Acquisition by Resolution Pt2

7th Jun 2006 07:05

Resolution PLC07 June 2006 Part 2 Appendix 3 Summaries of Acquisition, Distribution and related Agreements 1. Acquisition Agreement The Acquisition Abbey, Resolution Life Limited and Resolution entered into the AcquisitionAgreement on 7 June 2006. Under the terms of the Acquisition Agreement, Abbeyhas agreed to sell all of the issued share capital in Abbey's Life BusinessesCompanies which are directly held by Abbey (the "Shares") and, indirectly, theshares in the majority of the subsidiaries of those companies to Resolution LifeLimited at Completion. Assuming Completion occurs on 1 September 2006, the grosspurchase price for the Acquisition payable by Resolution Life Limited to Abbeyat Completion will be £3.6 billion. The gross purchase price will decrease at arate of five per cent. per annum if Completion occurs before 1 September 2006,and it will increase at a rate of five per cent. per annum if Completion occursafter 1 September 2006. The Acquisition is conditional upon the satisfaction of certain conditions, asfollows. These conditions are (i) the approval of the Acquisition and the RightsIssue by Resolution shareholders, (ii) the FSA giving written notice in termsreasonably satisfactory to the parties that it approves or has no objection toResolution Life Limited and each other relevant member of the Resolution Groupbecoming a controller of the UK regulated entities within Abbey's LifeBusinesses, or the period for the giving of a corresponding notice of objectionhaving elapsed without such notice having been given; (iii) either (a) the IrishFinancial Services Regulatory Authority (the "IFR") giving written notificationthat it does not intend to oppose the proposed acquisition of shares in ScottishMutual International, or (b) the applicable period having elapsed without theIFR having given written notice of its opposition to the proposed acquisition;(iv) the IFR giving written notification that it does not intend to oppose theproposed acquisition of the shares in Scottish Mutual International FundManagers Limited; (v) a decision satisfactory to Resolution Life Limited havingbeen issued by the Office of Fair Trading that the Acquisition will not bereferred to the Competition Commission and the time limit for any party toappeal that decision having expired without any such appeal having been lodged;(vi) the first to occur of (a) the Competition Authority of the Republic ofIreland informing the parties in writing (in form and substance satisfactory toRLL) that it has determined that the Acquisition may be effected, or (b) therequisite period having elapsed without that body having informed the parties inwriting of any determination which it has made under section 21(2) of theIreland Competition Act 2002; and (vii) the Underwriting Agreement not havingbeen terminated by the Underwriters by reason of the occurrence of certainspecified events constituting a market material adverse change which, in thejudgement of both of the Underwriters, acting reasonably, will make itimpracticable to proceed with the Rights Issue or will materially prejudicedealings in the nil paid rights or in the shares in Resolution in the secondarymarket. In addition, Abbey and Resolution Life Limited must finalise certainoperational and contractual provisions of the Retail Distribution Agreement andthe Intermediary Distribution Agreement referred to as the "DistributionDeliverables". The Acquisition Agreement refers to these conditions as "CoreConditions". A break fee will be payable by Resolution Life Limited to Abbey equal in valueto the lesser of £36 million and 1 per cent. of Resolution's marketcapitalisation at the time of payment. The break fee is payable only whereResolution Shareholders do not approve the Acquisition and the Rights Issue atthe Resolution EGM, and the Acquisition Agreement is not terminated prior to thedate of the Resolution EGM by reason of the non-fulfilment of any of the otherconditions to Completion. Subject to certain limited exceptions, the break feewill be Abbey's only remedy for Resolution's failure to secure the requisiteshareholder approval. Regulatory consents will also be required from the relevant insurance regulatorsin Hong Kong and the Isle of Man in respect of the Acquisition of Abbey NationalFinancial and Investment Services Isle of Man Limited ("ANFIS IoM") (in the caseof the Isle of Man), SMIH (in the case of Hong Kong) and SPILA (in the case ofboth the Isle of Man and Hong Kong). The Acquisition agreements refers to therequirement for these consents as the "Local Conditions". The sale and purchase of all of the Shares (other than the shares in SMIH andANFIS IoM) are conditional upon (i) the satisfaction or (where applicable) thewaiver of the Core Conditions and (ii) the satisfaction of the Local Conditionsin respect of SPILA, or the giving of a written notice by Abbey that the sharesin Scotprov Limited (which is the holding company of SPILA) are to betransferred to Abbey and that completion of the sale of the shares in ScotprovLimited will take place on a later date, to be determined. The sale andpurchase of the shares in each of SMIH and ANFIS IoM are conditional on (i) thefulfilment (or, where applicable, the waiver) of the Core Conditions and (ii)the satisfaction of the relevant Local Conditions in respect of each suchcompany or, in either case, the giving of a notice by Abbey or Resolution LifeLimited that completion of the sale and purchase of the shares in the relevantcompany is to be deferred. Where completion in respect of SPILA, SMIH or ANFISis deferred to a date after Completion, completion in respect of each suchcompany will take place on the fifth business day following the day on which thelast in time of the relevant Local Conditions is fulfilled and Resolution LifeLimited's obligation to pay the portion of the consideration relating to thatcompany will also be deferred to the date on which the local completion takesplace. The obligations of Resolution Life Limited and other Resolution Group companiesunder the Acquisition Agreement and other agreements relating to the Acquisition(including the Distribution Agreements, TSA and Relationship Deed), areguaranteed by Resolution. Gap between signing and Completion The Acquisition Agreement provides for an interregnum between signing andCompletion in order to allow for the fulfilment (or, where applicable, waiver)of the conditions described above. The Acquisition Agreement will automatically terminate where (i) anything occurswhich would prevent the Core Conditions described in paragraphs (i) to (vi)above, or any of the Local Conditions, from being fulfilled on or before 5 p.m.on 24 October 2006; (ii) any of the conditions described in paragraphs (i) to(iv) above are not fulfilled by Abbey or Resolution Life Limited, as the casemay be, by that time; (iii) any of the Local Conditions have not been eitherfulfilled by Abbey or Resolution Life Limited, as the case may be, or thesubject of a notice from Resolution Life Limited or Abbey National as describedabove; (iv) any of the Core Conditions described in paragraph (vi) above are notfulfilled or waived by Resolution Life Limited on or before that time; or (v)the Underwriting Agreement is terminated by the Underwriters as a result of anyof the events referred to in paragraphs (vii) of the Core Conditions asdescribed above (except where the Underwriting Agreement is terminated with theconsent, agreement or acquiescence of Resolution) and the non-fulfilment of thatcondition has not been waived by Resolution Life Limited. If the DistributionDeliverables have not been agreed by 24 October 2006, Completion may be deferreduntil an extended long-stop date of 31 December 2006. Warranties and limitation on liability Abbey has given certain warranties to Resolution Life Limited which are usualfor a transaction of this nature. There is also an overall cap on the liabilityof Abbey under the Acquisition Agreement (except in relation to certainindemnities and covenants) and the Tax Covenant of £2,200,000,000. In addition,Abbey has no liability for breach of warranty or any claim under the TaxCovenant unless (i) an individual claim (or series of related claims) amounts to£2,000,000 (or £500,000 in respect of claims under the Tax Covenant) or more.The value of all substantiated claims under the warranties must exceed£36,000,000 in aggregate before Abbey will be liable for any such claims, inwhich case Resolution Life Limited will only be entitled to the excess. Inorder to make a warranty claim (other than under the tax warranties), ResolutionLife Limited must provide written details of the claim to Abbey by 31 December2007. Claims under tax warranties or the Tax Covenant must be notified to Abbeywithin 6 months after the expiry of the statutory period during which anassessment of that liability may be issued by the relevant tax authority, or ifthere is no such period, or if such period is longer than 7 years, on or before31 December 2012. Abbey will not be liable for claims under the warranties orthe Tax Covenant if legal proceedings are not brought within 9 months ofResolution Life Limited notifying a claim to Abbey, subject to certainexceptions. Indemnities The Acquisition Agreement also contains certain indemnities given by Abbey forthe benefit of Resolution Life Limited. These include (i) an indemnity inrespect of specific liabilities of Scottish Mutual International in relation tocertain identified existing litigation claims and a limited indemnity for futureclaims arising from the same or substantially the same facts and circumstancesas those existing litigation claims and (ii) a partial indemnity in respect ofexisting hedging arrangements. Operation of Abbey's Life Businesses' business prior to Completion The Acquisition Agreement contains certain undertakings given by Abbey toResolution Life Limited in relation to the conduct of the business of Abbey'sLife Businesses during the period up to Completion. This reflects the fact thatResolution Life Limited has a significant interest in how Abbey's LifeBusinesses are managed by Abbey until Completion. However, at the same time,the undertakings given have been drafted in such a way as to retain a certaindegree of flexibility for the management of Abbey's Life Businesses to conductits business in the ordinary and usual course, to comply with law or regulation,and to comply with certain pre-existing obligations, amongst other things. Use of the name "Abbey" The names 'Abbey' and 'Abbey National' (and associated logos) are not being soldalong with Abbey's Life Businesses. Subject to the Brand Licence, the onlyrights that Abbey's Life Businesses will have to continue to use