F-4 1 dp44154_f4.htm FORM F-4
As filed with the Securities and Exchange Commission on March 6, 2014
Registration No. 333-


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Lloyds Banking Group plc
(Exact Name of Registrant as Specified in Its Charter)
 
Scotland
(State or Other Jurisdiction of Incorporation or Organization)
 
6029
(Primary Standard Industrial Classification Code Number)
Not Applicable
(I.R.S. Employer Identification No.)
 
25 Gresham Street
London  EC2V 7HN
011-44-207-626-1500
(Address and Telephone Number of Registrant’s Principal Executive Offices)
 
Kevin P. McKendry
Chief U.S. Counsel
Lloyds Bank plc
1095 Avenue of the Americas
New York, New York 10036
212-930-8920
(Name, Address and Telephone Number of Agent for Service)

 Please send copies of all communications to:
John W. Banes
DAVIS POLK & WARDWELL LONDON LLP
99 Gresham Street
London EC2V 7NG
Tel. No.: 011-44-207-418-1300
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  
 
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
 
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  
 
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of Securities to be Registered
 
Amount to be Registered
 
Proposed Maximum Offering Price per Unit(1)
 
Proposed Maximum Aggregate Offering Price(1)
 
Amount of Registration Fee(2)
Fixed Rate Reset Additional Tier 1 Securities (the “Additional Tier 1 Securities”)
8,375
100%
$1,675,000,000
$215,740
Ordinary Shares of Lloyds Banking Group plc(3)
 (4)
   
(5)

(1)
The securities being registered hereby are offered in exchange for the securities described in this prospectus. The registration fee has been computed based on the face value of the securities pursuant to Rule 457 under the Securities Act.
(2)
Calculated using a registration fee rate of $128.80 per million. $215,030.32 of the total registration fee is being paid in connection with the filing of Schedule TO on March 6, 2014.
 
 
 
 
 
 
 
 
 
 
(3)
The Ordinary Shares of Lloyds Banking Group plc are being registered in connection with the registration of the securities being registered hereby. American Depositary Shares issuable upon deposit of the Ordinary Shares registered hereby have been registered under a separate Registration Statement on Form F-6 (Registration Statement No. 333-164429).
(4)
Plus such additional indeterminate number of Ordinary Shares as may become issuable upon conversion of the Additional Tier 1 Securities by reason of an adjustment of the Conversion Price resulting from the anti-dilution provisions of the Additional Tier 1 Securities, pursuant to Rule 416 under the Securities Act.
(5)
Pursuant to Rule 457(i) of the Securities Act, no registration fee is required to be paid with respect to the Ordinary Shares issuable in respect of the conversion of the Additional Tier 1 Securities because no additional consideration will be received in connection with the Automatic Conversion.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 
 
 
 

 
The information in this prospectus may change. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer is not permitted.
 
PRELIMINARY PROSPECTUS, DATED MARCH 6, 2014
 
 
LBG Capital No. 1 plc
LBG Capital No. 2 plc
 
 
Offer to Exchange
 
LBG Capital No. 1 plc and LBG Capital No. 2 plc are offering to exchange up to $1,675,000,000 Fixed Rate Reset Additional Tier 1 Securities issued by Lloyds Banking Group plc (the “Additional Tier 1 Securities”)
 
(CUSIP No. 539439AG4 and ISIN No. US539439AG42)
 
plus, a cash payment for any accrued and unpaid interest, plus (if applicable) cash amounts in lieu of any fractional Additional Tier 1 Securities
 
for
 
certain Enhanced Capital Notes listed in the table below
 
THE EXCHANGE OFFER WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON APRIL 2, 2014 (SUCH  TIME AND DATE, AS THE SAME MAY BE EXTENDED, THE “EXPIRATION DEADLINE”).  ENHANCED CAPITAL NOTES (AS DEFINED BELOW) TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DEADLINE (SUCH TIME AND DATE, AS THE SAME MAY BE EXTENDED, THE “WITHDRAWAL DEADLINE”), BUT NOT THEREAFTER.  IN ADDITION, IF NOT PREVIOUSLY RETURNED, YOU MAY WITHDRAW ENHANCED CAPITAL NOTES THAT YOU TENDER THAT ARE NOT ACCEPTED BY US FOR EXCHANGE AFTER THE EXPIRATION OF 40 BUSINESS DAYS FOLLOWING COMMENCEMENT OF THE EXCHANGE OFFER.
 
 
LBG Capital No. 1 plc (“LBG 1”), an indirect wholly owned subsidiary of Lloyds Banking Group plc (“LBG”), is offering to exchange, on the terms and conditions described in this prospectus (the “LBG 1 Offer”), Fixed Rate Reset Additional Tier 1 Securities (the “Additional Tier 1 Securities”) issued by Lloyds Banking Group plc (“LBG”), plus accrued and unpaid interest in cash, plus (if applicable) cash amounts in lieu of any fractional Additional Tier 1 Securities, for (1) 7.875% Dated Enhanced Capital Notes due 2020, issued by LBG 1 and fully and unconditionally guaranteed by LBG (the “Series 1 ECNs”), (2) 8.00% Fixed-to-Floating Rate Undated Enhanced Capital Notes, issued by LBG 1 and fully and unconditionally guaranteed by LBG (the “Series 2 ECNs”) and (3) 8.50% Fixed-to-Floating Rate Undated Enhanced Capital Notes, issued by LBG 1 and fully and unconditionally guaranteed by LBG (the “Series 3 ECNs”).

LBG Capital No. 2 plc (“LBG 2” and, together with LBG 1, the “Offerors” and each, an “Offeror”), an indirect wholly owned subsidiary of LBG, is offering to exchange, on the terms and conditions described in this prospectus (the “LBG 2 Offer” and, together with the “LBG 1 Offer”, the “Exchange Offer”), Additional Tier 1 Securities, plus accrued and unpaid interest in cash, plus (if applicable) cash amounts in lieu of any fractional Additional Tier 1 Securities, for 7.875% Dated Enhanced Capital Notes due 2020, issued by LBG 2 and fully and unconditionally guaranteed by Lloyds Bank plc (the “Series 4 ECNs” and, collectively with the Series 1 ECNs, the Series 2 ECNs and the Series 3 ECNs, the “ECNs”).

For each $1,000 of the Enhanced Capital Notes validly tendered and accepted for exchange, holders of a particular series will be eligible to receive a principal amount of the Additional Tier 1 Securities set out in the table below (the “Exchange Consideration”).

The maximum aggregate principal amount of ECNs that can be accepted in the Exchange Offer is such an amount that would result in issuing the Additional Tier 1 Securities in an aggregate principal amount no greater than $1,675,000,000 (the “Maximum New Issue Size”).

Exchange Priority
 
Offer
 
Enhanced Capital Notes
 
ISIN
 
Interest Rate
 
First Optional Call Date
Principal Amount Outstanding
Exchange Consideration(1)
1
LBG 1 Offer
LBG Capital No. 1 plc 7.875%
Dated Enhanced Capital Notes due November 1, 2020
XS0459093521 XS0459093794
7.875% per annum
Not applicable
$985,636,000
$1,060.00 principal amount of Additional Tier 1 Securities
 

 
 
 
iii

 
 

 
Exchange Priority
 
Offer
 
Enhanced Capital Notes
 
ISIN
 
Interest Rate
 
First Optional Call Date
 
Principal Amount Outstanding
 
Exchange Consideration(1)
2
LBG 2 Offer
LBG Capital No. 2 plc 7.875%
Dated Enhanced Capital Notes due March 19, 2020
XS0496068429
7.875% per annum
Not applicable
$407,578,000
$1,062.50 principal amount of Additional Tier 1 Securities
3
LBG 1 Offer
LBG Capital No. 1 plc 8.00%
Fixed-to-Floating Rate Undated Enhanced Capital Notes
XS0473106283 XS0471767276
8.00% to (but excluding) June 15, 2020. From (and including) June 15, 2020, 3-month U.S. dollar LIBOR plus 6.405%.
June 15, 2020
$1,258,631,000
$1,057.50 principal amount of Additional Tier 1 Securities
4
LBG 1 Offer
LBG Capital No. 1 plc 8.50%
Fixed-to-Floating Rate Undated Enhanced Capital Notes
XS0473103348 XS0471770817
8.50% to (but excluding) December 17, 2021. From (and including) December 17, 2021, 3-month U.S. dollar LIBOR plus 6.921%.
December 17, 2021
$276,658,000
$1,060.00 principal amount of Additional Tier 1 Securities


(1)
Principal amount of Additional Tier 1 Securities to be issued in exchange for each $1,000 of ECNs.
 
 
Additional
Tier 1 Securities
 
Currency
 
New Issue Price
 
Initial Coupon
 
Reset Coupon
 
Conversion Price
 
First Call Date
 
Minimum New Issue Size
 
Maximum New Issue Size
Fixed Rate Reset Additional Tier 1 Securities
USD
100%
7.5%
5-year
MS+4.76%
$1.072
June 27, 2024
   $750,000,000
$1,675,000,000

 
Upon the terms and subject to the conditions of the Exchange Offer, LBG 1 and LBG 2 will accept tenders in accordance with the Exchange Priority set out in the table above, until either (i) all of the ECNs validly offered for exchange have been accepted or (ii) the principal amount of Additional Tier 1 Securities to be delivered in exchange for ECNs is the maximum such principal amount that can be delivered without exceeding the Maximum New Issue Size. Where the acceptance in accordance with the Exchange Priority of all valid tenders of a series of ECNs would require a greater principal amount of Additional Tier 1 Securities to be delivered than the Maximum New Issue Size, ECNs validly tendered and not validly withdrawn prior to the Expiration Deadline will be accepted in accordance with the Exchange Priority and, in the case of that particular series, on a pro rata basis up to the Maximum New Issue Size. Offers to exchange a series of ECNs with a lower Exchange Priority than the lowest ranking series of ECNs with respect to which any tenders are accepted, will not be accepted. The Offerors reserve the right, at their absolute discretion, but are under no obligation, to increase or waive the Maximum New Issue Size at any time, subject to compliance with applicable law.
 
The Exchange Offer is subject to a minimum new issue size of at least $750,000,000 in aggregate principal amount of Additional Tier 1 Securities being issued in exchange for ECNs validly tendered pursuant to the Exchange Offer and not withdrawn (the “Minimum New Issue Size”) and certain other conditions (the “General Conditions”) set out under “The Exchange Offer—Terms of the Exchange Offer—Exchange Offer Conditions—General Conditions”.
 
The Additional Tier 1 Securities will be delivered on the Settlement Date, expected to be on or around April 7, 2014, unless the Expiration Deadline is extended. We will not deliver fractional Additional Tier 1 Securities pursuant to the Exchange Offer. Instead, each tendering holder of ECNs who would otherwise be entitled to a fractional Additional Tier 1 Security will receive cash in an amount equal to such fractional entitlement.
 
The Offerors may extend, re-open, amend, limit, waive any condition of, or terminate the Exchange Offer at any time (subject to applicable law and as provided in this prospectus). Details of any such extension, re-opening, amendment, limitation, waiver (if permitted) or termination will be announced wherever applicable as provided in this prospectus as soon as reasonably practicable after the relevant decision is made. For more information, see “The Exchange Offer”.
 
Questions and requests for assistance in connection with (i) the Exchange Offer may be directed to the Dealer Managers and (ii) the delivery of Exchange Instructions (as defined herein) may be directed to Lucid Issuer Services Limited (the “Exchange Agent”), as applicable, the contact details for whom are on the back cover page of this prospectus.
 
We expect to apply to list the Additional Tier 1 Securities on the Global Exchange Market of the Irish Stock Exchange within two months of the Settlement Date. Our American Depositary Shares are listed on the New York Stock Exchange under the symbol “LYG”.
 
Before deciding whether to exchange your ECNs for Additional Tier 1 Securities, you are encouraged to read and carefully consider this prospectus (including the documents incorporated by reference herein) in its entirety.  See “Risk Factors” beginning on page 21 for a discussion of risk factors that you should consider prior to deciding whether to tender your ECNs in the Exchange Offer.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Exchange Offer or the securities to be issued in the Exchange Offer or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 
 

 
 

 
Global Coordinators and Joint Lead Dealer Managers
 
BofA Merrill Lynch
Goldman, Sachs & Co.

 
Joint Lead Dealer Managers
 
Barclays
Lloyds Securities
Morgan Stanley

 
Joint Dealer Managers
 
BNP PARIBAS
Citigroup
Deutsche Bank Securities
HSBC
J.P. Morgan Securities LLC
UBS Investment Bank


The date of this prospectus is              , 2014
 
 
 
 
 
 
 


Page
Prospectus
 
 
You should rely only on the information contained or incorporated by reference in this prospectus (including any free writing prospectus issued or authorized by us). Neither we nor the Dealer Managers have authorized anyone to provide you with additional, different or inconsistent information. We are not making an offer of these securities in any state or jurisdiction where the offer is not permitted. You should assume that the information contained in this prospectus and the documents incorporated by reference herein is accurate only as of their respective dates.
 
 
 
In this prospectus, we use the following terms:
 
 
·
“we”, “us”, “our”, “the Issuer”, “LBG” and “Lloyds Banking Group” mean Lloyds Banking Group plc;
 
 
·
“LBG 1” means LBG Capital No. 1 plc;
 
 
·
“LBG 2” means LBG Capital No. 2 plc;
 
 
·
“Group” means Lloyds Banking Group plc together with its subsidiaries and associated undertakings;
 
 
·
“SEC” refers to the Securities and Exchange Commission;
 
 
·
“pound sterling”, “pence”, “£” and “p” refer to the currency of the United Kingdom;
 
 
·
“U.S. dollars”, “$” and “cents” refer to the currency of the United States;
 
 
 
 
vi 

 
 
 
·
“euro”, “€” and “euro cents” refer to the currency of the member states of the European Union (the “EU”) that have adopted the single currency in accordance with the treaty establishing the European Community, as amended; and
 
 
·
“UK” means the United Kingdom.
 

 
 
 
 
vii

 
 
If a holder decides to tender ECNs pursuant to the Exchange Offer, the holder must arrange for the relevant account holder to submit an electronic tender and blocking instruction in the form specified in the “Deadlines and Corporate Events” or similar form of notice to be sent to account holders by each of Euroclear and Clearstream, Luxembourg on or about the date of this prospectus informing account holders of the procedures to be followed in order to participate in the Exchange Offer (each an “Exchange Instruction”).  See “The Exchange Offer—Procedures for Participating in the Exchange Offer”.
 
If you are a beneficial owner of ECNs that are held by or registered in the name of a bank, broker, custodian or other nominee, and you wish to participate in the Exchange Offer, you must promptly contact your bank, broker, custodian or other nominee to instruct it to tender your ECNs, to agree to the terms of the Exchange Offer and to cause the timely transmission of an Exchange Instruction on your behalf to the Exchange Agent.  You are urged to instruct your bank, broker, custodian or other nominee at least five Business Days prior to the Expiration Deadline in order to allow adequate processing time for your instruction.
 
The Offerors are making the Exchange Offer only in those jurisdictions where it is legal to do so. See “The Exchange Offer—Certain Matters Relating to Non-U.S. Jurisdictions”. This document does not constitute a “prospectus” for the purposes of Directive 2003/71/EC (as amended) and no such prospectus is required for the issue of the Additional Tier 1 Securities.
 
ECNs can be tendered in the Exchange Offer only in accordance with the procedures described in “The Exchange Offer—Procedures for Participating in the Exchange Offer”. Holders who do not participate in the Exchange Offer, or whose ECNs are not accepted for purchase, will continue to hold their ECNs.
 
Holders must comply with all laws that apply to them in any place in which they possess this prospectus. Holders must also obtain any consents or approvals that they need in order to tender their ECNs. None of LBG, the Offerors, Dealer Managers or the Exchange Agent (or any of their respective directors, employees or affiliates) is responsible for holders’ compliance with these legal requirements. See “The Exchange Offer—Certain Matters Relating to Non-U.S. Jurisdictions”. The applicable provisions of the UK Financial Services and Markets Act 2000 must be complied with in respect of anything done in relation to the Exchange Offer in, from or otherwise involving the United Kingdom.
 
See “Taxation Considerations―Material U.S. Federal Income Tax Considerations” for a description of material United States federal income tax considerations that should be considered carefully in evaluating the Exchange Offer.
 
Unless the context otherwise requires, all references in this prospectus to a “holder” or “holder of the ECNs” include:
 
(a)
each person who is shown in the records of Euroclear Bank S.A./N.V. (“Euroclear”) or Clearstream Banking, société anonyme (“Clearstream, Luxembourg” and, together with Euroclear, the “Clearing Systems” and each a “Clearing System”) as a holder of the ECNs (also referred to as “Direct Participants” and each a “Direct Participant”);
 
(b)
any broker, dealer, commercial bank, trust company or other nominee or custodian who holds ECNs; and
 
(c)
each beneficial owner of ECNs holding such ECNs, directly or indirectly, in accounts in the name of a Direct Participant acting on the beneficial owner’s behalf,
 
except that for the purposes of the exchange of ECNs pursuant to the Exchange Offer and the payment of any cash payments, to the extent the beneficial owner of the relevant ECNs is not a Direct Participant, the relevant Additional Tier 1 Securities and any cash payments will only be delivered and paid to the relevant Direct Participant and the delivery of such Additional Tier 1 Securities and payment of cash payments to such Direct Participant will satisfy
 
 
 
 
viii

 
 
any obligations of LBG, the Exchange Agent and the relevant Clearing System in respect of the exchange of such ECNs.
 
The Offerors are not providing for guaranteed delivery procedures and therefore you must allow sufficient time for the necessary tender procedures to be completed during normal business hours of the Clearing Systems prior to the Expiration Deadline.  Tenders received by the Exchange Agent after the Expiration Deadline will be disregarded and of no effect.
 
LBG is incorporating by reference into this document important business and financial information that is not included in or delivered with this document.  This information is available without charge to security holders upon written or oral request.  Requests should be directed to:
 
Lloyds Banking Group
25 Gresham Street
London EC2V 7HN
United Kingdom
Telephone Number: +44 207 626 1500
 
In order to ensure timely delivery of such documents, holders must request this information no later than five Business Days before the date they must make their investment decision.  Accordingly, any request for information should be made by March 26, 2014 to ensure timely delivery of the documents prior to the Expiration Deadline.
 
See “Risk Factors”, beginning on page 21 for a description of certain factors relating to a decision to tender your ECNs in the Exchange Offer, including information about our business.
 
The terms of the Additional Tier 1 Securities will be substantially different from those of the ECNs.  In addition to differences in financial terms which include, among others, the coupon and payment dates, the terms of the Additional Tier 1 Securities differ in respect of maturity, interest cancellation, the contingent conversion feature and ranking. Investors should carefully consider these differences in addition to those described under “Comparison of Certain Material Terms of the Enhanced Capital Notes and the Additional Tier 1 Securities” in deciding whether to tender ECNs for exchange in connection with the Exchange Offer.
 
The Additional Tier 1 Securities are novel and complex financial instruments and may not be a suitable investment for all investors. As a result, an investment in the Additional Tier 1 Securities and the Settlement Shares issuable following the Trigger Event will involve certain increased risks. Investors should be aware that if one or more of the risks described in this prospectus were to occur, they may find that an investment in the Additional Tier 1 Securities is materially adversely affected.  As a provider of additional tier 1 capital to LBG, an investor in the Additional Tier 1 Securities should be prepared to suffer losses on its investment if, in particular, LBG and/or the financial sector generally approaches or enters into a period of financial stress. There is no established trading market for the Additional Tier 1 Securities and one may not develop. If a market does develop, it may not be liquid.
 
Neither the Offerors nor their representatives are making any representation to you regarding the legality of participation in the Exchange Offer by you under applicable legal investment or similar laws. You should consult with your own advisors as to legal, tax, business, financial and related aspects of a decision whether to tender your ECNs in the Exchange Offer.
 
All references in this prospectus to a “cash payment” or “cash payments” payable on the Settlement Date of the Exchange Offer with respect to a series of ECNs include (i) all accrued and unpaid interest payments on such series of ECNs from and including the latest interest payment date for such series of ECNs through, but not including, the Settlement Date, and (ii) any cash amounts in lieu of any fractional Additional Tier 1 Securities that a tendering holder of ECNs would have otherwise been entitled to receive. Any cash amounts payable pursuant to the Exchange Offer will be rounded to the nearest U.S.$0.01, with U.S.$0.005, being rounded upwards.
 
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to the exchange of ECNs for Additional Tier 1 Securities include all cash payments made in connection with the exchange of such ECNs for Additional Tier 1 Securities.  
 
 
 
The Additional Tier 1 Securities will be available initially only in book-entry form, represented in one or more global securities registered in the name of a nominee of The Depository Trust Company (“DTC”). You will hold beneficial interests in the Additional Tier 1 Securities through DTC and its direct and indirect participants, including Euroclear and Clearstream, Luxembourg, and DTC and its direct and indirect participants will record your beneficial interest on their books.
 
We expect to apply to list the Additional Tier 1 Securities on the Global Exchange Market of the Irish Stock Exchange within two months of the Settlement Date. We will comply with any undertakings given by us from time to time to the Global Exchange Market of the Irish Stock Exchange in connection with the Additional Tier 1 Securities, and we will furnish to the Global Exchange Market of the Irish Stock Exchange all such information as the rules of the Global Exchange Market of the Irish Stock Exchange may require in connection with the listing of the Additional Tier 1 Securities.
 
 
 
LBG files annual, semiannual and special reports and other information with the Securities and Exchange Commission.  You may read and copy any document that LBG files with the SEC at the SEC’s Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549.  You can call the SEC on 1-800-SEC-0330 for further information on the Public Reference Room.  The SEC’s website, at http://www.sec.gov, contains, free of charge, reports and other information in electronic form that we have filed.  You may also request a copy of any filings referred to below (excluding exhibits) at no cost, by contacting us at 25 Gresham Street, London EC2V 7HN, England, telephone +44 207 626 1500.
 
The SEC allows LBG to incorporate by reference much of the information that it files with them.  This means:
 
 
·
incorporated documents are considered part of this prospectus;
 
 
·
LBG can disclose important information to you by referring you to these documents; and
 
 
·
information that LBG files with the SEC will automatically update and supersede this prospectus.
 
We also incorporate by reference in this prospectus any future documents we may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) from the date of this prospectus until the Exchange Offer contemplated in this prospectus expires or is terminated. Reports on Form 6-K that we may furnish to the SEC after the date of this prospectus (or portions thereof) are incorporated by reference in this prospectus only to the extent that the report expressly states that it is (or such portions are) incorporated by reference in this prospectus.
 
Each document incorporated by reference into this prospectus is current only as of the date of such document, and the incorporation by reference of such document is not intended to create any implication that there has been no change in the affairs of LBG since the date of the relevant document or that the information contained in such document is current as of any time subsequent to its date. Any statement contained in such incorporated documents is deemed to be modified or superseded for the purpose of this prospectus to the extent that a subsequent statement contained in another document that is incorporated by reference into this prospectus at a later date modifies or supersedes that statement. Any such statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
 
This prospectus incorporates by reference the documents listed below, which LBG has previously filed with or furnished to the SEC. These documents contain important information about LBG and its financial condition, business and results.
 
 
·
LBG’s annual report (the “Annual Report”) for the fiscal year ended December 31, 2013  on Form 20-F filed with the SEC on March 5, 2014  pursuant to the Exchange Act, including the audited consolidated annual financial statements of the Group, together with the audit report thereon;
 
 
·
Form 6-K dated March 5, 2014, containing the Group’s statement of computation of ratio of earnings to fixed charges as at December 31, 2013 and for the years ended December 31, 2012, 2011, 2010 and 2009; and
 
 
 
 
 
 
 
·
Form 6-K dated March 5, 2014, containing the Group’s capitalization and indebtedness on a consolidated basis in accordance with IFRS as at December 31, 2013.
 
 
 
From time to time, we may make statements, both written and oral, regarding assumptions, projections, expectations, intentions or beliefs about future events.  These statements constitute “forward-looking statements” for purposes of the Private Securities Litigation Reform Act of 1995.  We caution that these statements may and often do vary materially from actual results. Accordingly, we cannot assure you that actual results will not differ materially from those expressed or implied by the forward-looking statements.  You should read the sections entitled “Risk Factors” in this prospectus and “Forward-Looking Statements” in our Annual Report on Form 20-F for the year ended December 31, 2013, which is incorporated by reference herein.
 
Factors that could cause actual business, strategy, plans and/or results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward looking statements made by the Group or on its behalf include, but are not limited to the risks identified above under the section entitled “Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2013, as well as the following:
 
 
·
general economic and business conditions in the UK and internationally;
 
 
·
inflation, deflation, interest rates and policies of the Bank of England, the European Central Bank and other G8 central banks;
 
 
·
fluctuations in exchange rates, stock markets and currencies;
 
 
·
the ability to access sufficient funding to meet the Group’s liquidity needs;
 
 
·
changes to the Group’s credit ratings;
 
 
·
the ability to derive cost savings and other benefits including, without limitation, as a result of the Group’s Simplification Programme;
 
 
·
changing demographic developments including mortality and changing customer behavior including consumer spending, saving and borrowing habits; changes in customer preferences and changes to borrower or counterparty credit quality;
 
 
·
instability in the global financial markets, including Eurozone instability and the impact of any sovereign credit rating downgrade or other sovereign financial issues;
 
 
·
technological changes, natural and other disasters, adverse weather and similar contingencies outside the Group’s control;
 
 
·
inadequate or failed internal or external processes, people and systems;
 
 
·
terrorist acts and other acts of war or hostility and responses to those acts, geopolitical, pandemic or other such events;
 
 
·
changes in laws, regulations, taxation, accounting standards or practices;
 
 
·
regulatory capital or liquidity requirements and similar contingencies outside the Group’s control;
 
 
·
the policies and actions of governmental or regulatory authorities in the UK, the EU, the United States or elsewhere;
 
 
·
the implementation of the draft EU crisis management framework directive and banking reform, following the recommendations made by the Independent Commission on Banking;
 
 
·
the ability to attract and retain senior management and other employees;
 
 
 
 
 
·
requirements or limitations imposed on the Group as a result of HM Treasury’s investment in the Group;
 
 
·
the ability to complete satisfactorily the disposal of certain assets as part of the Group’s EU State Aid obligations;
 
 
·
the extent of any future impairment charges or write-downs caused by depressed asset valuations, market disruptions and illiquid markets and market-related trends and developments;
 
 
·
exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints;
 
 
·
changes in competition and pricing environments, or the inability to hedge certain risks economically; and
 
 
·
the adequacy of loss reserves, the actions of competitors, including non-bank financial services and lending companies, and the success of the Group in managing the risks of the foregoing.
 
We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, forward-looking events discussed in this prospectus or any information incorporated by reference might not occur.
 
 
 
LBG is a public limited company incorporated under the laws of Scotland. Most of LBG’s directors and executive officers and certain of the experts named herein are residents of the UK. A substantial portion of the assets of LBG, its subsidiaries and such persons, are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon all such persons or to enforce against them in U.S. courts judgments obtained in such courts, including those predicated upon the civil liability provisions of the federal securities laws of the United States. Furthermore, LBG has been advised by its solicitors that there is doubt as to the enforceability in the UK, in original actions or in actions for enforcement of judgments of U.S. courts, of certain civil liabilities, including those predicated solely upon the federal securities laws of the United States.
 
 
 

 
 
xii

 
 
 
The following is a summary of this prospectus and should be read as an introduction to, and in conjunction with, the remainder of this prospectus and any documents incorporated by reference therein. You should base your investment decision on a consideration of this prospectus and any documents incorporated by reference therein, as a whole. Words and expressions defined in “Description of the Additional Tier 1 Securities” below shall have the same meanings in this summary.
 
The Issuer
 
Lloyds Banking Group plc was incorporated as a public limited company and registered in Scotland under the UK Companies Act 1985 on October 21, 1985 (registration number 95000). Lloyds Banking Group plc’s registered office is at The Mound, Edinburgh EH1 1YZ, Scotland, and its principal executive offices in the UK are located at 25 Gresham Street, London EC2V 7HN, United Kingdom, telephone number +44 (0) 20 7626 1500. For further information relating to LBG, please refer to our Annual Report on Form 20-F for the fiscal year ended December 31, 2013.
 
The Offerors
 
LBG Capital No. 1 plc was incorporated and registered in England on  October 15, 2009 with registered number 7045658 as a public company limited by shares.  The principal legislation under which LBG Capital No. 1 plc operates is the UK Companies Act 2006 (as amended) (the “Companies Act”) and regulations made thereunder.  LBG Capital No. 1 plc is domiciled in the United Kingdom.  Its head office is at 25 Gresham Street, London EC2V 7HN (Tel. +44 (0)20 7626 1500).

LBG Capital No. 2 plc was incorporated and registered in England on October 15, 2009 with registered number 7045669 as a public company limited by shares.  The principal legislation under which LBG Capital No. 2 plc operates is the Companies Act and regulations made thereunder.  LBG Capital No. 2 plc is domiciled in the United Kingdom.  Its head office is at 25 Gresham Street, London EC2V 7HN (Tel. +44 (0)20 7626 1500).

Each of LBG Capital No. 1 plc and LBG Capital No. 2 plc is a wholly owned subsidiary of LBG Capital Holdings Limited, which itself is a wholly-owned subsidiary of LBG.

LBG Capital No. 1 plc’s and LBG Capital No. 2 plc’s principal activities include issuing the ECNs and holding certain securities issued by other members of the Group.

 
The following summary contains selected information about the Exchange Offer. It is provided solely for your convenience. This summary is not intended to be complete. You should read the full text and more specific details contained elsewhere in this prospectus. For a more detailed description of the Exchange Offer, see “The Exchange Offer”.
 
The Offerors
LBG Capital No. 1 plc
LBG Capital No. 2 plc
 
Purpose of the Exchange Offer
In 2009, the Group undertook a significant capital raising exercise in order to reinforce the Group’s going-concern capital ratios, and to meet the stress test requirements of the Financial Services Authority (the “FSA”). As a component of the exercise, the Group issued 33 series of enhanced capital notes, with a nominal amount of £8.4 billion currently outstanding.
 
The terms and conditions of the ECNs include a Regulatory Call Right (as defined herein) should, amongst other things,
 
 
 
 
 
 
 
 
the ECNs cease to be taken into account for the purposes of any “stress test” applied by the Prudential Regulatory Authority (the “PRA”) in respect of core capital (successor to the FSA). Whilst still uncertain, management of LBG believes recent developments resulting in higher capital requirements for banks, including a changed definition of core capital, make it likely that the ECNs will not provide going concern benefit under future stress tests.
 
These recent developments include:
 
·      a requirement in the CRR (as defined below) that with effect from January 1, 2014, convertible additional tier 1 capital instruments should have a conversion trigger set at no less than 5.125%. CET1 ratio (“CET1 ratio” means, the ratio of a firm’s common equity tier 1 capital to its risk weighted assets, and calculated in accordance with the end-point requirements of CRD IV);
 
·      statements by the PRA in late 2013 that a conversion trigger of 5.125% CET1 ratio may not convert in time to prevent the failure of a firm and that it expects major UK firms to meet a 7% CET1 ratio determined in accordance with the end-point requirements of CRD IV;
 
·      a statement by the European Banking Authority (the “EBA”) in January 2014 that tier 2 instruments must have a conversion trigger above a 5.5% CET1 ratio to be recognized in its forthcoming stress tests; and
 
·      an announcement by the PRA that, following a consultation commenced in October 2013, it expects to revise stress testing methodology and pass marks in 2014.
 
As a result of differences in definition, the Group’s CET1 ratio is substantially lower than the core tier 1 ratio on which the conversion trigger of the ECNs is based. As at December 31, 2013, the difference was 4.0%. Applying the same difference to the 5.0% core tier 1 ratio used as the ECN conversion trigger gives a 1.0%. CET1 ratio determined in accordance with end point requirements of CRD IV, well below the CRR minimum requirements.
 
The Group is today launching prioritized exchange offers to holders of enhanced capital notes, including the ECNs, to exchange their enhanced capital notes for new additional tier 1 securities at a price consistent with current trading prices. The offers provide holders with a means to eliminate the uncertainty around the Regulatory Call Right in the enhanced capital notes. In addition, such exchange offers are expected to result in sufficient additional tier 1 securities being issued to meet the Group’s medium-term additional tier 1 target.
 
 
 
 
 
 
 
The Exchange Offer
LBG Capital No. 1 is offering to exchange, on the terms and conditions described in this prospectus, Additional Tier 1 Securities, plus accrued and unpaid interest in cash, plus (if applicable) cash amounts in lieu of any fractional Additional Tier 1 Securities, for the Series 1 ECNs, the Series 2 ECNs and the Series 3 ECNs. LBG Capital No. 2 plc is offering to exchange, on the terms and conditions described in this prospectus, Additional Tier 1 Securities, plus accrued and unpaid interest in cash, plus (if applicable) cash amounts in lieu of any fractional Additional Tier 1 Securities, for the Series 4 ECNs.
 
Set forth below is a table that shows, with respect to each series of ECNs, the aggregate principal amount of Additional Tier 1 Securities that a holder of a particular series will receive for each $1,000 principal amount of ECNs validly tendered and accepted for exchange.
 
