1 INTRODUCTION. 1.1 It is proposed that Lloyds Bank plc and Bank of Scotland plc (together, the Transferors )

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1 SUMMARY OF THE PROPOSED SCHEME FOR THE TRANSFER OF PART OF THE BANKING BUSINESS OF LLOYDS BANK PLC AND BANK OF SCOTLAND PLC TO LLOYDS BANK CORPORATE MARKETS PLC 1 INTRODUCTION 1.1 It is proposed that Lloyds Bank plc and Bank of Scotland plc (together, the Transferors ) will transfer that part of their banking business that is described in Section 3 of this summary (the Transferring Business ) to Lloyds Bank Corporate Markets plc (the Transferee ). The Transferors and Transferee are all entities within the Lloyds Banking Group ( LBG ) group of companies, the parent company of which is Lloyds Banking Group plc. 1.2 The rationale for the transfer of the Transferring Business is to allow the Transferors to comply with the requirements of the new ring-fencing regime for large UK banks that will come into effect from 1 January That ring-fencing regime places restrictions on the types of business that can be carried on by large UK banks that also conduct retail banking business. As each of the Transferors carry on retail banking business, they each need to transfer that part of their existing commercial banking business that can no longer be carried on by the Transferors from 1 January 2019 to a separate legal entity. That separate legal entity will be Lloyds Bank Corporate Markets plc, which is a newly formed bank authorised (with restrictions) by the Prudential Regulation Authority (the PRA ) and supervised by the PRA and the Financial Conduct Authority (the FCA ). 1.3 The transfer of the Transferring Business (the Transfer ) is to be effected by a statutory scheme made available under Part VII of the Financial Services and Markets Act 2000 (the Act ) to enable the Transferors to comply with ring-fencing requirements (the Scheme ). 1.4 In general, the Scheme provides a mechanism to transfer the Transferring Business to the Transferee without any further steps being required. This means that there is no need for the Transferors to seek individual consent from each counterparty to the contracts, trades and transactions that together form the Transferring Business. 1.5 The Transfer is subject to the approval of the High Court of Justice in England and Wales (the Court ). The PRA (in consultation with the FCA) has reviewed a report on the terms of the Scheme (the Scheme Report ), approved the form of the Scheme Report and has consented to the making of an application to the Court for sanction (i.e. approval) of this Scheme. The claim to the Court for an order sanctioning the Scheme is expected to be heard by the Court on or about 27 March 2018 (the Court Hearing ). 1.6 If the Court approves the Scheme, it is expected that the Scheme will become effective at on 28 May 2018, or on such time and date (or, in respect of different parts of the Transferring Business, times and dates) as is agreed between the Transferors and the Transferee, with the approval of the Court if such date or dates fall after 30 June 2018 (the Effective Date ), and the Transferring Business will transfer on the Relevant Date, being either the Effective Date or, in respect of certain residual assets or residual liabilities described in paragraph 8, a Subsequent Transfer Date (as defined in the Scheme). 1.7 The Scheme is governed by English law. 1

2 2 FURTHER INFORMATION The information in this document is only a summary of the Scheme and by its nature does not set out all the detail of the Scheme and should not be relied upon in place of the full Scheme. If you require further information, or a copy of the Scheme or the Scheme Report, please visit our website at or contact your usual relationship manager, if you have one, or ask in one of our branches. 3 THE BUSINESS TO BE TRANSFERRED 3.1 The Transferring Business comprises derivative transactions, loan facilities, liquidity facilities and trade finance transactions, which are summarised in paragraph 3.2 and more fully described in schedule 1 to the Scheme. These transferring transactions and contracts will be listed out on a secure USB drive that forms part of a schedule to the Scheme and which will be delivered to the Court prior to the Court Hearing (or, in cases where such trade, transaction or contract was booked or entered into after the date to which the list of transferring transactions and contracts on the secure USB drive was prepared, they will be listed in a database on the Transferor s systems as part of the Transferring Business). 3.2 In summary, the Transferring Business comprises, but is not limited to, the following (to the extent that they: (i) are governed by the laws of England and Wales, Scotland or Northern Ireland; (ii) have not been booked to a non-eea branch of the relevant Transferor; and (iii) have not been terminated, or novated or otherwise transferred by the relevant Transferor, prior to the Relevant Date): certain long-dated derivative transactions (i.e. derivative transactions that are due to mature on or after 1 January 2021). The derivative transactions that will transfer to the Transferee have been identified based on the way in which the customer is categorised by LBG: (i) (ii) (iii) Financial Institution customers ( FI Customers ): all long-dated derivative transactions held by FI Customers will transfer, other than any long-dated derivative transactions chosen by the Transferors to remain with the Transferors for own hedging purposes (as permitted by the ring-fencing legislation) (such retained derivative transactions being Excluded Own Hedging Transactions ); Global Corporate customers ( GC Customers ), except for commercial real estate undertakings that are customers of the Private Group subcategory of Global Corporate ( CRE-PG Customers )): all long-dated derivative transactions held by GC Customers will transfer; and Mid Market, Small and Medium Sized Enterprise and Client Asset Management customers (respectively, MM Customers, SME Customers and CAM Customers ), and CRE-PG Customers: all longdated derivative transactions held by these customers will transfer, other than derivative transactions that the Transferors may legally continue to hold under the ring-fencing legislation after 1 January 2021 ( Permitted Derivatives ); certain short-dated derivatives (i.e. derivative transactions that are due to mature prior to 1 January 2021, and which therefore are eligible to benefit from the transitional (or grandfathering ) provisions for such transactions under the ring- 2

