deem appropriate.

	
 

	
 

	
6.

	
Any New Shares we
 acquire will be for our own account (or for the account of a QIB as to which
 we exercise sole investment discretion and have authority to make the
 statements contained in this letter) for investment purposes, and not with a
 view to resale or distribution within the meaning of the US securities laws,
 subject to the understanding that the disposition of our property shall at
 all times be and remain within our control.

	
 

	
 

	
7.

	
We understand that
 the New Shares are being offered in a transaction not involving any public
 offering in the United States within the meaning of the Securities Act and
 that the New Shares are not being and will not be registered under the
 Securities Act or with any State or other jurisdiction of the United States.
 We acknowledge and agree that we are not taking up the New Shares as a result
 of any general solicitation or general advertising (as those terms are
 defined in Regulation D under the Securities Act). We understand and agree
 that, although offers and sales of the New Shares are being made in the
 United States to QIBs, they are not being made under Rule 144A, and that the
 New Shares are not eligible for resale pursuant to Rule 144A.

130

	
 

	
 

	
8.

	
We understand that
 the New Shares will be “restricted securities” within the meaning of Rule
 144(a)(3) under the Securities Act and we agree that for so long as such
 securities are “restricted securities” (as so defined), they may not be
 deposited into any unrestricted depositary facility established or maintained
 by any depositary bank, including the current American Depositary Receipt (“ADR”)
 facility maintained by The Bank of New York Mellon, as depositary for the
 Company’s ADR facility (the “Depositary”).

	
 

	
 

	
9.

	
As long as the New
 Shares are “restricted securities” within the meaning of Rule 144(a)(3) under
 the Securities Act, we will not reoffer, resell, pledge or otherwise transfer
 the New Shares, except in an offshore transaction in accordance with Rule 903
 or Rule 904 of Regulation S under the Securities Act (which, for the
 avoidance of doubt, includes a sale over the London Stock Exchange) and in
 accordance with any applicable securities laws of any state or other
 jurisdiction of the United States.

	
 

	
 

	
10.

	
We understand
 that, to the extent the New Shares are delivered in certificated form, the
 certificate delivered in respect of the New Shares will bear a legend
 substantially to the following effect for so long as the securities are
 “restricted securities” within the meaning of Rule 144(a)(3) under the
 Securities Act: 

	
 

	
 

	
 

	
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
 AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
 AMENDED (THE “SECURITIES ACT”), OR WITH ANY SECURITIES REGULATORY AUTHORITY
 OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND MAY NOT BE
 OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN AN OFFSHORE
 TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
 SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
 STATE OR OTHER JURISDICTION OF THE UNITED STATES. NOTWITHSTANDING ANYTHING TO
 THE CONTRARY IN THE FOREGOING, THE SHARES MAY NOT BE DEPOSITED INTO ANY
 UNRESTRICTED DEPOSITARY RECEIPT FACILITY IN RESPECT OF SHARES ESTABLISHED OR
 MAINTAINED BY A DEPOSITARY BANK. EACH HOLDER, BY ITS ACCEPTANCE OF THESE
 SHARES, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING
 RESTRICTIONS.

	
 

	
 

	
11.

	
We acknowledge
 that, whether or not we currently hold the Company’s ADRs, we will receive
 the New Shares in the form of ordinary shares and not in the form of ADRs.

	
 

	
 

	
12.

	
We acknowledge
 that until six months after the latest date on which the New Shares are delivered
 in the Placing and Open Offer (which is currently expected to be [●] 2008),
 the Depositary will not accept deposits of the New Shares in the ADR
 facility, or permit pre-releases of the Company’s American Depositary Shares
 from the ADR facility, unless we (or a broker on behalf of us) certify, among
 other things, that the shares to be deposited were not subscribed or
 purchased pursuant to the Placing and Open Offer, and that we have not
 borrowed shares to be deposited with the intention of replacing them with New
 Shares subscribed or purchased pursuant to the Placing and Open Offer.

	
 

	
 

	
13.

	
We understand and
 acknowledge that the Company shall have no obligation to recognize any offer,
 sale, pledge or other transfer made other than in compliance with the
 restrictions on transfer set forth and described herein and that the Company
 may 

131

	
 

	
 

	
 

	
make notation on
 its records or give instructions to [insert name of registrar] and any
 transfer agent of the New Shares and to the Depositary under its ADR facility
 in order to implement such restrictions.

	
 

	
 

	
14.

	
We understand that
 the foregoing representations, warranties, agreements and acknowledgements
 are required in connection with United States and other securities laws and
 that the Company, its affiliates, the Placing Agents and their respective
 affiliates, and others are entitled to rely upon the truth and accuracy of
 the representations, warranties, agreements and acknowledgements contained
 herein. We agree that if any of the representations, warranties, agreements
 and acknowledgements made herein are no longer accurate, we shall promptly
 notify the Company and the Placing Agents. All representations, warranties,
 agreements and acknowledgements we have made in this letter shall survive the
 execution and delivery hereof.