 
Exchange Priority
 
Offer
 
Enhanced Capital Notes
 
ISIN
 
 
 
Interest Rate
 
First Optional Call Date
 
Principal Amount Outstanding
 
Exchange Consideration(1)
1
LBG 1 Offer
LBG Capital No. 1 plc 7.875%
Dated Enhanced Capital Notes due November 1, 2020
XS0459093521 XS0459093794
7.875% per annum
Not applicable
$985,636,000
$1,060.00 principal amount of Additional Tier 1 Securities
2
LBG 2 Offer
LBG Capital No. 2 plc 7.875%
Dated Enhanced Capital Notes due March 19, 2020
XS0496068429
7.875% per annum
Not applicable
$407,578,000
$1,062.50 principal amount of Additional Tier 1 Securities
3
LBG 1 Offer
LBG Capital No. 1 plc 8.00%
Fixed-to-Floating Rate Undated Enhanced Capital Notes
XS0473106283 XS0471767276
8.00% to (but excluding) June 15, 2020. From (and including) June 15, 2020, 3-month U.S. dollar LIBOR plus 6.405%.
June 15, 2020
$1,258,631,000
$1,057.50 principal amount of Additional Tier 1 Securities
4
LBG 1 Offer
LBG Capital No. 1 plc 8.50%
Fixed-to-Floating Rate Undated Enhanced Capital Notes
XS0473103348 XS0471770817
8.50% to (but excluding) December 17, 2021. From (and including) December 17, 2021, 3-month U.S. dollar LIBOR plus 6.921%.
December 17, 2021
$276,658,000
$1,060.00 principal amount of Additional Tier 1 Securities
 
(1)     Principal amount of Additional Tier 1 Securities to be issued in exchange for each $1,000 of ECNs.

 
Additional
Tier 1 Securities
 
Currency
 
New Issue Price
 
Initial Coupon
 
Reset Coupon
 
Conversion Price
 
First Call Date
 
Minimum New Issue Size
 
Maximum New Issue Size
Fixed Rate Reset Additional Tier 1 Securities
USD
100%
7.5%
5-year
MS+4.76%
$1.072
June 27, 2024
$750,000,000
$1,675,000,000

 
 
 
 

 
Securities Offered
The Offerors are offering up to $1,675,000,000 Fixed Rate Reset Additional Tier 1 Securities (the “Additional Tier 1 Securities”), issued by LBG which will be registered under the Securities Act.  See “Description of the Additional Tier 1 Securities”.
 
ECNs
LBG 1 ECNs and LBG 2 ECNs
 
LBG 1 ECNs
·      LBG Capital No. 1 plc 7.875% Dated Enhanced Capital Notes due 2020 (ISIN XS0459093521 and XS0459093794);
 
·      LBG Capital No. 1 plc 8.00% Fixed-to-Floating Rate Undated Enhanced Capital Notes (ISIN XS0473106283 and XS0471767276); and
 
·      LBG Capital No. 1 plc 8.50% Fixed-to-Floating Rate Undated Enhanced Capital Notes (ISIN XS0473103348 and XS0471770817).
 
LBG 2 ECNs
·      LBG Capital No. 2 plc 7.875% Dated Enhanced Capital Notes due 2020 (ISIN XS0496068429).
 
Maximum New Issue Size
$1,675,000,000 of Additional Tier 1 Securities. The Offerors expressly reserve the right to increase, decrease or waive such Maximum New Issue Size in their sole discretion at any time, subject to compliance with applicable law. In the event the Maximum New Issue Size is modified, references herein to the Maximum New Issue Size shall be to the Maximum New Issue Size as so modified.
 
Minimum New Issue Size
$750,000,000 of Additional Tier 1 Securities.
 
Exchange Priority
The order, on a series by series basis, in which tenders of ECNs will be accepted, as more particularly set out in the table on the front cover page of this prospectus.
 
Exchange Offer Period
From the commencement of the Exchange Offer on March 6, 2014 to the Expiration Deadline, which is expected to be 11:59 p.m. on April 2, 2014, subject to extension.
 
Withdrawal Rights
If you decide to tender your ECNs in the Exchange Offer, you may withdraw them at any time prior to 11:59 p.m. New York City time on April 2, 2014. Holders may not rescind their withdrawal of tenders of ECNs, and any ECNs properly withdrawn will thereafter be deemed not validly tendered for purposes of the Exchange Offer. Properly withdrawn ECNs may, however, be re-tendered by again following the procedures described herein at any time prior to the Expiration Deadline.
 
In addition, if not previously returned, you may withdraw ECNs that you tender that are not accepted by us for exchange after the expiration of 40 Business Days following
 
 
 
 
 
 
 
 
the commencement of the Exchange Offer.
 
Fractional Entitlements
No fractional Additional Tier 1 Securities will be delivered pursuant to the Exchange Offer. Instead, each tendering holder of ECNs who would otherwise be entitled to a fractional Additional Tier 1 Security will receive cash in an amount equal to such fractional entitlement.
 
Conditions of the Exchange Offer
The Exchange Offer is subject to the satisfaction or waiver of certain conditions, including the Minimum New Issue Size, which are set forth in “The Exchange Offer—Terms of the Exchange Offer—Exchange Offer Conditions”.
 
Amendment of Terms of the Exchange Offer
Subject to applicable laws and as provided herein, the Offerors may extend, re-open, amend, limit, waive any condition of, or terminate the Exchange Offer at any time. Details of any such extension, re-opening, amendment, limitation, waiver (if permitted) or termination will be announced wherever applicable as provided in this prospectus as soon as reasonably practicable after the relevant decision is made.
 
Settlement Date
The Additional Tier 1 Securities plus the cash payment for any accrued and unpaid interest, (including, if applicable, cash amounts in lieu of any fractional Additional Tier 1 Securities) will be delivered on the Settlement Date, which is expected to be on or around April 7, 2014. Any cash amounts payable pursuant to the Exchange Offer will be rounded to the nearest U.S.$0.01, with U.S.$0.005, being rounded upwards.
 
Offer Restrictions
The Exchange Offer is subject to certain offer restrictions. See “The Exchange Offer—Certain Matters Relating to Non-U.S. Jurisdictions”.
 
Use of Proceeds
Neither LBG nor the Offerors will receive any proceeds from the issuance of the Additional Tier 1 Securities in the Exchange Offer.
 
Dealer Managers
The Global Coordinators and Joint Lead Dealer Managers for the Exchange Offer are Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
 
The Joint Lead Dealer Managers for the Exchange Offer are Barclays Capital Inc., Lloyds Securities Inc. and Morgan Stanley & Co. LLC.
 
The Joint Dealer Managers for the Exchange Offer are BNP Paribas Securities Corp., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., HSBC Securities (USA) Inc., J.P. Morgan Securities LLC and UBS Limited.
 
Lloyds Securities Inc. is an affiliate of LBG and the Offerors. Any participation in the Exchange Offer by Lloyds Securities Inc. will be made in compliance with applicable provisions of Rule 5121 of the Financial Industry Regulatory Authority, Inc.
 
 
 
 
 
 
 
Exchange Agent
Lucid Issuer Services Limited.
 
Brokerage Commission
No brokerage commissions are payable by the holders to LBG, the Offerors, the Dealer Managers or the Exchange Agent. If your ECNs are held through a broker or other nominee that tenders the ECNs on your behalf, such broker or other nominee may charge you a commission for doing so. You should consult with your broker or nominee to determine whether any charges will apply.
 
No Recommendation
None of LBG, the Offerors, the Dealer Managers or the Exchange Agent (or any of their respective directors, employees or affiliates) is providing holders of ECNs with any legal, business, tax or other advice in the prospectus, nor is making any recommendation as to whether or not holders should tender any ECNs in the Exchange Offer or refrain from tendering any ECNs, and none of them has authorized any person to make any such recommendation. Holders should consult their own advisers as needed to assist them in making an investment decision.
 
Further Information
If you have questions about the terms of the Exchange Offer, please contact your bank, broker or professional investment advisor, or you may contact the Dealer Managers.  If you have questions regarding the procedures for tendering your ECNs, please contact the Exchange Agent.  The Exchange Agent’s and Dealer Managers’ contact details are set forth on the back cover page of this prospectus.
 
As required by the Securities Act, we have filed a registration statement relating to the Exchange Offer with the SEC.  This document is a part of that registration statement, which includes additional information.
 
U.S. Federal Income Tax Considerations
For a discussion of material U.S. federal income tax considerations of the Exchange Offer applicable to holders of ECNs, see “Taxation Considerations—Material U.S. Federal Income Tax Considerations”.

The Additional Tier 1 Securities
 
Issuer
Lloyds Banking Group plc
 
Securities
Additional Tier 1 Securities
 
Issue Date
         , 2014
 
Issue Price:
100%
 
Denomination
The Additional Tier 1 Securities will be issued in fully registered form in denominations of $200,000 and in integral multiples of $1,000 thereafter.
 
 
 
 
 
 
Perpetual Securities
The Additional Tier 1 Securities are perpetual securities and have no fixed maturity or fixed redemption date.
 
Initial Interest Rate
From and including                 (the “Issue Date”) to but excluding June 27, 2024, (the “First Call Date”), interest will accrue on the Additional Tier 1 Securities at an initial rate equal to 7.5% per annum. From and including each Reset Date to but excluding the next succeeding Reset Date, the interest will accrue on the Additional Tier 1 Securities at a rate per annum equal to the sum of then prevailing Mid-Market Swap Rate on the relevant Reset Determination Date (as defined below) and 4.76%, converted to a quarterly rate in accordance with market convention (rounded to three decimal places, with 0.0005 rounded down)
 
Reset Date
The First Call Date and every 5th anniversary thereafter.
 
Interest Payment Dates
March 27, June 27, September 27 and December 27 of each year, commencing on June 27, 2014 (short first interest period).
 
Interest Payments Discretionary
Interest on the Additional Tier 1 Securities will be due and payable only at the sole discretion of LBG and LBG shall have absolute discretion at all times and for any reason to cancel any interest payment in whole or in part that would otherwise be payable on any Interest Payment Date. If LBG elects not to make an interest payment on the relevant Interest Payment Date, or if LBG elects to make a payment of a portion, but not all, of such interest payment, such non-payment shall evidence LBG’s exercise of discretion to cancel such interest payment, or the portion of such interest payment not paid, and accordingly such interest payment, or portion thereof, shall not be or become due and payable.
 
See also “—Agreement to Interest Cancellation” and “—Notice of Interest Cancellation” below.
 
Restrictions on Interest Payments
LBG shall cancel any interest on the Additional Tier 1 Securities (or, as appropriate, any part thereof) which is scheduled to be paid on an Interest Payment Date if in respect of such Interest Payment Date to the extent that LBG has an amount of Distributable Items on any scheduled Interest Payment Date that is less than the sum of (i) all payments (other than redemption payments) made or declared by LBG since the end of LBG’s last financial year and prior to such Interest Payment Date on or in respect of any Parity Securities, the Additional Tier 1 Securities and any Junior Securities  and (ii) all payments (other than redemption payments) payable by LBG on such Interest Payment Date (x) on the Additional Tier 1 Securities and (y) on or in respect of any Parity Securities or any Junior Securities, in the case of each of (i) and (ii), excluding any payments already accounted for in determining the Distributable Items.
 
 
 
 
 
 
 
 
In addition, LBG shall not pay any interest otherwise scheduled to be paid on an Interest Payment Date if and to the extent that the payment of such interest would cause, when aggregated together with other distributions of the kind referred to in Article 141(2) of the Directive (as defined below) (or any provision of applicable law transposing or implementing Article 141(2) of the Directive, as amended or replaced), the Maximum Distributable Amount (as defined below), if any, then applicable to the Group to be exceeded.
 
Distributable Items” shall have the meaning assigned to such term in CRD IV (as the same may be amended or replaced from time to time), as interpreted and applied in accordance with the Applicable Regulations then applicable to LBG, but amended so that any reference therein to “before distributions to holders of own funds instruments” shall be read as a reference to “before distributions by LBG to holders of Parity Securities, the Additional Tier 1 Securities or any Junior Securities”. Under CRD IV, as at the date hereof, “distributable items” means the amount of the profits at the end of the last financial year plus any profits brought forward and reserves available for that purpose before distributions to holders of own funds instruments, less any losses brought forward, profits which are non-distributable pursuant to provisions in legislation or the institution’s by-laws and sums placed to non-distributable reserves in accordance with applicable national law or the statutes of the institution, those losses and reserves being determined on the basis of the individual accounts of the institution (LBG) and not on the basis of the consolidated accounts.
 
Junior Securities” means (i) any Ordinary Share (as defined below) or other securities of LBG ranking, or expressed to rank, junior to the Additional Tier 1 Securities in a Winding-up or Administration Event and/or (ii) any securities issued by any other member of the Group where the terms of such securities benefit from a guarantee or support agreement entered into by LBG which ranks, or is expressed to rank, junior to the Additional Tier 1 Securities in a Winding-up or Administration Event.
 
Parity Securities means (i) the most senior ranking class or classes of preference shares in the capital of LBG from time to time and any other securities of LBG ranking, or expressed to rank, pari passu with the Additional Tier 1 Securities and/or such preference shares following a Winding-up or Administration Event and/or (ii) any securities issued by any other member of the Group where the terms of the securities benefit from a guarantee or support agreement entered into by LBG which ranks or is expressed to rank pari passu with the Additional Tier 1 Securities and/or such preference shares following a Winding-up or Administration Event.
 
 
 
 
 
 
 
 
Solvency Condition
Other than in a Winding-up or Administration Event (as defined below) or in relation to the cash component of any Alternative Consideration (as defined below) in any Settlement Shares Offer, payments in respect of or arising under the Additional Tier 1 Securities (including any damages for breach of any obligations thereunder) are, in addition to the right of LBG to cancel payments of interest, conditional upon LBG being solvent at the time when the relevant payment is due to be made and no principal, interest or other amount payable shall be due and payable in respect of or arising from the Additional Tier 1 Securities except to the extent that LBG could make such payment and still be solvent immediately thereafter (such condition is referred to herein as the “Solvency Condition”).
 
LBG shall be considered to be solvent at a particular point in time if:
 
(i)        it is able to pay our debts owed to our Senior Creditors (as defined under “—Ranking and Liquidation Distribution” below) as they fall due; and
 
(ii)       its Assets are at least equal to its Liabilities.
 
Assets” means the unconsolidated gross assets of LBG, as shown in the latest published audited balance sheet of LBG, adjusted for subsequent events in such manner as the directors of LBG may determine.
 
Liabilities” means the unconsolidated gross liabilities of LBG, as shown in the latest published audited balance sheet of LBG, adjusted for contingent liabilities and prospective liabilities and for subsequent events in such manner as the directors of LBG may determine.
 
Agreement to Interest Cancellation
By acquiring the Additional Tier 1 Securities, Securityholders acknowledge and agree that:
 
(a)       interest is payable solely at the discretion of LBG, and no amount of interest shall become due and payable in respect of the relevant interest period to the extent that it has been canceled by LBG at our sole discretion and/or deemed canceled as a result of LBG having insufficient Distributable Items; and
 
(b)       a cancellation or deemed cancellation of interest (in each case, in whole or in part) in accordance with the terms of the Indenture shall not constitute a default in payment or otherwise under the terms of the Additional Tier 1 Securities.
 
Interest will only be due and payable on an Interest Payment Date to the extent it is not canceled or deemed canceled in
 
 
 
 
 
 
 
 
accordance with the provisions described under “Description of the Additional Tier 1 Securities —Interest Cancellation”, “Description of the Additional Tier 1 SecuritiesSolvency Condition”, “Description of the Additional Tier 1 Securities —Availability of Distributable Items”, Description of the Additional Tier 1 Securities —Conversion—Automatic Conversion”  and “Description of the Additional Tier 1 Securities —Ranking and Liquidation Distribution”. Any interest canceled or deemed canceled (in each case, in whole or in part) in the circumstances described above shall not be due and shall not accumulate or be payable at any time thereafter, and Securityholders shall have no rights thereto or to receive any additional interest or compensation as a result of such cancellation or deemed cancellation.
 
Ranking and Liquidation Proceeds
The Additional Tier 1 Securities will constitute our direct, unsecured and subordinated obligations, ranking equally without any preference among themselves. The rights and claims of the Securityholders in respect of or arising from the Additional Tier 1 Securities will be subordinated to the claims of Senior Creditors.
 
If at any time prior to the date on which a Trigger Event occurs:
 
(i) an order is made, or an effective resolution is passed, for the winding-up of LBG (except in each such case, a solvent winding-up solely for the purposes of a reorganization, reconstruction or amalgamation of LBG or the substitution in place of LBG of a successor in business of LBG, the terms of which (i) have previously been approved in writing by Securityholders of not less than 2/3 (two thirds) in aggregate principal amount of the Additional Tier 1 Securities and (ii) do not provide that the Additional Tier 1 Securities shall thereby become redeemable or repayable in accordance with their terms); or
 
(ii) an administrator of LBG is appointed and such administrator declares, or gives notice that it intends to declare and distribute a dividend (together, a “Winding-up or Administration Event”),
 
there shall be payable by LBG in respect of each Additional Tier 1 Security (in lieu of any other payment by LBG) such amount, if any, as would have been payable to the Securityholder if, throughout such Winding-up or Administration Event, such Securityholder were the holder of one of a class of preference shares in the capital of LBG (“Notional Preference Shares”) having an equal right to a return of assets in the Winding-up or Administration Event to, and so ranking pari passu with, the holders of the most senior class or classes of issued preference shares in the capital of LBG from time to time (if any) and which have a preferential right to a return of assets in the Winding-up or Administration Event over, and so rank ahead of, the holders
 
 
 
 
 
 
 
 
 
 
of all other classes of issued shares for the time being in the capital of LBG but ranking junior to the claims of Senior Creditors and on the assumption that the amount that such holder was entitled to receive in respect of each Notional Preference Share is an amount equal to the principal amount of the Additional Tier 1 Securities together with, to the extent not otherwise included within the foregoing, any other amounts attributable to the Additional Tier 1 Securities, including any Accrued Interest and any damages awarded for breach of any obligations, regardless of whether the Solvency Condition is satisfied on the date upon which the same would otherwise be due and payable.
 
Senior Creditors” means creditors of LBG (i) who are unsubordinated creditors, (ii) whose claims are, or are expressed to be, subordinated to the claims of unsubordinated creditors of LBG but not further or otherwise, or (iii) whose claims are, or are expressed to be, junior to the claims of other creditors of LBG (whether subordinated or unsubordinated, other than those whose claims rank, or are expressed to rank, pari passu with, or junior to, the claims of Securityholders) in a Winding-up or Administration Event prior to a Trigger Event.
 
If a Winding-up or Administration Event occurs at any time on or following the date on which a Trigger Event occurs but the Settlement Shares to be issued and delivered to the Settlement Share Depository (as defined below) on the Conversion Date have not been so delivered, there shall be payable by LBG in respect of each Additional Tier 1 Security (in lieu of any other payment by LBG) such amount, if any, as would have been payable to the holder of such Note in a Winding up or Administration Event if the Conversion Date in respect of the Automatic Conversion had occurred immediately before the occurrence of a Winding-up or Administration Event (ignoring for this purpose LBG’s right to make an election for a Settlement Shares Offer to be effected), regardless of whether the Solvency Condition is satisfied on such date.
 
The “Conversion Date” shall be the date specified in the Conversion Trigger Notice (as defined below) and shall occur without delay upon the occurrence of a Trigger Event.
 
Optional Redemption
The Additional Tier 1 Securities will, subject to the satisfaction of the conditions described under “—Redemption Conditions” below, be redeemable in whole, but not in part, at the option of LBG on the First Call Date or on any Reset Date thereafter thereafter at 100% of their principal amount, together with any accrued and unpaid interest on the Additional Tier 1 Securities, excluding any interest which has been canceled or deemed to be canceled (“Accrued Interest”) to, but excluding, the date fixed for redemption.
 
Tax Redemption
If at any time a Tax Event has occurred and is continuing,
 
 
 
 
 
 
 
 
LBG may, subject to the satisfaction of the conditions described under “—Redemption Conditions” below, redeem the Additional Tier 1 Securities in whole but not in part at any time at 100% of their principal amount, together with any Accrued Interest to, but excluding, the date fixed for redemption.
 
A “Tax Event is deemed to have occurred if:
 
(1) as a result of a Tax Law Change, in making any payments on the Additional Tier 1 Securities, LBG has paid or will or would on the next payment date be required to pay any Additional Amounts to any holder pursuant to “Description of the Additional Tier 1 Securities—Additional Amounts” and/or
 
(2)    a Tax Law Change would:
 
(i) result in LBG not being entitled to claim a deduction in respect of any payments in respect of the Additional Tier 1 Securities in computing our taxation liabilities or materially reduce the amount of such deduction;
 
(ii) prevent the Additional Tier 1 Securities from being treated as loan relationships for United Kingdom tax purposes;
 
(iii) as a result of the Additional Tier 1 Securities being in issue, result in LBG not being able to have losses or deductions set against the profits or gains, or profits or gains offset by the losses or deductions, of companies with which it is or would otherwise be so grouped for applicable United Kingdom tax purposes (whether under the group relief system current as at the date of issue of the Additional Tier 1 Securities or any similar system or systems having like effect as may from time to time exist);
 
(iv) result in a United Kingdom tax liability, or the receipt of income or profit which would be subject to United Kingdom tax, in respect of a write-down of the principal amount of the Additional Tier 1 Securities or the conversion of the Additional Tier 1 Securities into Ordinary Shares; or
 
(v) result in an Additional Tier 1 Security or any part thereof being treated as a derivative or an embedded derivative for United Kingdom tax purposes,
 
in each case, provided that, LBG could not avoid the foregoing in connection with the Additional Tier 1 Securities by taking measures reasonably available to it.
 
Tax Law Change” means a change in or proposed change in, or amendment or proposed amendment to, the laws or regulations of the United Kingdom, or any political
 
 
 
 
 
 
 
 
 
subdivision or authority therein or thereof, having the power to tax, including any treaty to which the United Kingdom is a party, or any change in any generally published application or interpretation of such laws, including a decision of any court or tribunal, or any change in the generally published application or interpretation of such laws by any relevant tax authority or any generally published pronouncement by any tax authority, which change, amendment or pronouncement (x) (subject to (y)) becomes, or would become, effective on or after the Issue Date, or (y) in the case of a change or proposed change in law, if such change is enacted (or, in the case of a proposed change, is expected to be enacted) by United Kingdom Act of Parliament or implemented by statutory instrument, on or after the Issue Date.
 
Regulatory Redemption
If at any time a Regulatory Event has occurred and is continuing, LBG may, subject to the satisfaction of the conditions described under “—Redemption Conditions” below, redeem the Additional Tier 1 Securities in whole but not in part at any time at 100% of their principal amount, together with any Accrued Interest to, but excluding, the date fixed for redemption.
 
A “Regulatory Event” will occur if at any time LBG determines that as a result of a change (or prospective future change which the Relevant Regulator (as defined below) considers to be sufficiently certain) to the regulatory classification of the Additional Tier 1 Securities under the Applicable Regulations, in any such case becoming effective on or after the Issue Date, all of the outstanding aggregate principal amount of the Additional Tier 1 Securities fully ceases (or would fully cease) to be included in, or count towards, the Tier 1 Capital (howsoever defined in the Applicable Regulations) of the Group.
 
Redemption Conditions
Any redemption of the Additional Tier 1 Securities as described above is subject to:
 
(i) LBG giving notice to the Relevant Regulator and the Relevant Regulator granting permission to LBG to redeem the relevant Additional Tier 1 Securities (in each case to the extent, and in the manner, required by the relevant Applicable Regulations);
 
(ii) in respect of any redemption proposed to be made prior to the fifth anniversary of the Issue Date, if and to the extent then required under the Applicable Regulations (A) in the case of redemption following the occurrence of a Tax Event, LBG having demonstrated to the satisfaction of the Relevant Regulator that the relevant change or event is material and was not reasonably foreseeable by LBG as at the Issue Date or (B) in the case of redemption following the occurrence of a Regulatory Event, LBG having demonstrated to the satisfaction of the Relevant Regulator that the relevant change was not reasonably foreseeable by LBG as at the Issue Date;
 
 
 
 
 
 
 
 
 
(iii) the satisfaction of the Solvency Condition both immediately prior to and immediately following the redemption date;
 
(iv) a Conversion Trigger Notice not having been given; and
 
(v) compliance by LBG with any alternative or additional pre-conditions set out in the relevant Applicable Regulations for the time being.
 
Trigger Event
A “Trigger Event” shall occur on the date on which LBG determines that the CET1 Ratio as at any Quarterly Financial Period End Date or Extraordinary Calculation Date, as the case may be, is less than 7.00% on such date.
 
CET1 Ratio” means the ratio as published in respect of each Quarterly Financial Period End Date or any Extraordinary Calculation Date, the ratio of Group’s CET1 Capital as of such date to Risk Weighted Assets as of the same such date, expressed as a percentage and on the basis that all measures used in such calculation shall be calculated on a fully loaded basis.
 
Extraordinary Calculation Date” means any day (other than a Quarterly Financial Period End Date) on which the CET1 Ratio is calculated upon the instruction of the Relevant Regulator or at LBG’s discretion.
 
Quarterly Financial Period End Date” means the last day of each fiscal quarter of LBG.
 
CET1 Capital” means, as at any Quarterly Financial Period End Date or Extraordinary Calculation Date, the sum, expressed in sterling, of all amounts that constitute Common Equity Tier 1 Capital of the Group as at such date, less any deductions from Common Equity Tier 1 Capital of the Group required to be made as at such date, in each case as calculated by LBG on a consolidated and fully loaded basis in accordance with the Applicable Regulations applicable to the Group as at such date (which calculation shall be binding on the Trustee and Securityholders).
 
Common Equity Tier 1 Capital” shall have the meaning ascribed to such term in CRD IV (as the same may be amended or replaced from time to time) as interpreted and applied in accordance with the Applicable Regulations then applicable to the Group;
 
fully loaded” means, in relation to a measure that is presented or described as being on a “fully loaded basis”, that such measure is calculated without applying the transitional provisions set out in Part Ten of the Regulation (as may be amended from time to time).
 
 
 
 
 
 
 
Conversion Price
The conversion price per Ordinary Share in respect of the Additional Tier 1 Securities shall be $1.072, subject to the adjustments described under “Description of the Additional Tier 1 Securities—Anti-dilution Adjustment of the Conversion Price”.
 
Automatic Conversion
Upon the occurrence of the Trigger Event, each Additional Tier 1 Security shall, on the Conversion Date, be converted in whole and not in part into Ordinary Shares credited as fully paid (the “Settlement Shares”) at the Conversion Price and in accordance with the terms set forth herein. The Settlement Shares shall be issued and delivered to the Settlement Share Depository on the Conversion Date, in consideration for which all of LBG’s obligations under the Additional Tier 1 Securities shall be irrevocably and automatically released (the “Automatic Conversion”), and under no circumstances shall LBG’s released obligations be reinstated.
 
On the Conversion Date, the Settlement Shares shall be issued and delivered by LBG to the Settlement Share Depository (or as otherwise provided by the Indenture and the Additional Tier 1 Securities) on terms permitting a Settlement Shares Offer and, provided the Settlement Shares are so issued and delivered, no Additional Tier 1 Securityholder will have any rights against LBG with respect to the repayment of the principal amount of the Additional Tier 1 Securities or the payment of interest or any other amount on or in respect of such Additional Tier 1 Securities, which liabilities of LBG shall be automatically released. Accordingly, the principal amount of the Additional Tier 1 Securities shall equal zero at all times thereafter (although the Tradable Amount (as defined below) shall remain unchanged). Any interest in respect of an interest period ending on any Interest Payment Date falling between the Trigger Event and the Conversion Date shall be deemed to have been canceled upon the occurrence of such Trigger Event and shall not be due and payable.
 
Provided that LBG issues and delivers the Settlement Shares to the Settlement Share Depository in accordance with the terms of the Additional Tier 1 Securities as described herein, with effect from and on the Conversion Date, Securityholders shall have recourse only to the Settlement Share Depository for the delivery to them of Settlement Shares, ADSs or, if applicable, the Alternative Consideration. Subject to the occurrence of a Winding-up or Administration Event on or following a Trigger Event, if LBG fails to issue and deliver the Settlement Shares upon Automatic Conversion to the Settlement Share Depository on the Conversion Date, a holder’s only right under the Additional Tier 1 Securities will be to claim to have such Settlement Shares so issued and delivered.
 
The Settlement Shares to be issued and delivered shall
 
 
 
 
 
 
 
 
(except where LBG has been unable to appoint a Settlement Share Depository) initially be registered in the name of the Settlement Share Depository, which, subject to a Settlement Shares Offer, shall hold such Settlement Shares on behalf of the Securityholders. By virtue of its holding of any Additional Tier 1 Security, each Securityholder shall be deemed to have irrevocably directed LBG to issue and deliver the Settlement Shares corresponding to the conversion of its holding of Additional Tier 1 Securities to the Settlement Share Depository.
 
Following the issuance and delivery of the Settlement Shares to the Settlement Share Depository on the Conversion Date, the Additional Tier 1 Securities shall remain in existence until the applicable Cancellation Date for the sole purpose of evidencing the holder’s right to receive Settlement Shares, ADSs or the Alternative Consideration, as the case may be, from the Settlement Share Depository. LBG currently expects that beneficial interests in the Additional Tier 1 Securities will be transferrable until the Suspension Date and that any trades in the Additional Tier 1 Securities would clear and settle through DTC  until such date. However, there is no guarantee that an active trading market will exist for the Additional Tier 1 Securities following the Automatic Conversion. The Additional Tier 1 Securities may cease to be admitted to trading on the Global Exchange Market of the Irish Stock Exchange or any other stock exchange on which the Additional Tier 1 Securities are then listed or admitted to trading after the Suspension Date.
 
Subject to the conditions described under “Description of the Additional Tier 1 Securities—Conversion—Conversion Procedures, the Settlement Shares, ADSs or Alternative Consideration will be delivered to Securityholders on the Settlement Date and the Additional Tier 1 Securities shall be canceled on the Cancellation Date.
 
Settlement Shares Offer
Within ten (10) Business Days following the Conversion Date, LBG may, in its sole and absolute discretion, elect that the Settlement Share Depository (or an agent on its behalf) make an offer of, in LBG’s sole and absolute discretion, all or some of the Settlement Shares to, at LBG’s sole and absolute discretion, all or some of LBG’s ordinary shareholders upon Automatic Conversion, such offer to be at a cash price per Settlement Share that will be no less than the Conversion Price (translated from U.S. dollars into pounds sterling at the then-prevailing rate as determined by LBG in its sole discretion) (the “Settlement Shares Offer”). Such election shall be made through the delivery of a “Settlement Shares Offer Notice” to the Trustee directly and to the Securityholders.  If so elected, the Settlement Shares Offer Notice shall specify (i) the period of time for which the Settlement Shares Offer shall be made (the “Settlement Shares Offer Period”), which shall end no later than forty (40) Business Days after the delivery of the Settlement
 
 
 
 
 
 
 
Shares Offer Notice, and (ii) the date on which DTC shall suspend all clearance and settlement of transactions in the Additional Tier 1 Securities in accordance with its rules and procedures (the “Suspension Date”), if the Suspension Date has not previously been specified in the Conversion Trigger Notice.
 
Upon expiry of the Settlement Shares Offer Period, the Settlement Share Depository will provide notice to the Securityholders of the composition of the Alternative Consideration (and of the deductions to the cash component, if any, of the Alternative Consideration (as set out in the definition of Alternative Consideration)) per $1,000 Tradable Amount of the Additional Tier 1 Securities. The Alternative Consideration will be held by the Settlement Share Depository on behalf of the Securityholders and will be delivered to Securityholders pursuant to the procedures set forth under “—Settlement Procedures” below.
 
The cash component of any Alternative Consideration shall be payable by the Settlement Share Depository to the Securityholders whether or not the Solvency Condition is satisfied.
 
Agreement with Respect to the Exercise of the UK Bail-in Power
The PRA has requested LBG to include the following provision as a term of the Additional Tier 1 Securities in accordance with the requirements envisaged in Article 50 of the legislative proposal of the European Commission for a directive providing for the establishment of a European-wide framework for the recovery and resolution of credit institutions and investment firms (the “Recovery and Resolution Directive” or “RRD”).
 
By its acquisition of the Additional Tier 1 Securities, each Additional Tier 1 Securityholder acknowledges, agrees to be bound by and consents to the exercise of any UK Bail-in Power by the Relevant UK Resolution Authority that may result in the cancellation of all, or a portion, of the principal amount of, or interest on, the Additional Tier 1 Securities and/or the conversion of all, or a portion, of the principal amount of, or interest on, the Additional Tier 1 Securities into (a) Ordinary Shares or (b) other securities or obligations of LBG or another person, including by means of a variation to the terms of the Additional Tier 1 Securities, in each case to give effect to the exercise by the Relevant UK Resolution Authority of such UK Bail-in Power. References to principal and interest shall include payments of principal and interest that have become due and payable, but which have not been paid, prior to the exercise of any UK Bail-in Power. The rights of the Securityholders are subject to, and will be varied, if necessary, solely to give effect to the provisions of any UK Bail-in Power which are expressed to implement such a cancellation or conversion.
 