3 fencing legislation) will transfer. Again, the treatment for these derivatives transactions depends on customer categorisation: (i) (ii) FI Customers: all short-dated derivative transactions will transfer, other than any Excluded Own Hedging Transactions. However, the customer can elect that all of its short-dated derivative transactions remain with the Transferors; GC Customers (except for CRE-PG Customers): short-dated derivative transactions will not transfer, and will remain with the Transferors; however, the customer may elect that these transactions do transfer to the Transferee; and (iii) MM Customers, SME Customers, CAM Customers and CRE-PG Customers: short-dated derivative transactions will not transfer, and will remain with the Transferors; however, the customer may elect that these transactions do transfer to the Transferee (except for Permitted Derivatives, which for these customers will always remain with the Transferors). The position in paragraphs 3.2.1(ii) and (iii) and 3.2.2(ii) and (iii) above are qualified by one other provision. Certain MM Customers, SME Customers, CAM Customers and CRE-PG Customers who had, as at 1 December 2017, a longdated derivative transaction that is not a Permitted Derivative, may elect to also transfer to the Transferee all their Permitted Derivatives (both long-dated and short-dated) along with the derivatives they could already elect to transfer set out in 3.2.2(iii) above; loan and liquidity facilities (and certain sub-participations entered into in connection with such facilities) which are still live/outstanding (even if undrawn, and even if the formal maturity date has passed (e.g. because of borrower default)) as at the Effective Date and which involve an exposure to a relevant financial institution (as such terms are defined under the ring-fencing legislation), but excluding certain facilities (i) that have exposures that fall into certain exemptions set out in the ringfencing legislation or, in respect of a small number of exposures only, that have a maturity date on or after the Effective Date but before 1 January 2019 ( Permitted RFI Exposures ), (ii) in relation to which a Transferor acts as security agent in a syndicated structure involving security governed by the laws of a jurisdiction that does not recognise the effect of the Scheme or (iii) which are linked to certain credit or charge card accounts; loan facilities (not falling within paragraph 3.2.3) which have a contractual maturity date that falls on or after 1 January 2021 and which have an interest rate linked to the retail price index, such that the relevant Transferor would be prohibited from holding the loan under the ring-fencing legislation from that date, but excluding certain facilities that have Permitted RFI Exposures; all documentary letters of credit, standby letters of credit, performance guarantees or financial guarantees issued or confirmed by the Transferors in respect of which the relevant Transferor has the benefit of a counter-indemnity or reimbursement obligation that is prohibited under the ring-fencing legislation and/or the corresponding counter-indemnities or reimbursement obligations themselves, and all receivable purchase agreements, in each case which have a contractual 3