	
 

	
 

	
15.

	
We confirm that,
 to the extent we are purchasing the New Shares for the account of one or more
 other persons, (a) we have been duly authorized to sign this letter and make
 the confirmations, acknowledgements and agreements set forth herein on their
 behalf and (b) the provisions of this letter constitute legal, valid and
 binding obligations of us and any other person for whose account we are
 acting.

	
 

	
 

	
16.

	
We irrevocably
 authorize the Company, its affiliates, the Placing Agents and their
 respective affiliates and any person acting on their behalf to produce this
 letter or a copy hereof to any interested party in any administrative or
 legal proceedings, dispute or official inquiry with respect to the matters
 covered hereby.

	
 

	
 

	
17.

	
This letter shall
 be governed by, and construed in accordance with, the laws of the State of
 New York. 

	
 

	
 

	
18.

	
We agree to
 promptly notify you if, at any time prior to [insert relevant date], any
 of the foregoing ceases to be true.

Yours truly,

[Signature of authorized signatory]

ON BEHALF OF [Institution]

	
 

	
 

	
By:

	
[Name of
 authorized signatory]

	
 

	
 

	
 

	
[Title of
 authorized signatory] 

	
 

	
 

	
 

	
[Institution]

	
 

	
 

	
 

	
[Address] 

[Name of nominee, if applicable]

132

SCHEDULE 6

CONDITIONS TERM SHEET

	
 

	
 

	
 

	
1.

	
Remuneration

	
 

	
 

	
 

	
1.1

	
Remuneration of
 Board of Directors 

	
 

	
 

	
 

	
 

	
(A)

	
For HBOS, no
 bonuses for 2008. If part of contractual arrangement, Board Directors
 relinquish these voluntarily. 

	
 

	
 

	
 

	
 

	
(B)

	
Lloyds TSB
 announced on 13 October 2008 that although its directors remain entitled to
 take cash as an alternative to shares in respect of their 2008 bonus it would
 ask the executive directors to agree to receive such entitlement in Lloyds
 TSB shares (which would be subject to a restriction on sale until December
 2009). The executive directors have responded positively to this request and
 have each now agreed to receive Lloyds TSB shares in lieu of their cash
 entitlement in respect of such bonus, with this restriction on sale.

	
 

	
 

	
 

	
 

	
(C)

	
The merged group
 will comply with the ABI industry best practice code on remuneration.
 Remuneration will seek to reward long term value creation and will not
 encourage excessive risk taking. Short term indicators will be taken into
 account only where fully consistent with long term value creation and not
 encouraging excessive risk taking. Reward for board members will also take
 into account relative compensation packages and perceived fairness in the
 current economic climate.

	
 

	
 

	
 

	
 

	
(D)

	
No rewards for
 failure; where a Board Member loses the confidence of the Board, they should
 be able to be dismissed at a cost that is reasonable and perceived as fair.

	
 

	
 

	
 

	
1.2

	
Commitment to FSA
 Code on risk based remuneration.

	
 

	
 

	
 

	
2.

	
Corporate
 Governance

	
 

	
 

	
 

	
 

	
HMT will work with
 the board on its appointment of two new independent directors following
 completion of the Acquisition. Thereafter, consistent with best practice, the
 Company will engage constructively with HMT in its role as a shareholder.

	
 

	
 

	
 

	
3.

	
Lending

	
 

	
 

	
 

	
3.1

	
Mortgages 

	
 

	
 

	
 

	
 

	
(A)

	
A commitment to
 immediately restore and maintain the availability and active marketing of
 competitively priced mortgage lending (other than in the non-conforming
 market) through to the end of 2011 at a level at least equivalent to that of
 2007. 

133

	
 

	
 

	
 

	
 

	
 

	
(B)

	
The Company will
 participate in industry-wide initiatives, including the small business forum
 and other industry-wide initiatives of a similar nature, and will comply with
 Government codes of practice and guidance.

	
 

	
 

	
 

	
 

	
 

	
(C)

	
Make available,
 until the end of 2009, a sum to be agreed for the establishment and
 maintenance of shared equity/shared ownership schemes to help people
 struggling with mortgage payments to stay in their homes, either through
 individual bank schemes or paid into a central fund run by industry.

	
 

	
 

	
 

	
 

	
 

	
(D)

	
Make available,
 and until the end of 2009, a sum to be agreed to support ongoing expansion of
 financial capability initiatives. 

	
 

	
 

	
 

	
 

	
3.2

	
SMEs

	
 

	
 

	
 

	
 

	
 

	
(A)

	
A commitment to
 immediately restore and maintain the availability and active marketing of
 competitively priced lending to SMEs at a level at least equivalent to that
 of 2007 until the end of 2011.