 
 
 
 
 
 
 
Relevant UK Resolution Authority” means any authority with the ability to exercise a UK Bail-in Power within the United Kingdom.
 
UK Bail-in Power” means any statutory write-down and/or conversion power existing from time to time under any laws, regulations, rules or requirements relating to the resolution of credit institutions and investment firms incorporated in the United Kingdom in effect and applicable in the United Kingdom to LBG or other members of the Group, including but not limited to any such laws, regulations, rules or requirements that are implemented, adopted or enacted within the context of a EU directive or regulation of the European Parliament and of the Council establishing a framework for the recovery and resolution of credit institutions and investment firms and/or within the context of a UK resolution regime by way of amendment to the Banking Act through the Banking Reform Act or otherwise pursuant to which obligations of a credit institution or investment firm or any of its affiliates can be canceled and/or converted into shares or other securities or obligations of the obligor or any other person.
 
Repayment of Principal and Payment of Interest After Exercise of a UK Bail-in Power
No payment of principal following any proposed redemption of the Additional Tier 1 Securities or payment of interest on the Additional Tier 1 Securities shall become due and payable after the exercise of any UK Bail-in Power by the Relevant UK Resolution Authority unless, at the time that such repayment or payment, respectively, is scheduled to become due, such repayment or payment would be permitted to be made by LBG under the laws and regulations of the UK and the EU applicable to LBG and the Group.
 
Enforcement Events and Remedies
The occurrence of a Winding-up or Administration Event prior to the occurrence of a Trigger Event.
 
If a Winding-up or Administration Event prior to the occurrence of a Trigger Event, subject to the subordination provisions described herein, the principal amount of the Additional Tier 1 Securities will become immediately due and payable. For the avoidance of doubt, as the principal amount of the Additional Tier 1 Securities will become immediately due and payable upon such a Winding-up or Administration Event, neither the Trustee nor the Securityholders are required to declare such principal amount to be due and payable.
 
Non-payment of principal when due.
 
Subject to the satisfaction of any redemption conditions described herein, if LBG does not make payment of principal in respect of the Additional Tier 1 Securities for a period of seven (7) calendar days or more after the date on which such
 
 
 
 
 
 
 
 
payment is due, then the Trustee, on behalf of the Securityholders, may, at its discretion, or shall at the direction of holders of 25% of the aggregate principal amount of outstanding Additional Tier 1 Securities, subject to any applicable laws, institute proceedings for the winding up of LBG. In the event of a winding-up or liquidation of LBG, whether or not instituted by the Trustee, the Trustee may prove the claims of the Securityholders and the Trustee in the winding up proceeding of LBG and/or claim in the liquidation of LBG, such claims as set out under Description of the Additional Tier 1 Securities—Ranking and Liquidation Distribution”. For the avoidance of doubt, the Trustee may not declare the principal amount of any outstanding Additional Tier 1 Securities to be due and payable and may not pursue any other legal remedy, including a judicial proceeding for the collection of the sums due and unpaid on the Additional Tier 1 Securities.
 
Breach of a Performance Obligation.
 
In the event of a breach of any term, obligation or condition binding on us under the Additional Tier 1 Securities or the Indenture (other than any payment obligation of LBG under or arising from the Additional Tier 1 Securities or the Indenture, including payment of any principal or interest, including any damages awarded for breach of any obligations) (a “Performance Obligation”); the Trustee may without further notice institute such proceedings against us as it may think fit to enforce the Performance Obligation, provided that we shall not by virtue of the institution of any such proceedings be obliged to pay any sum or sums, in cash or otherwise (including any damages) earlier than the same would otherwise have been payable under the Additional Tier 1 Securities or the Indenture.
 
No other remedies
 
Other than the limited remedies specified above, no remedy against us shall be available to the Trustee or the Securityholders, provided that (1) Trustee and the Securityholders shall have such rights and powers as they are required to have under the Trust Indenture Act, including the right of any Securityholder to institute proceedings for the enforcement of any payments of principal and interest when due, subject to the subordination provisions set forth in the Indenture and (2) such limitations shall not apply to LBG’s obligations to pay the fees and expenses of, and to indemnify, the Trustee and the Trustee’s rights to apply money collected to first pay its fees and expenses shall not be subject to the subordination provisions set forth in the Indenture.
 
There are no events of default under the Additional Tier 1 Securities. In addition, under the terms of the Indenture, neither the Automatic Conversion nor the exercise of the UK Bail-in Power by the Relevant UK Resolution Authority with
 
 
 
 
 
 
 
 
respect to the Additional Tier 1 Securities will be an Enforcement Event.
 
Book-Entry Issuance, Settlement and Clearance
The Additional Tier 1 Securities will be represented by one or more global securities registered in the name of a nominee of DTC. You will hold beneficial interests in the Additional Tier 1 Securities through DTC and its direct and indirect participants, including Euroclear and Clearstream, Luxembourg, and DTC and its direct and indirect participants will record your beneficial interest on their books.
 
Trustee, Paying Agent and Calculation Agent
The Bank of New York Mellon, a banking corporation duly organized and existing under the laws of the state of New York, acting through its London branch, having its corporate trust office at One Canada Square, London E14 5AL, United Kingdom, will act as the Trustee and will act as initial Paying Agent and Calculation Agent for the Additional Tier 1 Securities.
 
Listing
We expect to apply to the Irish Stock Exchange to admit the Additional Tier 1 Securities to the Official List and to trading on the Global Exchange Market, the exchange regulated market of the Irish Stock Exchange for listing of the Additional Tier 1 Securities within two months of the Settlement Date.
 
Governing Law
The Capital Securities Indenture (as defined below), the First Supplemental Indenture (as defined below) and the Additional Tier 1 Securities are governed by, and construed in accordance with, the laws of the State of New York, except for the subordination provisions, which are governed by Scots law.


 
 
 
 

 
 
 
 
Prospective investors should consider carefully the risk factors incorporated by reference into this prospectus and as set out below as well as the other information set out elsewhere in this prospectus (including any other documents incorporated by reference herein) and reach their own views prior to making any investment decision with respect to the Exchange Offer and the Additional Tier 1 Securities.
 
Set out below and incorporated by reference herein are certain risk factors which could have a material adverse effect on LBG’s business, operations, financial condition or prospects and cause LBG’s future results to be materially different from expected results. LBG’s results could also be affected by competition and other factors. These factors should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties LBG faces. The Offerors and LBG have described only those risks relating to LBG’s operations, the Exchange Offer or an investment in the Additional Tier 1 Securities that they consider to be material. There may be additional risks that the Offerors and/or LBG currently consider not to be material or of which they are not currently aware, and any of these risks could have the effects set forth below. All of these factors are contingencies which may or may not occur and neither the Offerors nor LBG are not in a position to express a view on the likelihood of any such contingency occurring. Each of the highlighted risks could adversely affect the trading price of the Additional Tier 1 Securities or the rights of investors under the Additional Tier 1 Securities and, as a result, investors could lose some or all of their investment. You should consult your own financial, tax and legal advisers regarding the risks of participating in the Exchange Offer and of an investment in the Additional Tier 1 Securities. As part of making an investment decision, investors should make sure to thoroughly understand the terms of the Additional Tier 1 Securities, such as the provisions governing the Automatic Conversion (including, in particular, the circumstances under which a Trigger Event may occur), the agreement by you to be bound by the exercise of any UK Bail-in Power by the Relevant UK Resolution Authority, that interest is due and payable only at the sole discretion of LBG, and that there is no scheduled repayment date for the principal of the Additional Tier 1 Securities.
 
The Offerors and LBG believe that the factors described below represent the principal risks inherent in the Exchange Offer and in investing in the Additional Tier 1 Securities, but neither the Offerors nor LBG represent that the statements below regarding the risks of the Exchange Offer or of holding the Additional Tier 1 Securities are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this prospectus (including any documents deemed to be incorporated by reference herein) and reach their own views prior to making any investment decision.
 
Risks relating to LBG and the Group
 
For a description of the risks associated with LBG and the Group, see the section entitled “Risk Factors” of LBG’s Annual Report on Form 20-F for the fiscal year ended December 31, 2013, which is incorporated by reference herein.
 
Risks relating to the Exchange Offer
 
The ECNs contain a Regulatory Call Right and the relevant Regulatory Call Price may be substantially lower than the Exchange Consideration.
 
The ECNs were issued for the purpose of counting as both lower tier 2 capital and “stress test” core capital of the Group. Pursuant to the terms of the ECNs, should any series of ECNs cease to qualify for inclusion in the lower tier 2 capital of the Group or, as a result of changes to the Regulatory Capital Requirements (as defined in the ECNs) or the interpretation or application thereof by the PRA, cease to be taken into account for the purposes of any “stress test” applied by the PRA, in each case as more fully described in Condition 8(e) of the relevant ECNs, the relevant Offeror has the Regulatory Call Right.
 
In 2009, the Group was required by the FSA to raise going concern capital sufficient to remain a viable banking group in the event of various stress scenarios by reinforcing the Group’s capital ratios in stress conditions; the ECNs formed part of that capital raising. As described above, if the ECNs cease to fulfil this purpose, the Group has the Regulatory Call Right.
 
 
 
 
 
 
There can be no assurance that the ECNs will continue to count for the purposes of “stress tests” to be applied by the PRA to the Group. Whilst still uncertain, management of LBG believes recent developments resulting in higher capital requirements for banks, including a changed definition of core capital, make it likely that the ECNs will not provide going concern benefit under future stress tests.
 
Holders should be aware that, in the event an Offeror exercises the Regulatory Call Right, pursuant to the terms of the relevant series of ECNs, such call will be exercised at par, together with accrued but unpaid interest (the “Regulatory Call Price”). For most series of ECNs, the relevant Regulatory Call Price is substantially lower than the Exchange Consideration pursuant to the Exchange Offer.
 
The Regulatory Call Right applies to each separate series of ECNs and, where available, the relevant Offeror may choose which individual series to call.
 
The Regulatory Call Right applies to each separate series of ECNs. Notice of redemption pursuant to the Regulatory Call Right would be required to be given on a per-series basis. Such notice may be given in relation to any one or more series of ECNs without triggering the redemption of any remaining series of ECNs. If the Regulatory Call Right were, by its terms, ever to become exercisable and the relevant Offeror wished to make use of it, LBG and the Offerors currently intend that they would prioritize the redemption of those series of ECNs, some part of which series is accepted for exchange in the Exchange Offer, or which rank in the relevant Exchange Priority ahead of those series of ECNs which have been so accepted for exchange, except if the relevant series of ECNs is pro-rated by the relevant Offeror pursuant to the Exchange Offer.
 
The trading markets for the ECNs may be adversely affected by the Exchange Offer.
 
The trading markets for the ECNs that remain outstanding following the completion of the Exchange Offer may be characterized by significantly lower levels of liquidity than before the Exchange Offer. Such outstanding ECNs may command a lower price than a comparable issue of securities with greater market liquidity. A reduced market value may also make the trading price of the remaining ECNs more volatile. As a result, the market price for the ECNs that remain outstanding after the completion of the Exchange Offer may be materially and adversely affected as a result of the Exchange Offer. In addition, it is possible that the credit ratings of certain of the ECNs may be affected, although it is not expected that any such changes would affect adversely other credit ratings of Group companies.
 
The ECNs are admitted to the Official List of the UK Listing Authority and are traded on the London Stock Exchange’s Regulated Market, but some or all series of ECNs may not be actively traded. Quotations for securities that are not widely traded, such as the ECNs, may differ from actual trading prices and should be viewed as approximations. Investors are urged to contact their brokers with respect to current market prices for the ECNs.
 
There are significant differences between the ECNs and the Additional Tier 1 Securities.
 
The terms of the Additional Tier 1 Securities will be substantially different from those of the ECNs.  In addition to differences in financial terms which include, among others, the coupon and payment dates, the terms of the Additional Tier 1 Securities differ in respect of maturity, redemption dates, redemption prices, the identity of the obligor, the trigger point (including the relevant capital ratio) for Automatic Conversion, interest cancellation and ranking. For example, the Additional Tier 1 Securities are perpetual securities and have no fixed maturity date or fixed or other redemption date, and interest payments in respect of the Additional Tier 1 Securities are subject to the Solvency Condition, the availability of Distributable Items and restrictions on distributions if the Group does not meet its combined buffer requirements under CRD IV and may be canceled in whole or in part at the sole discretion of LBG, and if a Winding-up or Administration Event occurs prior to the occurrence of a Trigger Event, holders will rank pari passu with the holders of LBG’s most senior class or classes of issued preference shares in the capital of LBG from time to time (if any). In contrast, certain series of ECNs have fixed maturity dates, certain series of the ECNs provide that the relevant guarantor may procure the relevant issuer to elect to defer, rather than cancel, interest payments except in certain limited circumstances, and upon a winding-up or appointment of an administrator in respect of the relevant guarantor, holders of the ECNs will rank at least pari passu with the claims of holders of all other subordinated obligations of the relevant issuer and in priority to the claims of holders of all undated or perpetual subordinated obligations and all classes of share capital of the relevant issuer.
 
 
 
 
 
Investors should carefully consider the differences described in the preceding paragraph in addition to those described under “Comparison of Certain Material Terms of the Enhanced Capital Notes and the Additional Tier 1 Securities” in deciding whether to tender ECNs for exchange in connection with the Exchange Offer.
 
The Additional Tier 1 Securities will be delivered in the form of book-entry securities at DTC regardless of the Clearing System(s) in which the ECNs are deposited.
 
Because transfers of interests in the global notes that will represent the Additional Tier 1 Securities can be effected only through book entries at DTC (and, through it, Clearstream, Luxembourg and Euroclear) for the accounts of their respective participants, the liquidity of any secondary market for investments in the Additional Tier 1 Securities may be reduced to the extent that some investors are unwilling to invest in notes held in book-entry form in the name of a participant in Clearstream, Luxembourg, Euroclear or DTC, as applicable. See “Description of the Additional Tier 1 Securities—Form of Additional Tier 1 Securities, Clearance and Settlement”.  In the event of the insolvency of Clearstream, Luxembourg, Euroclear, DTC or any of their respective participants in whose name interests in the Additional Tier 1 Securities are recorded, the ability of beneficial owners to obtain timely or ultimate payment of principal and interest on the Additional Tier 1 Securities may be impaired.
 
ECNs may be acquired by the Offerors, LBG or their affiliates other than through the Exchange Offer in the future.
 
The Exchange Offer relates to a principal amount of the ECNs up to the Maximum New Issue Size.  From time to time in the future, to the extent permitted by applicable law, the Offerors, LBG or their affiliates may acquire ECNs that remain outstanding, whether or not the Exchange Offer is consummated, through tender offers, exchange offers or otherwise, upon such terms and at such prices as it may determine, which may be more or less than the price to be paid pursuant to the Exchange Offer and could be for cash or other consideration.  There can be no assurance as to which, if any, of these alternatives (or combinations thereof) the Offerors, LBG or their affiliates may pursue.
 
Legality of purchase.
 
None of the Offerors, LBG, the Dealer Managers or any of their respective affiliates has or assumes responsibility for the lawfulness of the acquisition of the Additional Tier 1 Securities by a prospective investor of the Additional Tier 1 Securities, whether under the laws of the jurisdiction of its incorporation or the jurisdiction in which it operates (if different), or for compliance by that prospective investor with any law, regulation or regulatory policy applicable to it.
 
As the Additional Tier 1 Securities have no scheduled maturity, a holder who exchanges ECNs with a maturity date for Additional Tier 1 Securities may ultimately find that LBG is able to repay the ECNs remaining outstanding following completion of the Exchange Offer when they mature, but are unable to repay or refinance the Additional Tier 1 Securities .
 
The Additional Tier 1 Securities that you are being offered are perpetual securities and have no fixed maturity date or fixed redemption date, whereas the Series 1 ECNs and the Series 4 ECNs that you presently own have a maturity date. If you decide to tender the Series 1 ECNs and the Series 4 ECNs, you will be exposed to LBG’s credit risk for a longer period of time than if you did not tender such ECNs.  There can be no assurance that tendering eligible holders of such ECNs will not be adversely affected by the extension of maturity resulting from exchanging such ECNs for Additional Tier 1 Securities.
 
Failure by a holder to comply with the procedures for participating in the Exchange Offer may result in the holder being excluded from participation.
 
Holders are responsible for complying with all of the procedures for submitting Exchange Instructions pursuant to the terms of this prospectus. In particular, holders should note that only one Exchange Instruction may be submitted by or on behalf of a beneficial owner in respect of a particular series of ECNs. Multiple Exchange Instructions submitted by or on behalf of a beneficial owner in respect of any one series of ECNs will be invalid and may be rejected by the relevant Offeror None of the Offerors, LBG, the Dealer Managers or the Exchange Agent assumes any responsibility for informing holders of irregularities with respect to Exchange Instructions from such holders.
 
 
 
 
 
The Offerors may not accept all ECNs validly tendered for exchange in the Exchange Offer.
 
The Offerors will, if they accept any tenders, accept tenders that will result in issuing Additional Tier 1 Securities in an aggregate principal amount that is no greater than the Maximum New Issue Size, unless such limit is increased, decreased or waived, subject to applicable law. Depending on the aggregate principal amount of ECNs validly tendered in the Exchange Offer, the Offerors may have to accept ECNs in accordance with the Exchange Priority and may have to prorate or reject certain of the ECNs tendered in the Exchange Offer to remain within this limit. See “The Exchange Offer—Terms of the Exchange Offer—Acceptance of ECNs; Exchange Priority”.
 
Subject to applicable law, tenders of ECNs may be rejected by the Offerors and the Offerors are not under any obligation to holders to furnish any reason or justification for refusing to accept a tender of ECNs. For example, ECNs may be rejected if the Exchange Offer is terminated, if the Exchange Offer does not comply with the relevant requirements of a particular jurisdiction, if any of the conditions to the Exchange Offer are not met, or for other reasons.
 
The Exchange Offer may be extended, reopened, amended, limited, terminated or withdrawn at any time, subject to applicable law, and any such action may adversely affect any perceived benefits of the Exchange Offer.
 
Completion of the Exchange Offer is conditional upon the satisfaction or waiver of the conditions to the Exchange Offer set out herein. In addition, subject as provided herein, the Offerors may, subject to applicable law, extend, re-open, amend, terminate or withdraw the Exchange Offer at any time prior to the announcement of whether it accepts valid tenders of ECNs. For details, see “The Exchange Offer—Amendment and Termination”.
 
Submitting an Exchange Instruction will restrict a holder’s ability to transfer its ECNs.
 
When considering whether to participate in the Exchange Offer, holders should take into account that restrictions on the transfer of ECNs by holders will apply from the time of submission of an Exchange Instruction to the Clearing Systems. A holder will, on submitting an Exchange Instruction to Euroclear or Clearstream, Luxembourg, agree that its ECNs will be blocked in the relevant account in the relevant Clearing System from the date the Exchange Instruction is submitted to Euroclear or Clearstream, Luxembourg until the earlier of (i) the time of settlement on the Settlement Date and (ii) the date of any termination of the Exchange Offer (including where such ECNs are not accepted by the Offerors for exchange) or on which the Exchange Instruction is withdrawn, in the circumstances in which such withdrawal is permitted.
 
A holder’s failure to consult its own advisors may result in it suffering adverse tax, accounting, financial or legal consequences.
 
Holders should consult their own tax, accounting, financial and legal advisers as they may deem appropriate regarding the suitability to themselves of the tax, accounting, financial and legal consequences of participating or declining to participate in the Exchange Offer and an investment in the Additional Tier 1 Securities. In particular, due to the number of different jurisdictions where tax laws may apply to a holder and save as set out under “Taxation Considerations”, this prospectus does not discuss the tax consequences for holders arising from the exchange of their ECNs in the Exchange Offer and the receipt of Additional Tier 1 Securities. Holders are urged to consult their own professional advisers regarding the possible tax consequences under the laws of the jurisdictions that apply to them. Holders are liable for their own taxes and have no recourse to the Offerors, LBG, the Dealer Managers or the Exchange Agent with respect to taxes arising in connection with the Exchange Offer.
 
The exchange of ECNs for Additional Tier 1 Securities may be a taxable exchange for U.S. Holders.
 
The U.S. federal income tax consequences to a U.S. Holder who exchanges ECNs for Additional Tier 1 Securities will depend in part on the U.S. federal income tax characterization of both the ECNs and the Additional Tier 1 Securities, including in the case of the ECNs, whether they should be treated as securities of LBG or the relevant issuer. In particular, if the ECNs are treated as securities of the relevant issuers, their exchange for Additional Tier 1 Securities will generally be taxable for U.S. federal income tax purposes. The exchange of ECNs for Additional Tier 1 Securities would generally not be taxable for U.S. federal income tax purposes only if the ECNs are properly treated as securities of LBG for U.S. federal income tax purposes. The characterization of the ECNs and the Additional Tier 1 Securities for U.S. federal income tax purposes is uncertain because there are no regulations, published rulings or judicial decisions addressing the proper characterization of securities with terms
 
 
 
 
 
substantially the same as the ECNs or the Additional Tier 1 Securities and no rulings have or will be sought from the Internal Revenue Service regarding the characterization of the ECNs or the Additional Tier 1 Securities. Due to the lack of authorities on point, Counsel is unable to opine as to the likelihood that the ECNs would be treated as issued by LBG. U.S. Holders should consult their tax advisers concerning the possible alternative characterizations of the ECNs, including who should be treated as the issuer of the ECNs and the resulting tax consequences of the exchange.  See also “Taxation Considerations—Material U.S. Federal Income Tax Considerations”.

The Offerors have not obtained a third-party determination that the Exchange Offer is fair to the holders.
 
No one is making a recommendation as to whether holders should exchange ECNs in the Exchange Offer.  The Offerors have not retained, and do not intend to retain, any unaffiliated representative to act on behalf of the holders for purposes of negotiating the Exchange Offer or preparing a report concerning the fairness of the Exchange Offer.  Holders must make their own independent decision regarding participation in the Exchange Offer.
 
Risks relating to the Additional Tier 1 Securities
 
The Additional Tier 1 Securities will be subject to Automatic Conversion following the occurrence of a Trigger Event, in which case the Additional Tier 1 Securities will be converted into Settlement Shares.
 
Upon the occurrence of the Automatic Conversion following a Trigger Event (each as defined under “Description of the Additional Tier 1 Securities—Conversion—Automatic Conversion”), the Additional Tier 1 Securities will be converted into Settlement Shares on the Conversion Date; once the Settlement Shares have been issued and delivered to the Settlement Share Depository, all of LBG’s obligations under the Additional Tier 1 Securities shall be irrevocably and automatically released and under no circumstances shall such released obligations be reinstated. As a result, you could lose all or part of the value of your investment in the Additional Tier 1 Securities, as, following the Automatic Conversion, you will receive only (i) the Settlement Shares or ADSs (if LBG does not elect that a Settlement Shares Offer be made), or (ii) the Alternative Consideration, which shall be composed of Settlement Shares, ADSs and/or cash depending on the results of the Settlement Shares Offer (if LBG elects that a Settlement Shares Offer be made) and the value of any Settlement Shares or ADSs received upon Automatic Conversion may have a market value significantly below the principal amount of the Additional Tier 1 Securities you hold. Although the market value of the Settlement Shares or ADSs you receive could over time increase in value, at the time the Settlement Shares are issued, the Conversion Price may not reflect the market price of LBG’s Ordinary Shares, which could be significantly lower than the Conversion Price. Furthermore, upon the occurrence of the Automatic Conversion, you will no longer have a debt claim in relation to principal and any accrued but unpaid interest on the Additional Tier 1 Securities shall be canceled and shall not become due and payable at any time.
 
Any such Automatic Conversion will be irrevocable and, upon the occurrence of the Automatic Conversion, holders will not be entitled to any form of compensation in the event of LBG’s potential recovery or change in LBG’s fully loaded CET1 Ratio. In addition, on or after the occurrence of a Trigger Event, if LBG does not deliver Settlement Shares to the Settlement Share Depository, the only claims holders will have against LBG will be for specific performance to have such Settlement Shares issued and delivered to the Settlement Share Depository and to participate in the liquidation proceeds of LBG as if the Settlement Shares had been issued. Once the Settlement Shares have been issued and delivered to the Settlement Share Depository, the only claims holders will have will be against the Settlement Share Depository for delivery of Settlement Shares, ADSs or Alternative Consideration, as applicable.
 
A Trigger Event shall occur if LBG determines that its CET1 Ratio (which will be calculated on a consolidated and fully loaded basis) as at any Quarterly Financial Period End Date or Extraordinary Calculation Date, as the case may be, is less than 7.00% on such date.
 
CET1 Ratio” means, as of the relevant calculation date, the ratio of CET1 Capital as of such date to the Risk Weighted Assets as of the same date, calculated on a fully loaded basis and expressed as a percentage, each as defined under “Description of the Additional Tier 1 Securities—Conversion—Automatic Conversion”.
 
For a discussion of the risks associated with the calculation of LBG’s CET1 Ratio see “—For the purposes of the Trigger Event, the CET1 Ratio will be calculated on a “fully loaded” basis. This will result in a lower calculated CET Ratio than one using CRD IV transitional provisions, increasing the potential for Conversion in the short term.
 
 
 
 
 
Changes to the calculation of CET1 capital and/or risk weighted assets may negatively affect LBG’s CET1 Ratio, thereby increasing the risk of a Trigger Event which will lead to the Automatic Conversion, as a result of which your Additional Tier 1 Securities will automatically be converted into Settlement Shares”.
 
The circumstances surrounding or triggering the Automatic Conversion are inherently unpredictable and may be caused by factors outside of LBG’s control. LBG has no obligation to operate its business in such a way, or take any mitigating actions, to maintain or restore its CET1 Ratio to avoid a Trigger Event and actions LBG takes could result in its CET1 Ratio falling.
 
The occurrence of a Trigger Event and, therefore, the Automatic Conversion, is inherently unpredictable and depends on a number of factors, some of which may be outside of LBG’s control. Although LBG currently publicly reports the Group’s fully loaded CET1 Ratio only as of each quarterly period end, the PRA, or the then relevant regulatory body with primary responsibility for the prudential supervision of LBG and the Group (the “Relevant Regulator”), as part of its supervisory activity, may instruct LBG to calculate such ratio as of any date, including if LBG is subject to recovery and resolution actions by the Relevant UK Resolution Authority (as defined under “Description of the Additional Tier 1 Securities—Redemption and Purchase—Redemption Conditions”), or LBG might otherwise determine to calculate such ratio in its own discretion. As such, the Automatic Conversion could occur at any time. Moreover, it is likely that the Relevant UK Resolution Authority would allow a Trigger Event to occur rather than to resort to the use of public funds.
 
A Trigger Event could occur at any time if LBG determines that it’s fully loaded CET1 Ratio is below 7.00% as of any such calculation date. Such calculation could be affected by, among other things, the growth of LBG’s business and LBG’s future earnings, dividend payments, regulatory changes (including changes to definitions and calculations of regulatory capital, including CET1 Capital and Risk Weighted Assets (each of which shall be calculated by LBG on a fully loaded, consolidated basis and such calculation shall be binding on the Trustee and on the person in whose name the Additional Tier 1 Security is registered (the “Securityholder”))), actions that LBG is required to take at the direction of the Relevant Regulator, and the Group’s ability to manage Risk Weighted Assets in both its ongoing businesses and those which it may seek to exit. In addition, the Group has capital resources and risk weighted assets denominated in foreign currencies, and changes in foreign exchange rates will result in changes in the pound sterling equivalent value of foreign currency denominated capital resources and risk weighted assets. Actions that LBG takes could also affect its CET1 Ratio, including causing it to decline. LBG has no obligation to increase its CET1 Capital, reduce its Risk Weighted Assets or otherwise operate its business in such a way, take mitigating actions in order to prevent its CET1 Ratio from falling below 7.00%, to maintain or increase its CET1 Ratio or to otherwise consider the interests of the Securityholders in connection with any of its business decisions that might affect LBG’s CET1 Ratio.
 
The calculation of LBG’s CET1 Ratio may also be affected by changes in applicable accounting rules, or by changes to regulatory adjustments which modify the regulatory capital impact of accounting rules. Moreover, even if changes in applicable accounting rules, or changes to regulatory adjustments which modify accounting rules, are not yet in force as of the relevant calculation date, the Relevant Regulator could require LBG to reflect such changes in any particular calculation of its CET1 Ratio.
 
Because of the inherent uncertainty regarding whether a Trigger Event will occur and there being no obligation on LBG’s part to prevent its occurrence, it will be difficult to predict when, if at all, Automatic Conversion could occur. Accordingly, the trading behavior of the Additional Tier 1 Securities may not necessarily follow the trading behavior of other types of subordinated securities, including LBG’s other subordinated debt securities. Fluctuations in the CET1 Ratio may be caused by changes in the amount of CET1 Capital and Risk Weighted Assets as well as changes to their respective definitions under the capital adequacy standards and guidelines set by the Relevant Regulator. Any indication that the Group’s CET1 Ratio is moving towards the level which would cause the occurrence of a Trigger Event may have an adverse effect on the market price and liquidity of the Additional Tier 1 Securities. Therefore, investors may not be able to sell their Additional Tier 1 Securities easily or at prices that will provide them with a yield comparable to other types of subordinated securities, including LBG’s other subordinated debt securities. In addition, the risk of Automatic Conversion could drive down the price of LBG’s ordinary shares (“Ordinary Shares”) and have a material adverse effect on the market value of Settlement Shares received upon Automatic Conversion.
 
 
 
 
 
For the purposes of the Trigger Event, the CET1 Ratio will be calculated on a “fully loaded” basis. This will result in a lower calculated CET1 Ratio than one using CRD IV transitional provisions, increasing the potential for Conversion in the short term. Changes to the calculation of CET1 capital and/or risk weighted assets may negatively affect LBG’s CET1 Ratio, thereby increasing the risk of a Trigger Event which will lead to the Automatic Conversion, as a result of which your Additional Tier 1 Securities will automatically be converted into Settlement Shares.
 
The Basel Committee on Banking Supervision (the “Basel Committee”) proposed a number of fundamental reforms to the regulatory capital framework for internationally active banks which are designed, in part, to ensure that capital instruments issued by such banks fully absorb losses before tax payers are exposed to loss (the “Basel III Reforms”). The implementation of the Basel III Reforms by relevant authorities in the EU consists of a legislative package including a fourth capital requirements Directive and the new CRR, collectively known as “CRD IV”. The CRD IV legislative package was published in the Official Journal of the European Union on June 27, 2013  and on January 1, 2014, the CRR became applicable in the United Kingdom (the “CRD IV Implementation Date”), subject to a series of transitional arrangements described below which are expected to be phased in over a period of time and be fully effective by 2019.
 
As a result of the changes under CRD IV, LBG is required to calculate its capital resources for regulatory purposes on the basis of “common equity tier 1 capital” instead of “core tier 1 capital” which LBG has historically calculated and published. LBG is also required to calculate its “risk weighted assets”, which represent assets adjusted for their associated risks, on a different basis under CRD IV than LBG did prior to the CRD IV Implementation Date. Each of these definitions will be calculated in accordance with the capital adequacy standards and guidelines of the Relevant Regulator applicable to LBG on the relevant date. The main differences between the calculation of the common equity tier 1 capital base under CRD IV compared to LBG’s core tier 1 capital base under PRA rules and guidelines in effect prior to the CRD IV Implementation Date relate to (i) the treatment of significant investments in the equity of financial sector entities, and (ii) the treatment of deferred tax assets which were previously not restricted in respect of what may be recognized for regulatory purposes.
 
The CRD IV legislation sets out a minimum pace of introduction of these enhanced capital requirements (the “Transitional Provisions”). The Transitional Provisions are designed to implement certain CRD IV requirements in stages over a prescribed period; however, each of the EU Member States has the discretion to accelerate that minimum pace of transition in certain respects. In the United Kingdom, the PRA has confirmed that it will accelerate the introduction of certain of the enhanced capital requirements under CRD IV. In accordance with the PRA’s rules and supervisory statements published on December 19, 2013, the PRA will require the Group to meet certain capital targets within certain prescribed timeframes, without having regard to any Transitional Provisions in that respect. Therefore, for the purposes of the Additional Tier 1 Securities, LBG will calculate its CET1 Capital and Risk Weighted Assets without applying the Transitional Provisions and will instead calculate its CET1 Ratio on a so-called “fully loaded” basis, which is a more stringent basis than under the CRD IV regime and will lead to the CET1 Ratio as defined for purposes of the Additional Tier 1 Securities being lower than it would be were LBG to calculate the common equity tier 1 ratio applying the Transitional Provisions to its calculation of common equity tier 1 capital and risk weighted assets.
 
At December 31, 2013, LBG’s CET1 Ratio, giving full effect to CRD IV on a fully loaded basis, based on LBG’s interpretation of the current rules and assuming such rules were applied as of December 31, 2013, was estimated to be 10.3%, adjusted to include the benefits of the announced sales of Heidelberger Leben, Scottish Widows Investment Partnership and Sainsbury’s Bank. LBG’s fully loaded CET1 Ratio is a non-IFRS measure, and LBG’s interpretation of CRD IV and the basis of LBG’s calculation of this financial measure may be different from those of other financial institutions. For further information, see the section entitled “Risk Management–Capital Management in 2013” of our Annual Report on Form 20-F for the year ended December 31, 2013. LBG’s estimates are based on a number of assumptions.
 