these nameswill be: • a one year run-off period for existing sales literature, stationery,websites and signage; and • a grace period of up to three months for the relevant Abbey's LifeBusinesses Companies to pass the required resolutions to change their corporatenames. The Brand Licence permits Resolution to use the "Abbey" and "ABBEY & FLAME LOGO"trademarks in relation to the products distributed under the Retail DistributionAgreement and Retail Banking Distribution Agreement summarised below. Employment As well as employees of Abbey's Life Businesses who will transfer as a result ofthe Acquisition of Abbey's Life Businesses Companies, certain employees of theAbbey Group who work in the business carried on by Abbey's Life Businesses willtransfer to RMS under the Transfer of Undertakings (Protection of Employment)Regulations 2006. Pensions At Completion, Abbey's Life Businesses Companies which participate in Abbeypension schemes in the United Kingdom will cease to participate in thoseschemes. Steps will also be taken prior to Completion to ensure that none ofthe Abbey's Life Businesses Companies is the UK sponsor or operate any definedbenefit pension schemes. Abbey has agreed to reimburse Resolution Life Limitedto the extent that it becomes liable to make any payment to or in respect ofAbbey's Life Businesses Companies' participation in Abbey pension schemes on orafter Completion (except for ongoing contributions payable in the ordinarycourse for service prior to Completion). This will include any payment which anyAbbey's Life Businesses Company is required to make pursuant to Section 75 ofthe Pensions Act 1995 as a result of its cessation of participation in any ofthe Abbey pension schemes and any payments any Abbey Life Businesses Company isrequired to make in respect of any Abbey pension schemes pursuant to anysanction imposed by the Pensions Regulator. In relation to any pension scheme which is sponsored or operated by an Abbey'sLife Businesses Company outside the United Kingdom, responsibility for theseschemes will pass to Resolution Life Limited on Completion, except that incertain circumstances Abbey will remain responsible for certain pension schemesin Ireland and will reimburse Resolution Life Limited in respect of paymentswhich Resolution Life Limited or the Abbey's Life Businesses Companies may beliable to make in respect of these schemes following Completion. Property 33 of the 37 properties leased by Abbey's Life Businesses do not relate to thebusiness being sold and will be assigned back to companies in the Abbey Grouponce consents are obtained from the relevant landlords. Abbey will indemnifythe Enlarged Group in respect of any liabilities from holding an interest inthose properties. Demutualisation schemes On Completion, Resolution Life Limited will, with certain limited exceptions,assume Abbey's obligations in respect of the demutualisation court schemesrelating to Scottish Mutual Assurance and Scottish Provident Limitedrespectively. Resolution Life Limited is obliged under the Acquisition Agreementto take steps to procure the amendment of the schemes to remove the obligationsand liabilities of any Abbey Group company (other than any companies formingpart of Abbey's Life Businesses) and must do so within eighteen months ofCompletion. To the extent such obligations cannot be removed without replacingor replicating the same, Resolution Life Limited has agreed to use its bestefforts to agree and put in place provisions in amended schemes which arebinding on Resolution Life Limited or another member of the Enlarged Group andwhich replicate and/or replace the Abbey Group's existing obligations. Other separation issues As is usual in a transaction of this nature, the Acquisition Agreement alsoprovides for the settlement of inter-company balances between Abbey's LifeBusinesses and companies within the remainder of the Abbey Group, the release ofguarantees given by Abbey's Life Businesses in respect of the obligations ofcompanies within the remainder of the Abbey Group and for the transfer ofassets, contracts and intellectual property after Completion under conventional"wrong pockets" arrangements. 2. Relationship Deed Pursuant to the terms of the Acquisition Agreement, Resolution Life Limited,Abbey and ANL will, at Completion, enter into a Relationship Deed concerning theon-going relationship between the Resolution Group and Abbey relating to theservicing and administration of (i) existing customers who prior to Completionacquired products manufactured by ANL which have been sold by Abbey, and (ii)customers who after Completion acquire products manufactured by members of theResolution Group through the Abbey retail sales network (distributed by Abbeypursuant to the Retail Distribution Agreement) (together, "Customers"). Under the terms of the Relationship Deed, Resolution Life Limited agrees toensure that the general administration, servicing and treatment of customers isto at least the same level and to the same degree of service and treatmentprovided by Abbey to Customers in the six months immediately prior to the dateof the agreement and agrees that it shall meet certain key service levels, suchkey service levels to be agreed between the parties prior to Completion. Abbey shall be given prior copies of any mass communications, documentation orother material to be sent or made available to Customers by any member of theResolution Group as part of the general administration and servicing ofCustomers and Resolution shall take into account any reasonable comments madethereon prior to distributing the same. Resolution will be responsible forensuring that any communications, documentation or other material sent toCustomers complies with all relevant regulatory requirements and is brandedexclusively with the Abbey trade marks, save as necessary to comply withregulatory requirements. Abbey undertakes to indemnify Resolution Life Limited on an after-tax basis fromand against all losses or claims ("Losses") which are suffered by or broughtagainst, ANL after Completion arising as a result of any advice-relatedmis-selling by Abbey or Abbey employees before Completion through Abbey retailchannels ("Abbey Past Mis-selling"). Abbey will not be liable under thisindemnity to the extent that the Losses arise: (i) from statements generated bymembers of the Resolution Group after Completion; (ii) from any provision of,statement in or omission from, any product documentation (including salesadvisory documentation or policy administration documentation); (iii) from anynegligent act or breach of any regulatory requirement by any member ofResolution Group; or (iv) from any breach by Resolution Life Limited of itsobligations under the Relationship Deed. Abbey further undertakes to indemnify Resolution Life Limited on an after-taxbasis from and against all Losses which are suffered by or brought against anymember of the Resolution Group which makes a product available to Abbey underthe Retail Distribution Agreement arising as a result of advice-relatedmis-selling by Abbey or Abbey employees after Completion through Abbey retailchannels ("Abbey Future Mis-selling"). Abbey will not be liable under thisindemnity to the extent that the Losses arise: (i) from statements generated bymembers of the Resolution Group after Completion; (ii) from any provision of,statement in or omission from, any product discsloure and other salesdocumentation made available by Resolution to Abbey in accordance with theRetail Distribution Agreement (including sales advisory documentation or policyadministration documentation ("Purchaser Sales Documentation"); (iii) as aresult of advice or statements by Abbey or Abbey employees given or made inaccordance with any training materials or instructions provided by any member ofthe Resolution Group; (iv) from any negligent act or breach of any regulatoryrequirement by any member of the Resolution Group; or (v) from any breach byResolution Life Limited of its obligations under the Relationship Deed or theRetail Distribution Agreement. Resolution Life Limited undertakes to indemnify Abbey on an after-tax basis fromand against any Losses which are suffered by, incurred, made or brought againstAbbey or any member of the Abbey Group arising by reason of or in connectionwith any sales or selling practices (including mis-selling) in relation to theproducts provided by ANL and sold by Abbey prior to Completion and also inrelation to the products provided by the Resolution Group which are sold throughthe Abbey Retail Sales Network to the extent that such Losses arise (i) fromstatements generated by members of the Resolution Group; (ii) from any provisionof, statement in or omission from, any Purchaser Sales Documentation; (iii) as aresult of advice or statements by Abbey or Abbey employees given or made inaccordance any training materials or instructions provided by any member ofResolution Group; (iv) any negligent act or breach of any regulatory requirementby any member of Resolution Group; or (v) breach by Resolution of itsobligations under the Relationship Deed or the Retail Distribution Agreement. Resolution agrees to provide, at Resolution's cost, certain administrationservices and information to Abbey in order to enable Abbey to handle customercomplaints concerning Abbey Mis-selling. Resolution also agrees to provide, atResolution's cost, certain other services and information to Abbey, includingspecified management information. All intellectual property rights in the customer data collected by the partiesin connection with a customer shall be owned by Abbey but may be used byResolution or a member of the Resolution Group to the extent necessary to fulfilResolution's obligations under the Relationship Deed or the Retail DistributionAgreement or as required by any regulatory requirement. From termination of theRelationship Deed, Abbey shall procure the grant to the Resolution Group of anon-exclusive, perpetual, royalty-free licence (with the right to sub-licence)to use such intellectual property rights for any purpose. Abbey and ResolutionLife Limited agree to continue to provide the Customer data feeds (in bothdirections) which were provided immediately prior to Completion for the purposesof the administration and servicing of Customers, during the term of theRelationship Deed and for a period of three years subsequent to termination. The agreement prohibits Resolution and ANL from assigning all or any part of thebenefit of, or their respective rights and/or obligations under the RelationshipDeed to any person outside of the Resolution Group. However, Resolution mayoutsource the performance of some or all of its obligations to members of theResolution Group or to third