4 maturity date on or after 1 January 2019 and which involve an exposure to a relevant financial institution (as such terms are defined under the ring-fencing legislation), but excluding certain products that have Permitted RFI Exposures. Certain of the transactions and contracts set out above may be retained by the Transferors and not form part of the Transferring Business if they are with a customer that has been identified and specifically listed on the secure USB drive, being customers whose transactions or contracts may cause the Transferee to breach its large exposures limits if they transfer to the Transferee. 3.3 The Transferring Business also comprises: certain additional receivables due under certain derivatives agreements to a Transferor which involve an exposure to a relevant financial institution (as such terms are defined under the ring-fencing legislation); other assets relating to the transferring transactions and contracts. In brief, these include, among other things, associated agreements and arrangements entered into by the Transferors with customers, guarantees and security (to the extent not shared, in which case it is held by the relevant Transferor or the relevant nominee, agent, attorney or trustee in trust for or on behalf of the relevant Transferor and the Transferee please see Section 5), rights and claims of the Transferors, data and receivables and pipeline business (being the preliminary relationship between a Transferor and a customer that is being negotiated at, but has not yet concluded prior to, the Effective Date, and which would transfer under the Scheme were it to be so concluded before the Effective Date) (but excluding certain rights and benefits that are described in the Scheme); and liabilities of the Transferors relating to the transferring transactions and contracts, to the extent that those liabilities arise on or after the date that the relevant transaction or contract that forms part of the Transferring Business is transferred (but excluding certain liabilities that are described in the Scheme). 4 THE EFFECT OF THE SCHEME 4.1 The Scheme provides that, from the Relevant Date, each of the assets and liabilities transferred from the Transferors to the Transferee shall have effect as if it had always been made (or placed) with, or accepted (or issued) by the Transferee (or on behalf of the Transferee) instead of with the Transferors (or on behalf of the Transferors). 4.2 The Transfer, and other matters effected by the Scheme (such as the duplication of agreements that are associated with the Transferring Business, as described in Section 6), shall take place notwithstanding any provision to the contrary in any contract or arrangement with any person, and as if there were no requirement upon either of the Transferors or the Transferee, or any other person or party, to comply with any contractual provision which would have the effect of prohibiting the Transfer or such other matters (for example, obtaining consent for transfer from any counterparty to the relevant contract, trade or transaction or third party). 4.3 As a result of the Transfer, and subject to the terms of the Scheme (in particular, the limited scope of the liabilities transferring, as described in paragraph 3.3.3): 4

5 4.3.1 any person who held a product which forms part of the Transferring Business (a Customer ) and who immediately prior to the Relevant Date had rights against or obligations towards any Transferor will have the same rights against and be under the same obligations towards the Transferee; the Transferee shall have the same rights and obligations as against the Customer as the relevant Transferor had, or to which it was subject, immediately prior to the Relevant Date; and such rights that were available to the relevant Transferor or the Customer against each other shall be extinguished. 4.4 The Scheme provides that it shall not operate to prevent any Customer exercising or enforcing any specified rights known as Preserved Rights in the Scheme or any other rights pursuant to the terms of the Scheme. The Preserved Rights, together with any limitations in respect of them, are listed fully in the Scheme, and include rights of customers to request transfers of collateral, or to allege that termination rights have been triggered as a result of the transfers effected by the Scheme, in specified circumstances (which are described in the Scheme Document). 4.5 The Scheme also provides that the Transfer, and other matters effected by the Scheme, shall not give rise to other consequences, such as (by way of example) invalidating or discharging any contract or security, constituting a breach of or requiring compliance with any contractual provision, requiring the payment by a Transferor or the Transferee of any fees, costs and/or expenses (except as expressly set out in the Scheme), affecting the enforceability, priority or ranking of any security or enabling any person to bring a claim, whether in contract, tort, equity or otherwise. 4.6 The Scheme includes a general disapplication of set-off rights for customers, so that from the Relevant Date: a customer cannot set off any obligations that it owes to a Transferor against claims or rights that the customer has against the Transferee, or any other entity within LBG that is not a Ring-fenced Affiliate (as defined in the Scheme); and a customer cannot set off any obligations that it owes to the Transferee against claims or rights that the customer has against a Transferor, or any other member of LBG that is a Ring-fenced Affiliate. The reason for the inclusion of this provision is that one of the rules made pursuant to the ring-fencing legislation requires that ring-fenced bodies, like the Transferors, do not have netting arrangements that allow such set-off between the ring-fenced bodies and certain other members of their group, including the non-ring-fenced body. 4.7 The Scheme also provides that where the consent or acknowledgement of a customer is required in order to enable MarkitWire to reflect the transfer under the Scheme on its systems, such consent or acknowledgement will be deemed to have been given. 5 TREATMENT OF SECURITY 5.1 This Section 5 sets out some exceptions to the way in which the Scheme takes effect (by way of exception to the matters set out in Section 4) for certain guarantees and security. 5

