HBOS Capital Funding No. 1 L.P. HBOS plc - Lloyds Banking Group

2.3 Distributions on the Preferred Securities will be non-cumulative and will accrue on a 30/360 Basis.
Distributions on the Preferred Securities will be payable out of the Issuer’s own legally available
resources on each Distribution Payment Date. Notwithstanding the existence of resources legally
available for distribution by the Issuer, neither the Issuer nor HBOS will pay any Distributions or
make any payment in respect of Distributions (including any Additional Amounts) under the Preferred
Securities or the Guarantee:
2.3.1 to the extent that such payment, together with the amount of any distributions or dividends
paid or scheduled to be paid to holders of Parity Securities on the relevant Distribution
Payment Date would exceed Adjusted Distributable Reserves as at the Distribution
Determination Date immediately preceding such Distribution Payment Date; or
2.3.2 even if Adjusted Distributable Reserves are sufficient, (i) to the extent that such payment in
respect of the Preferred Securities and/or Parity Securities would breach or cause a breach of
the U.K. banking capital adequacy requirements then applicable to HBOS on a consolidated
basis or (ii) HBOS’s board of directors in its sole discretion has notified the FSA and the Issuer
that it has determined that (i) above is expected to occur in the near term.
2.4 HBOS has undertaken in the Guarantee that, in the event that any Distribution is not paid in full as a
result of paragraph 2.3, it will not (a) declare or pay any distribution or dividend and, where
applicable, will procure that no distribution or dividend is declared or paid on any Junior Share
Capital, until after the fourth consecutive following Distribution Payment Date on which a
Distribution is paid in full (or an amount equivalent to the distributions to be paid in respect of the
next four Distribution Periods has been paid or irrevocably set aside in a separately designated trust
account for payment to the Holders) or (b) (if permitted) repurchase or redeem Parity Securities or
Junior Share Capital until after the fourth consecutive following Distribution Payment Date on which a
Distribution in respect of the Preferred Securities is paid in full (or an amount equivalent to the
distributions to be paid in respect of the next four Distribution Periods has been paid or irrevocably set
aside in a separately designated trust account for payment to the Holders).
2.5 If, whether by reason of the provisions of paragraph 2.3 or any equivalent article or term of a Parity
Security, on any Distribution Payment Date, Distributions are not paid in full on the Preferred
Securities or dividends or other distributions are not paid in full on any Parity Securities, but there are
sufficient Adjusted Distributable Reserves so as to allow payment of part of any Distribution, then
each Holder will be entitled to receive the Relevant Proportion of any such Distribution. No Holder
shall have any claim in respect of any Distribution or part thereof not payable as a result of the
limitations set out in paragraph 2.3. Accordingly, such amounts will not cumulate for the benefit of
Holders or entitle the Holders to any claim in respect thereof against the Issuer or against HBOS under
the Guarantee.
2.6 On each Distribution Determination Date, HBOS will determine whether sufficient Adjusted
Distributable Reserves exist to allow a payment of some or all of the relevant Distribution. In the event
that any Distribution cannot be paid in full, HBOS will notify or procure notification to the Stock
Exchange, the General Partner, the Registrar and the Paying and Transfer Agents and to Holders, in
accordance with paragraph 10, of the amount, if any, to be paid in respect of that Distribution.
2.7 Save as described above, Holders will have no right to participate in the profits of the Issuer or HBOS
and in particular will have no rights to receive from the Issuer amounts paid under the Notes or
otherwise amounts in excess of Distributions due and payable under the Preferred Securities. In the
event that any amounts received by the Issuer exceed the amount (if any) then due by way of
Distribution under the Preferred Securities, the amount of such excess will be paid to the Preferential
Limited Partner and Holders will have no rights in respect thereof.
2.8 The liability of a Holder to contribute to the debts or obligations of the Issuer (if any) shall (subject to
the Law) not exceed the amount of that Holder’s Preferred Capital Contribution.
2.9 For the purposes of the definition of ‘‘Relevant Proportion’’, in paragraphs 1, 2.3.1, 2.5 and 2.6,
Adjusted Distributable Reserves as at each Distribution Determination Date shall be determined by
reference to whichever is the latest available at that date of the audited accounts for the previous
financial year of HBOS or interim accounts for the previous half year of HBOS, adjusted in either case
for any of the following events occurring since the date to which such accounts were prepared: (i) any
known net losses and (ii) any further redemptions of or payments on (a) any preference shares or other
obligations of HBOS that are accounted for under the then generally accepted accounting practice in
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