parties, save that it may not outsource to alocation outside of the United Kingdom any customer facing obligations withoutthe prior consent of Abbey nor may it outsource any of its obligations to anyperson who in the opinion of Abbey National, acting in good faith, is a retailbanking competitor of Abbey National. The Relationship Deed will terminate on expiry of the Retail Distribution Term(which shall end on the last day on which Resolution Life Limited makes productsavailable to Abbey following termination of the Retail Distribution Agreementwhich shall be no later than 12 months following termination of that agreement). Certain provisions of the Relationship Deed, including those with regards tomis-selling, as described above, survive termination of the Relationship Deed. 3. Retail Distribution Agreement On 7 June 2006 Abbey and Resolution Life Limited entered into the RetailDistribution Agreement under which Resolution agrees, from Completion, toappoint Abbey, in an intermediary capacity, as distributor of certain productsthrough its network of Abbey branded retail banking branches and through itsinternet, telesales and direct mail distribution retail sales channels ("AbbeyRetail Sales Network"). The products made available by Resolution will continueto be distributed by Abbey under the Abbey brand. The products for distribution via the Abbey Retail Sales Network are thoseproducts currently made available to customers by Abbey's Life Businesses andwhich fall into the following categories: (a) any protection product with a lump sum payable on death or a lump sum orincome payable on contracting a critical illness, excluding payment protectioninsurance; (b) any individual personal stakeholder pension excluding any self-investedpersonal pension plan; or (c) any single premium, life-wrapped bond. This range may be added to over the term of the Retail Distribution Agreementand a process for bringing additional products in-scope is contained in theagreement. Resolution Life Limited must procure that the products within thecategories listed above as at the date of Completion continue to be madeavailable for distribution by Abbey through its Retail Sales Channels. Theagreement contains terms regarding the exclusivity of the arrangements betweenthe parties. Commission will be payable to Abbey on the sale or (for certain products)renewal of an in-scope product sold through the Abbey Retail Sales Network,subject to clawback in certain circumstances. Customer pricing for each productwill be reviewed jointly on an annual basis with the aim of ensuring that pricepositioning for protection products remains similar to the competitivepositioning set at the outset. Commission may also be reviewed in certaincircumstances. The parties will form a Retail Distribution Committee, which shall beresponsible for the overall management and development of the arrangements. TheParties intend to use the Retail Distribution Committee for monitoring andreviewing a range of matters, including changes to product pricing and terms andconditions and the introduction of new products. There is an escalationprocedure for issues which are unable to be resolved by the Retail DistributionCommittee. The parties must agree product documentation before Completion, and arrange forthe distribution of this documentation to the Abbey Retail Sales Network.Resolution Life Limited will be responsible for ensuring that all productdocumentation is compliant with applicable regulations. Resolution may outsource the performance of some or all of its obligations tomembers of the Resolution Group or to third parties, save that it may notoutsource to a location outside of the United Kingdom any customer facingobligations or outsource any of its obligations to a retail banking competitorof Abbey without the prior consent of Abbey. The Retail Distribution Agreement has a continuing term, terminable by eitherparty upon the tenth anniversary of the date of the agreement, subject toearlier termination in certain customary circumstances. Abbey may also terminatethe agreement after five years if following a review of the terms on whichproducts (other than stakeholder pensions) are made available to Abbey, theterms offered by Resolution are found to be uncompetitive. Resolution may alsoterminate the Agreement at the end of each calendar year if sales fall below afixed minimum volume threshold. 4. Intermediary Distribution Agreement On 7 June 2006 Abbey and Resolution Life Limited entered into the IntermediaryDistribution Agreement, under which Resolution Life Limited agrees, fromCompletion, to appoint Abbey as its agent to facilitate the distribution ofcertain insurance products through the Abbey Intermediaries. Abbey will use itsreasonable endeavours to promote the in-scope products to the AbbeyIntermediaries, provided they remain competitive products. The AbbeyIntermediaries are those intermediaries (i.e. brokers of financial products)with whom one of the companies in Abbey's Life Businesses currently has adistribution arrangement as well as, going forward, intermediaries with whom newrelationships are developed by Abbey under this Agreement. The products within or covering the scope of the Intermediary DistributionAgreement are those products provided by Scottish Provident, Scottish MutualAssurance or Scottish Provident International Life Assurance immediately priorto Completion and falling within the following product categories: (A) Term life assurance (level and decreasing) (B) Accelerated critical illness insurance (level and decreasing) (C) Standalone critical illness insurance (level and decreasing) (D) Income protection insurance (E) Pension term assurance (F) Whole of life assurance; and (G) The offshore bond product manufactured by Scottish ProvidentInternational Life Assurance and known as the "SPILA Select Offshore Bond" This range may be added to over the term of the Intermediary DistributionAgreement and a process for bringing additional products in-scope is containedin the agreement. Resolution Life Limited shall procure that the in-scope products that Abbey ismanufacturing as at the date of the agreement continue to be made available fordistribution through the intermediaries. The agreement contains terms regardingthe exclusivity of the arrangements between the parties. As consideration for Abbey promoting the in-scope products to theintermediaries, Resolution will pay a fee to Abbey, based upon the volume ofproducts sold by the Abbey Intermediaries. Resolution Life Limited will controlthe level of commission payable to intermediaries, product pricing and terms andconditions, subject to the parties first having discussed and considered suchchanges. The parties must agree product documentation before Completion, and arrange forthe distribution of this to intermediaries. Resolution Life Limited will beresponsible for ensuring that all product documentation is compliant withapplicable regulations. The parties will form an Intermediary Distribution Committee, which shall beresponsible for the overall management and development of the arrangements.There is an escalation procedure for issues which are unable to be resolved bythe Intermediary Distribution Committee. Resolution may outsource the performance of some or all of its obligations tomembers of the Resolution Group or to third parties, save that it may notoutsource to a location outside of the United Kingdom any customer facingobligations without the prior consent of Abbey. The Intermediary Distribution Agreement has a continuing term, terminable byeither party upon the tenth anniversary of the date of the Agreement and subjectto earlier termination in certain circumstances. Resolution may terminate theAgreement at the end of each calendar year if sales fall below a fixed minimumvolume threshold, so long as the products continue to be provided on acompetitive basis. 5. Retail Banking Distribution Agreement On 7 June 2006 Abbey and Resolution entered into the Retail Banking DistributionAgreement. This Agreement provides a framework pursuant to which Resolutionintends to grant Abbey access to a database of Resolution customers for thepurposes of introducing Abbey retail banking products to Resolution customers.Marketing of the products is intended to be by direct mail and also by referralsfrom Resolution customer service operators. It is intended that Resolution will receive a commission on each retail bankingproduct sold as a result of these campaigns and referrals. The specific retail banking products to be offered, commission rates, and otherterms in connection with the offers of products will be determined on acase-by-case basis by the parties following the Agreement becoming effective. The parties will form a Retail Banking Distribution Committee, which shall beresponsible for the overall management and development of the arrangements.There is an escalation procedure for issues which are unable to be resolved bythe Intermediary Distribution Committee. The agreement makes provision on agreed terms for the appointment of Resolutioncompanies as introducer appointed representatives, if necessary to comply withregulatory requirements. Such appointment would contain indemnities usual for anagreement of this nature. The agreement contains terms regarding the exclusivity of the arrangements. TheRetail Banking Distribution Agreement has a continuing term, terminable byeither party upon the fifth anniversary of the date of the agreement and subjectto earlier termination in certain circumstances. 6. Transitional Services Agreement On 7 June 2006 Abbey and Resolution Management Services Limited entered into theTransitional Services Agreement, under the terms of which each of Abbey andResolution Management Services Limited agrees to provide to the other certaintransitional services including, but not limited to, information technology,finance/treasury, human resources, property and operational services. Theservices will be provided for a term which will differ from service to serviceand each party will use their reasonable endeavours to provide the services to astandard equivalent to that on which such services were provided in the 6 monthperiod prior to Completion. The parties shall agree a written plan to migrate from the transitional servicesprovided by the other within 20 days from Completion in respect of theInvestment Operations Service and within 45 days from Completion in respect ofall other services and each party will be obliged to comply with its obligationsunder that plan. The liability of each party under the TSA is limited to the aggregate amount ofcharges payable to it (in respect of services with a finite term) by the otherparty during the term of the agreement. The TSA continues until the last dateupon which any service is provided under it; however, either party may terminatethe TSA if the other party suffers an insolvency event or is in material breachof the terms of the agreement (and such material breach remains unremedied for30 days). Either party also has the right to terminate a service prior to theexpiry of the agreed service term in respect of that service, provided that (i)the terminating party gives the other the specified period of prior notice; and(ii) the terminating party pays any third party costs incurred by the otherparty. A further agreement between Resolution Life Limited, Abbey National Financialand Investment Services and certain subsidiaries of ANFIS governs the novationand amendment of certain contracts to which Abbey's Life Businesses Companiesare party and the transfer of certain assets owned by Abbey's Life Businessesback to Abbey following Completion. 