6 5.2 Any reference to the Transferor or Transferee in paragraphs 5.3 and 5.4 shall include a reference to any nominee, agent or trustee of that Transferor or Transferee (if applicable). 5.3 Subject to paragraph 5.4, any guarantee or security or rights in security held immediately 5.4 If: before the Relevant Date by any Transferor as a guarantee or security for payment or discharge of any liability owed to it in relation to the Transferring Business shall be held by the Transferee and be available to the Transferee as a guarantee or security from the Relevant Date any guarantee or security relates (a) to any existing agreement in relation to which a duplicated agreement is being created between the Transferee and a customer pursuant to the Scheme, and/or (b) to both a liability transferred to the Transferee pursuant to the Scheme and a liability that continues to be owed to a Transferor after the Relevant Date; or the transfer of security to the Transferee under paragraph 5.3 is not recognised by the laws of jurisdiction in which the security or secured property is situated, the relevant Transferor shall continue to hold and have a right to enforce such guarantee or security: (a) on behalf of the Transferee, in relation to (i) any liability owed to the Transferee pursuant to any existing agreement that is being duplicated pursuant to the Scheme; and/or (ii) any liability transferred to the Transferee pursuant to the Scheme ; and (b) in the case of a guarantee or security relating to an existing agreement that is being duplicated pursuant to the Scheme and/or relating to any liabilities owed to both the Transferee and that Transferor (i.e. in the circumstances described in paragraph 5.4.1), on behalf of the Transferor, in relation to (i) any liability owed to the Transferor pursuant to the remaining agreements (including the agreements being duplicated pursuant to the Scheme); and/or (ii) any liabilities remaining owed to the Transferor. In these circumstances, the Transferor acts as security trustee, or as creditor or guarantee/security agent (the Security Trustee ), for itself as well as for the Transferee. 5.5 In the particular circumstances described in paragraph 5.4.1, subject to any contractual provisions or law, and except where an equivalent trust already exists in relation to the relevant guarantee or security, there will be a shared security trust arrangement, to which the following principles will apply: the Security Trustee shall hold the benefit of the guarantee or security on trust according to the respective interests of the Transferor and Transferee in the relevant obligations; the Security Trustee shall have the right to exercise any powers to enforce such guarantee or security on behalf of either the Transferor or Transferee; subject to contractual provisions, either the Transferor or the Transferee may independently direct the Security Trustee to so enforce, or exercise any other relevant rights; and the claims of the Transferor and the Transferee in respect of the guarantee or security shall rank pari passu and the Security Trustee shall make any distributions 6

7 proportionately and rateably according to the outstanding relevant claims of the Transferor and the Transferee. 5.6 If the arrangements referred to in paragraph 5.4 are not fully recognised by any relevant law, the affected guarantee or security, and any related assets, will be treated as residual (see Section 8). 6 SPECIFIC PROVISIONS IN RESPECT OF MASTER AGREEMENTS AND ANCILLARY DOCUMENTS 6.1 Any reference to master agreement(s) in this Section 6 includes various types of ISDA Master Agreements, Treasury Master Agreements, Global Master Repurchase Agreements and Global Master Securities Lending Agreements (collectively the Master Agreements ). 6.2 The Scheme duplicates certain Master Agreements in force between the relevant Transferor and its customers. This means that: the original existing such Master Agreement (the Existing Master Agreement ) will remain in force with no change as a result of the Scheme (and any transactions that do not form part of the Transferring Business will continue to be governed by it); and with effect from the Effective Date, the Scheme will create a new duplicate Master Agreement between the Transferee and customer, identical to the original master agreement (except for the identity of the LBG party) (the Duplicated Master Agreement ). Any derivative transactions that form part of the Transferring Business (except for those that are documented under a long form confirmation ) will, from the Relevant Date, form part of and be governed by this new Duplicated Master Agreement. Customers can, if they wish, use this new cloned agreement to enter into transactions with the Transferee from the Effective Date. 6.3 Where an ISDA Credit Support Annex (a CSA ) has been entered into in relation to an Existing Master Agreement (the Existing CSA ), with effect from the Effective Date, a duplicated CSA (the Duplicated CSA ) will also be deemed to exist between the Transferee and the relevant customer as part of the Duplicated Master Agreement. 6.4 The Scheme duplicates the following Master Agreements: those that have been entered into by a Transferor with a customer whom LBG considers may wish to enter into derivatives, stock lending or repo transactions with the Transferee after the Effective Date; and to the extent not captured in paragraph above, those that relate solely or partly to derivative transactions that form part of the Transferring Business. 6.5 All the Master Agreements being duplicated by the Scheme are recorded on the secure USB drive or in LBG s systems in a way similar to the way the Transferring Business is recorded, as described in paragraph Similar provisions allowing for duplication are included in the Scheme with respect to: 7