The actual impact of CRD IV on capital ratios may be materially different as the CRD IV requirements adopted in the United Kingdom may change, whether as a result of further changes to CRD IV agreed by EU legislators, binding regulatory technical standards to be developed by the EBA or changes to the way in which the PRA interprets and applies these requirements to UK banks (including as regards individual model approvals granted under CRD II and III). The PRA’s supervisory statements SS 3/13 (released on November 29, 2013) and PS 7/13 (released on December 19, 2013) set out the PRA’s expectations in relation to capital and leverage ratios (in the case of SS 3/13) and the quality of capital (in the case of PS 7/13). The PRA’s policy statement PS 7/13, sets out, among
 
 
 
 
 
other things, changes to the PRA rules in order to implement certain aspects of CRD IV in the UK and PS 7/13, contrary to previous indications from the PRA, stated that UK banks will be able to meet any future Pillar 2A requirements with a blend of regulatory capital, including CET1 Capital, in addition to the minimum capital requirements under CRD IV. Nonetheless, if the PRA rules, guidance or expectations in relation to capital or leverage were to be amended in the future in a manner other than as set out in the statements, and depending on the content of final binding regulatory technical standards developed by the EBA, it could be materially more difficult for the Group to maintain compliance with prudential requirements. Any such changes, either individually and/or in aggregate, may lead to further unexpected enhanced requirements in relation to the Group’s capital and may result in a need for further management actions to meet the changed requirements, such as: increasing capital, reducing leverage and risk weighted assets, modifying legal entity structure (including with regard to issuance and deployment of capital and funding for the Group) and changing the Group’s business mix or exiting other businesses and/or undertaking other actions to strengthen the Group’s capital position.
 
Investors should be aware that the CRD IV rules and their implementation in the United Kingdom subsequent to the date hereof may individually and/or in the aggregate further negatively affect LBG’s CET1 Ratio and thus increase the risk of a Trigger Event, which will lead to the Automatic Conversion. Upon the occurrence of the Automatic Conversion, provided that LBG issues and delivers the Settlement Shares to the Settlement Share Depository in accordance with the terms described herein, investors will have no rights against LBG with respect to the repayment of the principal amount of the Additional Tier 1 Securities or the payment of any accrued and unpaid interest on such Additional Tier 1 Securities. In addition, the realizable value of the Settlement Shares may be below the Conversion Price. Although the market value of the Settlement Shares you receive could over time increase, at the time the Settlement Shares are issued, the Conversion Price may not reflect the market price of LBG’s Ordinary Shares, which could be significantly lower than the Conversion Price.
 
The Additional Tier 1 Securities have no scheduled maturity and Securityholders only have a limited ability to cash in their investment in the Additional Tier 1 Securities.
 
The Additional Tier 1 Securities are perpetual securities and have no fixed maturity date or fixed redemption date. Although under certain circumstances as described under “Description of the Additional Tier 1 Securities—Redemption and Purchase” LBG may redeem the Additional Tier 1 Securities, LBG is under no obligation to do so and Securityholders have no right to call for their redemption. Therefore, Securityholders have no ability to cash in their investment, except (i) if LBG exercises its rights to redeem the Additional Tier 1 Securities in accordance with their terms and applicable laws, (ii) by selling their Additional Tier 1 Securities or, following the occurrence of a Trigger Event and the issue and delivery of Settlement Shares or ADSs, their Settlement Shares or ADSs (if LBG does not elect that a Settlement Share Offer be made or where the Settlement Shares issued are not all sold pursuant to the Settlement Share Offer), (iii) through the cash component of any Settlement Share Offer, (iv) where the Trustee institutes proceedings for the winding-up of LBG where LBG has exercised its right to redeem the Additional Tier 1 Securities but fails to make payment in respect of such redemption when due, in which limited circumstances the Securityholders may receive some of any resulting liquidation proceeds following payment being made in full to all senior and more senior subordinated creditors, or (v) upon a Winding-up or Administration Event in which limited circumstances the Securityholders may receive some of any resulting liquidation proceeds following payment being made in full to all senior or more senior subordinated creditors.
 
Interest payments on the Additional Tier 1 Securities are discretionary and LBG may cancel interest payments, in whole or in part, at any time. Canceled interest shall not be due and shall not accumulate or be payable at any time thereafter and investors shall have no rights thereto.
 
Subject to the Solvency Condition described under “Description of the Additional Tier 1 Securities—Payments—Solvency Condition” and the availability of Distributable Items as described under “Description of the Additional Tier 1 Securities—Payments—Availability of Distributable Items”, interest on the Additional Tier 1 Securities will be due and payable only at the sole discretion of LBG and LBG shall have absolute discretion at all times and for any reason to cancel any interest payment in whole or in part that would otherwise be payable on any Interest Payment Date. Interest will only be due and payable on an Interest Payment Date to the extent it is not canceled in accordance with the terms of the Additional Tier 1 Securities. If LBG cancels any scheduled interest payment, such interest payment shall not be or become due and payable at any time thereafter and in no event will Securityholders have any right to or claim against LBG with respect to such interest amount or be able to accelerate the principal of the Additional Tier 1 Securities as a result of such interest cancellation. Furthermore, no cancellation of interest in accordance with the terms of the Indenture shall constitute a default in payment or otherwise under the
 
 
 
 
 
terms of the Additional Tier 1 Securities. There can, therefore, be no assurances that a holder will receive interest payments in respect of the Additional Tier 1 Securities.
 
For further information on LBG’s dividend policy, see our Annual Report on Form 20-F for the year ended December 31, 2013 under the heading “Dividends”. The Additional Tier 1 Securities will rank senior to Ordinary Shares. It is the Board of Directors’ current intention that, whenever exercising its discretion to declare Ordinary Share dividends, or its discretion to cancel interest on the Additional Tier 1 Securities, the Board will take into account the relative ranking of these instruments in LBG’s capital structure. However, the Board may at any time depart from this policy at its sole discretion.
 
Following cancellation of any interest payment, LBG will not be in any way limited or restricted from making any distribution or equivalent payments in connection with any Parity Securities or Junior Securities, including any dividend payments on LBG’s Ordinary Shares or preference shares. LBG may therefore cancel (in whole or in part) any interest payment on the Additional Tier 1 Securities at its discretion and may pay dividends on its ordinary or preference shares or on other additional tier 1 securities notwithstanding such cancellation. In addition, LBG may without restriction use funds that could have been applied to make such canceled payments to meet its other obligations as they become due.
 
In addition to LBG’s right to cancel, in whole or in part, interest payments at any time, the terms of the Additional Tier 1 Securities also restrict LBG from making interest payments on the Additional Tier 1 Securities if LBG has insufficient distributable items (based on its individual accounts and not on its consolidated accounts), in which case such interest shall be deemed to have been canceled.
 
Subject to the extent permitted in the following paragraphs in respect of partial interest payments, LBG shall not make an interest payment on the Additional Tier 1 Securities on any Interest Payment Date (and such interest payment shall therefore be deemed to have been canceled and thus shall not be due and payable on such Interest Payment Date) (a) to the extent that an amount of Distributable Items on any scheduled Interest Payment Date is less than the sum of (i) all payments (other than redemption payments) made or declared by LBG since the end of LBG’s last financial year and prior to such Interest Payment Date on or in respect of any Parity Securities, the Additional Tier 1 Securities, and any Junior Securities (as defined below) and (ii) all payments (other than redemption payments) payable by LBG on such Interest Payment Date (x) on the Additional Tier 1 Securities and (y) on or in respect of any Parity Securities or any Junior Securities, in the case of each of (i) and (ii), excluding any payments already accounted for in determining the Distributable Items, or (b) if the Solvency Condition is not satisfied in respect of such interest payment.
 
Although LBG may, in its sole discretion, elect to make a partial interest payment on the Additional Tier 1 Securities on any Interest Payment Date, it may only do so to the extent that such partial interest payment may be made without breaching the restrictions in the preceding paragraphs.
 
Any interest deemed canceled on any relevant Interest Payment Date shall not be due and shall not accumulate or be payable at any time thereafter, and Securityholders shall have no rights thereto or to receive any additional interest or compensation as a result of such deemed cancellation. Furthermore, no cancellation of interest in accordance with the terms of the Indenture shall constitute a default in payment or otherwise under the terms of the Additional Tier 1 Securities.
 
See also “CRD IV introduces restrictions on distributions that will restrict LBG from making interest payments on the Additional Tier 1 Securities in certain circumstances, in which case LBG will cancel such interest payments”.
 
As a holding company, the level of Distributable Items is affected by a number of factors, and insufficient Distributable Items may restrict LBG’s ability to make interest payments on the Additional Tier 1 Securities.
 
As a holding company, the level of LBG’s Distributable Items is affected by a number of factors, principally its ability to receive funds, directly or indirectly, from LBG’s operating subsidiaries in a manner which creates Distributable Items. Consequently, LBG’s future Distributable Items, and therefore LBG’s ability to make interest payments, are a function of LBG’s existing Distributable Items, future Group profitability and performance and the ability to distribute or dividend profits from LBG’s operating subsidiaries up the Group structure to LBG. In addition, the LBG’s Distributable Items will also be reduced by the servicing of other debt and equity instruments.
 
 
 
 
 
The ability of the LBG’s subsidiaries to pay dividends and LBG’s ability to receive distributions and other payments from LBG’s investments in other entities is subject to applicable local laws and other restrictions, including their respective regulatory, capital and leverage requirements, statutory reserves, financial and operating performance and applicable tax laws, and any changes thereto. These laws and restrictions could limit the payment of dividends, distributions and other payments to LBG by LBG’s subsidiaries, which could in time restrict LBG’s ability to fund other operations or to maintain or increase its Distributable Items.
 
CRD IV introduces restrictions on distributions that will restrict LBG from making interest payments on the Additional Tier 1 Securities in certain circumstances, in which case LBG will cancel such interest payments.
 
Under CRD IV, LBG is required, on a consolidated basis, to hold a minimum amount of regulatory capital of 8% of risk weighted assets of which at least 4.5% (4% in 2014) must be CET1 capital and at least 6%(5% in 2014) must be tier 1 capital (together the Pillar 1 requirements). In addition, supervisors may add extra capital requirements to cover risks they believe are not covered or insufficiently covered by the Pillar 1 requirements (the Pillar 2A guidance).
 
CRD IV also introduces capital buffer requirements that are in addition to the Pillar 1 requirements and Pillar 2A guidance and are required to be met with common equity tier 1 capital. It will introduce five new capital buffers: (i) the capital conservation buffer, (ii) the institution-specific counter-cyclical buffer, (iii) the global systemically important institutions buffer, (iv) the other systemically important institutions buffer and (v) the systemic risk buffer. Some or all of these buffers may be applicable to the Group as determined by the PRA. The “combined buffer requirement” broadly, the combination of the capital conservation buffer, the institution-specific counter-cyclical buffer and the higher of (depending on the institution), the systemic risk buffer, the global systemically important institutions buffer and the other systemically important institution buffer, in each case as applicable to the institution) will be subject to restricted “discretionary payments” (which are defined broadly by CRD IV as payments relating to common equity tier 1, variable remuneration and payments on additional Tier 1 instruments).
 
Under Article 141 (Restrictions on distribution) of the CRD IV Directive, Member States of the EU must require that institutions that fail to meet the “combined buffer requirement” will be subject to restricted “discretionary payments” (which are defined broadly by CRD IV as payments relating to common equity tier 1, variable remuneration and payments on additional tier 1 instruments).
 
The maximum amount of discretionary payments that are permitted under CRD IV when an institution fails to meet the combined buffer (the “maximum distributable amount”) is calculated by multiplying the profits of the institution made since the last distribution or other discretionary payment by a scaling factor.  In the bottom quartile of the combined buffer the scaling factor is 0, and all discretionary payments are prohibited.  In the second quartile the scaling factor is 0.2, in the third it is 0.4 and in the top quartile it is 0.6.  In the event of breach of the combined buffer requirement LBG will be required to calculate its maximum distributable amount, and as a consequence it may be necessary for LBG to reduce discretionary payments, including potentially exercising their discretion to cancel (in whole or in part) interest payments in respect of the Additional Tier 1 Securities.
 
LBG’s capital requirements, including Pillar 2A guidance, are, by their nature, calculated by reference to a number of factors any one of which or combination of which may not be easily observable or capable of calculation by investors. Investors may not be able to predict accurately the proximity of the risk of discretionary payments on the Additional Tier 1 Securities being prohibited from time to time as a result of the operation of Article 141. The PRA implementation of Article 141 remains uncertain in certain respects and such uncertainty will remain at least until HM Treasury has designated the authority responsible for setting certain buffers and buffer rates in the United Kingdom and the PRA has published its final supervisory statement on buffer capital.
 
The Additional Tier 1 Securities may be traded with accrued interest, but under certain circumstances described above, such interest may be canceled and not paid on the relevant Interest Payment Date.
 
The Additional Tier 1 Securities may trade, and/or the prices for the Additional Tier 1 Securities may appear, on the Global Exchange Market of the Irish Stock Exchange and in other trading systems with accrued interest. If this occurs, purchasers of Additional Tier 1 Securities in the secondary market will pay a price that reflects such accrued interest upon purchase of the Additional Tier 1 Securities. However, if a payment of interest on any Interest Payment Date is canceled or deemed canceled (in each case, in whole or in part) as described herein and thus is not due and payable, purchasers of such Additional Tier 1 Securities will not be entitled to that interest payment (or if
 
 
 
 
 
LBG elects to make a payment of a portion, but not all, of such interest payment, the portion of such interest payment not paid) on the relevant Interest Payment Date.
 
The interest rate on the Additional Tier 1 Securities will be reset on each Reset Date, which may affect the market value of the Additional Tier 1 Securities.
 
The Additional Tier 1 Securities will initially earn interest at a fixed rate of 7.5% per annum to, but excluding, the First Call Date. From, and including, the First Call Date, however, and every Reset Date thereafter, the interest rate will be reset to a rate per annum which will equal the aggregate of 4.76% and the then prevailing Mid-Market Swap Rate (as defined under “Description of the Additional Tier 1 Securities—Payments—Interest Rate”). This reset rate could be less than the initial interest rate and/or the interest rate that applies immediately prior to such Reset Date, which could affect the amount of any interest payments under the Additional Tier 1 Securities and so the market value of an investment in the Additional Tier 1 Securities.
 
LBG’s obligations under the Additional Tier 1 Securities are subordinated and will be further subordinated upon Automatic Conversion into Settlement Shares.
 
LBG’s obligations under the Additional Tier 1 Securities will be unsecured and subordinated and will rank junior in priority of payment to the current and future claims of all of its senior and certain of its subordinated creditors. If a Winding-up or Administration Event (as defined under “Description of the Additional Tier 1 Securities—Ranking and Liquidation Distribution”) occurs prior to the date on which a Trigger Event occurs, LBG will pay each Securityholder an amount that would have been payable if, throughout the Winding-up or Administration Event, such Securityholder had been the holder of a class of LBG’s preference shares having an equal right to a return of assets in the Winding-up or Administration Event to, and so ranking pari passu with, the holders of the most senior class or classes of LBG’s issued preference shares in the capital of LBG from time to time (if any) and which have a preferential right to a return of assets in the Winding-up or Administration Event over, and so rank ahead of, the holders of all other classes of issued shares for the time being in the capital of LBG but ranking junior to the claims of Senior Creditors (as defined under “Description of the Additional Tier 1 Securities—Ranking and Liquidation Distribution”). If a Winding-up or Administration Event occurs at any time on or following the date on which a Trigger Event occurs but the Settlement Shares to be issued and delivered to the Settlement Share Depository on the Conversion Date have not been so delivered, LBG shall pay such amount, if any, as would have been payable to a Securityholder in a Winding up or Administration Event if the Conversion Date had occurred immediately before the occurrence of a Winding-up or Administration Event, regardless of whether the Solvency Condition had been satisfied on such date and ignoring for this purpose LBG’s right to make an election for a Settlement Shares Offer to be effected.
 
Subject to complying with applicable regulatory requirements, LBG expects from time to time to incur additional indebtedness or other obligations that will constitute senior and subordinated indebtedness, and the Additional Tier 1 Securities do not contain any provisions restricting the ability of LBG or its subsidiaries to incur senior or subordinated indebtedness. Although the Additional Tier 1 Securities may pay a higher rate of interest than comparable securities which are not so subordinated, there is a real risk that an investor in the Additional Tier 1 Securities will lose all or some of its investment should LBG become insolvent since its assets would be available to pay such amounts only after all of its senior and more senior subordinated creditors have been paid in full.
 
Therefore, if a Winding-up or Administration Event were to occur, the LBG liquidator or administrator would first apply assets of LBG to satisfy all rights and claims of Senior Creditors. If LBG does not have sufficient assets to settle claims of such Senior Creditors in full, the claims of the Securityholders will not be settled and, as a result, Securityholders will lose the entire amount of their investment in the Additional Tier 1 Securities. The Additional Tier 1 Securities will share equally in payment with claims under Parity Securities (or, with claims in respect of Ordinary Shares, in the event of a Winding-up or Administration Event occurring in the intervening period between a Trigger Event and the Conversion Date) if LBG does not have sufficient funds to make full payments on all of them, as applicable. In such a situation, Securityholders could lose all or part of their investment.
 
In addition, investors should be aware that, upon the occurrence of the Automatic Conversion of the Additional Tier 1 Securities following a Trigger Event, holders will be, effectively, further subordinated as they will be treated as, and subsequently become, holders of Ordinary Shares, even if existing subordinated indebtedness and preference shares remain outstanding. There is a risk that holders will lose the entire amount of their investment, regardless of whether LBG has sufficient assets available to settle what would have been the claims of Securityholders or of
 
 
 
 
securities subordinated to the same or greater extent as the Additional Tier 1 Securities, in winding-up proceedings or otherwise.
 
The Additional Tier 1 Securities may be subject to write off or conversion on the occurrence of a bail-in or if LBG becomes subject to resolution.
 
The Basel III Reforms provide that all non-common equity tier 1 instruments  such as the Additional Tier 1 Securities and tier 2 capital instruments, which do not contain any contractual terms providing for their writing off or conversion into ordinary shares at the option of the relevant authority upon the occurrence of a bail-in (as defined below), should cease to be eligible to count in full as additional tier 1 or tier 2 capital (as the case may be) from January 1, 2013 unless, among other things, the jurisdiction of the relevant bank has in place laws that (i) require such instruments to be written off upon the occurrence of a bail-in or (ii) otherwise require such instruments fully to absorb losses before tax payers are exposed to loss.
 
As used above, “bail-in” means the earlier of (a) a decision that a write off, without which the relevant bank would become non-viable, is necessary as determined by the relevant authority; and (b) the decision to make a public sector injection of capital, or equivalent support, without which the relevant bank would have become non-viable, as determined by the relevant authority.
 
The European Commission has published a legislative proposal for a directive providing for the establishment of an EU-wide framework for the recovery and resolution of credit institutions and investment firms, known as the Recovery and Resolution Directive (the “RRD”). The stated aim of the RRD is to provide supervisory authorities with common tools and powers to address banking crises pre-emptively in order to safeguard financial stability and minimize taxpayers’ exposure to losses. The powers proposed to be granted to supervisory authorities under the RRD include a “write-down and conversion power’ and a “bail-in” power, which would give such authorities the power to write down or write off the claims (potentially including the Additional Tier 1 Securities) of certain unsecured creditors of a failing institution and/or to convert certain debt claims (potentially including the Additional Tier 1 Securities) into another security, including ordinary shares of the surviving Group entity, if any. It is currently contemplated that the majority of measures (including the write-down and conversion powers relating to tier 1 capital instruments, such as the Additional Tier 1 Securities, and tier 2 capital instruments) set out in the RRD will be implemented with effect from January 1, 2015, with the bail-in power for other eligible liabilities expected to be introduced by January 1, 2016. The RRD contains safeguards for shareholders and creditors in respect of the application of the “write down and conversion” and “bail-in” powers which aim to ensure that they do not incur greater losses than they would have incurred had the relevant financial institution been wound up under normal insolvency proceedings. However, changes may be made to the RRD in the course of the legislative process and anticipated implementation dates could change.
 
There remains significant uncertainty regarding the ultimate nature and scope of these powers and how they would affect the Group and the Additional Tier 1 Securities. Accordingly, it is not yet possible to assess the full impact of the RRD on the Group and on Securityholders, and there can be no assurance that, once it is implemented, the manner in which it is implemented or the taking of any actions by the Relevant UK Resolution Authority currently contemplated in the RRD would not adversely affect the rights of Securityholders, the price or value of an investment in the Additional Tier 1 Securities and/or LBG’s ability to satisfy its obligations under the Additional Tier 1 Securities.
 
Article 518 of the CRR states that if the RRD is not adopted by December 31, 2015, the European Commission should review and report whether the CRR should be amended so as to include write-down and conversion powers to ensure that relevant capital instruments fully absorb losses at the point of non-viability of the issuing institution and before any other resolution action is taken. There is a risk that such an amendment would result in the Additional Tier 1 Securities being used to absorb losses on the occurrence of a bail-in.
 
The exercise of any such power or any suggestion of such exercise could, therefore, materially adversely affect the value of the Additional Tier 1 Securities and could lead to Securityholders losing some or all of their investment in the Additional Tier 1 Securities.
 
Moreover, the Additional Tier 1 Securities contain a provision in which holders agree to be bound by the exercise of any UK Bail-in Power (as defined under “Description of the Additional Tier 1 Securities—Agreement with Respect to the Exercise of the UK Bail-in Power”). See also “—Under the terms of the Additional Tier 1
 
 
 
 
Securities, you have agreed to be bound by the exercise of any UK Bail-in Power by the Relevant UK Resolution Authority”. In addition to the RRD described above, it is possible that the exercise of the current powers under the Banking Act 2009 (the “Banking Act”), which provide for a resolution regime to resolve failing banks in the United Kingdom and give the authorities powers to override events of default or termination rights that might be invoked as a result of the exercise of the resolution powers, could have a material adverse effect on the rights of Securityholders, including through a material adverse effect on the price of the Additional Tier 1 Securities.
 
The Banking Act also gives the Bank of England the power to override, vary or impose contractual obligations between a UK bank, its holding company and its group undertakings for reasonable consideration, in order to enable any transferee or successor bank to operate effectively. There is also power for the UK Treasury to amend the law (excluding provisions made by or under the Banking Act) for the purpose of enabling it to use the regime powers effectively, potentially with retrospective effect.
 
In addition, on December 18, 2013, the Financial Services (Banking Reform) Act 2013 (the “Banking Reform Act”), received Royal Assent. The Banking Reform Act includes amendments to the Banking Act to insert a bail-in option among the powers of the Relevant UK Resolution Authority.
 
The UK Bail-in Power is introduced as an additional power available to the Relevant UK Resolution Authority, to enable it to recapitalize a failed institution by allocating losses to its shareholders and unsecured creditors in a manner that ought to respect the hierarchy of claims in an insolvency of a relevant financial institution, consistent with shareholders and creditors of financial institutions not receiving less favorable treatment than they would have done in insolvency. The UK Bail-in Power includes the power to cancel a liability or modify the terms of contracts for the purposes of reducing or deferring the liabilities of the bank under resolution and the power to convert a liability from one form to another. The conditions for use of the UK Bail-in Power are, in summary, that (i) the regulator determines that the bank is failing or likely to fail, (ii) it is not reasonably likely that any other action can be taken to avoid the bank’s failure and (iii) the Relevant UK Resolution Authority determines that it is in the public interest to exercise the UK Bail-in Power.
 
In announcing the introduction of the UK Bail-in Power, the UK Government expressed that it was confident that such powers could be introduced without the risk of having to adapt to a radically different regime when the RRD is implemented. It is expected that the UK Treasury will stipulate the date on which the majority of the provisions of the Banking Reform Act will enter into force. Therefore, it is not yet possible to assess the full impact of the RRD or the Banking Reform Act on the Group and on Securityholders.
 
In addition, the Banking Act may be further amended and/or other legislation may be introduced in the United Kingdom to amend the resolution regime that would apply in the event of a bank failure or to provide regulators with other resolution powers.
 
Finally, the determination that all or part of the principal amount of the Additional Tier 1 Securities will be subject to loss absorption is likely to be inherently unpredictable and may depend on a number of factors which may be outside of LBG’s control. This determination will also be made by the Relevant Regulator and there may be many factors, including factors not directly related to LBG, which could result in such a determination. Because of this inherent uncertainty, it will be difficult to predict when, if at all, the exercise of a UK Bail-in Power may occur which would result in a principal write off or conversion to other securities, including equity. Accordingly, trading behavior in respect of the Additional Tier 1 Securities is not necessarily expected to follow the trading behavior associated with other types of securities. Potential investors in the Additional Tier 1 Securities should consider the risk that a holder may lose all of its investment, including the principal amount plus any accrued and unpaid interest, if such statutory loss absorption measures are acted upon or that the Additional Tier 1 Securities may be converted into Settlement Shares. This potential risk is in addition to the same risk that will arise if a Trigger Event should occur.
 
Under the terms of the Additional Tier 1 Securities, you have agreed to be bound by the exercise of any UK Bail-in Power by the Relevant UK Resolution Authority.
 
By purchasing the Additional Tier 1 Securities, each Securityholder acknowledges, agrees to be bound by and consents to the exercise of any UK Bail-in Power by the Relevant UK Resolution Authority that may result in the cancellation of all, or a portion, of the principal amount of, or interest on, the Additional Tier 1 Securities and/or the conversion of all or a portion of the principal amount of, or interest on, the Additional Tier 1 Securities into
 
 
 
 
Ordinary Shares or other securities or other obligations of LBG or another person, including by means of a variation to the terms of the Additional Tier 1 Securities to give effect to the exercise by the Relevant UK Resolution Authority of such bail-in power. Each Securityholder further acknowledges and agrees that the rights of the Securityholders are subject to, and will be varied, if necessary, so as to give effect to, the exercise of any UK Bail-in Power by the Relevant UK Resolution Authority.
 
Accordingly, any UK Bail-in Power may be exercised in such a manner as to result in you and other holders losing the value of all or a part of your investment in the Additional Tier 1 Securities or receiving a different security from the Additional Tier 1 Securities, which may be worth significantly less than the Additional Tier 1 Securities and which have significantly fewer protections than those typically afforded to debt securities. Moreover, the Relevant UK Resolution Authority may exercise its authority to implement the UK Bail-in Power without providing any advanced notice to the Securityholders. For more information, see “Description of the Additional Tier 1 Securities—Agreement with Respect to the Exercise of the UK Bail-in Power”.
 
The circumstances under which the Relevant UK Resolution Authority would exercise its proposed UK Bail-in Power are uncertain.
 
The stated aim of the RRD is to provide supervisory authorities, including the Relevant UK Resolution Authority, with common tools and powers to address banking crises pre-emptively in order to safeguard financial stability and minimize taxpayers’ exposure to losses. However, as the RRD is still in draft form and will be subject to implementing measures in the United Kingdom, there is considerable uncertainty regarding the specific factors beyond the goals of addressing banking crises pre-emptively and minimizing taxpayers’ exposure to losses (for example, by writing down relevant capital instruments before the injection of public funds into a financial institution) which the Relevant UK Resolution Authority would consider in deciding whether to exercise the UK Bail-in Power with respect to the relevant financial institution and/or securities, such as the Additional Tier 1 Securities, issued by that institution.
 
Moreover, as the final criteria that the Relevant UK Resolution Authority would consider in exercising any UK Bail-in Power may provide it with discretion, Securityholders may not be able to refer to publicly available criteria in order to anticipate a potential exercise of any such UK Bail-in Power and consequently its potential effect on the Group and the Additional Tier 1 Securities.
 
There is therefore considerable uncertainty regarding the rights that Securityholders may have to challenge the exercise of any UK Bail-in Power by the Relevant UK Resolution Authority, and, when the final RRD rules are implemented in the United Kingdom, your rights may be limited.
 
The rights of Securityholders to challenge the exercise of any UK Bail-in Power by the Relevant UK Resolution Authority are likely to be limited.
 
Securityholders may have limited rights or no rights to challenge any decision of the Relevant UK Resolution Authority to exercise its UK Bail-in Power or to have that decision reviewed by a judicial or administrative process or otherwise.
 
Holders may receive Alternative Consideration instead of Settlement Shares or ADSs upon a Trigger Event and would not know the composition of any Alternative Consideration until the end of the Settlement Shares Offer Period.
 
Securityholders may not ultimately receive Settlement Shares or ADSs upon a Trigger Event because LBG may elect, in its sole and absolute discretion, that a Settlement Shares Offer be conducted by the Settlement Share Depository.
 
If all of the Settlement Shares are sold in the Settlement Shares Offer, Securityholders shall be entitled to receive, in respect of each Additional Tier 1 Security and as determined by LBG, the pro rata share of the cash proceeds from the sale of the Settlement Shares attributable to such Additional Tier 1 Security translated from sterling into U.S. dollars at a then-prevailing exchange rate as determined by the Settlement Share Depository (less the pro rata share of any foreign exchange transaction costs and an amount equal to the pro rata share of certain taxes that may arise as a result of the Settlement Shares Offer). If some but not all of the Settlement Shares are sold in the Settlement Shares Offer, Securityholders shall be entitled to receive, in respect of each Additional Tier 1
 
 
 
 
Security, (a) the pro rata share of the cash proceeds from the sale of the Settlement Shares attributable to such Additional Tier 1 Security translated from sterling into U.S. dollars at a then-prevailing exchange rate as determined by the Settlement Share Depository (less the pro rata share of any foreign exchange transaction costs and an amount equal to the pro rata share of certain taxes that may arise as a result of the Settlement Shares Offer) together with (b) the pro rata share of the Settlement Shares not sold pursuant to the Settlement Shares Offer attributable to such Additional Tier 1 Security rounded down to the nearest whole number of Settlement Shares.
 
No interest or other compensation is payable in respect of the period from the Conversion Date to the date of delivery of the cash proceeds from the sale of the Settlement Shares or the Settlement Shares in the circumstances described above.
 
Notice of the results of any Settlement Shares Offer will be provided to Securityholders only at the end of the Settlement Shares Offer Period. Accordingly, Securityholders would not know the composition of the Alternative Consideration to which they may be entitled until the end of the Settlement Shares Offer Period.
 
As the Conversion Price is fixed at the time of issue of the Additional Tier 1 Securities, Holders will bear the risk of fluctuation in the value of Ordinary Shares and/or the U.S. dollar and sterling exchange rate
 
Upon the occurrence of a Trigger Event, the Additional Tier 1 Securities will be automatically converted into Settlement Shares on the Conversion Date. Because a Trigger Event will occur when LBG’s CET1 Ratio will have deteriorated, the Trigger Event will likely be accompanied by a prior deterioration in the market price of LBG’s Ordinary Shares, which may be expected to continue after the occurrence of the Trigger Event. Therefore, if a Trigger Event were to occur, investors would receive Settlement Shares or ADSs at a time when the market price of LBG’s Ordinary Shares is diminished. In addition, there may be a delay in a holder receiving its Settlement Shares or ADSs following a Trigger Event, during which time the market price of LBG’s Ordinary Shares may further decline. See “Description of the Additional Tier 1 Securities—Conversion—Conversion Procedures. As a result, the realizable value of the Settlement Shares may be below the Conversion Price. The Conversion Price was fixed on March 5, 2014 at $1.072 per Ordinary Share, and is subject to limited anti-dilution adjustments, as described under “Description of the Additional Tier 1 Securities—Conversion—Anti-dilution Adjustment of the Conversion Price”. Although the market value of the Settlement Shares you receive could over time increase, at the time the Settlement Shares are issued, the Conversion Price may not reflect the market price of LBG’s Ordinary Shares, which could be significantly lower than the Conversion Price.
 
In addition, as LBG’s Ordinary Shares are denominated and trade in sterling, the market price of the Additional Tier 1 Securities may also be affected by fluctuations in the U.S. dollar and sterling exchange rate due to the Additional Tier 1 Securities being denominated in U.S. dollars. Upon Automatic Conversion, the Additional Tier 1 Securities will convert into Settlement Shares at the Conversion Price. Fluctuations in the U.S. dollar and sterling exchange rate could therefore affect the realizable value of the Settlement Shares and the cash component of any Alternative Consideration.
 
Furthermore, there may be a delay in a holder receiving its Settlement Shares following a Trigger Event (in particular if LBG elects that the Settlement Share Depository make a Settlement Shares Offer, as the Settlement Shares Offer Period may last up to forty (40) Business Days after the delivery of the Settlement Shares Offer Notice), during which time the market price of the Ordinary Shares or the exchange rate of sterling against the U.S. dollar may further decline.
 
Securityholders have limited anti-dilution protection.
 
The number of Settlement Shares to be issued to the Settlement Share Depository on the Conversion Date will be determined by dividing the aggregate principal amount of the Additional Tier 1 Securities outstanding immediately prior to the Automatic Conversion on the Conversion Date by the Conversion Price prevailing on the Conversion Date. Fractions of Settlement Shares will not be delivered to the Settlement Share Depository following the Automatic Conversion and no cash payment shall be made in lieu thereof.
 