7. Brand licence agreement At Completion Abbey, Santander and Resolution Life Limited will enter into abrand licence agreement (the "Brand Licence Agreement"). Under the terms of theBrand Licence Agreement Abbey and Santander grant to Resolution Life Limited aroyalty-free licence for Resolution and members of its group to use the "Abbey"and the "Abbey & Flame" logo marks for the purpose of performing itsobligations under the Retail Distribution Agreement and under the RelationshipDeed and under the Retail Banking Distribution Agreement. The licence will continue in force until the expiry of the Retail DistributionTerm (in respect of retail distribution products) and the expiry of the RetailBanking Distribution Term (in respect of retail banking distribution products)(which shall end on the last day on which Abbey makes products available toResolution following termination). 8. ANAM arrangements - Cash management agreement On Completion, Resolution Asset Management and Abbey National Treasury Services("ANTS") will enter into the cash management agreement ("Cash ManagementAgreement"), under the terms of which RAM will appoint ANTS as cash manager forthe majority of the cash within Abbey's Life Businesses, although RAM will havethe right to retain an amount of Abbey's Life Businesses' cash outside thisarrangement to cover normal day-to-day expenses incurred in the administrationof its life funds and a number of specified funds will be excluded. Resolutionand Abbey plan to discuss the possibility of ANTS managing the cash held by theother Resolution Group companies and the possible management of these excludedfunds. RAM will give ANTS the full mandate to manage the cash and to invest in themoney and securities markets. A custodian (or custodians) will also beappointed to hold securities purchased on behalf of RAM and, subject toinvestment guidelines agreed with RAM, ANTS will direct the custodian when tosell the securities deposited with it. The term of the Cash Management Agreement will be ten years, although eitherparty will have the option to terminate earlier in certain circumstances, whichinclude the termination of the Distribution Agreements. 9. ANAM arrangements - Fund separation agreement At Completion a fund separation agreement ("Fund Separation Agreement") will beentered into between Abbey, ANAM, Resolution, RAM, Resolution InvestmentServices Limited ("RIS") and Resolution Fund Managers Limited ("RFM"). Theinvestment management arrangements currently in place in relation to Abbey'sLife Businesses will be amended to reflect the Acquisition. Accordingly the parties to the Fund Separation Agreement shall, and shallprocure that any relevant members of their respective groups shall, take suchactions and execute such documents as are necessary to ensure that as soon aspossible after Completion: (i) ANAM and Inscape Investments Limited ("Inscape") shall resignas investment advisers to the Abbey's Life Businesses Companies; (ii) SMIM shall continue to be the manager of the SM Unit Trusts butRIS shall replace ANAM as the discretionary portfolio manager of the SM UnitTrusts; (iii) at ANAM's discretion, the units of the members of the Abbey Group inthe SM Unit Trusts shall either continue to be invested in the SM Unit Trusts orshall be redeemed; (iv) at RAM's discretion, the units of Abbey's Life Businesses in the AbbeyNational Unit Trusts shall either continue to be invested in the Abbey NationalUnit Trusts or shall be redeemed; (v) at RAM's discretion, the shares of Abbey's Life Businesses in AbbeyNational Multi Manager Equity Fund, Abbey National Multi Manager Bond Fund,Abbey National Multi Manager OEIC and Inscape Investment Fund (the "ExcludedOEICs") shall either continue to be invested in the Excluded OEICs or shall beredeemed; (vi) ANAM shall retire as the authorised corporate director of, and InscapeInvestments Limited ("Inscape") shall resign as investment adviser to, AbbeyEquity Fund and Abbey Bond Fund (the "Included OEICs") and ANAM and Inscapeshall be replaced in such capacities by RFM; (vii) at ANAM's discretion, the shares of the members of the Abbey Group inthe Included OEICs shall either continue to be invested in such Included OEICsor shall be redeemed; (viii) ANAM shall terminate all sub-advisory agreements under whichsub-advisers have been appointed in relation to the SM Unit Trusts, the IncludedOEICs and SMIIF and use reasonable efforts to assist RAM and RFM in negotiatingequivalent replacement agreements between RFM (or other regulated members of theResolution Group) and those sub-advisers. To the extent that any other third party is required to take any action theparties to the Fund Separation Agreement will use their reasonable efforts toprocure that such third party does so. 10. Tax covenant Under the Acquisition Agreement and a separate tax covenant to be entered intoat Completion, Abbey gives certain tax warranties and indemnities to ResolutionLife Limited from Completion. Broadly, the tax indemnities cover taxliabilities arising up to the end of 2005, to the extent that they exceed thecurrent tax provision in the 2005 accounts, together with tax liabilities onnon-ordinary course transactions in 2006 up to the Completion of the AcquisitionAgreement. The calculation of the embedded value as at 31 December 2005 of theinsurance companies to be sold under the Acquisition Agreement includes certainestimates as to the amount of tax assets which are available to be carriedforward after that date, and there is a provision for Abbey to make a balancingpayment, to the extent that the embedded value calculation would have been lowerif the actual figures for the tax assets which are ultimately agreed with thetax authorities in respect of the 2005 tax returns had been substituted for theestimated figures. The financial limitations in the Acquisition Agreement applyequally to claims under the tax warranties and tax indemnities (except thatthe Tax Covenant has a single claim limitation of £500,000 and is not subject toan aggregate threshold for claims) and such claims must be notified to Abbey by31 December 2012. 11. Disclosure letter On 7 June 2006 Abbey also delivered to Resolution a disclosure letter inrelation to the Acquisition Agreement which is customary for a transaction ofthis nature. The purpose of the disclosure letter is to operate so as to limitthe scope of the warranties given in the Acquisition Agreement. 12. Glasgow Sub-Lease Terms At Completion of the Acquisition Agreement, Abbey will enter into an agreementto grant to Resolution or another member of the Resolution Group a sub-lease offloors 2, 3 and 4 of the property at 301 St. Vincent St, Glasgow G2 5NB, knownas Abbey House ("ANH") as deemed appropriate by Abbey and RMS, for a termexpiring on 22 December, 2020 (the "Glasgow Sub-Lease"). The freehold of ANH isowned by Mapeley Columbus Limited and the term of the lease expires on 31December, 2020. The rent will be pro rata per square foot based on the current rent of£5,386,284 per annum exclusive of VAT, service charge, insurance premiums andall other outgoings. Rent will be increased by 1.49 per cent. in June andDecember each year. The only permitted use of the property will be as offices. No structural alterations will be allowed. There will be fairly standardobligations on the tenant regarding repairs and decoration. Abbey will beresponsible for maintenance of the exterior, the structure and the common partsand the tenant will pay a service charge, based on floor area, of Abbey's costsrelated to the management of ANH. The tenant will also pay 40 per cent. of theinitial set up costs of providing a security system suitable for sharedoccupation. The tenant will pay 40 per cent. of the agreed costs and expenses of enablingshared occupation of the building, separating the part of the building to beretained by Abbey, and ensuring that each part can be used separately asoffices, including any additional partition walls, piping and cabling. Assignment of the whole of the area sub-let will be possible with the consent ofAbbey (not to be unreasonably withheld). Abbey will be entitled to withholdconsent if the financial standing of the replacement guarantor is less than thatof Resolution. The tenant will be able to underlet the whole or part withAbbey's consent (not to be unreasonably withheld) and subject to certainconditions. Resolution will guarantee the obligations of the tenant under the GlasgowSub-Lease. Appendix 4 Summaries of Underwriting and Sponsorship Agreement and Bridge Facility and NewFacilities Agreement 1. The Underwriting and Sponsorship Agreement Subject to the terms and conditions contained in the Underwriting andSponsorship Agreement dated 7 June 2006 as summarised below: - Citigroup Global Markets Limited and Goldman Sachs International(together the "Sponsors") have jointly agreed with the Company to act assponsors in relation to the Applications; and - Citigroup Global Markets U.K. Equity Limited and Goldman SachsInternational (together the "Underwriters") have agreed severally with theCompany, to use reasonable endeavours to procure subscribers for, or failingwhich, themselves as principals subscribe for, New Shares not taken up under theRights Issue, in each case at the Issue Price. It is a condition of the Underwriting and Sponsorship Agreement that: (a) the Prospectus be approved by the UKLA as required by the Listing Rulesbefore 12:00 noon on the publication date and is published no later than 30 June2006: and (b) the EGM being convened and held not later than 31 July 2006 and theResolutions 1 and 3 being passed at the EGM. In addition, the Underwriters' obligations are conditional on the fulfilment ofcertain matters before 5.00 p.m. on the date on which the resolutions are passedor, if earlier, the time at which the