Secondary Fundraisings 3 April 2009 David Broadley, Partner Simon Toms, Senior Associate BS:

2 Overview  Market overview  Refresher on secondary fundraisings  Documentation including underwriting agreements  Rights issue reform  Pre­marketing activity  Cashboxes  Short selling  PIPEs

3 Market Overview  Significant increase in secondary issues  Bank recapitalisations account for large portion of overall amount raised Source: Thomson Financial Bank recapitalisationsOther issuers YTD

4 Market Overview  Companies raising cash for balance sheet repair, prior to refinancing or for acquisitions  Total equity issued (excluding bank recaps):  2008: £11 billion  YTD 2009: £10 billion  Most active sectors to date in 2009:  Banks  Real Estate  Building/Construction & Engineering Source: Thomson Financial

5 Equity Issues - Volumes Source: Thomson Financial Bank recapitalisations Other issuers

6 IPOs – markets effectively remain shut Source: Thomson Financial

7 Refresher of Secondary Fundraisings Rights IssuesOpen OfferCash/Cashbox Placing Shareholder Approvals Likely to need to increase authority to allot May need to increase authority to allot No shareholder approvals if sufficient authority to allot DocumentsProspectus No prospectus needed if <10% of issued share capital (incl. shares issued in previous 12 months) and no public offer DiscountNo limit on discountMaximum discount: 10% (Listing Rules); 7.5% (ABI) Maximum discount: 10% (Listing Rules); 5% (Pre-emption Group/ABI) SizeNo limit on issue sizeLimit on issue size c.18% (ABI) Maximum cash placing issue size 5% (7.5% in rolling three year period) (Pre-emption Group) No limit on cashbox placing size but typically <10% (ABI guidelines on shareholder claw back on placings); rarely used where prospectus needed SpeedOffer can only start once necessary shareholder approvals obtained (nil paid rights trade on unconditional basis) Offer must be open for 10 business days (LSE A&DS); notice of general meeting can run concurrently No offer to shareholders; up to five days for placing, settlement and admission

8 Documentation  Underwriting documentation broadly unchanged  Greater focus on termination provisions and MACs  Use of specific events (e.g. ratings downgrade)  Public documentation is main hurdle to swift execution  Must be significantly advanced/finalised prior to any announcement  Underwriter risk on diligence/disclosure  Volatile markets have forced time between announcement and documentation to be reduced

9 Rights Issue Reform  Rights Issue Reform Group  Industry representatives co-chaired by FSA and HMT  UKLA reduced rights issue offer period from 21 days to 10 business days (LR9.5.6.R)  FSA currently consulting on open offer structure  Compensation for non-participating shareholders  ABI has reviewed its guidelines to increase headroom from 1/3 to 2/3 (additional 1/3 on pre-emptive basis only)  Short form prospectus for rights issues and greater use of shelf registration documentation in future?  FSA considering accelerated rights issue models (e.g. Australian RAPIDS model)

10 Pre-marketing Activity  Increased activity prior to announcement  Deal by deal consideration  Issuers wanting to ensure successful issue  Underwriters seeking increased certainty to cover exposure before announcement  Period for which investors will become “insiders”  Impact on liquidity  Process of making an investor an “insider” and implications for confidentiality and disclosure  Use of NDAs?  Pre-marketing presentations  Leak scenario planning

11 Cashbox Placings  Mechanism to permit a cash placing outside the Companies Act restrictions on shareholders’ pre-emption rights Issue of ordinary shares Issue of new ordinary shares conditional on Admission Cash on trigger of underwriting risk IssuerBanks JerseyCo Cash proceeds of placing on closing Payment of net cash proceeds of placing to satisfy preference share subscription Transfer of ordinary shares and preference shares in JerseyCo Banks (as underwriter) Issue of ordinary Shares and preference shares Placees

12 Cashbox Placings  Historically used in connection with acquisitions  Recent concerns raised by investors bodies as to their use  Letter from ABI to listed companies: “…investors do not welcome issues that breach the Pre-Emption Group guidance and will hold boards to account for such breaches.” “…we are doubly anxious that the pre-emption principle [should] not be eroded through abuse of cash-box issues.”  Greater consultation pre-announcement likely

13 Short Selling  Current temporary disclosure regime in place until 30 June 2009  Disclosure required of net short positions >0.25% in stocks of listed UK financial sector companies  FSA consulting on permenant regime including:  Extending to all UK stocks across all sectors  Disclosure of individual short positions >0.50%  Retain >0.25% disclosure during rights issues  No ban on underwriters short selling proposed  Exemption for market makers

14 Private Investment in Public Equity  Companies with significant/urgent cash needs  Unable to access debt capital markets  Bank debt unavailable  Current shareholders indicated no support for equity raising  Opportunity for PE/SWF to invest capital on attractive terms to support viable businesses with currently inappropriate capital structure  Ordinary share investment most common form  Firm/conditional placing  Underwriting of rights issue  Use of relationship agreements

15 Any Questions? These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP's affiliated undertakings.