The Conversion Price will be adjusted in the event that there is a consolidation, reclassification, redesignation or subdivision of the Ordinary Shares, an issuance of Ordinary Shares in certain circumstances by way of capitalization of profits or reserves, an Extraordinary Dividend or an issue of Ordinary Shares to shareholders as a class by way of rights, but only in the situations and to the extent provided in “Description of the Additional Tier 1 Securities—
 
 
 
 
 
Conversion—Anti-dilution Adjustment of the Conversion Price”. These may include any modifications as an Independent Financial Adviser (as defined under “Description of the Additional Tier 1 Securities”) shall determine to be appropriate, including for certain situations falling between the Conversion Date and the Settlement Date. Any New Conversion Price following a Qualifying Relevant Event (as defined under “Description of the Additional Tier 1 Securities—Conversion—Conversion upon the Occurrence of a Relevant Event”) will be similarly adjusted, subject to any modifications by the Independent Financial Adviser. There is no requirement that there should be an adjustment for every corporate or other event that may affect the value of the Ordinary Shares or that, if a Securityholder were to have held the Ordinary Shares at the time of such adjustment, such holder would not have benefited to a great extent. In particular, there will be no adjustment to the Conversion Price if a Non-Qualifying Relevant Event such as an acquisition of LBG by an entity that is not an Approved Entity or the New Conversion Condition is not satisfied. Furthermore, the adjustment events that are included are less extensive than those often included in the terms of other convertible securities. Accordingly, events in respect of which no adjustment to the Conversion Price is made may adversely affect the value of the Additional Tier 1 Securities.
 
If a Relevant Event occurs, the Additional Tier 1 Securities may be convertible into shares in an entity other than LBG or may be fully written down.
 
If a Qualifying Relevant Event occurs, then following the Automatic Conversion, the Additional Tier 1 Securities shall become convertible into the share capital of the Acquirer as more fully described under “Description of the Additional Tier 1 Securities—Conversion—Conversion upon the Occurrence of a Relevant Event” at the New Conversion Price. There can be no assurance as to the nature of any such Acquirer, or of the risks associated with becoming an actual or potential shareholder in such Acquirer and accordingly a Qualifying Relevant Event may have an adverse effect on the value of the Additional Tier 1 Securities.
 
In addition, LBG and the Acquirer have certain discretion in determining whether a Qualifying Relevant Event has occurred. A Qualifying Relevant Event requires the New Conversion Condition to be satisfied. For the New Conversion Condition to be satisfied, LBG and the Acquirer must, not later than seven calendar days following the occurrence of a Relevant Event, enter into arrangements to the satisfaction of LBG for delivery of the Relevant Shares following the Automatic Conversion. If LBG and the Acquirer are unable to enter into such arrangements within this timeframe, the New Conversion Condition would not be satisfied.
 
In the case of a Non-Qualifying Relevant Event, the Additional Tier 1 Securities will not be subject to Automatic Conversion unless the Conversion Date occurs prior to the occurrence of the Non-Qualifying Relevant Event. If a Conversion Date occurs following the Non-Qualifying Relevant Event, the outstanding principal amount of each Additional Tier 1 Security will be automatically written down to zero and the Additional Tier 1 Securities will be canceled in their entirety. Securityholders will be deemed to have irrevocably waived their right to receive repayment of the aggregate principal amount of the Additional Tier 1 Securities so written down and all accrued and unpaid interest and any other amounts payable on the Additional Tier 1 Securities will be canceled, as more fully described under “Description of the Additional Tier 1 Securities—Conversion—Conversion upon the Occurrence of a Relevant Event”. There can be no assurance that a Relevant Event will not be a Non-Qualifying Relevant Event, in which case investors may lose their investment in the Additional Tier 1 Securities.
 
Subject to certain conditions, including the Solvency Condition and regulatory approvals, LBG may redeem the Additional Tier 1 Securities at LBG’s option on certain dates.
 
Subject to the Solvency Condition as described under “Description of the Additional Tier 1 Securities—Payments—Solvency Condition” being satisfied both immediately prior to and immediately following a redemption, notice being given to the Relevant Regulator and the Relevant Regulator granting permission (to the extent and in the manner required by the Applicable Regulations), the non-occurrence of a Trigger Event and compliance by LBG with any alternative or additional pre-conditions to redemption set out in the relevant Applicable Regulations from time to time, LBG may opt to redeem all, but not some only, of the Additional Tier 1 Securities at their principal amount together with accrued but unpaid interest, excluding any interest which has been canceled or deemed to be canceled (i) at LBG’s option on the First Call Date or on any Reset Date thereafter (each as defined under “Description of the Additional Tier 1 Securities—Payments—Interest Rate”), (ii) in the event LBG is obliged to pay Additional Amounts (as defined under “Description of the Additional Tier 1 Securities—Additional Amounts”) in respect of United Kingdom withholding tax, (iii) upon the occurrence of certain other changes in the treatment of the Additional Tier 1 Securities for tax purposes as described in “Description of the Additional Tier 1 Securities—Redemption and Purchase—Tax Redemption”, provided that in (ii) and (iii) above, LBG could not avoid the
 
 
 
 
foregoing by taking measures reasonably available to it, and (iv) if the Additional Tier 1 Securities fully cease to qualify as additional tier 1 capital of the Group for regulatory and/or capital adequacy purposes as described in “Description of the Additional Tier 1 Securities—Redemption and Purchase—Regulatory Event Redemption”.
 
It is not possible to predict whether the events referred to above will occur and lead to circumstances in which LBG may elect to redeem the Additional Tier 1 Securities, and if so whether or not LBG will satisfy the conditions, or elect, to redeem the Additional Tier 1 Securities. LBG may also be expected to exercise its option to redeem the Additional Tier 1 Securities on or after the First Call Date if LBG’s funding costs would be lower than the prevailing interest rate payable in respect of the Additional Tier 1 Securities. If the Additional Tier 1 Securities are so redeemed, there can be no assurance that Securityholders will be able to reinvest the amounts received upon redemption at a rate that will provide the same rate of return as their investment in the Additional Tier 1 Securities. Furthermore, the redemption feature of the Additional Tier 1 Securities may limit their market value, which is unlikely to rise substantially above the price at which the Additional Tier 1 Securities can be redeemed.
 
The Additional Tier 1 Securities do not contain events of default and the remedies available to Securityholders are limited.
 
The terms of the Additional Tier 1 Securities do not provide for any events of default. Securityholders may not at any time demand repayment or redemption of their Additional Tier 1 Securities, although in a Winding-up or Administration Event prior to a Trigger Event, the Securityholders will have a claim for an amount equal to the principal amount of the Additional Tier 1 Securities plus any accrued interest that has not otherwise been cancelled. There is no right of acceleration in the case of non-payment of principal or interest on the Additional Tier 1 Securities or of LBG’s failure to perform any of its obligations under or in respect of the Additional Tier 1 Securities.
 
The sole remedy in the event of any non-payment of principal under the Additional Tier 1 Securities subject to certain conditions as described under “Description of the Additional Tier 1 Securities—Enforcement Events and Remedies” is that the Trustee, on behalf of the Securityholders may, at its discretion, or shall at the direction of the holders of 25% of the aggregate principal amount of the outstanding Additional Tier 1 Securities, subject to applicable laws, institute proceedings for the winding-up of LBG. In the event of a Winding-up or Administration Event, whether or not instituted by the Trustee, the Trustee may evidence any obligations of LBG arising under the Additional Tier 1 Securities in any such Winding-up or Administration Event.
 
Prior to the occurrence of any Winding-up or Administration Event, the Additional Tier 1 Securities will remain subject to Automatic Conversion upon a Trigger Event and the exercise of the UK Bail-in Power; neither constitute an Enforcement Event or a Winding-up Event or Administration Event under the Indenture. LBG is entitled to cancel any interest payment as described under Description of the Additional Tier 1 Securities—Payments—Interest Cancellationand such cancellation or deemed cancellation (in each case, in whole or in part) will not constitute an Enforcement Event. If Settlement Shares are not issued and delivered to the Settlement Share Depository following a Trigger Event, the only claim holders will have will be a claim for specific performance to have such Settlement Shares issued, or claims to participate in the liquidation proceeds of LBG.
 
The remedies under the Additional Tier 1 Securities are more limited than those typically available to LBG’s unsubordinated creditors. For further detail regarding the limited remedies of the Trustee and the Securityholders, see “Description of the Additional Tier 1 Securities—Enforcement Events and Remedies”.
 
There is no limit on the amount or type of further securities or indebtedness that LBG may issue, incur or guarantee.
 
There is no restriction on the amount of securities or other liabilities that LBG may issue, incur or guarantee and which rank senior to, or pari passu with, the Additional Tier 1 Securities. The issue or guaranteeing of any such securities or the incurrence of any such other liabilities may reduce the amount (if any) recoverable by Securityholders during a Winding-up or Administration Event and may limit LBG’s ability to meet its obligations under the Additional Tier 1 Securities. In addition, the Additional Tier 1 Securities do not contain any restriction on LBG’s ability to issue securities that may have preferential rights similar to those of the Additional Tier 1 Securities having similar, different or no Trigger Event provisions.
 
 
 
 
 
The Additional Tier 1 Securities are LBG’s exclusive obligations and LBG is structurally subordinated to the creditors of its subsidiaries.
 
The Additional Tier 1 Securities are LBG’s exclusive obligations. LBG is a holding company and conducts substantially all of its operations through its subsidiaries. LBG’s subsidiaries are separate and distinct legal entities, and have no obligation to pay any amounts due or to provide LBG with funds to meet any of LBG’s payment obligations under the Additional Tier 1 Securities. LBG’s rights to participate in the assets of any subsidiary if such subsidiary is liquidated will be subject to the prior claims of such subsidiary’s creditors and any preference shareholders, except in the limited circumstance where LBG is a creditor with claims that are recognized to be ranked ahead of or pari passu with such claims. Accordingly, if one of LBG’s subsidiaries were to be wound up, liquidated or dissolved, (i) the Securityholders would have no right to proceed against the assets of such subsidiary, and (ii) the liquidator of such subsidiary would first apply the assets of such subsidiary to settle the claims of the creditors of such subsidiary, including holders (which may include LBG) of any preference shares and other tier 1 capital instruments of such other subsidiary, before LBG, to the extent LBG is an ordinary shareholder of such other subsidiary and would be entitled to receive any distributions from such other subsidiary.
 
In the event of a Newco Scheme, LBG may without the consent of Securityholders, at its option, procure that Newco is substituted under any one or more series of Additional Tier 1 Securities as the issuer of such series. If such a substitution occurs the claims of Securityholders will be structurally subordinated to the creditors of the subsidiaries of Newco, including the remaining creditors of LBG.
 
Following the Automatic Conversion, the Additional Tier 1 Securities will remain in existence until the applicable Cancellation Date for the sole purpose of evidencing the holder’s right to receive Settlement Shares, ADSs or Alternative Consideration, as applicable, from the Settlement Share Depository and the rights of the Securityholders will be limited accordingly.
 
Following the Automatic Conversion, the Additional Tier 1 Securities will remain in existence until the applicable Cancellation Date for the sole purpose of evidencing the holder’s right to receive Settlement Shares, ADSs or Alternative Consideration, as applicable. All obligations of LBG under the Additional Tier 1 Securities shall be irrevocably and automatically released in consideration of LBG’s issuance and delivery of the Settlement Shares to the Settlement Share Depository on the Conversion Date, and under no circumstances shall such released obligations be reinstated. The Additional Tier 1 Securities shall be canceled on the applicable Cancellation Date.
 
Although LBG currently expects that beneficial interests in the Additional Tier 1 Securities will be transferrable between the Conversion Date and the Suspension Date, there is no guarantee that an active trading market will exist for the Additional Tier 1 Securities following the Automatic Conversion. Accordingly, the price received for the sale of any beneficial interest under an Additional Tier 1 Security during this period may not reflect the market price of such Additional Tier 1 Security or the Settlement Shares. Furthermore, transfers of beneficial interests in the Additional Tier 1 Securities may be restricted following the Conversion Date, for example if the clearance and settlement of transactions in the Additional Tier 1 Securities is suspended by DTC at an earlier time than currently expected. In such a situation it may not be possible to transfer beneficial interests in the Additional Tier 1 Securities and trading in the Additional Tier 1 Securities may cease.
 
In addition, LBG has been advised by DTC that it will suspend all clearance and settlement of transactions in the Additional Tier 1 Securities on the Suspension Date. As a result, Securityholders will not be able to settle the transfer of any Additional Tier 1 Securities following the Suspension Date, and any sale or other transfer of the Additional Tier 1 Securities that a Securityholder may have initiated prior to the Suspension Date that is scheduled to settle after the Suspension Date will be rejected by DTC and will not be settled through DTC.
 
The Additional Tier 1 Securities may cease to be admitted to trading on the Global Exchange Market of the Irish Stock Exchange or any other stock exchange on which the Additional Tier 1 Securities are then listed or admitted to trading after the Suspension Date.
 
Moreover, although the holders will become beneficial owners of the Settlement Shares upon the issuance of such Settlement Shares to the Settlement Share Depository and the Settlement Shares will be registered in the name of the Settlement Share Depository (or the relevant recipient in accordance with the terms of the Additional Tier 1 Securities), no holder will be able to sell or otherwise transfer any Settlement Shares or ADSs until such time as they are finally delivered to such holder and registered in their name.
 
 
 
 
 
Holders will have to submit a Settlement Notice in order to receive delivery of the Settlement Shares, ADSs or Alternative Consideration.
 
In order to obtain delivery of the Settlement Shares, ADSs or Alternative Consideration, as applicable, following the Automatic Conversion, a holder must deliver a Settlement Notice (and the relevant Additional Tier 1 Securities, if applicable) to the Settlement Share Depository. The Settlement Notice must contain certain information, including the holder’s CREST account details or ADS depository account information, as applicable. Accordingly, holders of Additional Tier 1 Securities (or their nominee, custodian or other representative) will have to have an account with CREST in order to receive the Settlement Shares or the Settlement Share component, if any, of any Alternative Consideration, as applicable, and/or must be a direct or indirect registered ADS holder in order to receive ADSs. If a Securityholder fails to properly complete and deliver a Settlement Notice on or before the Notice Cut-off Date, the Settlement Share Depository shall continue to hold the relevant Settlement Shares or the Alternative Consideration, as the case may be, until a Settlement Notice (and the relevant Additional Tier 1 Securities, if applicable) is or are so validly delivered. However, the relevant Additional Tier 1 Securities shall be canceled on the Final Cancellation Date and any holder of Additional Tier 1 Securities delivering a Settlement Notice after the Notice Cut-off Date will have to provide evidence of its entitlement to the relevant Settlement Shares, ADSs or Alternative Consideration, as applicable, satisfactory to the Settlement Share Depository in its sole and absolute discretion in order to receive delivery of such Settlement Shares, ADSs or Alternative Consideration. LBG shall have no liability to any Securityholder for any loss resulting from such Securityholder not receiving any Settlement Shares, ADSs or Alternative Consideration, as applicable, or from any delay in the receipt thereof, in each case as a result of such Securityholder failing to submit a valid Settlement Notice on a timely basis or at all.
 
Prior to the Conversion Date, holders will not be entitled to any rights with respect to the Ordinary Shares or ADSs, but will be subject to all changes made with respect to the Ordinary Shares or ADSs.
 
The exercise of voting rights and rights related thereto with respect to any Ordinary Shares or ADSs is only possible after delivery of the Settlement Shares following the Conversion Date and the registration of the person entitled to the Settlement Shares in LBG's share register as a shareholder with voting rights in accordance with the provisions of, and subject to the limitations provided in, the articles of association of LBG. For further information, see “Description of the Additional Tier 1 Securities—Conversion—Conversion Procedures”.
 
As a result of holders receiving Settlement Shares or ADSs upon a Trigger Event, they are particularly exposed to changes in the market price of the Ordinary Shares or ADSs.
 
Many investors in convertible or exchangeable securities seek to hedge their exposure in the underlying equity securities at the time of acquisition of the convertible or exchangeable securities, often through short selling of the underlying equity securities or through similar transactions. Prospective investors in the Additional Tier 1 Securities may look to sell Ordinary Shares or ADSs (as the case may be) in anticipation of taking a position in, or during the term of, the Additional Tier 1 Securities. This could drive down the price of the Ordinary Shares and/or ADSs. Since the Additional Tier 1 Securities will mandatorily convert into a variable number of Settlement Shares upon a Trigger Event, the price of the Ordinary Shares and/or ADSs may be more volatile if LBG is trending toward a Trigger Event.
 
Receipt by the Settlement Share Depository of the Settlement Shares shall be good and complete discharge of LBG’s obligations in respect of the Additional Tier 1 Securities.
 
Following a Trigger Event, the relevant Settlement Shares will be issued and delivered by LBG to the Settlement Share Depository, which subject to a Settlement Shares Offer, will hold the Settlement Shares on behalf of the Securityholders. Receipt by the Settlement Share Depository of the Settlement Shares shall result in the complete and irrevocable discharge of LBG’s obligations in respect of the Additional Tier 1 Securities and a Securityholder shall, with effect on and from the Conversion Date, only have recourse to the Settlement Share Depository for the delivery to it of the relevant Settlement Shares, the deposit of the relevant ADSs or, if LBG elects that a Settlement Shares Offer be made as described under “Description of the Additional Tier 1 Securities—Conversion—Conversion Procedures—Settlement Shares Offer”) below, of any Alternative Consideration to which such Securityholder is entitled as described herein. LBG shall not have any liability for the performance of the obligations of the Settlement Share Depository.
 
 
 
 
 
In addition, LBG has not yet appointed a Settlement Share Depository and LBG may not be able to appoint a Settlement Share Depository if the Automatic Conversion occurs. In such a scenario, LBG would inform Securityholders via DTC or the Trustee or otherwise, as practicable, of any alternative arrangements in connection with the issuance and/or delivery of the Settlement Shares, ADSs or Alternative Consideration, as applicable, and such arrangements may be disadvantageous to, and more restrictive on, the Securityholders. For example, such arrangements may involve Securityholders having to wait longer to receive their Settlement Shares, ADSs or Alternative Consideration than would be the case under the arrangements expected to be entered into with a Settlement Share Depository. Under these circumstances, LBG’s issuance of the Settlement Shares to the relevant recipient in accordance with these alternative arrangements shall constitute a complete and irrevocable release of all of LBG’s obligations in respect of the Additional Tier 1 Securities.
 
The Indenture contains provisions which may permit modification of the Additional Tier 1 Securities without the consent of all investors.
 
The Indenture contain provisions permitting modifications and amendments to the Additional Tier 1 Securities without the consent of Securityholders in certain instances, and with the consent of not less than two-thirds in aggregate outstanding principal amount of the Additional Tier 1 Securities in other circumstances. Decisions by such Securityholders will bind all Securityholders including Securityholders who did not attend and vote at the relevant meeting and Securityholders who voted in a manner contrary to the majority. For further information, see “Description of the Additional Tier 1 Securities—Modification and Amendments”.
 
The Additional Tier 1 Securities are novel and complex financial instruments that involve a high degree of risk and may not be a suitable investment for all investors.
 
The Additional Tier 1 Securities are novel and complex financial instruments that involve a high degree of risk. As a result, an investment in the Additional Tier 1 Securities and the Settlement Shares issuable following a Trigger Event will involve certain increased risks. Each potential investor of the Additional Tier 1 Securities must determine the suitability (either alone or with the help of a financial adviser) of that investment in light of its own circumstances. In particular, each potential investor should:
 
(i)      have sufficient knowledge and experience to make a meaningful evaluation of the Additional Tier 1 Securities, the merits and risks of investing in the Additional Tier 1 Securities and the information contained or incorporated by reference in this prospectus;
 
(ii)     have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Additional Tier 1 Securities and the impact such investment will have on its overall investment portfolio;
 
(iii)    have sufficient financial resources and liquidity to bear all of the risks of an investment in the Additional Tier 1 Securities, including where the currency for principal or interest payments, i.e., U.S. dollars, is different from the currency in which such potential investor’s financial activities are principally denominated and the possibility that the entire principal amount of the Additional Tier 1 Securities could be lost, including following the exercise by the Relevant UK Resolution Authority of any UK Bail-in Power;
 
(iv)    understand thoroughly the terms of the Additional Tier 1 Securities, such as the provisions governing the Automatic Conversion (including, in particular, calculation of the CET1 Ratio, as well as under what circumstances a Trigger Event will occur), and be familiar with the behavior of any relevant indices and financial markets, including the possibility that the Additional Tier 1 Securities may become subject to write down or conversion if LBG should become non-viable; and
 
(v)     be able to evaluate possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
 
Sophisticated investors generally do not purchase complex financial instruments that bear a high degree of risk as stand-alone investments. They purchase such financial instruments as a way to enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in the Additional Tier 1 Securities unless they have the knowledge and expertise (either alone or with a financial advisor) to evaluate how the Additional Tier 1 Securities will perform under changing conditions, the resulting effects on the
 
 
 
 
 
likelihood of the Automatic Conversion into Settlement Shares and the value of the Additional Tier 1 Securities, and the impact this investment will have on the potential investor’s overall investment portfolio. Prior to making an investment decision, potential investors should consider carefully, in light of their own financial circumstances and investment objectives, all the information contained in this offering memorandum or incorporated by reference herein.
 
The market value of the Additional Tier 1 Securities may be influenced by unpredictable factors.
 
Many factors, most of which are beyond LBG’s control, will influence the value of the Additional Tier 1 Securities and the price, if any, at which securities dealers may be willing to purchase or sell the Additional Tier 1 Securities in the secondary market, including:
 
 
·
the trading price of LBG’s Ordinary Shares and/or ADSs;
 
 
·
the creditworthiness of LBG and, in particular, the level of LBG’s CET1 Ratio from time to time;
 
 
·
supply and demand for the Additional Tier 1 Securities; and
 
 
·
economic, financial, political or regulatory events or judicial decisions that affect LBG or the financial markets generally.
 
Accordingly, if a holder sells its Additional Tier 1 Securities in the secondary market, it may not be able to obtain a price equal to the principal amount of the Additional Tier 1 Securities or a price equal to the price that it paid for the Additional Tier 1 Securities.
 
Changes in law may adversely affect the rights of Securityholders or may adversely affect the Group’s business, financial performance and capital plans.
 
Any changes in law or regulations after the date hereof that trigger a Regulatory Event or a Tax Event would entitle LBG, at its option, to redeem the Additional Tier 1 Securities, in whole but not in part, as more particularly described under “Description of the Additional Tier 1 Securities—Redemption and Purchase—Regulatory Event Redemption” and “Description of the Additional Tier 1 Securities—Redemption and Purchase—Tax Redemption”, respectively. See also “—Subject to certain conditions, including the Solvency Condition and regulatory approvals, LBG may redeem the Additional Tier 1 Securities at LBG’s option on certain dates”.
 
In addition, a number of regulators are currently proposing or considering legislation and rule making which may affect the Group’s business, the rights of Securityholders and the market value of the Additional Tier 1 Securities. Such changes in law may include changes in statutory, tax and regulatory regimes during the life of the Additional Tier 1 Securities, or changes that could have a significant impact on the future legal entity structure, business mix (including potential exit of certain business activities) and management of the Group, and use of capital and requirements for loss-absorbing capacity within the Group, which may have an adverse effect on an investment in the Additional Tier 1 Securities.
 
These and other regulatory changes, and the resulting actions taken to address such regulatory changes, may have an adverse impact on the Group’s, and therefore LBG’s, performance and financial condition, which could in turn affect the levels of CET1 Capital and Risk Weighted Assets and, therefore, the resulting fully loaded CET1 Ratio. Such legislative and regulatory uncertainty could also affect an investor’s ability to accurately value the Additional Tier 1 Securities and, therefore, affect the trading price of the Additional Tier 1 Securities given the extent and impact on the Additional Tier 1 Securities that one or more regulatory or legislative changes, including those described above, could have on the Additional Tier 1 Securities. It is not yet possible to predict the detail of such legislation or regulatory rulemaking or the ultimate consequences to the Group or the Securityholders which could be material.
 
There is no established trading market for the Additional Tier 1 Securities and one may not develop.
 
The Additional Tier 1 Securities will have no established trading market when issued, and although LBG expects to apply to list the Additional Tier 1 Securities on the Global Exchange Market of the Irish Stock Exchange, one may never develop. If a market does develop, it may not be liquid. Therefore, investors may not be able to sell
 
 
 
 
 
their Additional Tier 1 Securities easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. This is particularly the case for securities that are especially sensitive to interest rates, currency or market risks, are designed for specific investment objectives and strategies, have been structured to meet the investment requirements of limited categories of investors or include features such as the Automatic Conversion and UK Bail-in Power. These types of securities may have a more limited secondary market and more price volatility than conventional debt securities. Illiquidity may have a material adverse effect on the market value of the Additional Tier 1 Securities.
 
A downgrade, suspension or withdrawal of the rating assigned by any rating agency to the Additional Tier 1 Securities could cause the liquidity or market value of the Additional Tier 1 Securities to decline.
 
Upon issuance, the Additional Tier 1 Securities will be rated by nationally recognized statistical ratings organizations and may in the future be rated by additional rating agencies. However, LBG is under no obligation to ensure the Additional Tier 1 Securities are rated by any rating agency and any rating initially assigned to the Additional Tier 1 Securities may be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, circumstances relating to the basis of the rating, such as adverse changes to LBG’s business, so warrant. If LBG determines to no longer maintain one or more ratings, or if any rating agency lowers or withdraws its rating, such event could reduce the liquidity or market value of the Additional Tier 1 Securities.
 
The Additional Tier 1 Securities are not investment grade and are subject to the risks associated with non-investment grade securities.
 
The Additional Tier 1 Securities, upon issuance, will not be considered to be investment grade securities, and as such will be subject to a higher risk of price volatility than higher-rated securities. Furthermore, deteriorating outlooks for LBG or the Group, or volatile markets, could lead to a significant deterioration in market prices of below-investment grade rated securities such as the Additional Tier 1 Securities.
 
Credit ratings may not reflect all risks.
 
One or more independent credit rating agencies may assign credit ratings to the Additional Tier 1 Securities. The ratings may not reflect the potential impact of all risks related to structure, market, Automatic Conversion, UK Bail-in Power, additional factors discussed above and other factors that may affect the value of the Additional Tier 1 Securities. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.
 
Holders may be obliged to make a take-over bid following a Trigger Event if they take delivery of Settlement Shares.
 
Upon the occurrence of a Trigger Event, holders receiving Settlement Shares from the Settlement Share Depository may have to make a take-over bid addressed to the shareholders of LBG pursuant to the rules of The City Code on Takeovers and Mergers implementing the Takeovers Directive (2004/25/EC) by means of Part 28 of the United Kingdom Companies Act if their aggregate holdings in LBG exceed 30% of the voting rights in LBG as a result of the Automatic Conversion of the Additional Tier 1 Securities into Settlement Shares.
 
Securityholders may find it difficult to enforce civil liabilities against LBG or LBG’s directors or officers.
 
LBG is incorporated as a public limited company and is registered in Scotland and LBG’s directors and officers reside outside of the United States. In addition, all or a substantial portion of LBG’s assets are located outside of the United States. As a result, it may be difficult for Securityholders to effect service of process within the United States on such persons or to enforce judgments against them, including in any action based on civil liabilities under the U.S. federal securities laws.
 
Holders may be subject to disclosure obligations and/or may need approval by the Relevant Regulator.
 
As the Additional Tier 1 Securities are mandatorily convertible into Settlement Shares following a Trigger Event, an investment in the Additional Tier 1 Securities may result in Securityholders, following such Automatic Conversion, having to comply with certain disclosure and/or approval requirements pursuant to laws and regulations applicable in the United Kingdom. For example, pursuant to Chapter 5 of the Disclosure Rules and Transparency Rules Sourcebook of the FCA Handbook, LBG (and the UK Financial Conduct Authority (the “FCA”)) must be
 
 
 
 
 
notified by a person when the percentage of voting rights in LBG controlled by that person (together with its concert parties), by virtue of direct or indirect holdings of shares aggregated with direct or indirect holdings of certain financial instruments, reaches or crosses 3% and every percentage point thereafter.
 
Furthermore, as Settlement Shares are Ordinary Shares of a parent undertaking of a number of regulated Group entities, under the laws of the United Kingdom, the United States and other jurisdictions, ownership of the Additional Tier 1 Securities themselves (or the Settlement Shares) above certain levels may require the holder of the voting Additional Tier 1 Securities to obtain regulatory approval or subject the holder to additional regulation.
 
Non-compliance with such disclosure and/or approval requirements may lead to the incurrence by holders of substantial fines and/or suspension of voting rights associated with the Settlement Shares. Each potential investor should consult its legal advisers as to the terms of the Additional Tier 1 Securities and the level of holding it would have if it receives Settlement Shares following a Trigger Event.
 
A Securityholder may be subject to taxes following the Automatic Conversion.
 
Neither LBG, nor any member of the Group will pay any taxes or capital, stamp, issue and registration or transfer taxes or duties arising upon Automatic Conversion or that may arise or be paid as a consequence of the issue and delivery of Settlement Shares to the Settlement Share Depository. A Securityholder must pay any taxes and capital, stamp, issue and registration and transfer taxes or duties arising upon Automatic Conversion in connection with the issue and delivery of the Settlement Shares to the Settlement Share Depository and such Securityholder must pay all, if any, such taxes or duties arising by reference to any disposal or deemed disposal of such Securityholder’s Additional Tier 1 Security or interest therein. Any taxes and capital, stamp, issue and registration and transfer taxes or duties arising on delivery or transfer of Settlement Shares to a purchaser in any Settlement Shares Offer shall be payable by the relevant purchaser of those Settlement Shares.

Tax: Deeply Discounted Securities – UK Income Tax Payers
 
The following paragraphs relate only to Holders of ECNs who are resident for tax purposes in the UK and within the charge to UK income tax.
 
The “issue price” of certain series of ECNs was less than the amount payable on their redemption. Depending on the amount by which the “issue price” was lower than the amount payable on their redemption, those ECNs may constitute “Deeply Discounted Securities” (“DDS”) within the meaning of Chapter 8 of Part 4 of the Income Tax (Trading And Other Income) Act 2005.
 
Any profit made by Holders who are within the charge to UK income tax on a disposal of ECNs which are DDS (“DDS ECNs”), whether pursuant to the Exchange Offer or otherwise (including on any redemption), will be taxed as income. Generally, such a Holder’s profit on a disposal of DDS ECNs, for these purposes, will be the amount by which the amount payable on disposal exceeds the amount paid by that Holder to acquire those DDS ECNs. Holders of the ECNs must take their own professional tax advice on the consequences of a disposal of the ECNs pursuant to the Exchange Offer. However, by way of general guidance only, we have been advised that, although the position is not entirely free from doubt, Holders who acquired DDS ECNs on issue under the 2009 Exchange Offer should be treated as having acquired those DDS ECNs for an amount equal to their issue price which will be lower than their par value. As a result, a profit, taxable as income, could arise to Holders who are within the charge to UK income tax on disposal of their DDS ECNs even in circumstances where the proceeds of disposal are equal to or lower than the par value of those DDS ECNs, and even where that Holder may have made no overall economic profit taking into account the amount that Holder may have paid to acquire the securities which were exchanged for ECNs pursuant to the 2009 Exchange Offer. Holders who are within the charge to UK income tax will not be entitled to any relief for any loss made on a disposal of their DDS ECNs.
 
Holders are directed to “Taxation Considerations—Certain United Kingdom Income Tax Consequences” for further information. Holders should consult their professional tax adviser immediately and prior to taking any action pursuant to the Exchange Offer.
 
You may be subject to U.S. tax upon adjustments (or failure to make adjustments) to the Conversion Price even though you do not receive a corresponding cash distribution.
 
The Conversion Price is subject to adjustment in certain circumstances, as described under “Description of Additional Tier 1 Securities —Conversion—Anti-dilution Adjustment of the Conversion Price”. If, as a result of adjustments (or failure to make adjustments), an investor’s proportionate interest in LBG’s assets or earnings were
 
 
 
 
deemed to be increased for U.S. federal income tax purposes, you may be treated as having received a taxable distribution for these purposes, without the receipt of any cash or property. See “Taxation Considerations—Material U.S. Federal Income Tax Considerations—Taxation of the Additional Tier 1 Securities—Adjustments to the Conversion Price” for a further discussion of these U.S. federal tax implications.
 
Potential FATCA withholding after December 31, 2016.
 
Under certain provisions of the Internal Revenue Code of 1986, as amended, and Treasury regulations promulgated thereunder (commonly referred to as “FATCA”), as well as certain intergovernmental agreements between the United States and certain other countries (including the United Kingdom) together with expected local country implementing legislation, certain payments made in respect of the Additional Tier 1 Securities, Settlement Shares and ADSs after December 31, 2016 may be subject to withholding (“FATCA withholding”).
 