PALs are posted, including: (a) there being no material breach of the warranties setout in the Underwriting and Sponsorship Agreement or there being no change ofcircumstances such that if repeated immediately prior to the despatch of thePALs by reference to the facts or circumstances then existing certain of thewarranties would be breached in any material respect; (b) each of the Acquisition Documents and the FacilitiesAgreements being in full force and effect and not having been terminated beforethe PALS are despatched in connection with the Rights Issue; (c) no material breach having occurred in relation tothe Acquisition Documents by any party or in relation to the FacilitiesAgreements by any Resolution Group company which permits any other party torescind or terminate any such document; (d) the FSA not having stated in writing that it will notgrant, or is unlikely to grant, the approval sought by the FSA Application on orprior to the despatch of the PALs; (e) the Company complying in all material respects withits obligations under the Underwriting and Sponsorship Agreement or otherwiserelating to the Rights Issue; (f) the UKLA and the London Stock Exchange approvingAdmission, subject only to the passing of the Resolutions, the allotment of theNew Shares, the credit of Nil Paid Rights in uncertificated form, the despatchof the PALS and the announcement of Admission by the UKLA and the London StockExchange on or before 8.00 a.m. on 18 July 2006 (or such later time and/or dateas the Underwriters and the Company may agree (not being later than 1 August2006)); and (g) the working capital report being issued. The Underwriters (acting jointly but not individually) are entitled to waivefulfilment (in whole or in part) of all or any of the conditions set out in theUnderwriting and Sponsorship Agreement. In addition, the Underwriting and Sponsorship Agreement may be terminated by theUnderwriters before 5.00 p.m. on the date on which Resolutions are passed or, ifearlier, the time at which the PALs are despatched: (i) upon the occurrence of any specified event which is material andadverse in the context of the Enlarged Group and either: (a) is material and adverse in the context of the RightsIssue and the underwriting of the New Shares so as to make it impracticable toproceed with the Rights Issue; or (b) the effect of which will be materially to prejudicedealings in the Nil Paid Rights or in the Ordinary Shares in the secondarymarket; or (ii) upon the occurrence of any specified event affecting trading insecurities generally (or in relation to the securities of the Companyspecifically) on the London Stock Exchange or certain other securities markets,affecting banking or settlement activities in London, the European Union or NewYork, which constitutes an outbreak of war or act of terrorism involving or thedeclaration of a state of emergency by the United Kingdom, another member of theEuropean Union or the USA or which constitutes a calamity or crisis materiallyand adversely affecting the financial, political or economic conditions orcurrency exchange rates or controls in any such country if the effect of anysuch event, in the judgment of both of the Underwriters, acting reasonably, willmake it impracticable to proceed with the Rights Issue or will materiallyprejudice dealings in the Nil Paid Rights or in the Ordinary Shares in thesecondary market. In consideration of the Sponsors' and the Underwriters' services under theUnderwriting and Sponsorship Agreement, the Company has agreed to pay a fee tothe Underwriters of between 2.00 per cent. (if the Issue Price is 440 pence perNew Share) and 2.25 per cent. (if the Issue Price is 520 pence per New Share)based on agreed scale of the Gross Proceeds (as defined in the Underwriting andSponsorship Agreement) to be raised by the Rights Issue. Of such fee, 0.50 percent. of the Gross Proceeds shall become payable immediately following executionof the Underwriting and Sponsorship Agreement and the balance shall becomepayable on the date on which the liability (if any) of the Underwriters inrespect of New Shares not taken up is determined. If the Closing Date occursafter the date being 57 days from 7 June 2006, the Company will pay anadditional fee of 0.125 per cent. of the Gross Proceeds for each additional weekor part thereof. The Underwriters will pay any sub-underwriting fees to anysub-underwriters out of the fees referred to above. The Company shall pay all other expenses of and incidental to the Rights Issueand the Underwriting and Sponsorship Agreement, including without limitationthe fee to the receiving bank, the registrar's fee, London Stock Exchange orUKLA fee, fees to brokers, printing, roadshow and advertising and distributioncosts, the Company's legal, accountancy and other professional charges and theSponsors' and Underwriters' agreed legal and other expenses incurred inconnection with the Rights Issue including any stamp duty, stamp duty reservetax or other duty or tax paid or payable by the Underwriters. The Company has given the Underwriters certain warranties which are usual for anagreement of this nature, including those in connection with preparation of theaccounts, compliance with laws and regulations, litigation, indebtedness and theaccuracy of the press announcements and verification materials in connectionwith the Rights Issue and the Prospectus. The Company has also given anindemnity in favour of the Sponsors and the Underwriters (and persons connectedwith them) in respect of any claim arising out of, based upon, or in connectionwith, the Rights Issue or any other matters contemplated by the Underwriting andSponsorship Agreement. 2. The Facilities Agreements 2.1 Bridge Facility Agreement On 7 June 2006, Resolution executed a bridge facility agreement (the "BridgeFacility Agreement") consisting of an up to £1,750 million term loan facility(the "Bridge Facility"). This will initially be provided by Citigroup GlobalMarkets Limited and Goldman Sachs International as mandated lead arrangers, whomay subsequently syndicate the Bridge Facility to other financial institutions,in consultation with Resolution. The Bridge Facility has a final maturity date of 31 December 2006 and isrepayable in full on this date unless extended by Resolution under the terms ofthe Bridge Facility Agreement. The Bridge Facility contains conditions precedent to drawdown, including thatgross Rights Issue proceeds of not less than £1,500 million are received byResolution, and representations, warranties, and undertakings in favour of thelenders, including certain financial covenants and events of default which areusual for an agreement of this nature. Interest on the Bridge Facility is calculated at a margin of 0.40 per cent. perannum above LIBOR plus reserve asset costs (if any). Such interest is payableat the end of each applicable interest period (as determined in accordance withthe terms of the Bridge Facility Agreement). Certain fees, commissions, costs and expenses may also be payable in respect ofthe Bridge Facility. 2.2 New Facilities Agreement On 7 June 2006, Resolution executed a new facilities agreement (the "NewFacilities Agreement") consisting of a £350 million term loan facility (the"Term Facility") and a £200 million revolving credit facility (together, the"New Facilities"). This will initially be provided by Citigroup Global MarketsLimited and Goldman Sachs International as mandated lead arrangers, who maysubsequently syndicate the New Facilities to other financial institutions, inconsultation with Resolution. The final maturity date for the New Facilities is 15 April 2009 (the "FinalMaturity Date"). There is an option to extend the final maturity date of therevolving credit facility to 15 April 2011 under the terms of the New FacilitiesAgreement. The Term Facility is repayable in instalments of £115 millionannually, beginning on 15 April 2007 with the balance of £120 million payable onthe final maturity date. The revolving credit facility is repayable in full onthe Final Maturity Date as may be extended. The New Facilities Agreement contains conditions precedent to drawdown,including that gross Rights Issue proceeds of not less than £1,500 million arereceived by Resolution, and representations, warranties, and undertakings infavour of the lenders including certain financial covenants and events ofdefault which are usual for an agreement of this nature. Interest on the New Facilities is calculated at a margin varying from 0.30 percent. to 0.70 per cent. per annum above LIBOR plus reserve asset costs (if any). Such interest is payable at the end of each applicable interest period (asdetermined in accordance with the terms of the New Facilities Agreement). Certain fees, commissions, costs and expenses may also be payable in respect ofthe New Facilities. Appendix 5 Pro forma IFRS financial information on the Enlarged Group The unaudited pro forma information set out below has been prepared toillustrate the impact of the acquisition of Abbey's Life Businesses on the netassets on an IFRS basis of the Resolution plc group. The pro forma informationhas been prepared for illustrative purposes only, and because of its natureaddresses a hypothetical situation and therefore does not represent the EnlargedGroup's financial position or results. The pro forma information is based on the net assets of Resolution plc and theAbbey's Life Businesses at 31 December 2005 and has been prepared on the basisthat the acquisition took place on that date. Under IFRS 3 Resolution plc willbe required to fair value the assets, liabilities and contingent liabilities ofAbbey's Life Businesses at the date of acquisition and to reflect the differencebetween their fair value and that of the consideration paid and acquisitionexpenses as goodwill. The fair value exercise may result in different valuesbeing attributed to the net assets acquired than those shown below. Resolution plc at Adjustments Adjustments (3) Total 31 December 2005 Abbey's Life (1) Businesses at 31 December 2005 (2) £m £m £m £m AssetsPension scheme surplus 93 - 93Property, plant and equipment 56 12 68Intangible assets 1,389 1,026 786 3,201Investment property 2,356 - 2,356Financial assets 32,511 22,516 55,027Insurance assets 3,732 1,689 5,421Cash and cash equivalents 1,745 4,056 30 5,831Current and deferred tax 8 4 12Other assets 493 15 508 Total assets 42,383 29,318 816 72,517 LiabilitiesPension scheme deficit 5 137 (137) 5Insurance contracts 31,227 19,984 (26) 51,185Subordinated liabilities - 324 19 343Provisions 27 40 (6) 61Borrowings 85 - 2,145 2,230Financial liabilities 6,879 3,863 10,742Payables related to insurance contracts 59 1,558 1,617Deferred and current tax 901 333 (9) 1,225Other liabilities 665 184 85 934 Total liabilities 39,848 26,423 2,071 68,342 Net assets 2,535 2,895 (1,255) 4,175 Notes 1. The financial information in respect of Resolution plc has been extractedwithout adjustment from the audited Report and Accounts for the year ended 31December 2005. No account has been taken of trading or changes in financialposition after 31 December 2005. 