8 6.6.1 other agreements associated with certain Master Agreements, such as ISDA/FIA Cleared Derivatives Execution Agreements, ISDA Master Give-Up Agreements, guarantees and certain other ancillary documents; certain Omnibus Guarantee and Set-off Agreements ; certain reservation of rights letters ; and certain terms of business (both general and product-specific) that are in place between a customer and a Transferor immediately prior to the Effective Date. 6.7 Where an early termination notice or a reservation of rights letter which relates to any residual asset is delivered between the Effective Date and the Subsequent Transfer Date (both inclusive) for the relevant residual asset: the original early termination notice or original reservation of rights letter (as applicable) shall continue to exist with no change as a result of the Scheme and have effect as prior to the Subsequent Transfer Date ; and a duplicated early termination notice or a duplicated reservation of rights letter (as applicable) will be deemed to exist between the Transferee and the relevant customer from the Subsequent Transfer Date. 6.8 In the case of Omnibus Guarantee and Set-off Agreements that provide for certain security interests to be held on trust, duplication of such agreements may give rise to overlapping security trusts. To prevent this situation arising, the Scheme provides that any such security interest will continue to be held in trust for the relevant Transferor, who will in turn hold the benefit of such trust for both the relevant Transferor and the Transferee in accordance with the security trust arrangements contemplated under the Scheme (as described in Section 5 above). 7 TREATMENT OF COLLATERAL 7.1 As described in paragraph 6.3 above, CSAs will also be duplicated by the Scheme, and collateral (which is held by way of full title transfer by a Transferor immediately prior to the Effective Date) under CSAs will be treated as set out in this Section 7. Transferor holding collateral 7.2 If collateral is held by a Transferor under a CSA (i.e. that Transferor is net in the money ) at the Effective Date, and all of the derivatives which are relevant for the purposes of calculating collateral under that CSA ( Relevant CSA Derivatives ) transfer to the Transferee on the Effective Date, then: all such collateral will be transferred to the Transferee, and will then be deemed to be held by the Transferee under the Duplicated CSA; if any of the collateral comprises cash: (i) any interest on such cash that has accrued for interest period in which the Effective Date falls (the Relevant Interest Period ) prior to the Effective Date shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the Transferor to the counterparty, and any interest accruing from the Effective 8

9 Date for that Relevant Interest Period shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the Transferee to the counterparty; and (ii) any negative interest amount payable by the counterparty in respect such cash that has accrued for the Relevant Interest Period prior to the Effective Date shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the counterparty to the relevant Transferor, and any negative interest amount accruing from the Effective Date for the Relevant Interest Period shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the counterparty to the Transferee if any of the collateral comprises securities, and the Transferor receives any distributions on such securities prior to the Effective Date but is not required to transfer equivalent distributions to the counterparty until after the Effective Date, the Transferor will remain responsible for the transfer of equivalent distributions in an amount equal to such distributions to the counterparty following the Effective Date (even though the collateral has transferred to the Transferee). 7.3 If collateral is held by a Transferor under a CSA and the Relevant CSA Derivatives are to be split between a Transferor and the Transferee on the Effective Date, then: a pro rata share of all posted collateral held by that Transferor immediately prior to the Effective Date will be transferred to the Transferee and deemed to be held by the Transferee pursuant to the Duplicated CSA, with the pro rata share based on the proportion that the Transferee s exposure in respect of the Relevant CSA Derivatives being transferred to it on the Effective Date bears to that Transferor s exposure in respect of all Relevant CSA Derivatives prior to the transfer, calculated as at the most recent valuation date immediately preceding the Effective Date (unless the settlement date for that valuation has not occurred by the Effective Date, in which case the pro rata share is calculated as at the most recent valuation date for which settlement has occurred); if any of the posted collateral immediately prior to the Effective Date comprises cash: (i) any interest on such cash that has accrued for the Relevant Interest Period prior to the Effective Date shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the Transferor to the counterparty, and any interest accruing from the Effective Date for that relevant interest period shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) to the counterparty (i) by the Transferor, in respect of the cash held by the Transferor in respect of Relevant CSA Derivatives which are not transferred to the Transferee, and (ii) the Transferee, in respect of the cash held by the Transferee under the Duplicated CSA in respect of Relevant CSA Derivatives which are transferred to the Transferee; and 9