LBG (or a relevant intermediary) may be required to impose FATCA withholding on payments in respect of the Additional Tier 1 Securities, Settlement Shares and ADSs to the extent that such payments are “foreign passthru payments,” made after December 31, 2016 to non-U.S. financial institutions (including intermediaries) that have not entered into agreements with the IRS pursuant to FATCA or otherwise established an exemption from FATCA, and other holders that fail to provide sufficient identifying information to LBG or any relevant intermediary.  Under current guidance it is not clear whether and to what extent payments on the Additional Tier 1 Securities, Settlement Shares and ADSs will be considered foreign passthru payments subject to FATCA withholding or how intergovernmental agreements will address foreign passthru payments (including whether withholding on foreign passthru payments will be required under such agreements). Securityholders should consult their tax advisers as to how these rules may apply to payments they receive under the Additional Tier 1 Securities, Settlement Shares and ADSs.
 
A Securityholder may be subject to the EU Savings Tax Directive.
 
Under the EU Council Directive 2003/48/EC on the taxation of savings income (the “Savings Directive”), Member States are required to provide to the tax authorities of another Member State details of payments of interest and other similar income paid by a person within its jurisdiction to an individual resident in that Member State or certain limited types of entities in that other Member State. However, for a transitional period, Luxembourg and Austria are required to operate a withholding system in relation to such payments (unless during that period they elect otherwise) (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other markets and territories). Certain other jurisdictions, including Switzerland, have enacted equivalent legislation (a withholding tax in substantially the same circumstances as envisaged by the Savings Directive in the case of Switzerland). In April 2013, the Luxembourg Government announced its intention to abolish the withholding system with effect from January 1, 2015 in favor of automatic information exchange under the Savings Directive.
 
The European Commission has proposed certain amendments to the Savings Directive which may, if implemented, amend or broaden the scope of the requirements described above. Securityholders should note that if a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither LBG nor any paying agent would be obliged to pay any additional amounts with respect to the Additional Tier 1 Securities.
 
Investors should be aware that the materialization of any of the above risks (including those risks incorporated herein by reference) may adversely affect the value of the Additional Tier 1 Securities.
 

 
 
 
 
In 2009, the Group undertook a significant capital raising exercise in order to reinforce the Group’s going-concern capital ratios, and to meet the FSA’s stress test requirements. As a component of the exercise, the Group issued 33 series of enhanced capital notes with a nominal amount of £8.4 billion currently outstanding.
 
The terms and conditions of the ECNs include a Regulatory Call Right (as defined herein) should, amongst other things, the ECNs cease to be taken into account for the purposes of any “stress test” applied by the PRA (successor to the FSA) in respect of core capital. Whilst still uncertain, management of LBG believes recent developments resulting in higher capital requirements for banks, including a changed definition of core capital, make it likely that the ECNs will not provide going concern benefit under future stress tests.
 
These recent developments include:
 
 
·
a requirement in the CRR that with effect from January 1, 2014 convertible additional tier 1 capital instruments should have a conversion trigger set at no less than 5.125% CET1 ratio (“CET1 ratio” means, the ratio of a firm’s common equity tier 1 capital to its risk weighted assets, and calculated in accordance with the end-point requirements of CRD IV);
 
 
·
statements by the PRA in late 2013 that a conversion trigger of 5.125% CET1 ratio may not convert in time to prevent the failure of a firm and that it expects major UK firms to meet a 7% CET1 ratio determined in accordance with the end-point requirements of CRD IV;
 
 
·
a statement by the EBA in January 2014 that tier 2 instruments must have a conversion trigger above a 5.5% CET1 ratio to be recognized in its forthcoming stress tests; and
 
 
·
an announcement by the PRA that, following a consultation commenced in October 2013, it expects to revise stress testing methodology and pass marks in 2014.
 
As a result of differences in definition, the Group’s CET1 ratio is substantially lower than the core tier 1 ratio on which the conversion trigger of the ECNs is based. As at December 31, 2013, the difference was 4.0%. Applying the same difference to the 5.0% core tier 1 ratio used as the ECN conversion trigger gives a 1.0% CET1 ratio determined in accordance with end point requirements of CRD IV, well below the CRR minimum requirements.
 
The Group is today launching prioritized exchange offers to holders of enhanced capital notes, including the ECNS, to exchange their enhanced capital notes for new additional tier 1 securities at a price consistent with current trading prices. The offers provide holders with a means to eliminate the uncertainty around the Regulatory Call Right in the enhanced capital notes. In addition, such exchange offers are expected to result in sufficient additional tier 1 securities being issued to meet the Group’s medium-term additional tier 1  target.
 
Neither LBG nor the Offerors will receive any cash proceeds from the issuance of the Additional Tier 1 Securities.
 
The Additional Tier 1 Securities will be accounted for as equity under IFRS, and any interest payments made in respect of the Additional Tier 1 Securities will be accounted for as a distribution of profits to equity holders.
 
As the exchange consideration in the Exchange Offer and the Concurrent Non-U.S. Exchange Offers is greater than the book value of the enhanced capital notes (including their embedded equity conversion feature) recognized in the consolidated financial statements accounts of the Group, the Group will recognize a one-off charge to be reported outside of the Group’s underlying results in connection with the Exchange Offer in the first half of 2014. If an aggregate principal amount of £5 billion in additional tier 1 securities is issued in the Exchange Offer and the Concurrent Non-U.S. Exchange Offers, the resulting one-off charge will be approximately £1 billion, equivalent to a reduction of approximately 40 basis points in the Group’s fully loaded CET1 Ratio. In addition, in those circumstances the Exchange Offer and the Concurrent Non-U.S. Exchange Offers would together increase the Group’s leverage ratio by approximately 50 basis points and would beneficially impact the Group's 2014 net interest margin by approximately 5 basis points. The Group’s total capital ratio will not be materially affected.
 
 
 
45

 
 
 
The Group’s ratio of earnings to fixed charges as at December 31, 2013 and for the years ended December 31, 2012, 2011, 2010 and 2009 is set out in the report on Form 6-K dated March 5, 2014, which is incorporated by reference herein.
 

 
 
 
 
 
 
 
 
The following table shows the Group’s capitalization and indebtedness on a consolidated basis in accordance with IFRS as at December 31, 2013 on an actual basis and on an adjusted basis to give effect to:
 
(i) the Exchange Offer, on the assumption that LBG will issue the Maximum New Issue Size of Additional Tier 1 Securities; and
 
(ii) the Concurrent Non-U.S. Exchange Offers (as defined under “Important Note Relating to the Concurrent Exchange Offers”), on the assumption that LBG will issue the maximum new issue size in respect of the additional tier 1 securities being offered pursuant to the terms of the Concurrent Non-U.S. Exchange Offers.
 
The Additional Tier 1 Securities will be exchanged for ECNs as described in this prospectus.  Accordingly, the completion of the Exchange Offer and the Concurrent Non-U.S. Exchange Offers will not generate any proceeds to us or to the Offerors.
 
In accordance with IFRS, certain preference shares are classified as debt and are included in subordinated liabilities in the table below. The table below should be read in conjunction with, and is qualified in its entirety by reference to, our historical financial statements and the accompanying notes in LBG’s Annual Report on Form 20-F for the fiscal year ended December 31, 2013, incorporated by reference herein.
 
   
As at December 31, 2013
 
   
Actual
   
As Adjusted
 
   
(£m)
 
Capitalization
           
Equity
           
Ordinary share capital and reserves
    38,989       38,209  
Other equity instruments(1) 
          5,000  
Non-controlling interests
    347       347  
Total equity
    39,336       43,556  
Indebtedness
               
Subordinated liabilities(2) 
    32,312       27,612  
Debt securities
               
Debt securities in issue
    87,102       87,102  
Liabilities held at fair value through profit or loss (debt securities)
    5,267       5,267  
Total debt securities
    92,369       92,369  
Total indebtedness
    124,681       119,981  
Total capitalization and indebtedness
    164,017       163,537  


(1)
Includes the Maximum New Issue Size of Additional Tier 1 Securities in the Exchange Offer and the maximum new issue size of the additional tier 1 securities being offered in the Concurrent Non-U.S. Exchange Offers.
 
(2)
Includes the ECNs (and their embedded equity conversion feature) exchanged in the Exchanged Offer and the enhanced capital notes exchanged in the Concurrent Non-U.S. Exchange Offers.
 
Excluding indebtedness issued under government-guaranteed funding programs, none of the indebtedness set forth above is guaranteed by persons other than members of the Group.  As of December 31, 2013, all indebtedness was unsecured except for £49.3 billion of securitization notes and covered bonds and £3.5 billion of debt securities issued by the Group’s asset-backed conduits.
 
As of December 31, 2013, £124,681 million of indebtedness would have ranked senior to the Additional Tier 1 Securities had a Winding-Up or Administration Event occurred on such date. For further information on ranking and liquidation distribution, see “Description of the Additional Tier 1 Securities—Ranking and Liquidation Distribution”.
 
 
 
 
 
 
Other than the redemption, on maturity, of £250 million of dated subordinated debt on January 17, 2014 and the redemption, at call date, of €261 million of undated subordinated debt on February 25, 2014, there have been no issuances or redemptions of subordinated liabilities since December 31, 2013.
 
There has been no material change in the information set forth in the table above since December 31, 2013.
 


 
 
 
 
 
The Ordinary Shares of LBG are listed and traded on the London Stock Exchange under the symbol “LLOY.L”. The prices for shares as quoted in the official list of the London Stock Exchange are in sterling. The following table shows the reported high and low closing prices for the ordinary shares on the London Stock Exchange. This information has been extracted from publicly available documents from various sources, including officially prepared materials from the London Stock Exchange, and has not been prepared or independently verified by LBG.
 
   
Price per Ordinary Share
 
   
High
   
Low
 
   
(in pence)
 
Annual prices:
           
2013
    80.37       46.31  
2012
    49.25       25.30  
2011
    69.61       21.84  
2010
    77.61       46.59  
2009
    140.70       40.30  
Quarterly prices:
               
2013
               
Fourth quarter
    80.37       72.52  
Third quarter
    78.00       62.95  
Second quarter
    63.16       46.31  
First quarter
    55.68       47.65  
2012
               
Fourth quarter
    49.25       37.01  
Third quarter
    40.62       28.76  
Second quarter
    33.60       25.30  
First quarter
    37.50       26.19  
Monthly prices:
               
February 2014
    83.53       79.99  
January 2014
    86.30       79.12  
December 2013
    78.88       75.39  
November 2013
    77.72       73.87  
October 2013
    80.37       72.52  
September 2013
    78.00       72.63  

On February 28, 2014, the closing price of Ordinary Shares on the London Stock Exchange was 82.53 pence, equivalent to $1.39 per Ordinary Share translated at the Noon Buying Rate of £1.00 = $1.68.
 
Since November 27, 2001, LBG’s ADSs have been listed on the New York Stock Exchange under the symbol “LYG”. Each ADS represents four Ordinary Shares.
 
The following table shows the reported high and low closing prices for LBG’s ADSs on the New York Stock Exchange.
 
   
Price per ADS
 
   
High
   
Low
 
   
(in U.S. dollars)
 
Annual prices:
           
2013
    5.36       2.84  
2012
    3.23       1.53  
2011
    4.44       1.34  
2010
    4.85       2.92  
2009
    8.40       2.22  
 
 
 
 
 
 
 
 
 
 
 
   
Price per ADS
 
   
High
   
Low
 
   
(in U.S. dollars)
 
Quarterly prices:
               
2013
               
Fourth quarter
    5.36       4.67  
Third quarter
    5.00       3.83  
Second quarter
    3.91       2.84  
First quarter
    3.58       2.89  
2012
               
Fourth quarter
    3.23       2.34  
Third quarter
    2.56       1.75  
Second quarter
    2.12       1.53  
First quarter
    2.35       1.58  
Monthly prices:
               
February 2014
    5.60       5.21  
January 2014
    5.76       5.26  
December 2013
    5.32       4.94  
November 2013
    5.10       4.74  
October 2013
    5.36       4.67  
September 2013
    5.00       4.53  
 
On February 28, 2014, the closing price of LBG’s ADSs on the New York Stock Exchange was $5.59.
 
Dividend Policy
 
For information on the LBG’s ability to pay dividends, see our Annual Report on Form 20-F for the fiscal year ended December 31, 2013 under the heading “Dividends”.
 
Enhanced Capital Notes
 
The ECNs are admitted to the Official List of the UK Listing Authority and are traded on the London Stock Exchange’s Regulated Market.
 
The high and low quoted sales prices for the ECNs for each quarter during the past two years are as follows:
 
 
Trading Price(1)
 
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
 
Max
Min
Max
Min
Max
Min
Max
Min
Max
Min
Max
Min
Max
Min
Max
Min
 
(U.S. dollars)
Series 1 ECNs
92.563
76.188
92.063
 84.938
 101.375
92.375
108.313
100.438
112.500
109.125
110.813
102.563
107.750
103.688
108.375
105.875
Series 2 ECNs
87.494
71.647
86.805
78.500
96.438
85.438
104.563
94.750
111.063
104.250
107.875
100.375
106.438
101.813
107.375
104.688
Series 3 ECNs
91.780
75.756
93.813
81.688
103.500
94.375
111.875
94.375
113.875
105.625
111.125
101.750
106.938
102.375
108.188
106.125
Series 4 ECNs
93.000
77.188
92.438
85.938
101.625
92.875
107.625
100.875
112.063
108.625
111.250
102.500
108.313
102.813
109.375
106.625

(1)
Reflects, for the periods indicated, the high and low sales prices per ECN as reported by the Bloomberg Valuation Service (BVAL).
 
 

 
 
 
Timetable for the Exchange Offer
 
Holders should confirm with any bank, securities broker or other intermediary through which they hold ECNs whether such intermediary needs to receive instructions from a holder before the deadlines specified in this prospectus in order for that holder to be able to participate in, or (in the circumstances in which withdrawal is permitted) withdraw their instruction to participate in, the Exchange Offer.
 
The times and dates below are subject, where applicable, to the right of the Offerors to extend, re-open, amend, limit, terminate or withdraw the Exchange Offer, subject to applicable law. Accordingly, the actual timetable may differ significantly from the expected timetable set out below. If any of the above times and/or dates change, the revised time and/or date will be notified by announcement as soon as reasonably practicable.
 
Events
 
 
Dates and Times
Commencement of the Exchange Offer
   
     
Exchange Offer announced. Prospectus made available to holders of ECNs.
 
March 6, 2014
     
Withdrawal Deadline
   
     
The deadline for holders to validly withdraw tenders of ECNs.
 
11:59 p.m., New York City time, on April 2, 2014
     
Expiration Deadline
   
     
The deadline for receipt of all Exchange Instructions.
 
11:59 p.m., New York City time, on April 2, 2014.
     
Announcement of Exchange Offer Results
   
     
Announcement of (i) the satisfaction or waiver of the Minimum New Issue condition; (ii) the aggregate principal amounts of each series of ECNs which LBG 1 and LBG 2 will be accepting for exchange; (iii) whether tenders of each series of ECNs are to be accepted in full (if at all) or on a pro rata basis and, where accepted on a pro rata basis, the extent to which such tenders will be scaled; (iv) the aggregate principal amount of Additional Tier 1 Securities to be issued in the Exchange Offer; and (v) the Settlement Date.
 
As soon as reasonably practicable on April 3, 2014
     
Settlement Date
   
     
Settlement Date of the Exchange Offer, including delivery of the Additional Tier 1 Securities plus the cash payment for any accrued and unpaid interest, (including, if applicable, cash amounts in lieu of any fractional Additional Tier 1 Securities) in exchange for ECNs accepted in the Exchange Offer.
 
Expected on April 7, 2014
 
 
 
 

 
Unless stated otherwise, announcements in connection with the Exchange Offer will be made (i) by the issue of a press release to a Notifying News Service, (ii) by the delivery of notices to the relevant Clearing System for communication to Direct Participants and (iii) through RNS, and may also be found on the relevant Reuters International Insider Screen. Copies of all such announcements, press releases and notices can also be obtained from the Exchange Agent, the contact details for whom are at the end of this prospectus.
 
Purpose of the Exchange Offer
 
See “Use of Proceeds and Rationale of the Exchange Offer” for an explanation of the rationale of the Exchange Offer.
 
Terms of the Exchange Offer
 
LBG 1 is offering to exchange, on the terms and conditions described in this prospectus, Additional Tier 1 Securities, plus accrued and unpaid interest in cash, plus (if applicable) cash amounts in lieu of any fractional Additional Tier 1 Securities, for the Series 1 ECNs, the Series 2 ECNs and the Series 3 ECNs. LBG 2 is offering to exchange, on the terms and conditions described in this prospectus, Additional Tier 1 Securities, plus accrued and unpaid interest in cash, plus (if applicable) cash amounts in lieu of any fractional Additional Tier 1 Securities, for the Series 4 ECNs.
 
The maximum aggregate principal amount of Additional Tier 1 Securities that can be issued in the Exchange Offer is equal to the Maximum New Issue Size.
 
Exchange Offer Period
 
The Exchange Offer commences on March 6, 2014 and will end at 11:59 p.m., New York City time, on April 2, 2014, as such date may be extended (the “Expiration Deadline”). If the Expiration Deadline is extended by the Offerors, an announcement to that effect will be made by the Offerors as described below in “—Announcements” no later than 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Deadline.
 
Acceptance of ECNs; Exchange Priority; Proration
 
LBG 1 and LBG 2 will accept tenders in accordance with the Exchange Priority set out in the table on the front cover page of this prospectus, until either (i) all of the ECNs validly offered for exchange have been accepted or (ii) the principal amount of Additional Tier 1 Securities to be delivered in exchange for ECNs is the maximum such principal amount that can be delivered without exceeding the Maximum New Issue Size. Where the acceptance in accordance with the Exchange Priority of all valid tenders of a series of ECNs would require a greater principal amount of Additional Tier 1 Securities to be delivered than the Maximum New Issue Size, ECNs validly tendered and not validly withdrawn prior to the Expiration Deadline will be accepted in accordance with the Exchange Priority and, in the case of that particular series, on a pro rata basis up to the Maximum New Issue Size. Tenders of a series of ECNs with a lower Exchange Priority than the lowest ranking series of ECNs with respect to which any tenders are accepted, will not be accepted. The Offerors reserve the right at their absolute discretion, but are under no obligation, to increase or waive the Maximum New Issue Size at any time, subject to compliance with applicable law.
 
Holders whose ECNs tendered in the Exchange Offered are not accepted, who validly withdraw their tenders prior to the Expiration Deadline or who do not participate in the Exchange Offer, will not be eligible to receive Additional Tier 1 Securities in exchange for such ECNs and shall continue to hold such ECNs subject to their terms and conditions.
 
A holder whose ECNs are accepted for exchange in the Exchange Offer and who, following the exchange of such ECNs on the Settlement Date, will continue to hold in its account with the relevant Clearing System a principal amount of ECNs which is less than the minimum denomination for such series, will need to purchase a principal amount of ECNs of such series such that its holding amounts to at least the amount of such minimum denomination. Otherwise such residual holding may not be tradeable in the Clearing Systems.
 
 
 
 
 
Cash Instead of Fractional Additional Tier 1 Securities
 
No fractional Additional Tier 1 Securities will be delivered pursuant to the Exchange Offer. Instead, each tendering holder of ECNs who would otherwise be entitled to a fractional Additional Tier 1 Security will receive cash in an amount equal to such fractional entitlement.
 
Results
 
Unless the Exchange Offer is extended, on April 3, 2014, the Offerors will announce the following information: (i) the satisfaction or waiver of the Minimum New Issue Size condition; (ii) the aggregate principal amounts of each series of ECNs which LBG 1 and LBG 2 will be accepting for exchange; (iii) whether tenders of each series of ECNs are to be accepted in full (if at all) or on a pro rata basis and, where accepted on a pro rata basis, the extent to which such tenders will be scaled; (iv) the aggregate principal amount of Additional Tier 1 Securities to be issued in the Exchange Offer; and (v) the Settlement Date. Such information will be notified to holders as described below in “—Announcements” and shall, absent manifest error, be final and binding on LBG and the holders.
 
Once the Offerors have announced the results of the Exchange Offer in accordance with applicable law, LBG 1 and LBG 2’s acceptance of Exchange Instructions in accordance with the terms of the Exchange Offer will be irrevocable. Exchange Instructions which are so accepted will constitute binding obligations of the submitting holders and the Offerors to settle the Exchange Offer.
 
ECNs which have not been validly tendered and accepted for exchange pursuant to the Exchange Offer will remain outstanding after the Settlement Date.
 
Settlement
 
The Additional Tier 1 Securities will be delivered on the Settlement Date, expected to be on or around April 7, 2014.
 
Costs and Expenses
 
Any charges, costs and expenses incurred by the holders or any intermediary in connection with the Exchange Offer shall be borne by such holder. No brokerage costs are being levied by the Dealer Manager or the Exchange Agent. Holders should check whether their brokers or custodians will charge any fees.
 
Announcements
 
Unless stated otherwise, announcements in connection with the Exchange Offer will be made by the Offerors (i) by the issue of a press release to a Notifying News Service, (ii) by the delivery of notices to the relevant Clearing System for communication to Direct Participants and (iii) through RNS, and may also be found on the relevant Reuters International Insider Screen. Copies of all such announcements, press releases and notices can also be obtained from the Exchange Agent, the contact details for whom are on the last page of this prospectus. Any announcement of an extension of the Exchange Offer will be made prior to 9:00 a.m., New York City time, on the Business Day immediately following the previously scheduled Expiration Deadline.
 
No Recommendation
 
None of the Offerors, LBG, the Dealer Managers or the Exchange Agent (or any of their respective directors, employees or affiliates) is providing holders of ECNs with any legal, business, tax or other advice in the prospectus, nor is making any recommendation as to whether or not holders should tender any ECNs in the Exchange Offer or refrain from tendering any ECNs, and none of them has authorized any person to make any such recommendation. Holders should consult their own advisers as needed to assist them in making an investment decision.
 
Exchange Offer Conditions
 
Subject to applicable law, the Offerors will not be required to accept for exchange any ECNs tendered pursuant to the Exchange Offer, and the Offerors may terminate, extend or amend the Exchange Offer and may postpone the acceptance for exchange of any ECNs so tendered in the Exchange Offer, unless the Minimum New Issue Size and the General Conditions have been satisfied or, if permissible under applicable law, waived by LBG.
 
 
 
 
 
Minimum New Issue Size
 
The Exchange Offer is subject to a Minimum New Issue Size of at least $750,000,000 in aggregate principal amount of Additional Tier 1 Securities being issued in exchange for ECNs validly tendered pursuant to the Exchange Offer and not withdrawn.
 
General Conditions
 
The Exchange Offer is also conditioned upon the satisfaction or waiver of the General Conditions listed below. All of the General Conditions shall be deemed to have been satisfied on the Expiration Deadline, unless any of the following conditions shall have occurred on or after the date of this prospectus and be continuing at the time of the Expiration Deadline with respect to any series of the ECNs:
 
 
(a)
there shall not have been any change or development that, in the reasonable judgment of the Offerors, may materially reduce the anticipated benefits to the Group of the Exchange Offer or that has had, or could reasonably be expected to have, an adverse effect on the Group, its businesses, condition (financial or otherwise) or prospects, or the market for the Additional Tier 1 Securities;
 
 
(b)
there shall not have been instituted or threatened any action, proceeding or investigation by or before any governmental authority, including any court, governmental, regulatory or administrative branch or agency, tribunal or instrumentality, that relates in any manner to the Exchange Offer and that in the reasonable judgment of the Offerors makes it advisable to terminate the Exchange Offer; and
 
 
(c)
there shall not have occurred: (i) any general suspension of or limitation on prices for trading in securities in the United Kingdom or the U.S. securities or financial markets; (ii) any disruption in the trading of the ordinary shares of the Offerors; (iii) any disruption in securities settlement, payment or clearing services in the United Kingdom or the United States; (iv) any adverse change in financial markets, currency exchange rates or controls; (v) a declaration of a banking moratorium or any suspension of payments with respect to banks in the United Kingdom or the United States; or (vi) a commencement or significant worsening of a war or armed hostilities or other national or international calamity, including but not limited to, catastrophic terrorist attacks against the United Kingdom or its citizens or the United States or its citizens.
 
The Offerors expressly reserve the right to amend or terminate the Exchange Offer and to reject for exchange any ECNs not previously accepted for exchange, if any of the conditions to the Exchange Offer specified above are not satisfied. In addition, the Offerors expressly reserve the right, at any time or at various times, to waive any conditions to the Exchange Offer, in whole or in part. All conditions to the Exchange Offer must be satisfied or waived prior to the Expiration Deadline.
 
These conditions are for sole benefit of the Offerors, and it may assert them regardless of the circumstances that may give rise to them, or waive them in whole or in part, at any or at various times. If the Offerors fail at any time to exercise any of the foregoing rights, that failure will not constitute a waiver of such right. Each such right will be deemed an ongoing right that each of the Offerors may assert at any time or at various times.
 
In addition to the conditions described above, and notwithstanding any other provision of the Exchange Offer, the Offerors will not be required to accept for exchange, or LBG will not be required to issue Additional Tier 1 Securities in respect of, any ECNs tendered pursuant to the Exchange Offer, and the Offerors may terminate, extend or amend the Exchange Offer and may (subject to applicable law) postpone the acceptance for exchange of Additional Tier 1 Securities in respect of, any ECNs so tendered in the Exchange Offer unless the registration statement of which this prospectus forms a part becomes effective and no stop order suspending the effectiveness of the registration statement and no proceedings for that purpose have been instituted or be pending, or to the knowledge of LBG or the Offerors, be contemplated or threatened by the SEC.
 
Procedures for Participating in the Exchange Offer
 
The offering of ECNs for exchange by a holder will be deemed to have occurred upon receipt by the Exchange Agent from the relevant Clearing System of a valid Exchange Instruction submitted in accordance with the requirements of such Clearing System. The receipt of such Exchange Instruction by the relevant Clearing System will be acknowledged in accordance with the standard practices of such Clearing System and will result in the
 
 
 
 
 
blocking of the relevant ECNs in the holder’s account with the relevant Clearing System so that no transfers may be effected in relation to such ECNs.
 
Holders and Direct Participants must take the appropriate steps through the relevant Clearing System so that no transfers may be effected in relation to such blocked ECNs at any time after the date of submission of such Exchange Instruction, in accordance with the requirements of the relevant Clearing System and the deadlines required by such Clearing System. By blocking such ECNs in the relevant Clearing System, each Direct Participant will be deemed to consent to have the relevant Clearing System provide details concerning such Direct Participant’s identity to the Exchange Agent (and for the Exchange Agent to provide such details to the Offerors, LBG, the Dealer Managers and their legal advisers).
 
Only Direct Participants may submit Exchange Instructions. Each holder that is not a Direct Participant must arrange for the Direct Participant through which such holder holds its ECNs to submit a valid Exchange Instruction on its behalf to the relevant Clearing System before the deadlines specified by the relevant Clearing System.
 
By submitting a valid Exchange Instruction to the relevant Clearing System in accordance with the standard procedures of such Clearing System, a holder and any Direct Participant submitting such Exchange Instruction on such holder’s behalf shall be deemed to make the acknowledgements, representations, warranties and undertakings set out below under “—Acknowledgements, Representations, Warranties and Undertakings”, to the Offerors, LBG, the Exchange Agent and the Dealer Managers at the Expiration Deadline and the time of settlement on the Settlement Date (if a holder or Direct Participant is unable to make any such agreement or acknowledgement or give any such representation, warranty or undertaking, such holder or Direct Participant should contact the Exchange Agent immediately).
 
Holders should note that only one Exchange Instruction may be submitted by or on behalf of a beneficial owner in respect of a particular series of ECNs. Multiple Exchange Instructions submitted by or on behalf of a beneficial owner in respect of any one series of ECNs will be invalid and may be rejected by the relevant Offeror.
 
Holders must provide the following additional information in the relevant Exchange Instruction for the purposes of receiving Additional Tier 1 Securities:
 
 
(a)
the event or reference number issued Euroclear or Clearstream, Luxembourg;
 
 
(b)
the name of the beneficial holder, account holder and the securities account number in which the ECNs the holder wishes to tender are held; and
 
 
(c)
the Euroclear or Clearstream, Luxembourg account to which the Additional Tier 1 Securities should be credited.
 
LBG 1 and/or LBG 2 may not accept any tenders of ECNs if the information set out above is not provided as part of the relevant Exchange Instruction.
 
Withdrawal Rights
 
Validly tendered ECNs and any Exchange Instruction relating thereto, may be withdrawn at any time prior to the Expiration Deadline but not thereafter.
 
Withdrawals may only be effected by delivering an Exchange Instruction to Euroclear or Clearstream, Luxembourg, as applicable. To be effective, an Exchange Instruction must be received by Euroclear or Clearstream, Luxembourg, as applicable, not later than the Expiration Deadline or such earlier deadline as may be set by the relevant Clearing System.
 
This notice must specify:
 
 
·
the name of the person having tendered the ECNs to be withdrawn; and
 
 
·
the ECNs to be withdrawn (including the principal amount of such ECNs).
 
 
 
 
 
Holders wishing to exercise any such right of withdrawal should do so in accordance with the procedures of the relevant Clearing System. Holders should confirm with the bank, securities broker or any other intermediary through which they hold their ECNs whether such intermediary would require receiving instructions to participate in, or withdraw their instruction to participate in, the Exchange Offer prior to the deadlines set out in this prospectus. In particular, holders who seek the flexibility to withdraw their ECNs at a time prior to the Expiration Deadline but outside of the normal business hours of Euroclear or Clearstream, Luxembourg, as applicable, should consult in advance with their bank, securities broker or other intermediary regarding the effective deadline for exercising withdrawal by means of an Exchange Instruction. For the avoidance of doubt, any holder who does not exercise any such right of withdrawal in the circumstances and in the manner specified above, shall be deemed to have waived such right of withdrawal and its original Exchange Instruction will remain effective.
 
LBG 1 and/or LBG 2 will make a final and binding determination on all questions as to the validity, form and eligibility (including time of receipt) of such notices. Any ECNs so withdrawn will be deemed not to have been validly tendered for exchange for the purposes of the Exchange Offer. Any ECNs tendered but not exchanged for any reason will be returned to the holder without cost to such holder promptly after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn ECNs may be retendered by following one of the procedures described herein any time prior to the Expiration Deadline.
 