2. The financial information in respect of Abbey's Life Businesses has beenextracted without adjustment from an aggregation of the IFRS financialstatements of the companies to be acquired prepared by the management of Abbey'sLife Businesses. No account has been taken of trading or changes in financialposition after 31 December 2005. 3. Adjustments have been made to reflect the acquisition of Abbey's LifeBusinesses by Resolution plc, as follows: • to reflect the acquisition of the in-force portfolio with a MarketConsistent Embedded Value of £3,770 million together with the new businesscapability for a total consideration of £3,600 million • to reflect the Bridge Facility of £1,680 million, New Facilities of£550 million and repayment of existing Resolution plc senior debt of £85 million • to reflect transaction costs of £85 million • to eliminate goodwill and intangibles of £80 million less a relatedtax liability of £9 million included in the net assets of the Abbey's LifeBusinesses at 31 December 2005, which are replaced by goodwill and intangiblesarising from this transaction • to reflect the payment of a £30 million dividend since the year end toAbbey's Life Businesses by companies that do not form part of the group to beacquired • to eliminate the pension deficit of £137 million of the acquiredgroup, which is to be retained by Abbey National plc under the terms of the Saleand Purchase agreement • to record the subordinated debt of Scottish Mutual assurance plc atits fair value, being the quoted market price of £219 million at 31 December2005 • to reflect the retention by Abbey National plc of provisions of £6million included in the net assets of the acquired group shown above • to release actuarial liabilities of £26 million no longer required asa result of the terms of the Sale and Purchase Agreement 4. The table below shows for illustrative purposes the impact of thetransaction on the Market Consistent Embedded Value (MCEV) of Resolution plc,calculated in accordance with Resolution plc's policies for preparingsupplementary information on a European Embedded Value basis. Resolution plc at Abbey's Life Adjustments (c) Total 31 December 2005 Businesses at 31 (a) December 2005 (b) £ million £ million £ million £ million Net worth before debt, preference shares 1,812 2,506 4,318and hybrid capitalValue of in-force 1,019 1,483 2,502Gross MCEV 2,831 3,989 6,820Debt, preference shares and hybrid (700) (219) (2,145) (3,064)capitalMCEV 2,131 3,770 (2,145) 3,756 a) The information in respect of Resolution plc has been extractedwithout adjustment from the audited pro forma supplementary informationcontained in the Resolution plc Report and Accounts for the year ended 31December 2005. No account has been taken of trading or changes in financialposition after 31 December 2005. b) The information in respect of the Abbey's Life Businesses isdescribed in below c) Adjustments have been made to reflect the to reflect the Bridge Facility of£1,680 million, New Facilities of £550 million and repayment of existingResolution plc senior debt of £85 million 5. The MCEV of the Abbey's Life Businesses shown in note 4 above has beencalculated as shown below: Abbey's Life Businesses at 31 December 2005 Net worth VIF Total £ million £ million £ million Traditional Embedded Value (a) 2,261 1,421 3,682 Adjustments to eliminate businesses not being 11 - 11acquired (b) 2,272 1,421 3,693Adjustments arising from alignment of TEV (c) 34 (65) (31)Adjusted TEV 2,306 1,356 3,662 Adjustments to align with Resolution plc MCEVpolicies: (d) - Mark subordinated debt to market (19) - (19) - Intrinsic burn through cost net of tax - (26) (26) - Certainty equivalent adjustments - 183 183 - Allowance for non market risks - (115) (115) - Change in cost of capital - 105 105 - Group cost of capital - (20) (20) MCEV 2,287 1,483 3,770 Adjustment for IFRS purposes 717 (717) -As included in IFRS pro forma net assets 3,004 766 3,770 a) The information in respect of the Traditional Embedded Value of the Abbey'sLife Businesses has been extracted without adjustment from the Business andFinancial Review contained in the Abbey National plc Report and Accounts for theyear ended 31 December 2005. No account has been taken of trading or changes infinancial position after 31 December 2005. b) The adjustments arising from the transaction reflect the exclusion of netassets of companies and other net liabilities which are outside the scope of theAcquisition. c) Adjustments arising from alignment of TEV reflect the release of certainprovisions no longer required following the transaction and adjustments to thecost of capital to reflect Resolution plc policies d) The adjustments to align with Resolution plc MCEV policies, which have beenestimated by the Directors of Resolution plc based on their analysis ofunderlying models, are as follows: i) the Market-consistent value of debt represents the difference between thenotional value of SMA debt (£200 million) and the market value of the debt at 31December 2005 (£219 million) ii) the cost of burn-through represents the average cost of financial optionsand guarantees on a market-consistent basis allowing for the impact ofmanagement actions and the hedging strategies in place iii) the impact of certainty equivalent valuation represents the difference inthe value of in-force business arising from moving to a risk-free investmentreturn and discount rate from the traditional embedded value approach iv) the allowance for non-market risk represents the explicit allowance made forthe potential impact on the value of non-profit business of experience differingfrom best estimate assumptions v) the change in cost of capital represents the lower cost of capitalrepresenting the impact of tax and investment expenses rather than the marginbetween the earned rate and the discount rate under the traditional embeddedvalue approach vi) the group cost of capital represents the market-consistent cost of holdingcapital at group level 6. While the pro forma information illustrates the impact of alignment ofMCEV policies, it does not reflect changes to the MCEV of the Abbey's LifeBusinesses that may arise from harmonisation of assumptions between the twogroups. The directors consider that the impact of such changes is unlikely tobe material. The Directors Resolution plc Juxon House 100 St Paul's Churchyard London EC4M 8BU 7 June 2006 Dear Sirs We report on the pro forma financial information (the "Pro Forma FinancialInformation") set out in Appendix 5 of the Announcement which has been preparedon the basis described, for illustrative purposes only, to provide informationabout how the Transaction might have affected the financial informationpresented on the basis of the IFRS accounting policies adopted by Resolution plcin preparing the financial statements for the period ending 31 December 2005.This report is required by item 20.2 of Annex I of the PD Regulation and ListingRule 13.5.31 and is given for the purpose of complying with those rules and forno other purpose. Save for any responsibility arising under the Prospectus Regulation to anyperson as and to the extent there provided, to the fullest extent permitted bylaw we do not assume any responsibility and will not accept any liability to anyother person for any loss suffered by any such other person as a result of,arising out of, or in connection with this report. Responsibilities It is the responsibility of the directors of Resolution plc to prepare the ProForma Financial Information in accordance with item 20.2 of Annex I of the PDRegulation and Listing Rule 13.5.31. It is our responsibility to form an opinion, as required by item 7 of Annex IIof the PD Regulation and Listing Rule 13.5.31, as to the proper compilation ofthe Pro Forma Financial Information and to report that opinion to you. In providing this opinion we are not updating or refreshing any reports oropinions previously made by us on any financial information used in thecompilation of the Pro Forma Financial Information, nor do we acceptresponsibility for such reports or opinions beyond that owed to those to whomthose reports or opinions were addressed by us at the dates of their issue. Basis of opinion We conducted our work in accordance with the Standards for Investment Reportingissued by the Auditing Practices Board in the United Kingdom. The work that weperformed for the purpose of making this report, which involved no independentexamination of any of the underlying financial information, consisted primarilyof comparing the unadjusted financial information with the source documents,considering the evidence supporting the adjustments and discussing the Pro FormaFinancial Information with the directors of Resolution plc. We planned and performed our work so as to obtain the information andexplanations we considered necessary in order to provide us with reasonableassurance that the Pro Forma Financial Information has been properly compiled onthe basis stated and that such basis is consistent with the IFRS accountingpolicies of Resolution plc. Opinion In our opinion: (a) the Pro Forma Financial Information has been properly compiled on thebasis stated; and (b) Such basis is consistent with the IFRS accounting policies ofResolution plc. Yours faithfully Ernst & Young LLP Appendix 6 Definitions The following principal definitions apply throughout this announcement unlessthe context requires otherwise: Abbey Abbey National plc (registered number 02294747)Abbey Group Abbey National plc and its subsidiaries and associated companies, from time to timeAbbey's Life Businesses the key U.K. and offshore life insurance businesses of Abbey, amongst others, the five authorised life insurance companies (Abbey National Life, Scottish Mutual Assurance, Scottish Provident, Scottish Mutual International and Scottish Provident International Life Assurance) and the share capital of Abbey National Financial and Investment Services and related service companies in Ireland, the Isle of Man and Hong Kong, which together comprise the back office servicing operations and new life business infrastructureAbbey's Life Businesses Company one of the companies comprising Abbey's Life BusinessesAbbey's Life Businesses Shares the ordinary share capital of Abbey's Life BusinessesAbbey National Unit Trusts all of Abbey National Balanced Portfolio Growth Unit Trust, Abbey National