10 (ii) any negative interest amount in respect of such cash payable by the counterparty that has accrued for the Relevant Interest Period prior to the Effective Date shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the counterparty to the relevant Transferor, and any negative interest amount accruing from the Effective Date for the Relevant Interest Period shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) (a) by the counterparty to the relevant Transferor in respect of cash held under the Existing CSA for such period and (b) by the counterparty to the Transferee in respect of cash held under the Duplicated CSA for such period if any of the posted collateral immediately prior to the Effective Date comprises securities, and the Transferor receives any distributions on such securities prior to the Effective Date but is not required to transfer equivalent distributions to the counterparty until after the Effective Date, the Transferor will remain responsible for the transfer of equivalent distributions in an amount equal to such distributions to the counterparty following the Effective Date (even though the collateral has transferred to the Transferee). Counterparty holding collateral 7.4 If collateral has been posted by a Transferor under a CSA (i.e. that Transferor is net out of the money ) at the Effective Date, and all Relevant CSA Derivatives will be transferred over to the Transferee on the Effective Date, then: all such collateral will be deemed to have been posted with the counterparty by the Transferee (under the terms of the Duplicated CSA); if any of the collateral comprises cash: (i) (ii) any interest on such cash that has accrued for the Relevant Interest Period prior to the Effective Date shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the counterparty to the Transferor, and any interest accruing from the Effective Date for that Relevant Interest Period shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the counterparty to the Transferee; and any negative interest amount payable in respect such cash that has accrued for the Relevant Interest Period prior to the Effective Date shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the relevant Transferor to the counterparty, and any negative interest amount accruing from the Effective Date for the Relevant Interest Period shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the Transferee to the counterparty; and if any of the collateral comprises securities, and the counterparty receives any distributions on such securities prior to the Effective Date but is not required to transfer equivalent distributions until after the Effective Date, the counterparty will 10

11 transfer of equivalent distributions in an amount equal to such distributions to the relevant Transferor following the Effective Date (even though the collateral is now deemed to have been posted with the counterparty by the Transferee). 7.5 If collateral has been posted by a Transferor under a CSA and the Relevant CSA Derivatives are to be split between a Transferor and the Transferee, then: a pro rata share (calculated as per above) of the collateral which that Transferor has posted relating to the transferring trades will be deemed to have been posted by the Transferee pursuant to the Duplicated CSA; if any of the posted collateral immediately prior to the Effective Date comprises cash: (i) (ii) any interest on such cash that has accrued for the Relevant Interest Period prior to the Effective Date shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the counterparty to the Transferor, and any interest accruing from the Effective Date for that Relevant Interest Period shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the counterparty to (i) the Transferor in respect of the cash held by the counterparty in respect of the Relevant CSA Derivatives which are not transferred to the Transferee, and (ii) the Transferee, in respect of the cash held by the Transferee under the Duplicated CSA in respect of the Relevant CSA Derivatives which are transferred to the Transferee; and any negative interest amount in respect such cash that has accrued for the Relevant Interest Period prior to the Effective Date shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) by the relevant Transferor to the counterparty, and any negative interest amount accruing from the Effective Date for the Relevant Interest Period shall be paid (at the end of the Relevant Interest Period or if the Existing CSA requires payment on another date, on such other date) (a) by the relevant Transferor to the counterparty in respect of cash held under the Existing CSA for such period and (b) by the Transferee to the counterparty in respect of cash held under the Duplicated CSA for such period; and if any of the posted collateral immediately prior to the Effective Date comprises securities, and the counterparty receives any distributions on such securities prior to the Effective Date but is not required to transfer equivalent distributions to the counterparty until after the Effective Date, the counterparty will transfer equivalent distributions in an amount equal to such distributions to the Transferor following the Effective Date (even though the collateral has transferred to the Transferee). 8 RESIDUAL ASSETS AND LIABILITIES 8.1 The Scheme contains provisions for dealing with assets and liabilities that are intended to transfer to the Transferee as part of the Scheme but which do not, for a number of reasons, transfer on the Effective Date. These include provisions: 11