Acknowledgements, Representations, Warranties and Undertakings
 
By submitting an Exchange Instruction each holder and the relevant Direct Participant (on behalf of the relevant holder), represents, warrants and undertakes that:
 
 
(a)
it has received, reviewed, acknowledged, accepted and agreed to the terms of this prospectus (including, without limitation, the offering restrictions set forth in this prospectus);
 
 
(b)
it is assuming all the risks inherent in participating in the Exchange Offer and has undertaken all the appropriate analysis of the implications of the Exchange Offer, without reliance on the Offerors, LBG, the Dealer Managers or the Exchange Agent;
 
 
(c)
by blocking ECNs in the relevant Clearing System it will be deemed to consent to the relevant Clearing System providing details concerning its identity to the Offerors, LBG, the Dealer Managers, the Exchange Agent and their respective legal advisers;
 
 
(d)
upon the terms and subject to the conditions of the Exchange Offer, it offers to exchange the principal amount of ECNs in its account in the relevant Clearing System that is the subject of the relevant Exchange Instruction for the relevant number of Additional Tier 1 Securities;
 
(e)
it will only submit (or arrange to have submitted on its behalf) one Exchange Instruction in respect of any one series of the ECNs tendered by it in the Exchange Offer;
 
 
(f)
it agrees to ratify and confirm each and every act or thing that may be done or effected by LBG 1 and/or LBG 2, any of its directors or any person nominated by LBG 1 and/or LBG 2 in the proper exercise of his or her powers and/or authority hereunder;
 
 
(g)
it agrees to do all such acts and things as shall be necessary and execute any additional documents deemed by LBG 1 and/or LBG 2 to be desirable, in each case to complete the transfer of the ECNs to LBG 1 or LBG 2, as the case may be, or its nominee in exchange for the Additional Tier 1 Securities and/or to perfect any of the authorities expressed to be given hereunder;
 
 
(h)
it has observed the laws of all relevant jurisdictions; obtained all requisite governmental, exchange control or other required consents; complied with all requisite formalities; and paid any issue, transfer or other taxes or requisite payments due from it in each respect in connection with any offer or acceptance in any jurisdiction and that it has not taken or omitted to take any action in breach of the terms of the Exchange Offer, or which will or may result in the Offerors, LBG, the Dealer Managers, the Exchange Agent, or any other person acting in breach of the legal or regulatory requirements of any such jurisdiction in connection with the Exchange Offer;
 
 
 
 
 
 
 
(i)
all authority conferred or agreed to be conferred pursuant to its representations, warranties and undertakings and all of its obligations shall be binding upon its successors, assigns, heirs, executors, trustees in bankruptcy, insolvency practitioners and legal representatives and shall not be affected by, and shall survive, its death, incapacity, bankruptcy, insolvency, or any other similar proceedings;
 
 
(j)
except to the extent of the information set forth under “Taxation Considerations”, no information has been provided to it by the Offerors, LBG, the Dealer Managers or the Exchange Agent with regard to the tax consequences to holders, beneficial owners or Direct Participants arising from the exchange of ECNs in the Exchange Offer or the receipt of Additional Tier 1 Securities. It hereby acknowledges that it is solely liable for any taxes and similar or related payments imposed on it under the laws of any applicable jurisdiction as a result of its participation in the Exchange Offer, and agrees that it will not and does not have any right of recourse (whether by way of reimbursement, indemnity or otherwise) against the Offerors, LBG, the Dealer Managers, the Exchange Agent or any other person in respect of such taxes and payments;
 
 
(k)
it is not a person to whom it is unlawful to make an invitation pursuant to the Exchange Offer under applicable laws and has (before submitting, or arranging for the submission on its behalf, as the case may be, of the Exchange Instruction in respect of the ECNs which it is offering for exchange) complied with all laws and regulations applicable to it for the purposes of its participation in the Exchange Offer;
 
 
(l)
it is not resident and/or located in a Relevant Member State or, if it is resident and/or located in a Relevant Member State, (a) it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and (b) in the case of any Additional Tier 1 Securities acquired by it as a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, (i) the Additional Tier 1 Securities acquired by it in the offers have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the Dealer Managers has been given to the offer or resale or (ii) where the Additional Tier 1 Securities have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those Additional Tier 1 Securities to it is not treated under the Prospectus Directive as having been made to such persons;
 
(m)
it is not resident and/or located in the United Kingdom or, if it is resident and/or located in the United Kingdom, it is an existing member or creditor of a Group Company or a person within Article 43 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or any other person to whom these documents and/or materials may lawfully be communicated;
 
 (n)
it is outside Belgium or, if it is located in Belgium, (i) it is a person which is a “qualified investor” in the sense of Article 10 of the Belgian Prospectus Law, acting on its own account or (ii) there are other circumstances set out in Article 6, §4 of the Belgian Takeover Law and Article 3, §4 of the Belgian Prospectus Law which provide an exemption from the public offer requirements set out in the Belgian Takeover Law and the Belgian Prospectus Law;
 
 (o)
it is not located or resident in France or, if it is located or resident in France, it is a (i) provider of investment services relating to portfolio management for the account of third parties (personnes fournissant le service d’investissement de gestion de portefeuille pour compte de tiers) and/or (ii) qualified investor (investisseur qualifié) other than individuals, acting for their own account, all as defined in, and in accordance with, Articles L.411-1, L.411-2 and D.411-1 to D.411-3 of the French Code monétaire et financier;
 
 
(p)
it is outside Italy or, if it is located in Italy, it is a qualified investor (investitori qualificati) pursuant to article 34-ter, paragraph 1, letter (b) of the Consob Regulation acting on its own account; or there are other circumstances where an express exemption from compliance with the restrictions on public purchases or exchange offers applies pursuant to the Financial Services Act or the Consob Regulation;
 
 
(q)
it has full power and authority to submit for exchange and transfer the ECNs hereby submitted for exchange and if such ECNs are accepted for exchange, such ECNs will be transferred to, or to the order of, LBG 1 or LBG 2, as the case may be, with full title free from all liens, charges and encumbrances, not subject to any adverse claim and together with all rights attached thereto;
 
 
 
 
 
 
 
(r)
it holds and will hold, until the time of settlement on the Settlement Date, the ECNs blocked in Euroclear or Clearstream, Luxembourg and, in accordance with the requirements of Euroclear or Clearstream, Luxembourg and by the deadline required by Euroclear or Clearstream, Luxembourg, it has submitted, or has caused to be submitted, an Exchange Instruction to the relevant Clearing System, as the case may be, to authorize the blocking of the submitted ECNs with effect on and from the date thereof so that, at any time pending the transfer of such ECNs on the Settlement Date to LBG 1 or LBG 2, as the case may be, or their agents on its behalf, no transfers of such ECNs may be effected;
 
 
(s)
the terms and conditions of the Exchange Offer shall be deemed to be incorporated in, and form a part of, the Exchange Instruction which shall be read and construed accordingly and that the information given by or on behalf of such existing Holder in the Exchange Instruction is true and will be true in all respects at the time of the exchange; and
 
 
(t)
it understands and agrees that the Offerors, LBG, the Dealer Managers and the Exchange Agent will rely upon the truth and accuracy of the foregoing representations, warranties and undertakings.
 
The receipt from a holder or from a Direct Participant on behalf of a beneficial owner of an Exchange Instruction by the relevant Clearing System will constitute instructions to debit from such holder’s or Direct Participant’s account on the Settlement Date the principal amount of ECNs that such holder or Direct Participant has tendered for exchange and which have been accepted, upon receipt by the relevant Clearing System of an instruction from the Exchange Agent to receive those ECNs for the account of LBG 1 or LBG 2, as the case may be, and (where applicable) against delivery of Additional Tier 1 Securities subject to the automatic withdrawal of those instructions in the event that the Exchange Offer is terminated by the Offerors or the withdrawal of such Exchange Instruction (in the circumstances in which such withdrawal is permitted) in accordance with the procedure set out in this prospectus.
 
Responsibility for Delivery of Exchange Instructions
 
None of the Offerors, LBG, the Dealer Managers or the Exchange Agent, as the case may be, will be responsible for the communication of tenders and corresponding Exchange Instructions by (i) beneficial owners to the Direct Participant through which they hold ECNs or (ii) the Direct Participant to the relevant Clearing System.
 
If a beneficial owner holds its ECNs through a Direct Participant, such beneficial owner should contact that Direct Participant to discuss the manner in which exchange acceptances and transmission of the corresponding Exchange Instruction and, as the case may be, transfer instructions may be made on its behalf.
 
In the event that the Direct Participant through which a beneficial owner holds its ECNs is unable to submit an Exchange Instruction, such beneficial owner should telephone the Exchange Agent, as applicable, for assistance on the numbers provided in this prospectus.
 
Holders, Direct Participants and beneficial owners are solely responsible for arranging the timely delivery of their Exchange Instructions.
 
If a beneficial owner offers its ECNs through a Direct Participant, such beneficial owner should consult with that Direct Participant as to whether it will charge any service fees in connection with the participation in the Exchange Offer.
 
Amendment and Termination
 
Notwithstanding any other provision of the Exchange Offer, the Offerors may, subject to applicable laws, at its option, at any time before it announces whether it accepts valid tenders of ECNs pursuant to the Exchange Offer:
 
 
(a)
extend the Expiration Deadline or re-open the Exchange Offer, as applicable (in which case all references in this prospectus to “Expiration Deadline” shall, unless the context otherwise requires, be to the latest date and time to which the Expiration Deadline has been so extended or the Exchange Offer re-opened);
 
 
(b)
otherwise extend, re-open or amend the Exchange Offer in any respect (including, but not limited to, any extension, re-opening, increase, decrease or other amendment, as applicable, in relation to the Expiration Deadline and/or the Settlement Date);
 
 
 
 
 
 
(c)
waive, decrease or increase the Maximum New Issue Size (in which case all references in this prospectus to the “Maximum New Issue Size” shall be to the Maximum New Issue Size as so modified);
 
 
(d)
delay acceptance or, subject to applicable law, exchange of ECNs validly tendered for exchange in the Exchange Offer until satisfaction or waiver (if permitted) of the conditions to the Exchange Offer;
 
 
(e)
terminate the Exchange Offer in respect of any one or more or all series of ECNs, including with respect to Exchange Instructions submitted before the time of such termination;
 
 
(f)
in respect of any series of ECNs, choose not to accept all valid tenders received by the Exchange Agent prior to the Expiration Deadline; or
 
 
(g)
waive or decrease the Minimum New Issue Size.
 
The Offerors also reserve the right at any time to waive, where permissible, any or all of the conditions of the Exchange Offer as set out in this prospectus.
 
The Offerors will ensure holders are notified of any such extension, re-opening, amendment or termination as soon as is reasonably practicable after the relevant decision is made through RNS. Any announcement of an extension of the Exchange Offer will be made prior to 9:00 a.m., New York City time, on the Business Day immediately following the previously scheduled Expiration Deadline.
 
Notwithstanding the irrevocability of all Exchange Instructions, on the termination of the Exchange Offer, all Exchange Instructions will be deemed to be withdrawn automatically.
 
Compliance with “Short Tendering” Rule
 
It is a violation of Rule 14e-4 under the Exchange Act (“Rule 14e-4”) for a person, directly or indirectly, to tender securities in a partial tender offer for his own account unless the person so tendering its securities (a) has a net long position equal to or greater than the aggregate principal amount of the securities being tendered and (b) will cause such securities to be delivered in accordance with the terms of the tender offer. Rule 14e-4 provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person.
 
A tender of ECNs in the Exchange Offer under any of the procedures described above will constitute a binding agreement between the tendering holder and the Offerors with respect to the Exchange Offer upon the terms and subject to the conditions of the Exchange Offer, including the tendering holder’s acceptance of the terms and conditions of the Exchange Offer, as well as the tendering holder’s representation and warranty that (a) such holder has a net long position in the ECNs being tendered pursuant to the Exchange Offer within the meaning of Rule 14e-4 and (b) the tender of such ECNs complies with Rule 14e-4.
 
Irregularities
 
All questions as to the validity, form and eligibility (including the time of receipt) of any Exchange Instruction, tenders of ECNs or revocation or revision thereof or delivery of ECNs will be determined by the Offerors in their sole discretion, which determination will be final and binding. The Offerors reserve the absolute right to reject any and all Exchange Instructions not in proper form or for which any corresponding agreement would, in their opinion, be unlawful. The Offerors also reserve the absolute right to waive any of the conditions to the Exchange Offer or defects in Exchange Instructions with regard to any ECNs. A waiver with respect to any conditions to the Exchange Offer or defects in Exchange Instructions with regard to one tender of ECNs shall not constitute a waiver with respect to any other tender of ECNs unless the Offerors expressly provide otherwise. None of the Offerors, LBG, the Dealer Managers or the Exchange Agent shall be under any duty to give notice to holders, Direct Participants or beneficial owners of any irregularities in Exchange Instructions; nor shall any of them incur any liability for failure to give notification of any material amendments to the terms and conditions of the Exchange Offer.
 
Dealer Managers and Exchange Agent
 
The Offerors have retained Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, to act as Global Coordinators and Joint Lead Dealer Managers (the “Global Coordinators and Joint Lead Dealer Managers”), Barclays Capital Inc., Lloyds Securities Inc. and Morgan Stanley & Co. LLC, to act as Joint Lead
 
 
 
 
 
Dealer Managers (the “Joint Lead Dealer Managers”), and BNP Paribas Securities Corp., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., HSBC Securities (USA) Inc., J.P. Morgan Securities LLC and UBS Limited to act as Joint Dealer Managers (the “Joint Dealer Managers”, and together with the Global Coordinators and Joint Lead Dealer Managers and the Joint Lead Dealer Managers, the “Dealer Managers”), and Lucid Issuer Services Limited to act as Exchange Agent in connection with the Exchange Offer. The services of the Dealer Managers may be provided through their affiliates in certain jurisdictions.  The Offerors have agreed to pay the Dealer Managers customary fees for their services in connection with the Exchange Offer and have also agreed to reimburse the Dealer Managers for their reasonable out-of-pocket expenses and to indemnify them against specific liabilities, including liabilities under U.S. federal securities laws.
 
The Dealer Managers and their affiliates have provided in the past, are currently providing and may provide in the future, other investment banking, commercial banking and financial advisory services to the Offerors and their affiliates for customary fees and expenses in the ordinary course of business.
 
At any given time, the Dealer Managers or affiliates of the Dealer Managers may trade the ECNs, the Additional Tier 1 Securities and other securities issued by the Offerors, LBG or their subsidiaries for their own accounts, or for the accounts of their customers, and accordingly may hold a long or short position in the ECNs, the Additional Tier 1 Securities or other securities.  The Dealer Managers are not obligated to make a market in the Additional Tier 1 Securities. The Dealer Managers may also tender into the Exchange Offer the ECNs they may hold or acquire, but are under no obligation to do so.
 
None of the Dealer Managers or the Exchange Agent assumes any responsibility for the accuracy or completeness of the information concerning the Exchange Offer, the Offerors, LBG, any of its affiliates, the ECNs or the Additional Tier 1 Securities contained in this prospectus or in the documents incorporated by reference herein, or for any failure by the Offerors to disclose events that may have occurred and may affect the significance or accuracy of that information.
 
The Exchange Agent is an agent of the Offerors and owes no duty to any holders of ECNs.
 
Certain Matters Relating to Non-U.S. Jurisdictions
 
This prospectus does not constitute an offer or an invitation to participate in the Exchange Offer in any jurisdiction in or from which, or to any person to whom, it is unlawful to make the relevant offer or invitation under applicable laws. The distribution of the prospectus in certain jurisdictions may be restricted by law. Persons into whose possession the prospectus comes are required by each of the Offerors, LBG, the Dealer Managers and the Exchange Agent to inform themselves about, and to observe, any such restrictions.
 
No action has been or will be taken by the Offerors, LBG, the Dealer Managers or the Exchange Agent in any jurisdiction outside the United States that would constitute a public offering of the Additional Tier 1 Securities other than the preparation of this prospectus in compliance with articles 652a and 1156 of the Swiss Code of Obligations for purposes of making the Exchange Offer in Switzerland.
 
United Kingdom
 
The communication of this prospectus and any other documents or materials relating to the Exchange Offer is not being made, and such documents and/or materials have not been approved, by an authorized person for the purposes of section 21 of the FSMA. Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. The communication of such documents and/or materials is exempt from the restriction on financial promotions under section 21 of the FSMA on the basis that it is only directed at and may be communicated to (1) those persons who are existing members or creditors of the Group or other persons within Article 43 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, and (2) any other persons to whom these documents and/or materials may lawfully be communicated.
 
Isle of Man
 
The communication of the prospectus and any other documents or materials relating to the Exchange Offer is not being made by, and such documents will not be registered or filed as a prospectus with any governmental or other authority in the Isle of Man and the Prospectus and the issue of the Additional Tier 1 Securities have not been approved by the Isle of Man Financial Supervision Commission. Any offer for subscription, sale or exchange of the Additional Tier 1 Securities in or from the Isle of Man must be made:
 
(a)      by an Isle of Man financial services licence holder appropriately licensed under section 7 of the Financial Services Act 2008 to do so;
 
(b)      in accordance with any relevant exclusion contained within the Regulated Activities Order 2011; or
 
(c)       in accordance with any available relevant exemption contained within the Financial Services (Exemptions) Regulations 2011.
 
 
 
Guernsey
 
The communication of the prospectus and any other documents or materials relating to the Exchange Offer has not been made by, and such documents have not been approved or authorized by the Guernsey Financial Services Commission for circulation in Guernsey. The prospectus and any other documents or materials relating to the Exchange Offer may not be distributed or circulated directly or indirectly to any persons in the Bailiwick of Guernsey other than (i) by a person licensed to do so under the terms of the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, or (ii) to those persons regulated by the Guernsey Financial Services Commission as licensees under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, the Banking Supervision (Bailiwick of Guernsey) Law, 1994, the Insurance Business (Bailiwick of Guernsey) Law, 2002 or the Regulation of Fiduciaries, Administration Business and company Directors etc. (Bailiwick of Guernsey) Law, 2000.
 
Jersey
 
The communication of the prospectus and any other documents or materials relating to the Exchange Offer are not being made by, and such documents are not subject to and have not received approval from either the Jersey Financial Services Commission or the Registrar of Companies in Jersey and no statement to the contrary, explicit or implicit, is authorized to be made in this regard. The Additional Tier 1 Securities may be offered or sold in Jersey only in compliance with the provisions of the Control of Borrowing (Jersey) Order 1958.
 
Belgium
 
Neither this prospectus nor any other documents or materials relating to the Exchange Offer have been submitted to or will be submitted for approval or recognition to the Financial Services and Markets Authority (Autorité des services et marchés financiers / Autoriteit voor financiële diensten en markten) and, accordingly, the Exchange Offer may not be made in Belgium by way of a public offering, as defined in Articles 3 and 6 of the Belgian Law of April 1, 2007 on public takeover bids as amended or replaced from time to time. Accordingly, the Exchange Offer may not be advertised and the Exchange Offer will not be extended, and neither this prospectus nor any other documents or materials relating to the Exchange Offer (including any memorandum, information circular, brochure or any similar documents) has been or shall be distributed or made available, directly or indirectly, to any person in Belgium other than “qualified investors” in the sense of Article 10 of the Belgian Law of June 16, 2006 on the public offer of placement instruments and the admission to trading of placement instruments on regulated markets, acting on their own account. This prospectus has been issued only for the personal use of the above qualified investors and exclusively for the purpose of the Exchange Offer. Accordingly, the information contained in this prospectus may not be used for any other purpose or disclosed to any other person in Belgium.
 
France
 
The Exchange Offer is not being made, directly or indirectly, to the public in France. Neither this prospectus nor any other documents or offering materials relating to the Exchange Offer, has been or shall be distributed to the public in France and only (i) providers of investment services relating to portfolio management for the account of third parties (personnes fournissant le service d’investissement de gestion de portefeuille pour compte de tiers) and/or (ii) qualified investors (investisseurs qualifiés), other than individuals, acting for their own account, all as defined in, and in accordance with, Articles L.411-1, L.411-2 and D.411-1 to D.411-3 of the French Code monétaire et financier, are eligible to participate in the Exchange Offer. This prospectus has not been and will not be submitted for clearance procedures (visa) of the Autorité des marchés financiers.
 
Italy
 
None of the Exchange Offer, this prospectus or any other documents or materials relating to the Exchange Offer has been or will be submitted to the clearance procedure of the Commissione Nazionale per le Società e la Borsa (“CONSOB”), pursuant to Italian laws and regulations. The Exchange Offer is being carried out in the Republic of Italy as an exempted offer pursuant to article 101-bis, paragraph 3-bis of the Legislative Decree No. 58 of February 24, 1998, as amended (the “Financial Services Act”) and article 35-bis, paragraph 4 of CONSOB Regulation No. 11971 of May 14, 1999, as amended (the “Issuers’ Regulation”).
 
 
 
 
Accordingly, the Exchange Offer is only addressed to holders of ECNs located in the Republic of Italy who are “qualified investors” (investitori qualificati) as defined pursuant to and within the meaning of Article 100 of the Financial Services Act and article 34-ter, paragraph 1, letter b) of the Issuers’ Regulation.
 
Holders or beneficial owners of the ECNs located in the Republic of Italy that qualify as “qualified investors” can tender the ECNs through authorized persons (such as investment firms, banks or financial intermediaries permitted to conduct such activities in the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of October 29, 2007, as amended from time to time, and Legislative Decree No. 385 of September 1, 1993, as amended) and in compliance with applicable laws and regulations or with requirements imposed by CONSOB or any other Italian authority.
 
Each intermediary must comply with the applicable laws and regulations concerning information duties vis-à-vis its clients in connection with the ECNs or the Exchange Offer.
 
General
 
The Exchange Offer does not constitute an offer to buy or the solicitation of an offer to sell ECNs and/or Additional Tier 1 Securities in any circumstances in which such offer or solicitation is unlawful. In those jurisdictions where the securities or other laws require the Exchange Offer to be made by a licensed broker or dealer and the Dealer Manager or, where the context so requires, any of its affiliates is such a licensed broker or dealer in that jurisdiction, the Exchange Offer shall be deemed to be made on behalf of LBG 1 and/or LBG 2 by such Dealer Manager or affiliate (as the case may be) in such jurisdiction.
 
The issue of the Additional Tier 1 Securities and the performance of LBG’s obligations thereunder have been duly authorized by resolutions of the ordinary shareholders of LBG passed on May 16, 2013 and by the resolutions of the Board of Directors of LBG passed on February 27, 2014 and of a committee of the Board of Directors of LBG passed on March 5, 2014.
 
Governing Law
 
The terms of the Exchange Offer, including without limitation each Exchange Instruction, and any non-contractual obligations arising out of or in connection with the Exchange Offer shall be governed by, and construed in accordance with, New York law. By submitting an Exchange Instruction, a holder or Direct Participant irrevocably and unconditionally agrees for the benefit of the Offerors, LBG, the Dealer Managers and the Exchange Agent that the courts of New York are to have non-exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Exchange Offer or any of the documents referred to above and that, accordingly, any suit, action or proceedings arising out of or in connection with the foregoing may be brought in such courts.
 
Miscellaneous
 
Holders who need assistance with respect to the procedure relating to tendering their ECNs should contact the Exchange Agent, the contact details for whom appear on the back cover of this prospectus.
 
 
 
 
 
Concurrently with the Exchange Offer, the Offerors are inviting (i) holders of certain of its other enhanced capital notes denominated in pounds and euros who are outside the United States to offer such securities for exchange for additional tier 1 securities and (ii) certain retail holders of pounds denominated enhanced capital notes to tender such securities for cash (the “Concurrent Non-U.S. Exchange Offers”). Holders that are U.S. residents that hold any such securities may not tender such securities for exchange pursuant to the terms of the Concurrent Non-U.S. Exchange Offers. Holders may not tender any securities in the Exchange Offer other than the ECNs specified on the front cover page of this prospectus.
 

 
 
 

 
 
 
 
General
 
The following is a summary of certain terms of the Fixed Rate Reset Additional Tier 1 Securities offered hereby (referred to herein as the “Additional Tier 1 Securities”). The summary set forth below does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Capital Securities Indenture dated as of March 6, 2014 (the “Original Indenture”), between us as Issuer and The Bank of New York Mellon acting through its London Branch as Trustee, as supplemented by a First Supplemental Indenture which we expect to be dated as of the Settlement Date (the “First Supplemental Indenture”, and, together with the Original Indenture, the “Indenture”), under which the Additional Tier 1 Securities are to be issued.
 
The Additional Tier 1 Securities and the Indenture are governed by, and shall be construed in accordance with, the laws of the State of New York, except for the subordination provisions which are governed by Scots law. The terms of the Additional Tier 1 Securities include those stated in the Indenture and any supplements or amendments thereto, and those terms made part of the Indenture by reference to the Trust Indenture Act. The Bank of New York Mellon, acting through its London Branch, will serve as Trustee under the Indenture and will initially act as Paying Agent and Calculation Agent for the Additional Tier 1 Securities.
 
The Additional Tier 1 Securities will constitute our direct, unsecured and subordinated obligations and will rank pari passu without any preference among themselves.
 
The Additional Tier 1 Securities will be issued in an aggregate principal amount of up to $1,675,000,000. We will issue the Additional Tier 1 Securities in fully registered form in denominations of $200,000 and in integral multiples of $1,000 thereafter (the denomination of each book-entry interest being the “Tradable Amount” of such book-entry interest). Prior to the Automatic Conversion (as defined below), the aggregate Tradable Amount of the book-entry interests in each Additional Tier 1 Security shall be equal to such Note’s principal amount. Following the Automatic Conversion, the principal amount of each Additional Tier 1 Security shall be zero (as described below under “—Conversion—Conversion Procedures”) but the Tradable Amount of the book-entry interests in each Additional Tier 1 Security shall remain unchanged.
 
Upon issuance, the Additional Tier 1 Securities will be represented by one or more fully registered global notes (“Global Notes”). Each such Global Note will be deposited with, or on behalf of, The Depository Trust Company (the “DTC”). You will hold a beneficial interest in the Additional Tier 1 Securities through the DTC and its participants.  LBG expects to deliver the Additional Tier 1 Securities through the facilities of the DTC on April 7, 2014.  For a more detailed summary of the form of the Additional Tier 1 Securities and settlement and clearance arrangements, see “—Form of Additional Tier 1 Securities, Clearance and Settlement”.
 
Indirect holders trading their beneficial interests in the Additional Tier 1 Securities through the DTC must trade in the DTC’s same-day funds settlement system and pay in immediately available funds.  Secondary market trading will occur in the ordinary way following the applicable rules and clearing system operating procedures of the DTC, including those of its indirect participants, Euroclear and Clearstream, Luxembourg. Definitive securities will only be issued in limited circumstances described under “—Form of Additional Tier 1 Securities, Clearance and Settlement”.
 
Payment of principal of and interest, if any, on the Additional Tier 1 Securities, so long as the Additional Tier 1 Securities are represented by global certificates, will be made in immediately available funds. Beneficial interests in the global certificates will trade in the same-day funds settlement system of DTC, and secondary market trading activity in such interests will therefore settle in same-day funds. LBG currently expects such trading and settlement to continue in the period between the Conversion Date and the Suspension Date (each as defined below).
 
 
 
 
Payments
 
Interest Rate
 
From and including              (the “Issue Date”) to but excluding June 27, 2024, (the “First Call Date”), interest will accrue on the Additional Tier 1 Securities at an initial rate equal to 7.5% per annum. The First Call Date and every 5th anniversary thereafter shall be a “Reset Date”. From and including each Reset Date to but excluding the next succeeding Reset Date, the interest will accrue on the Additional Tier 1 Securities at a rate per annum equal to the sum of then prevailing Mid-Market Swap Rate on the relevant Reset Determination Date and 4.76%, converted to a quarterly rate in accordance with market convention (rounded to three decimal places, with 0.0005 rounded down). Subject to the provisions under “—Interest Cancellation”, “—Conversion—Automatic Conversion” and “—Ranking and Liquidation Distribution”, interest, if any, will be payable quarterly in arrear on March 27, June 27, September 27 and December 27 of each year, commencing on June 27, 2014 (each, an “Interest Payment Date”). The regular record dates for the Additional Tier 1 Securities will be the 15th calendar day preceding each Interest Payment Date, whether or not such day is a Business Day (each, a “Record Date”).
 
The “Mid-Market Swap Rate” is the mid-market U.S. dollar swap rate Libor basis having a 5-year maturity appearing on Bloomberg page “ISDA 01” (or such other page as may replace such page on Bloomberg, or such other page as may be nominated by the person providing or sponsoring the information appearing on such page for purposes of displaying comparable rates) at 11:00 a.m. (New York time) on the Reset Determination Date, as determined by the Calculation Agent. If such swap rate does not appear on such page (or such other page or service), the Mid-Market Swap Rate shall instead be determined by the Calculation Agent on the basis of (i) quotations provided by the principal office of each of four major banks in the U.S. dollar swap rate market (which banks shall be selected by the Calculation Agent in consultation with LBG no less than 20 calendar days prior to the Reset Determination Date) (the “Reference Banks”) of the rates at which swaps in U.S. dollars are offered by it at approximately 11.00 a.m. (New York time) (or thereafter on such date, with the Calculation Agent acting on a best efforts basis) on the Reset Determination Date to participants in the U.S. dollar swap rate market for a five-year period and (ii) the arithmetic mean expressed as a percentage and rounded, if necessary, to the nearest 0.001% (0.0005% being rounded upwards) of such quotations. If the Mid-Market Swap Rate is still not determined on the relevant Reset Determination Date in accordance with the foregoing procedures, the Mid-Market Swap Rate shall be the mid-market U.S. dollar swap rate Libor basis having a 5-year maturity that appeared on the most recent Bloomberg page “ISDA 01” (or such other page as may replace such page on Bloomberg, or such other page as may be nominated by the person providing or sponsoring the information appearing on such page for purposes of displaying comparable rates) that was last available prior to 11.00 a.m. (New York time) on each Reset Determination Date, as determined by the Calculation Agent.
 
The “Reset Determination Date” shall be the second Business Day immediately preceding the Reset Date.
 
If any scheduled Interest Payment Date is not a Business Day, we will pay interest on the next Business Day, but interest on that payment will not accrue during the period from and after the scheduled Interest Payment Date. If any scheduled redemption date is not a Business Day, we may pay interest, if any, and principal on the next succeeding Business Day, but interest on that payment will not accrue during the period from and after any scheduled redemption date. If any Reset Date is not a Business Day, the Reset Date shall occur on the next Business Day.
 
If any interest payment is to be made in respect of the Additional Tier 1 Securities on any other date, including on any scheduled redemption date, it shall be calculated by the Calculation Agent by applying the interest rate as described above and multiplying the product by 30/360 and rounding the resulting figure to the nearest cent (half a cent being rounded upwards). For this purpose “30/360” means, in respect of any period, the number of days in the relevant period, from and including the first day in such period to but excluding the last day in such period, such number of days being calculated on the basis of a 360 day year consisting of 12 months of 30 days each, divided by 360.
 
The term “Business Day” means any weekday, other than one on which banking institutions are authorized or obligated by law, regulation or executive order to close in London, England, or in New York City.
 
 
 
 
 
Interest Cancellation
 
Subject to the solvency condition described under “—Solvency Condition” below,  the availability of Distributable Items (as defined under “—Availability of Distributable Items” below), Automatic Conversion as described under “—Conversion—Automatic Conversion” and a Winding-up or Administration Event as described under “—Ranking and Liquidation Distribution”, interest on the Additional Tier 1 Securities will be due and payable only at the sole discretion of LBG and LBG shall have absolute discretion at all times and for any reason to cancel any interest payment in whole or in part that would otherwise be payable on any Interest Payment Date. If LBG elects not to make an interest payment on the relevant Interest Payment Date, or if LBG elects to make a payment of a portion, but not all, of such interest payment, such non-payment shall evidence LBG’s exercise of discretion to cancel such interest payment, or the portion of such interest payment not paid, and accordingly such interest payment, or portion thereof, shall not be or become due and payable.
 
Such canceled interest shall not accumulate or be due and payable at any time thereafter and Securityholders shall not have any right to or claim against LBG with respect to such interest amount. Any such cancellation shall not constitute a default and Securityholders shall have no rights thereto or to receive any additional interest or compensation as a result of such cancellation.
 
Because the Additional Tier 1 Securities are intended to qualify as additional tier 1 capital under CRD IV, LBG may cancel, in whole or in part, any interest payment at its discretion and may pay dividends on its ordinary or preference shares notwithstanding such cancellation. In addition, LBG may use such canceled payments without restriction to meet its other obligations as they become due.
 
In addition, the Additional Tier 1 Securities will cease to bear interest from, and including, the date of any redemption of the Additional Tier 1 Securities as described under “—Redemption and Purchase” unless payment and performance of all amounts and obligations due by LBG in respect of the Additional Tier 1 Securities is not properly and duly made, in which event interest shall continue to accrue on the Additional Tier 1 Securities until payment and performance of all amounts and obligations has been properly and duly made.
 
Furthermore, in the event of the Automatic Conversion of the Additional Tier 1 Securities upon the occurrence of a Trigger Event, as described under “—Conversion—Automatic Conversion” below or a Winding-up or Administration Event, any accrued but unpaid interest on the Additional Tier 1 Securities shall be canceled upon the occurrence of such Trigger Event, or Winding-up or Administration Event (as defined under “—Ranking and Liquidation Distribution”), as the case may be, and shall not become due and payable at any time.
 
See also “—Agreement to Interest Cancellation” and “—Notice of Interest Cancellation” below.
 
Payments Subject to Laws
 
Payments under the Additional Tier 1 Securities will be subject in all cases to any applicable fiscal or other laws and regulations in the place of payment or other laws and regulations to which LBG or its Paying Agents agree to be subject and LBG will not, save as provided under “—Additional Amounts”, be liable for any taxes or duties of whatever nature imposed or levied by such laws, regulations or agreements. No commission or expenses shall be charged to the Securityholders in respect of such payments.
 
Solvency Condition
 
Other than in a Winding-up or Administration Event (as defined below) or in relation to the cash component of any Alternative Consideration in any Settlement Shares Offer, payments in respect of or arising under the Additional Tier 1 Securities (including any damages for breach of any obligations thereunder) are, in addition to the right of LBG to cancel payments of interest as described under “—Interest Cancellation”, conditional upon LBG being solvent at the time when the relevant payment is due to be made and no principal, interest or other amount payable shall be due and payable in respect of or arising from the Additional Tier 1 Securities except to the extent that LBG could make such payment and still be solvent immediately thereafter (such condition is referred to herein as the “Solvency Condition”).
 
LBG shall be considered to be solvent at a particular point in time if:
 
 
 
 
 
(i) we are able to pay our debts owed to our Senior Creditors (as defined under “—Ranking and Liquidation Distribution” below) as they fall due; and
 
(ii) our Assets are at least equal to our Liabilities.
 
Assets” means the unconsolidated gross assets of LBG, as shown in the latest published audited balance sheet of LBG, adjusted for subsequent events in such manner as the directors of LBG may determine.
 
Liabilities” means the unconsolidated gross liabilities of LBG, as shown in the latest published audited balance sheet of LBG, adjusted for contingent liabilities and prospective liabilities and for subsequent events in such manner as the directors of LBG may determine.
 
An officer’s certificate as to our solvency shall, unless there is manifest error, be treated and accepted by us, the Trustee and any Securityholder as correct and sufficient evidence that the Solvency Condition is or is not satisfied. If we fail to make a payment because the Solvency Condition is not satisfied, that payment shall not be or become due and payable.
 
See also “—Agreement to Interest Cancellation” and “—Notice of Interest Cancellation” below.
 
Availability of Distributable Items
 
LBG shall cancel any interest on the Additional Tier 1 Securities (or, as appropriate, any part thereof) which is scheduled to be paid on an Interest Payment Date if in respect of such Interest Payment Date to the extent that LBG has an amount of Distributable Items on any scheduled Interest Payment Date that is less than the sum of (i) all payments (other than redemption payments) made or declared by LBG since the end of LBG’s last financial year and prior to such Interest Payment Date on or in respect of any Parity Securities, the Additional Tier 1 Securities and any Junior Securities (as defined below) and (ii) all payments (other than redemption payments) payable by LBG on such Interest Payment Date (x) on the Additional Tier 1 Securities and (y) on or in respect of any Parity Securities or any Junior Securities, in the case of each of (i) and (ii), excluding any payments already accounted for in determining the Distributable Items.
 