Balanced Portfolio Income Unit Trust, Abbey National Equity Income Unit Trust, Abbey National Extra Income Unit Trust, Abbey National High Income Bond Unit Trust, Abbey National International Unit Trust, Abbey National N&P U.K. Growth Unit Trust, Abbey National Smaller Companies Unit Trust, Abbey National Stockmarket 100 Tracker Unit Trust, Abbey National Technology Unit Trust and Abbey National U.K. Growth Unit TrustAcquisition the proposed acquisition of Abbey's Life Businesses Shares pursuant to the Acquisition AgreementAcquisition Agreement the agreement dated 7 June 2006 between Resolution Life Limited, Resolution and Abbey pursuant to which Resolution Life Limited conditionally agreed to acquire Abbey's Life Businesses Shares, a summary of which is contained in Appendix 3Act the Companies Act 1985 (as amended)Admission the admission of the New Shares, nil paid, or, as the case may be, the readmission of the New Shares and the Existing Shares to the Official List becoming effective in accordance with the Listing Rules and admission or, as the case may be, readmission to trading having been granted by the London Stock ExchangeAEI Annual Earnings IndexAlba Life Alba Life Limited (registered number SC004348)ANAM or Abbey National Asset Managers Abbey National Asset Managers Limited (registered number SC106669)ANFIS or Abbey Financial and Abbey National Financial and Investment Services plc (registered numberInvestment Services SC159852)ANL or Abbey National Life Abbey National Life plc (registered number SC134205)ANSMAH or Abbey National SMA Holdings Abbey National SMA Holdings Limited (registered number SC133636), theLimited holding company of SMA and SPLArticles or Articles of Association the articles of association of ResolutionBrand Licence the brand licence to be entered into upon Completion between Banco Santander Central Hispano, S.A., Abbey and Resolution Life Limited, a summary of which is contained in Appendix 3Britannic Assurance Britannic Assurance plc (registered number 00003002)Britannic Group Britannic Group plc, the name of the Company prior to the MergerBranch Network Abbey's Life Businesses' distribution network consisting of more than 700 U.K. branchesBridge Facility the £1,750,000,000 term loan facility with a final maturity date of 31 December 2006Bridge Facility Agreement the agreement dated 7 June 2006 under which the Bridge Facility is made available to Resolution, a summary of which is contained in Appendix 4business day a day (excluding Saturdays, Sundays and public holidays in England and Wales) on which banks generally are open for business in Londoncertificated or in certificated form a share or other security which is not in uncertificated formCitigroup means Citigroup Global Markets Limited when referred to in its capacity as joint sponsor or joint financial adviser, and Citigroup Global Markets U.K. Equity Limited when referred to in its capacity as co-underwriterCompany Resolution plc (named Britannic Group plc prior to the Merger), a company incorporated in England with registered number 03524909Completion completion of the Acquisition of Abbey's Life Businesses CompaniesCREST the relevant system (as defined in the CREST Regulations) in respect of which CRESTCo. Limited is the Operator (as defined in the CREST Regulations)CREST Regulations the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755) (as amended)Directors or Board the Directors of ResolutionDistribution Agreements means the Retail Banking Distribution Agreement, the Intermediary Distribution Agreement and the Retail Distribution Agreement and "Distribution Agreement" means any of them; a summary of the Distribution Agreements is contained in Appendix 3Distribution Network Abbey's Life Businesses' intermediary salesforceEnlarged Group Resolution and its subsidiaries and associated companies immediately following CompletionEnlarged Share Capital the issued share capital of Resolution as it will be immediately following the Rights IssueExcess Capital the £1.25 billion of capital within Abbey's Life Businesses that is considered by the Directors to be surplus to the minimum capital requirements and is anticipated to be releasedExcluded Territories Australia, Canada, Japan and South AfricaExisting Shares the ordinary shares of 5 pence each in the capital of Resolution in issue immediately prior to the Rights IssueExtraordinary General Meeting or EGM the extraordinary general meeting of Resolution proposed to be held on 17 July 2006; a Notice convening such meeting will be included in the ProspectusF&C Asset Management F&C Asset Management LimitedFacilities Agreements the Bridge Facility Agreement and the New Facilities AgreementFitch Fitch Ratings LtdFSMA or Financial Services and the Financial Services and Markets Act 2000, as amendedMarkets ActFOS the Financial Ombudsman ServiceFSA the Financial Services AuthorityFully Paid Rights rights to acquire the New Shares, fully paidGCAC group capital adequacy calculationGoldman Sachs Goldman Sachs InternationalHM Revenue & Customs United Kingdom Revenue and Customs DepartmentIFRS International Financial Reporting StandardsIntermediary Distribution Agreement the agreement dated 7 June 2006 between Resolution Life Limited and Abbey under which Resolution Life Limited conditionally agrees to appoint Abbey as its agent to facilitate the distribution of certain insurance products through the Abbey intermediaries and to use its reasonable endeavours to promote the in-scope products to the Abbey intermediaries, a summary of which is contained in Appendix 3Issue Price 440 pence per New Share unless a price per New Share in excess of 440 pence is determined on the day of the EGM in accordance with the Underwriting AgreementInvestment Company Act the United States Investment Company Act of 1940, as amendedLazard Lazard & Co., LimitedLIBID the London Interbank Bid Rate is the rate bid by banks on deposits (i.e. the rate at which a bank is willing to borrow from other banks)Life Division life and pensions companies holding the life business within the Resolution Group or the Enlarged Group, as the case may beListing Rules the listing rules made pursuant to Part VI of the Financial Services and Markets Act 2000London Stock Exchange or LSE London Stock Exchange plcLondon Stock Exchange's Daily the daily official list of prices maintained by the London Stock ExchangeOfficial ListLTICR long-term insurance capital requirementMerger the merger of the Company and Resolution Life Group Limited completed on 6 September 2005Moody's Moody's Investors Service, Inc.New Facilities the £350,000,000 term loan facility and a £200,000,000 revolving credit facility with a final maturity date of 15 April 2009New Facilities Agreement the agreement dated 7 June 2006 under which the New Facilities are made available to Resolution, a summary of which is contained in Appendix 4New Shares up to a maximum number of 350.0 million Shares of 5 pence each proposed to be issued by Resolution pursuant to the Rights IssueNil Paid Rights New Shares in nil paid form provisionally allotted to Qualifying Shareholders pursuant to the Rights IssueNotice the notice convening the EGMNPSF non-profit sub fundOfficial List the official list of the U.K. Listing AuthorityPhoenix Life Group the group of subsidiary companies of RLL which were previously acquired from RSAProspectus the Prospectus intended to be published by Resolution in relation to the Acquisition and the Rights Issue on or around 23 June 2006Provisional Allotment Letter(s) or the renounceable provisional allotment letters relating to the Rights Issue,PAL(s) expected to be dispatched on 18 June 2006 to Qualifying Non-CREST Shareholders other than certain Overseas ShareholdersQualifying Shareholder(s) Shareholder(s) on the register of members of Resolution at the Record DateRAM or Resolution Asset Management Resolution Asset Management Limited (registered number SC200801)RCR resilient capital requirementRecord Date close of business on 14 July 2006Resolution Resolution plc (named Britannic Group plc prior to the Merger), a company incorporated in England with registered number 03524909Resolution Group Resolution and its subsidiary undertakings (but excluding, for the avoidance of doubt, Abbey's Life Businesses)Resolution Life Group Limited or RLG Resolution Life Group Limited (registered number 0456077), which under the Merger became a wholly owned subsidiary of ResolutionResolution Life Limited or RLL Resolution Life Limited (registered number 04560778)Relationship Deed the deed to be entered into upon Completion between Resolution Life Limited, ANL and Abbey which governs the relationship between Resolution and Abbey post-Completion, a summary of which is contained in Appendix 3Reporting Accountants Ernst and Young LLPResolutions the resolutions set out in the NoticeRetail Banking Distribution Agreement the agreement dated 7 June 2006 between Resolution Life Limited and Abbey which provides a framework pursuant to which Resolution Life Limited intends to grant Abbey access to a database of Enlarged Group customers (those who have agreed to accept third party marketing) for the purposes of introducing Abbey retail banking products to Enlarged Group customers, a summary of which is contained in Appendix 3Retail Distribution Agreement the agreement dated 7 June 2006 between Resolution Life Limited and Abbey under which Resolution Life Limited conditionally agrees to appoint Abbey as distributor of certain products for distribution by Abbey, in an intermediary capacity, through its retail sales channels, a summary of which is contained in Appendix 3Rights Issue the proposed issue of the New Shares to Qualifying Shareholders by way of rights on the terms and subject to the conditions set out in this document and the Provisional Allotment LettersRLG Preference Shares the preference shares in RLG issued to RSA under the terms of the acquisition of the Phoenix Group by RLL from RSA on 30 September 2004RMS Resolution Management Services Limited (registered number 03588063)Royal & Sun Alliance or RSA Royal & Sun Alliance Insurance Group plc (registered number 02339826)Santander Banco Santander Central Hispano, S.A.Securities Act the United States Securities Act of 1933, as amendedShare Schemes the share schemes currently operated by ResolutionShareholder any holder of SharesShares ordinary shares of 5 pence each in the capital of Resolution (including Existing Shares and New Shares)SMA or Scottish Mutual Assurance Scottish Mutual Assurance plc (registered number SC133846)SMI or Scottish Mutual International Scottish Mutual International plc (registered number 242244), incorporated in IrelandSMI Holdings or Scottish Mutual Scottish Mutual