12 8.1.1 throughout the Scheme for transfers or other actions to occur on a Subsequent Transfer Date because such asset is a residual asset or for any other reason; and for the relevant Transferor to retain (i) any such asset (including any proceeds of sale, income or other returns) on trust for the Transferee except to the extent that, among other things, there is a close-out netting provision which applies to such a residual asset and a related residual liability, or entry into such arrangements would be outside the jurisdiction of the Court, require consent that has not been obtained, or cause a breach of the terms and conditions of any transactions or agreements in the Transferring Business (or give rise to any right of acceleration of any obligation or any right of termination pursuant to any such arrangement) and (ii) any related liabilities. 8.2 Under these provisions the transfer of the assets and liabilities may simply be delayed to a Subsequent Transfer Date, but some may never be transferred because, for example, they terminate prior to any transfer. 8.3 The Scheme also provides that, if any assets and liabilities have not transferred by (London time) on 30 December 2018, then, to the extent that the Court has the jurisdiction to make that transfer via the Scheme, those assets and liabilities will transfer at on 31 December 2018 (other than short-dated derivatives transactions that have been retained by the Transferors in accordance with the terms of the Scheme or those which, for example, have terminated before that date). 9 UNDERTAKINGS 9.1 Pursuant to the Scheme: the Transferee undertakes not to recover from counterparties in excess of specified recovery limits, where such rights would otherwise exist solely by virtue of the duplication of Omnibus Guarantee and Set-off Agreements under the Scheme; each Transferor undertakes, for the period of seven months following the Relevant Date, to, within 30 days upon production of evidence being to the reasonable satisfaction of the Transferor, cover certain costs suffered by counterparties (being those necessarily triggered by the Scheme and described more fully therein, but by way of example including such properly incurred registration fees, agency fees, trade booking entry fees and fees which either Transferor is already contractually obligated to pay, but only to the extent that the relevant customer is required to pay such fees under contract or general law); the Transferee undertakes, for a period of six months from the Effective Date, to provide know your customer ( KYC ) information on itself reasonably requested by any party that is legally or contractually required to complete KYC checks (or demand such information to enable it to conduct KYC checks); the Transferee undertakes not to exercise its rights under any provision which would result in an increased principal amount being owed by customers to the Transferee as a result of the Scheme under any loan facilities identified in paragraph as forming part of the Transferring Business; and 12

13 9.1.5 in the context of the shared security trust arrangements described in paragraph 5.5, each Transferor and the Transferee undertakes not to seek to recover (i) any agency or security agency fees payable by a counterparty to that Transferor pursuant to any agreements that will be transferred pursuant to the Scheme to the extent that such amounts exceed the amounts that would have been payable if there had been no shared security trust arrangements, and (ii) under any indemnity in existing agreements that will be transferred pursuant to the Scheme, the amount of any agency of security agency fees payable by the relevant Transferor or the Transferee to the relevant security trustee in respect of the shared security trust arrangements. 10 CHANGES TO AGREEMENTS 10.1 On and with effect from the Relevant Date, the Scheme seeks to make certain amendments to references (however worded and whether express or implied) in any relevant agreement (whether any Transferor is a party or not, and including insurance policies). Such amendments are listed more fully in the Scheme, but, by way of example, include providing that (unless the context otherwise requires) any reference to: any Transferor or Bank shall be read as being references to the Transferee (and provided that any references to a Transferor or Bank being an Account Bank shall continue to be construed as, and take effect as, a reference to that Transferor); account details of the Transferor in respect of assets forming part of the Transferring Business shall be construed as a reference to such account details as the Transferee shall direct; directors, officers, representatives or employees of any Transferor shall be read as being references to directors, officers, representatives or employees of the Transferee; any rate, charge, tariff or scale of fees or terms and conditions published by any Transferor shall be construed and take effect as a reference to corresponding rate, charge, tariff or scale of fees or terms or conditions published by the Transferee; and a rate, charge, tariff or scale of fees or to terms and conditions published, varied or amended by any Transferor shall afford the same right to the Transferee. 11 MANDATES AND OTHER AUTHORITIES Any instruction, standing order, mandate, power of attorney, authority, undertaking or consent given to, or by, any Transferor, prior to the Relevant Date, in respect of the Transferring Business (a Mandate ) will have effect as if given to or, as the case may be, by the Transferee. The Transferee may rely on each such Mandate in respect of any instructions given to the Transferee pursuant to such Mandate after the Relevant Date. Each such Mandate shall continue to have effect in respect of the relevant Transferor to the extent that the relevant Transferor holds or continues to hold any assets or liabilities in respect of which such Mandate was given to, or by (as the case may be), the relevant Transferor. 13