In addition, LBG shall not pay any interest otherwise scheduled to be paid on an Interest Payment Date if and to the extent that the payment of such interest would cause, when aggregated together with other distributions of the kind referred to in Article 141(2) of the Directive (as defined below) (or any provision of applicable law transposing or implementing Article 141(2) of the Directive, as amended or replaced), the Maximum Distributable Amount, if any, then applicable to the Group to be exceeded.
 
See also “—Agreement to Interest Cancellation” and “—Notice of Interest Cancellation” below.
 
Distributable Items” shall have the meaning assigned to such term in CRD IV (as the same may be amended or replaced from time to time), as interpreted and applied in accordance with the Applicable Regulations then applicable to LBG, but amended so that any reference therein to “before distributions to holders of own funds instruments” shall be read as a reference to “before distributions by LBG to holders of Parity Securities, the Additional Tier 1 Securities or any Junior Securities”. Under CRD IV, as at the date hereof, “distributable items” means the amount of the profits at the end of the last financial year plus any profits brought forward and reserves available for that purpose before distributions to holders of own funds instruments, less any losses brought forward, profits which are non-distributable pursuant to provisions in legislation or the institution’s by-laws and sums placed to non-distributable reserves in accordance with applicable national law or the statutes of the institution, those losses and reserves being determined on the basis of the individual accounts of the institution (LBG) and not on the basis of the consolidated accounts.
 
Applicable Regulations” means, at any time, the laws, regulations, requirements, guidelines and policies relating to capital adequacy (including, without limitation, as to leverage) then in effect in the United Kingdom including, without limitation to the generality of the foregoing, any delegated or implementing acts (such as regulatory technical standards) adopted by the European Commission and any regulations, requirements, guidelines and policies relating to capital adequacy adopted by the Relevant Regulator, from time to time (whether or not such requirements, guidelines or policies are applied generally or specifically to LBG or to LBG and our subsidiaries).
 
 
 
 
 
CRD IV” means the legislative package consisting of Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (the “Directive”) and Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms of the European Parliament and of the Council of 26 June 2013 (the “Regulation”).
 
Maximum Distributable Amount” means any applicable maximum distributable amount relating to the Group required to be calculated in accordance with Article 141 of the Directive or as the case may be, any provision of applicable law transposing or implementing the Directive, as amended or replaced.
 
Agreement to Interest Cancellation
 
By acquiring the Additional Tier 1 Securities, Securityholders acknowledge and agree that:
 
 
(a)
interest is payable solely at the discretion of LBG, and no amount of interest shall become due and payable in respect of the relevant interest period to the extent that it has been canceled by LBG at our sole discretion and/or deemed canceled in whole or in part; and
 
 
(b)
a cancellation or deemed cancellation of interest (in each case, in whole or in part) in accordance with the terms of the Indenture shall not constitute a default in payment or otherwise under the terms of the Additional Tier 1 Securities.
 
Interest will only be due and payable on an Interest Payment Date to the extent it is not canceled or deemed canceled in accordance with the provisions described under “—Interest Cancellation”, “—Solvency Condition”, “—Availability of Distributable Items”, —Conversion—Automatic Conversion”  and “—Ranking and Liquidation Distribution”. Any interest canceled or deemed canceled (in each case, in whole or in part) in the circumstances described above shall not be due and shall not accumulate or be payable at any time thereafter, and Securityholders shall have no rights thereto or to receive any additional interest or compensation as a result of such cancellation or deemed cancellation.
 
Notice of Interest Cancellation
 
If practicable, LBG shall provide notice of any cancellation or deemed cancellation of interest (in whole or in part) to the Securityholders through DTC (or, if the Additional Tier 1 Securities are held in definitive form, to the holders directly at their addresses shown on the register for the Additional Tier 1 Securities) and to the Trustee directly on or prior to the relevant Interest Payment Date. Failure to provide such notice will not have any impact on the effectiveness of, or otherwise invalidate, any such cancellation or deemed cancellation of interest, or give Securityholders any rights as a result of such failure.
 
Ranking and Liquidation Distribution
 
The Additional Tier 1 Securities will constitute our direct, unsecured and subordinated obligations, ranking equally without any preference among themselves. The rights and claims of the Securityholders in respect of or arising from the Additional Tier 1 Securities will be subordinated to the claims of Senior Creditors (as defined below).
 
If at any time prior to the date on which a Trigger Event occurs:
 
(i)      an order is made, or an effective resolution is passed, for the winding-up of LBG (except in each such case, a solvent winding-up solely for the purposes of a reorganization, reconstruction or amalgamation of LBG or the substitution in place of LBG of a successor in business of LBG, the terms of which (i) have previously been approved in writing by Securityholders of not less than 2/3 (two thirds) in aggregate principal amount of the Additional Tier 1 Securities and (ii) do not provide that the Additional Tier 1 Securities shall thereby become redeemable or repayable in accordance with their terms); or
 
(ii)     an administrator of LBG is appointed and such administrator declares, or gives notice that it intends to declare and distribute a dividend (together, a “Winding-up or Administration Event”),
 
there shall be payable by LBG in respect of each Additional Tier 1 Security (in lieu of any other payment by LBG) such amount, if any, as would have been payable to the Securityholder if, throughout such Winding-up or
 
 
 
 
 
Administration Event, such Securityholder were the holder of one of a class of preference shares in the capital of LBG (“Notional Preference Shares”) having an equal right to a return of assets in the Winding-up or Administration Event to, and so ranking pari passu with, the holders of the most senior class or classes of issued preference shares in the capital of LBG from time to time (if any) and which have a preferential right to a return of assets in the Winding-up or Administration Event over, and so rank ahead of, the holders of all other classes of issued shares for the time being in the capital of LBG but ranking junior to the claims of Senior Creditors and on the assumption that the amount that such holder was entitled to receive in respect of each Notional Preference Share is an amount equal to the principal amount of the Additional Tier 1 Securities together with, to the extent not otherwise included within the foregoing, any other amounts attributable to the Additional Tier 1 Securities, including any Accrued Interest and any damages awarded for breach of any obligations, regardless of whether the Solvency Condition is satisfied on the date upon which the same would otherwise be due and payable.

Senior Creditors” means creditors of LBG (i) who are unsubordinated creditors, (ii) whose claims are, or are expressed to be, subordinated to the claims of unsubordinated creditors of LBG but not further or otherwise, or (iii) whose claims are, or are expressed to be, junior to the claims of other creditors of LBG (whether subordinated or unsubordinated, other than those whose claims rank, or are expressed to rank, pari passu with, or junior to, the claims of Securityholders) in a Winding-up or Administration Event prior to a Trigger Event.
 
Parity Securities means (i) the most senior ranking class or classes of preference shares in the capital of LBG from time to time and any other securities of LBG ranking, or expressed to rank, pari passu with the Additional Tier 1 Securities and/or such preference shares following a Winding-up or Administration Event and/or (ii) any securities issued by any other member of the Group where the terms of the securities benefit from a guarantee or support agreement entered into by LBG which ranks or is expressed to rank pari passu with the Additional Tier 1 Securities and/or such preference shares following a Winding-up or Administration Event.
 
If a Winding-up or Administration Event occurs at any time on or following the date on which a Trigger Event occurs but the Settlement Shares to be issued and delivered to the Settlement Share Depository on the Conversion Date have not been so delivered, there shall be payable by LBG in respect of each Additional Tier 1 Security (in lieu of any other payment by LBG) such amount, if any, as would have been payable to the holder of such Note in a Winding up or Administration Event if the Conversion Date in respect of the Automatic Conversion had occurred immediately before the occurrence of a Winding-up or Administration Event (ignoring for this purpose LBG’s right to make an election for a Settlement Shares Offer to be effected), regardless of whether the Solvency Condition is satisfied on such date.
 
As a consequence of these subordination provisions, if a Winding-up or Administration Event occurs, each Securityholder may recover less ratably than the holders of our unsubordinated liabilities and the holders of certain of our subordinated liabilities. If upon any Winding-up or Administration Event the amount payable on the Additional Tier 1 Securities and any claims ranking equally with them are not paid in full, the Additional Tier 1 Securities and other claims ranking equally will share ratably in any distribution of our assets in proportion to the respective amounts to which they are entitled. If any holder is entitled to any recovery with respect to the Additional Tier 1 Securities, the holder might not be entitled in those proceedings to a recovery in U.S. dollars and might be entitled only to a recovery in pounds sterling or any other lawful currency of the United Kingdom.
 
In addition, LBG is a holding company and as such the principal sources of our income are from operating subsidiaries which also hold the principal assets of the Group. As a result, we are dependent on the remittance of profits and other funds from our subsidiaries to meet our obligations, including our obligations in respect of the Additional Tier 1 Securities. Our right to participate in the assets of our subsidiaries if such subsidiaries are liquidated will generally be subject to the prior claims of such subsidiary’s creditors.
 
Subject to applicable law, no Securityholder may exercise, claim or plead any right of set-off, compensation or retention in respect of any amount owed to it by LBG arising under, or in respect of, or in connection with, the Additional Tier 1 Securities and each Securityholder shall, by virtue of its holding of any Additional Tier 1 Securities, be deemed to have waived all such rights of set-off, compensation or retention.
 
Additional Amounts
 
All payments of principal and/or interest to Securityholders by or on behalf of LBG in respect of the Additional Tier 1 Securities shall be made without withholding or deduction for or on account of any present or future tax, duty,
 
 
 
 
 
assessment or governmental charge of whatsoever nature imposed, levied, collected, withheld or assessed by or on behalf of the United Kingdom or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law. In that event, LBG shall pay such additional amounts (“Additional Amounts”) as will result (after such withholding or deduction) in receipt by the Securityholders of the sums which would have been receivable (in the absence of such withholding or deduction) by them in respect of their Additional Tier 1 Securities; except that no such Additional Amounts shall be payable with respect to any Additional Tier 1 Security:
 
 
(a)
held by or on behalf of any Securityholder who is liable to such tax, duty, assessment or governmental charge in respect of such Additional Tier 1 Security by reason of such Securityholder having some connection with the United Kingdom other than the mere holding of such Additional Tier 1 Security; or
 
 
(b)
to, or to a third party on behalf of, a Securityholder if such withholding or deduction may be avoided by complying with any statutory requirement or by making a declaration of non-residence or other similar claim for exemption to any authority of or in the United Kingdom, unless such Securityholder proves that he is not entitled so to comply or to make such declaration or claim; or
 
 
(c)
to, or to a third party on behalf of, a Securityholder that is a partnership, or a Securityholder that is not the sole beneficial owner of the Additional Tier 1 Security, or which holds the Additional Tier 1 Security in a fiduciary capacity, to the extent that any of the members of the partnership, the beneficial owner or the settlor or beneficiary with respect to the fiduciary would not have been entitled to the payment of an additional amount had each of the members of the partnership, the beneficial owner, settlor or beneficiary (as the case may be) received directly its beneficial or distributive share of the payment; or
 
 
(d)
presented or surrendered for payment more than 30 days after the Relevant Date except to the extent that the Securityholder thereof would have been entitled to such Additional Amounts on presenting or surrendering the same for payment at the expiry of such period of 30 days; or
 
 
(e)
where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or
 
 
(f)
in respect of any Additional Tier 1 Security presented or surrendered for payment by or on behalf of a Securityholder who would have been able to avoid such withholding or deduction by presenting or surrendering the relevant Additional Tier 1 Security to another Paying Agent in a member state of the European Union.
 
Redemption and Purchase
 
The Additional Tier 1 Securities are perpetual securities in respect of which there is no fixed redemption date or maturity date. Holders may not require any redemption of the Additional Tier 1 Securities at any time.
 
Optional Redemption
 
The Additional Tier 1 Securities will, subject to the satisfaction of the conditions described under “—Redemption Conditions” below, be redeemable in whole, but not in part, at the option of LBG on the First Call Date or on any Reset Date thereafter at 100% of their principal amount, together with any accrued and unpaid interest on the Additional Tier 1 Securities, excluding any interest which has been canceled or deemed to be canceled as described under “—Interest Cancellation” above (“Accrued Interest”) to, but excluding, the date fixed for redemption.
 
Notice of any optional redemption of the Additional Tier 1 Securities will be given to holders not less than 30 nor more than 60 calendar days’ notice in accordance with “—Redemption Conditions and “—Notice” below, and to the trustee at least five (5) Business Days prior to such date, unless a shorter notice period shall be satisfactory to the trustee. Except as otherwise provided herein, such notice shall be irrevocable.
 
 
 
 
 
Tax Redemption
 
If at any time a Tax Event has occurred and is continuing, LBG may, subject to the satisfaction of the conditions described under “—Redemption Conditions” below, redeem the Additional Tier 1 Securities in whole but not in part at any time at 100% of their principal amount, together with any Accrued Interest to, but excluding, the date fixed for redemption.
 
A “Tax Event is deemed to have occurred if:
 
(1) as a result of a Tax Law Change, in making any payments on the Additional Tier 1 Securities, LBG has paid or will or would on the next payment date be required to pay any Additional Amounts to any holder pursuant to “—Additional Amounts” above and/or
 
(2) a Tax Law Change would:
 
 
·
result in LBG not being entitled to claim a deduction in respect of any payments in respect of the Additional Tier 1 Securities in computing our taxation liabilities or materially reduce the amount of such deduction;
 
 
·
prevent the Additional Tier 1 Securities from being treated as loan relationships for United Kingdom tax purposes;
 
 
·
as a result of the Additional Tier 1 Securities being in issue, result in LBG not being able to have losses or deductions set against the profits or gains, or profits or gains offset by the losses or deductions, of companies with which it is or would otherwise be so grouped for applicable United Kingdom tax purposes (whether under the group relief system current as at the date of issue of the Additional Tier 1 Securities or any similar system or systems having like effect as may from time to time exist);
 
 
·
result in a United Kingdom tax liability, or the receipt of income or profit which would be subject to United Kingdom tax, in respect of a write-down of the principal amount of the Additional Tier 1 Securities or the conversion of the Additional Tier 1 Securities into Ordinary Shares; or
 
 
·
result in an Additional Tier 1 Security or any part thereof being treated as a derivative or an embedded derivative for United Kingdom tax purposes,
 
in each case, provided that, LBG could not avoid the foregoing in connection with the Additional Tier 1 Securities by taking measures reasonably available to it.
 
Tax Law Change” means a change in or proposed change in, or amendment or proposed amendment to, the laws or regulations of the United Kingdom, or any political subdivision or authority therein or thereof, having the power to tax, including any treaty to which the United Kingdom is a party, or any change in any generally published application or interpretation of such laws, including a decision of any court or tribunal, or any change in the generally published application or interpretation of such laws by any relevant tax authority or any generally published pronouncement by any tax authority, which change, amendment or pronouncement (x) (subject to (y)) becomes, or would become, effective on or after the Issue Date, or (y) in the case of a change or proposed change in law, if such change is enacted (or, in the case of a proposed change, is expected to be enacted) by United Kingdom Act of Parliament or implemented by statutory instrument, on or after the Issue Date;
 
Notice of any redemption of the Additional Tier 1 Securities due to the occurrence of a Tax Event will be given to holders not less than 30 nor more than 60 calendar days’ notice in accordance with “—Redemption Conditions and “—Notice” below, and to the trustee at least five (5) Business Days prior to such date, unless a shorter notice period shall be satisfactory to the trustee. Except as otherwise provided herein, such notice shall be irrevocable.
 
Prior to the giving of any notice of redemption, LBG must deliver to the Trustee an officer’s certificate stating that a Tax Event has occurred and is continuing and setting out the details thereof. The Trustee shall be entitled to accept such officer’s certificate without any further inquiry, in which event such officer’s certificate shall be conclusive and binding on the Trustee and the Securityholders.
 
Regulatory Event Redemption
 
If at any time a Regulatory Event has occurred and is continuing, LBG may, subject to the satisfaction of the conditions described under “—Redemption Conditions” below, redeem the Additional Tier 1 Securities in whole but
 
 
 
 
 
not in part at any time at 100% of their principal amount, together with any Accrued Interest to, but excluding, the date fixed for redemption.
 
A “Regulatory Event” will occur if at any time LBG determines that as a result of a change (or prospective future change which the Relevant Regulator considers to be sufficiently certain) to the regulatory classification of the Additional Tier 1 Securities under the Applicable Regulations, in any such case becoming effective on or after the Issue Date, all of the outstanding aggregate principal amount of the Additional Tier 1 Securities fully ceases (or would fully cease) to be included in, or count towards, the Tier 1 Capital (howsoever defined in the Applicable Regulations) of the Group.
 
Notice of any redemption of the Additional Tier 1 Securities due to the occurrence of a Regulatory Event will be given to holders not less than 30 nor more than 60 calendar days’ notice in accordance with “—Redemption Conditions and “—Notice” below, and to the trustee at least five (5) Business Days prior to such date, unless a shorter notice period shall be satisfactory to the trustee. Except as otherwise provided herein, such notice shall be irrevocable.
 
Prior to the giving of any notice of redemption, LBG must deliver to the Trustee an officer’s certificate stating that a Regulatory Event has occurred and is continuing and setting out the details thereof. The Trustee shall be entitled to accept such officer’s certificate without any further inquiry, in which event such officer’s certificate shall be conclusive and binding on the Trustee and the Securityholders.
 
Purchase
 
Any purchase, other than a purchase in the ordinary course of a business dealing in securities of the Additional Tier 1 Securities by or on behalf of LBG or its subsidiaries, is subject to (i) LBG giving notice to, and the Relevant Regulator granting permission to, LBG to purchase the relevant Additional Tier 1 Securities, and (ii) compliance by LBG with any alternative or additional pre-conditions set out in the relevant Applicable Regulations for the time being. Subject to applicable law in force at the relevant time, including the Applicable Regulations and U.S. federal securities law, LBG may at any time and from time to time, directly or indirectly, purchase the Additional Tier 1 Securities at any price in the open market or by tender (available alike to all Securityholders) or by private agreement. Any Additional Tier 1 Securities we purchase beneficially for our own account (other than in connection with dealing in securities) will be treated as canceled and will no longer be issued and outstanding.
 
Redemption Conditions
 
Any redemption of the Additional Tier 1 Securities as described above is subject to:
 
(i)      LBG giving notice to the Relevant Regulator and the Relevant Regulator granting permission to LBG to redeem the relevant Additional Tier 1 Securities (in each case to the extent, and in the manner, required by the relevant Applicable Regulations);
 
(ii)     in respect of any redemption proposed to be made prior to the fifth anniversary of the Issue Date, if and to the extent then required under the Applicable Regulations (A) in the case of redemption following the occurrence of a Tax Event, LBG having demonstrated to the satisfaction of the Relevant Regulator that the relevant change or event is material and was not reasonably foreseeable by LBG as at the Issue Date or (B) in the case of redemption following the occurrence of a Regulatory Event, LBG having demonstrated to the satisfaction of the Relevant Regulator that the relevant change was not reasonably foreseeable by LBG as at the Issue Date;
 
(iii)    the satisfaction of the Solvency Condition both immediately prior to and immediately following the redemption date;
 
(iv)    a Conversion Trigger Notice not having been given; and
 
(v)     compliance by LBG with any alternative or additional pre-conditions set out in the relevant Applicable Regulations for the time being.
 
Article 78 of the Regulation provides that the Relevant Regulator shall, subject as provided in Article 78 and below, grant permission to a redemption where either:
 
 
 
 
 
 
(1)
on or before the relevant redemption, LBG replaces the Additional Tier 1 Securities with instruments qualifying as Tier 1 Capital of an equal or higher quality on terms that are sustainable for the income capacity of LBG; or
 
 
(2)
LBG has demonstrated to the satisfaction of the Relevant Regulator that our Tier 1 Capital and Tier 2 capital would, following such redemption, exceed the capital ratios required under CRD IV by a margin that the Relevant Regulator may consider necessary on the basis set out in CRD IV for it to determine the appropriate level of capital of an institution.
 
Furthermore, Article 78 provides that the Relevant Regulator may only permit LBG to redeem the Additional Tier 1 Securities before the fifth anniversary of the Issue Date if the conditions listed in paragraphs (1) and (2) above are met and either of the following is also met:
 
 
(a)
there is (or is expected to be) a change in the regulatory classification of the instruments that would be likely to result in their exclusion from own funds or reclassification as a lower quality form of own funds, the Relevant Regulator considers such change to be sufficiently certain and LBG demonstrates to the satisfaction of the Relevant Regulator that the regulatory classification was not reasonably foreseeable at the Issue Date; or
 
 
(b)
there is (or is expected to be) a change in the applicable tax treatment of the instruments and LBG demonstrates to the satisfaction of the Relevant Regulator that such Tax Event is material and was not reasonably foreseeable at the Issue Date.
 
The rules under CRD IV may be modified from time to time after the Issue Date.
 
Notice of any redemption of the Additional Tier 1 Securities will be given in accordance with “—Notice” below. Any redemption notice will state:
 
 
·
the redemption date;
 
 
·
that on the redemption date the redemption price will, subject to the satisfaction of the conditions set forth in the Indenture as described in this prospectus, become due and payable upon each Additional Tier 1 Security being redeemed and that, subject to certain exceptions, interest will cease to accrue on or after that date;
 
 
·
the place or places where the Additional Tier 1 Securities are to be surrendered for payment of the redemption price; and
 
 
·
the CUSIP, Common Code and/or ISIN number or numbers, if any, with respect to the Additional Tier 1 Securities.
 
If LBG has elected to redeem the Additional Tier 1 Securities in accordance with the provisions described in this prospectus, but in each case such conditions have not been satisfied on the applicable redemption date, the redemption notice shall be automatically rescinded and shall have no force and effect and no payment of any applicable redemption amount will be or become due and payable as of the redemption date.
 
Conversion
 
Automatic Conversion
 
Upon the occurrence of the Trigger Event, each Additional Tier 1 Security shall, on the Conversion Date, be converted in whole and not in part into Ordinary Shares credited as fully paid (the “Settlement Shares”) at the Conversion Price and in accordance with the terms set forth herein. The Settlement Shares shall be issued and delivered to the Settlement Share Depository (as defined below) on the Conversion Date, in consideration for which all of LBG’s obligations under the Additional Tier 1 Securities shall be irrevocably and automatically released (the “Automatic Conversion”), and under no circumstances shall LBG’s released obligations be reinstated.
 
If LBG has been unable to appoint a Settlement Share Depository, it shall make such other arrangements for the issuance and delivery of the Settlement Shares or of the Alternative Consideration, as applicable, to the Securityholders as it shall consider reasonable in the circumstances, which may include issuing and delivering the
 
 
 
 
 
Settlement Shares to another independent nominee or to the Securityholders directly, which issuance and delivery shall irrevocably and automatically release all of LBG’s obligations under the Additional Tier 1 Securities as if the Settlement Shares had been issued and delivered to the Settlement Share Depository, and, in which case, where the context so admits, references in the Additional Tier 1 Securities and the Indenture to the issue and delivery of Settlement Shares to the Settlement Share Depository shall be construed accordingly and apply mutatis mutandis.
 
The “Conversion Date” shall be the date specified in the Conversion Trigger Notice and shall occur without delay upon the occurrence of a Trigger Event. The Additional Tier 1 Securities are not convertible at the option of the holders at any time. Automatic Conversion shall not constitute a default under the Additional Tier 1 Securities.
 
A “Trigger Event” means the date on which LBG determines that the CET1 Ratio as at any Quarterly Financial Period End Date or Extraordinary Calculation Date, as the case may be, is less than 7.00% on such date.
 
CET1 Ratio” means the ratio as published in respect of each Quarterly Financial Period End Date or any Extraordinary Calculation Date, the ratio of Group’s CET1 Capital as of such date to Risk Weighted Assets as of the same such date, expressed as a percentage and on the basis that all measures used in such calculation shall be calculated on a fully loaded basis.
 
Extraordinary Calculation Date” means any day (other than a Quarterly Financial Period End Date) on which the CET1 Ratio is calculated upon the instruction of the Relevant Regulator or at LBG’s discretion.
 
Quarterly Financial Period End Date” means the last day of each fiscal quarter of LBG.
 
CET1 Capital” means, as at any Quarterly Financial Period End Date or Extraordinary Calculation Date, the sum, expressed in sterling, of all amounts that constitute Common Equity Tier 1 Capital of the Group as at such date, less any deductions from Common Equity Tier 1 Capital of the Group required to be made as at such date, in each case as calculated by LBG on a consolidated and fully loaded basis in accordance with the Applicable Regulations applicable to the Group as at such date (which calculation shall be binding on the Trustee and Securityholders).
 
Common Equity Tier 1 Capital” shall have the meaning ascribed to such term in CRD IV (as the same may be amended or replaced from time to time) as interpreted and applied in accordance with the Applicable Regulations then applicable to the Group;
 
fully loaded” means, in relation to a measure that is presented or described as being on a “fully loaded basis”, that such measure is calculated without applying the transitional provisions set out in Part Ten of the Regulation (as may be amended from time to time).
 
Risk Weighted Assets” means, as reported on each Quarterly Financial Period End Date or Extraordinary Calculation Date, the aggregate amount, expressed in sterling, of the risk weighted assets of the Group as at such date, as calculated by LBG on a consolidated and fully loaded basis in accordance with the Applicable Regulations applicable to the Group on such date (which calculation shall be binding on the Trustee and the Securityholders) and where the term “risk weighted assets” means the risk weighted assets or total risk exposure amount, as calculated by LBG in accordance with the Applicable Regulations applicable to the Group on the relevant Quarterly Financial Period End Date or Extraordinary Calculation Date, as the case may be.
 
Following the occurrence of the Trigger Event, LBG shall deliver notice thereof to the Trustee and the Securityholders (the “Conversion Trigger Notice”) in accordance with “—Notice” below and (i) in the case of a Trigger Event that has occurred as at any Quarterly Financial Period End Date, on or within five (5) Business Days (or such shorter period as the Relevant Regulator may require) after the date on which the information in respect of the Quarterly Financial Period End Date is published by LBG, or (ii) in the case of a Trigger Event that has occurred as at any Extraordinary Calculation Date, on or as soon as practicable after such Extraordinary Calculation Date (and, in any event, within such period as the Relevant Regulator may require). The date on which the Conversion Trigger Notice shall be deemed to have been given shall be the date on which it is dispatched by LBG to DTC (or if the Additional Tier 1 Securities are held in definitive form, to the Securityholders directly).
 
Upon its determination that a Trigger Event has occurred, LBG shall immediately inform the Relevant Regulator and shall, prior to giving the Conversion Trigger Notice, deliver to the Trustee a certificate stating that the
 
 
 
 
 
Trigger Event has occurred, which the Trustee shall accept without any further enquiry as sufficient evidence of such matters, in which event such certificate will be conclusive and binding on the Trustee and the Securityholders.
 
The Conversion Trigger Notice shall specify (i) the CET1 Ratio as at the relevant Quarterly Financial Period End Date or Extraordinary Calculation Date, as applicable, (ii) the Conversion Date, (iii) the then-prevailing Conversion Price (which Conversion Price shall remain subject to any subsequent adjustment as set forth under —Anti-dilution Adjustment of the Conversion Price” below up to the Conversion Date), (iv) the contact details of any Settlement Share Depository, or, if LBG has been unable to appoint a Settlement Share Depository, such other arrangements for the issuance and/or delivery of the Settlement Shares, ADSs or any Alternative Consideration to the Securityholders as it shall consider reasonable in the circumstances, and (v) that the Additional Tier 1 Securities shall remain in existence for the sole purpose of evidencing the holder’s right to receive Settlement Shares, ADSs or the Alternative Consideration, as applicable, from the Settlement Share Depository and that the Additional Tier 1 Securities may continue to be transferable until the Suspension Date.
 
Promptly following its receipt of the Conversion Trigger Notice, pursuant to DTC’s procedures currently in effect, DTC will post the Conversion Trigger Notice to its Reorganization Inquiry for Participants System.
 
Notwithstanding anything to the contrary, once LBG has delivered a Conversion Trigger Notice following the occurrence of a Trigger Event, (i) subject to the right of Securityholders relating to a breach of Performance Obligation in the event of a failure by the Company to issue and deliver any Settlement Shares to the Settlement Share Depository on the Conversion Date, the Indenture shall impose no duties upon the Trustee whatsoever with regard to an Automatic Conversion upon a Trigger Event and the Securityholders shall have no rights whatsoever under the Indenture or the Additional Tier 1 Securities to instruct the Trustee to take any action whatsoever, and (ii) as of the date of the Conversion Trigger Notice, except for any indemnity and/or security provided by any Securityholder in such direction or related to such direction, any direction previously given to the Trustee by any Securityholder shall cease automatically and shall be null and void and of no further effect; except in each case of (i) and (ii) of this paragraph, with respect to any rights of Securityholders with respect to any payments under the Additional Tier 1 Securities that were unconditionally due and payable prior to the date of the Conversion Trigger Notice or unless the Trustee is instructed in writing by LBG to act otherwise.
 
Conversion upon the Occurrence of a Relevant Event
 
If a Qualifying Relevant Event occurs, the Additional Tier 1 Securities shall, where the Conversion Date (if any) falls on or after the New Conversion Condition Effective Date, be converted on such Conversion Date into Relevant Shares of the Approved Entity, mutatis mutandis as provided under “—Automatic Conversion” above at a Conversion Price that shall be the New Conversion Price. Such conversion shall be effected by the delivery by LBG of such number of Settlement Shares as set forth under “—Automatic Conversion” above to, or to the order of, the Approved Entity. Such delivery shall irrevocably discharge and satisfy all of LBG’s obligations under the Additional Tier 1 Securities (but shall be without prejudice to the rights of the Trustee and the Securityholders against the Approved Entity in connection with its undertaking to deliver Relevant Shares as provided in the definition of “New Conversion Condition” below). Such delivery shall be in consideration of the Approved Entity irrevocably undertaking, for the benefit of the Securityholders, to deliver the Relevant Shares to the Settlement Share Depository as aforesaid. For the avoidance of doubt, LBG may elect that a Settlement Shares Offer be made by the Settlement Share Depository in respect of the Relevant Shares.
 
The New Conversion Price shall be subject to adjustments as described under “—Anti-dilution Adjustment of the Conversion Price” below and in accordance with the Indenture, with such modifications as an Independent Financial Adviser shall determine to be appropriate, and LBG shall give notice to holders of the New Conversion Price and of any such modifications and amendments in accordance with “—Notice” below.
 
In the case of a Qualifying Relevant Event:
 
 
(1)
LBG shall, on or prior to the New Conversion Condition Effective Date, enter into such agreements and arrangements (which may include supplemental indentures to the Indenture and amendments and modifications to the terms and conditions of the Additional Tier 1 Securities and the Indenture) as may be required to ensure that, with effect from the New Conversion Condition Effective Date, the Additional Tier 1 Securities shall (following the occurrence of a Trigger Event) be convertible into, or exchangeable for, Relevant Shares of the Approved Entity mutatis mutandis
 
 
 
 
 
 
 
in accordance with, and subject to, the provisions under “—Automatic Conversion” above and in accordance with the Indenture (as each may be so supplemented or amended) at the New Conversion Price;
 
 
(2)
LBG shall, where the Conversion Date falls on or after the New Conversion Condition Effective Date, procure the issue and/or delivery of the relevant number of Relevant Shares mutatis mutandis in the manner provided under “—Automatic Conversion” above and in accordance with the Indenture (as each may be so supplemented or amended).
 
Within 10 days following the occurrence of a Relevant Event, LBG shall give notice thereof to the Securityholders (a “Relevant Event Notice”), with a copy to the Trustee, in accordance with “—Notice” below.
 
The Relevant Event Notice shall specify:
 
 
(1)
the identity of the Acquirer;
 
 
(2)
whether the Relevant Event is a Qualifying Relevant Event or a Non-Qualifying Relevant Event;
 
 
(3)
in the case of a Qualifying Relevant Event, the New Conversion Price; and
 
 
(4)
in the case of a Non-Qualifying Relevant Event, unless the Conversion Date shall have occurred prior to the date of the Non-Qualifying Relevant Event, outstanding Additional Tier 1 Securities shall not be subject to Automatic Conversion at any time notwithstanding that a Trigger Event may occur subsequently but that, instead, upon any subsequent Trigger Event, the principal amount of each Additional Tier 1 Security will automatically be written down to zero, the Additional Tier 1 Securities will be canceled, the Securityholders will be automatically deemed to have irrevocably waived their right to receive, and no longer have any rights against LBG with respect to, repayment of the aggregate principal amount of the Additional Tier 1 Securities so written down and all Accrued Interest and any other amounts payable on the Additional Tier 1 Securities will be canceled, irrespective of whether such amounts have become due and payable prior to the occurrence of the Trigger Event.
 
Acquirer” means the person which, following a Relevant Event, controls LBG.
 
Approved Entity” means a body corporate that is incorporated or established under the laws of an OECD member state and which, on the occurrence of the Relevant Event, has in issue Relevant Shares.
 
EEA Regulated Market” means a market as defined by Article 4.1(14) of Directive 2004/39/EC of the European Parliament and of the Council on markets on financial instruments.