International Holdings Limited (registered number 318919),International Holdings Limited incorporated in IrelandSM Unit Trusts all of SM Balanced Unit Trust, SM Cautious Unit Trust SM European Unit Trust, SM Growth Unit Trust, SM International Growth Unit Trust, SM North American Unit Trust, SM U.K. All-Share Index Unit Trust, SM U.K. Equity Unit Trust, SM Japanese Unit Trust, SM Far Eastern Equity Unit Trust, SM Opportunity Unit Trust, SM U.K. Stockmarket Unit Trust, SM U.K. Stockmarket Series 3 Unit Trust and SM U.K. Stockmarket Series 4 Unit Trust and shall include for the purposes of the Funds Separation Agreements the SM TIA U.K. Equity - Pooled U.K. Equity FundSPLH1 SPL (Holdings 1) Limited (registered number SC214932)SPILA or Scottish Provident Scottish Provident International Life Assurance Limited (registered numberInternational Life Assurance 53002C), incorporated in the Isle of ManSPL or Scottish Provident Limited Scottish Provident Limited (registered number SC212709)Sponsors Citigroup Global Markets Limited and Goldman SachsS&P or Standard & Poor's Standard & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc.stock account an account within a member account in CREST to which a holding of a particular share or other security in CREST is admittedTax Covenant the deed of tax covenant to be entered into upon Completion between Abbey and Resolution Life Limited, summary of which is contained in Appendix 3Term Facility the £550,000,000 term loan facilityTransitional Services Agreement or the agreement dated 7 June 2006 between Resolution Life Limited and AbbeyTSA under which the parties agree to provide certain transitional services post-Completion, a summary of which is contained in Appendix 3U.K. Listing Authority or UKLA the Financial Services Authority in its capacity as competent authority under the Financial Services and Markets ActUncertificated or in uncertificated a Share recorded on Resolution's register as being held in uncertificatedform form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CRESTUnderwriters Citigroup Global Markets U.K. Equity Limited and Goldman SachsUnderwriting Agreement the agreement dated 7 June 2006 between Citigroup, Goldman Sachs and Resolution relating to the underwriting of the Rights Issue, a summary of which is contained in Appendix 4United Kingdom or U.K. the United Kingdom of Great Britain and Northern IrelandUnited States or US the United States of America, its territories and possessions any state of the United States of America, the District of Columbia, and all other areas subject to its jurisdictionVIF value of in-force businessWPICC with-profits insurance capital component. This is the difference between the regulatory free surplus and realistic free surplus, calculated in accordance with FSA rules for insurersWPSF with-profits sub fund For the purposes of this document, references to one gender include the othergender. GLOSSARY OF TECHNICAL TERMS allowance for non-market risks in certain situations, the impact of fluctuations in experience can have a negative impact on shareholder value, namely that adverse experience can have a higher negative impact on shareholder value compared to the positive impact generated by favourable experienceannuity a periodic payment made for an agreed period of time (usually up to the death of the recipient) in return for a cash sum. The cash sum can be paid as one amount or as a series of premiums. If the annuity commences immediately after the payment of the sum it is termed an "immediate annuity"bonus surplus funds that a life insurance company allocates to its policyholderscertainty equivalent the approach adopted in calculating the value of in-force under the MCEV basis, where all cash flows are projected and discounted at risk-free ratesclosed a book of long-term business with no new customers, although there are limited volumes of new business, for example, to meet contractual obligations to existing policyholders or to cater for new members to certain group schemesconventional with-profits with-profits business which is not unitised with-profits businessCost of required capital the cost of holding capital to meet regulatory requirements, capital management policy and commitments to credit rating agencies, where future distributions to shareholders are restricted. The cost of capital is calculated as the difference between the market value of the required capital and the present value of future releases allowing for investment return and taxCRR capital resources requirementEmbedded Value or EV the Embedded Value of a life insurance business is the sum of its shareholder net assets (including any surplus held in the long-term business fund which is attributable to shareholders) and the value of its in-force business. The latter is calculated by projecting the after tax surpluses distributable to shareholders expected in respect of the in-force business and discounting them back to the present time at a risk rate of returnEuropean Embedded Value or EEV European Embedded Value of a life insurance company is its Embedded Value determined in accordance with the EEV principles and guidance issued by the European CFO Forum in May 2004ICA Individual Capital Assessment is an insurer's own assessment of its risks and controls. ICAs are required to be completed regularly and documented under the FSA's rules for insurersICG Individual Capital Guidance issued by the FSA to insurers to address specific concerns arising out of the FSA's own risk assessment in respect of Pillar 2 capital requirementsincome protection a long-term business policy which provides cover against loss of income consequential upon certain insured events such as accident, sickness or permanent ill healthin-force business long-term business which has been written and which has not terminatedintrinsic burn-through costs costs to be borne by shareholders in the event that assets are insufficient to meet liabilities within the with-profits fundsIFRS international financial reporting standardsIRR internal rate of returnISA an individual savings accountlife insurance fund a pool of assets which are maintained by an insurance company and which are attributable to its life and pensions businesslong-term business insurance business which comprises life assurance business (life and pensions business) and long-term disability insurance (also known as permanent health insurance)long-term business fund the segregated fund of assets and liabilities established and maintained by a life insurance company under the FSMA for the purpose of supporting its long-term businessLTICR long-term insurance capital requirementmaturing or maturity the point which the sum assured under a life insurance or pension policy becomes due to be paidMCEV market consistent embedded value which is the methodology Resolution adopts for the purpose of its EEV disclosure. Within a Market Consistent Embedded Value ("MCEV") framework, assets and liabilities are valued in line with market prices and consistently with each other. In principle, each cash flow is valued using the discount rate consistent with that applied to such a cash flow in the capital marketsMFR minimum funding requirementmorbidity rate the incidence of serious illness or disease across a defined group or number of peoplemortality the incidence of deaths at a specified age across a defined group or number of peopleMSSB modified statutory solvency basisnon-profit business business represented by non-profitnon-profit policy a long-term insurance policy, including a unit-linked policy, which is not a with-profits policynon-market risks risks relating to insurance (such as mortality, longevity and persistency), business, operations and liquidityPEP personal equity planPillar 1 the expression used to refer to the level of regulatory capital which, according to the rules prescribed by the FSA, a long-term insurer must hold in respect of its long-term business. It does not include any additional capital requirement which may result from a long-term insurer's own assessment of its capital needs or the FSA's own assessment of those needs, which are collectively referred to as Pillar 2RCR resilience capital requirementreinsurance insurance taken out by an insurer of the whole or part of the risks that it has already insuredrun-off the operation of portfolios of insurance that have been closed to new businessSFO statutory funding objectivesurrender the cancellation of a long-term policy before it reaches maturitySurplus that part of a long-term business fund over and above the sum of its liabilities. In the case of a with-profits fund, holders of 'with-profits' policies are entitled to a share in the surplus, usually in the form of a reversionary bonus added periodically to and payable with the sum assured and terminal bonuses added at maturityTEV Traditional Embedded Value, a methodology of calculating embedded value using deterministic assumptionsunderwriting the insurer's process of reviewing applications for insurance cover and the decision whether to accept all or part of the risk and determination of the applicable premiums; also refers to the acceptance of such riskunit-linked policy a non-profit policy where the benefits are determined by reference to the investment performance of a specified pool of assets referred to as the unit-linked fundunit trust a trust where investors (unit holders) obtain a fractional interest in a fund by purchasing units from the managers of the trust on the understanding that they can resell their units to the managers at a price closely reflecting the stock market value of the trust's investmentsunitised with-profits any policy under which the value of the benefits is measured in whole or in part by reference to the with-profits units allocated to that policywith-profits business business represented by with-profits policies and the assets and liabilities associated with themwith-profits fund that part of a long-term business fund in which holders of with-profits policies are entitled to participate in surpluswith-profits policy or with-profits a policy where, in addition to guaranteed benefits specified in the policy,policies additional bonuses may be payable. The declaration of such bonuses (usually annually) reflects, amongst other things, the overall investment performance of the fund of which the policy forms partwith-profits units notional units whose value or number vary by reference to premiums paid, bonuses declared or surpluses otherwise distributed for the purposes of calculating benefits payable under policies This information is provided by RNS The company news service from the London Stock Exchange

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