14 12 CONTINUITY OF PROCEEDINGS 12.1 From the Relevant Date, unless otherwise agreed in writing (for which see paragraph 12.2) between the relevant Transferor and the Transferee, any judicial, quasi-judicial, administrative proceedings or other proceedings for the resolution of a dispute or claim (whether implemented, pending, threatened or otherwise) ( Proceedings ) by or against any Transferor in relation to the Transferring Business will be continued by or against the Transferee. The Transferee will also be entitled to all defences, claims, counterclaims, defences to counterclaims and rights of set-off ( Defences ) that would have been available to the relevant Transferor in any such proceedings If so otherwise agreed in writing by the relevant Transferor and the Transferee, such Proceedings shall be continued by, against or with the Transferor with no change to the Defences it is entitled to Any Proceedings in respect of any residual assets or liabilities (see Section 8) will be continued by the Transferor (which shall be indemnified for the same by the Transferee), in accordance with reasonable instructions by the Transferee, until the date on which those assets or liabilities transfer to the Transferee Unless otherwise agreed in writing by the Transferors and Transferee, any unsatisfied judgement, settlement or award by or against a Transferor in respect of the Transferring Business shall become enforceable by or against the Transferee after the Relevant Date The provisions in respect of Proceedings in the Scheme do not apply to any Proceedings relating to assets or liabilities that are not transferring to the Transferee under the Scheme. 13 CONFIDENTIALITY, DATA PROTECTION AND ACCESS TO RECORDS 13.1 The Scheme shall override any contractual provision that prohibits certain information from being shared between the Transferors and the Transferee (and any other third party) to the extent that the sharing of that information is reasonably required or requested in connection with the shared security trust arrangements, or otherwise provided that such information sharing is to give effect to the Scheme From the Relevant Date, the Transferee shall owe to any person the same duties of confidentiality and privacy as those which the relevant Transferor owed immediately prior to the Relevant Date in respect of the Transferring Business or any original agreement which has been duplicated under this Scheme As part of the Scheme, personal data comprised in the Transferring Business or any original agreement which has been duplicated under this Scheme will be disclosed by the Transferor to the Transferee, who will become a data controller in respect of that data and be under the same legal duty as the relevant Transferor to respect the confidentiality and privacy of any person, and enjoy the same rights as the relevant Transferor enjoyed, in relation to that personal data. Any consent given by persons in relation to the use of their data will be deemed to be given in relation to the Transferee Subject to the same being treated as confidential information, after the Relevant Date: the relevant Transferor (and any persons authorised by the relevant Transferor) shall be allowed access to any information which is reasonably requested by that Transferor in connection with the administration and enforcement of any assets 14

15 and liabilities not transferring via the Scheme or any originals of any agreements that have been duplicated under the Scheme; and the Transferee (and any persons authorised by the Transferee) shall be allowed access to any information which is reasonably requested by the Transferee in connection with the administration and enforcement of any assets and liabilities forming part of the Transferring Business or any agreements that have been duplicated under the Scheme Where, in relation to any assets and liabilities forming part of the Transferring Business or any agreements that have been duplicated under the Scheme, the Transferor has the right to share information within LBG, then after the Relevant Date the Transferee shall have the same rights to share information. Where the relevant Transferor has no such right to share information within LBG, then notwithstanding any provision to the contrary in any contract or arrangement, the Transferee and the relevant Transferor may, from the Relevant Date, share such information amongst each other for regulatory, accounting and reporting purposes or for the provision of services from the Transferor to the Transferee. 14 MARKETING PREFERENCES Where, prior to the Relevant Date, a customer has provided marketing preferences to any Transferor, the prevailing marketing preference provided by the customer to the relevant Transferor for any given product to be offered by the Transferee after the Relevant Date shall be deemed to apply to both the Transferor and the Transferee on and with effect from the Relevant Date. On, and with effect from, the Relevant Date, both the relevant Transferors and the Transferee shall have the benefit of the marketing preferences deemed to apply in accordance with this paragraph, on the same terms as those Transferors had prior to the Scheme. 15 SUBJECT ACCESS REQUESTS Where an individual has made a subject access request (under the relevant data protection legislation) to any Transferor prior to the Relevant Date which has not been actioned by the Relevant Date, the Transferee may (as agreed with the relevant Transferor) respond to the request. 16 WRONG POCKETS Between the Effective Date and 31 December 2018, should the Transferors and Transferee identify any transactions that did not form part of the Transferring Business, but if they remain held by either of the Transferors may result in that Transferor being in breach of the ring-fencing regime, the Transferors and the Transferee may agree to transfer any such transaction to the Transferee (and for the Scheme to take effect in relation to such transaction, any relevant associated assets and liabilities, security and Duplicating agreements). The relevant customer must be notified of the transfer before it takes effect. 17 MODIFICATIONS The Transferors and the Transferee can apply jointly, at any time before or after sanction of the Scheme by the Court, for any modification or addition to the Scheme provided that, if such application is made after the sanction of the Scheme, the PRA and the FCA shall be 15

16 notified of, and have the right to be heard at, any hearing of the Court at which such application is considered. 16