	
 

	
 

	
 

	
 

	
 

	
(B)

	
Publish an annual
 report, for each year through to end of 2011, on:

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
overall level of
 lending to SMEs;

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
overdraft
 facilities and loans to SMEs: volumes, amounts and interest rates and other
 charges;

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
amount of
 foreclosures of debt finance made available to SMEs;

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

	
amount of lending
 through the Small Firms Loan Guarantee Scheme; and

	
 

	
 

	
 

	
 

	
 

	
 

	
(v)

	
application and
 use of an EIB global loan facility to secure additional liquidity
 specifically for SME lending.

	
 

	
 

	
 

	
 

	
3.3

	
The activities of
 the Company (and following implementation of the Acquisition, the merged
 group) will be limited to the higher of: (i) the annual growth rate of growth
 of UK nominal GDP in the preceding year; and (ii) the average historical
 growth of the balance sheets in the UK banking sector during the period
 1987-2007, unless there is evidence that the thresholds are exceeded for
 reasons unrelated to the provision of the aid referred to in the EC
 Commission’s decision dated 13 October 2008 (the “Decision”).

	
 

	
 

	
 

	
 

	
3.4

	
Further, in
 conjunction with HM Treasury, the merged group will, within six months of the
 earlier of the Recognition Date (pursuant to rule 11.1 of the rules of the
 2008 Credit Guarantee Scheme) and the listing date, prepare a restructuring
 plan in a form suitable for notification to the EC Commission in accordance
 with the Decision and, at the request of HM Government, furnish all information
 reasonably necessary for complying with the terms of that Decision.

134

	
 

	
 

	
4.

	
Other

	
 

	
 

	
 

	
As agreed at the
 time of the initial announcement, the merged group will continue to use the
 Mound as its Scottish headquarters, will continue to hold its AGM in Scotland
 and will continue to print Bank of Scotland bank notes.

	
 

	
 

	
5.

	
Application

	
 

	
 

	
 

	
The constraints in
 this Schedule shall apply until the Commission determines (or a court of
 competent jurisdiction finally determines) that the Company is no longer in
 receipt of the aid which is the subject of the Decision. If the Company does
 not utilise (or ceases to utilise) the wholesale funding guarantee being made
 available by HM Government and which is referred to in the Decision and
 either: (i) this Agreement is terminated but, by virtue of clause 2.10(C),
 this Schedule remains in full force and effect; or (ii) this Agreement is not
 terminated and New Shares are issued to HM Treasury (and/or Preference Shares
 are issued to HM Treasury pursuant to and in accordance with the Preference
 Share Subscription Agreement) but HM Treasury has substantively reduced its
 holding of Ordinary Shares and/or Preference Shares, HM Treasury shall
 consult with the Company with a view to making submissions to the Commission
 that the constraint in this paragraph (or this Schedule as a whole) be
 disapplied or to obtain clarity as to when the constraint in this paragraph
 (or the Schedule as a whole) will cease to apply.

135

IN WITNESS WHEREOF this agreement has been entered into as of the date
which first appears on page 1 of this agreement on the dates which appear
below.

136

	
 

	
 

	
 

	
SIGNED by and for
 and on behalf of

	
)

	
G TRUETT TATE

	
LLOYDS
 TSB GROUP PLC

	
)

	
 

	
 

	
)

	
 

	
 

	
 

	
 

	
Date:

	
 

	
 

	
 

	
 

	
 

	
SIGNED by and for
 and on behalf of

	
)

	
NICK REID

	
UBS
 LIMITED

	
)

	
 

	
 

	
)

	
LUCY PHILIPS

	
 

	
 

	
 

	
Date:

	
 

	
 

	
 

	
 

	
 

	
SIGNED by and for
 and on behalf of

	
)

	
MATTHEW WATKINS

	
MERRILL
 LYNCH INTERNATIONAL

	
)

	
 

	
 

	
)

	
 

	
 

	
 

	
 

	
Date:

	
 

	
 

	
 

	
 

	
 

	
SIGNED by and for
 and on behalf of

	
)

	
DAVID JAMES

	
CITIGROUP
 GLOBAL MARKETS LIMITED

	
)

	
 

	
 

	
)

	
 

	
 

	
 

	
 

	
Date:

	
 

	
 

	
 

	
 

	
 

	
SIGNED by and for
 and on behalf of

	
)

	
DAVID JAMES

	
CITIGROUP
 GLOBAL MARKETS U.K.

	
)

	
 

	
EQUITY LIMITED

	
)

	
 

	
 

	
 

	
 

	
Date:

	
 

	
 

	
 

	
 

	
 

	
SIGNED by two of

	
)

	
TONY CUNINGHAM

	
THE COMMISSIONERS OF HER 

	
)

	
 

	
MAJESTY’S TREASURY

	
)

	
BOB BLIZZARD

	
in the presence
 of:

	
)

	
 

	
 

	
 

	
 

	
Date:

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