Questions and answers about the Repurchase Scheme offered by Citibank (Hong Kong) Limited in relation to Lehman Brothers-issued Market Linked Notes and Equity Linked Notes

The Repurchase Scheme is the result of an agreement between the SFC, the HKMA, and Citibank (Hong Kong) Limited (Citibank HK) pursuant to section 201 of the Securities and Futures Ordinance (SFO) to resolve the regulatory concerns of the SFC. Under the agreement and on a no admission of liability basis, Citibank HK agrees to make a repurchase offer to eligible customers holding outstanding market-linked notes (MLNs) or equity-linked notes (ELNs) issued by Lehman Brothers (collectively referred to as “LB Notes”) distributed by Citibank HK at a price equal to:

• 80% of the total value of their investment in outstanding LB Notes:
  
  • less the amount of coupon payments already made to them as a result of holding of the LB Notes; and
  • plus interest calculated in accordance with FAQ 5 below between the issue date of the relevant series of LB Notes and 30 June 2011.

Citibank HK also agreed to offer top up payments to customers who had previously reached settlement with Citibank HK in relation to LB Notes and would otherwise be eligible for the repurchase offer but for the previous settlement they reached with Citibank HK in relation to their purchases of LB Notes.

The Repurchase Scheme covers all LB Notes distributed by Citibank HK in Hong Kong between March 2007 and June 2008 that were outstanding (i.e. uncalled or unredeemed), at the time of the Lehman Brothers bankruptcy filing on 15 September 2008. A list of the LB Notes covered by the Repurchase Scheme can be found at this link.

A repurchase offer will only be made to customers who have open position(s) in the outstanding LB Notes purchased through Citibank HK but do not include customers who:

(a) are professional investors or corporate/non-individual investors;

(b) have in the three years preceding their first purchase of LB Notes, executed five or more transactions in Structured Products and Leveraged Products, or a combination of these products; or

(c) have previously settled their claims in relation to the distribution of LB Notes with Citibank HK (see FAQ 6 below).

Under the Repurchase Scheme:

• "Leveraged Product" comprises exclusively: (i) foreign currency leveraged investment; and (ii) foreign exchange margin trading; and
• "Structured Product" comprises exclusively: (i) credit-linked notes, (ii) market-linked notes; (iii) equity-linked notes; and (iv) private placement notes, and does not include any listed securities.

A top up payment will be made to each of the customers who had previously reached settlement with Citibank HK in relation to LB Notes and would otherwise be eligible for the repurchase offer but for the previous settlement they reached with Citibank HK in relation to LB Notes, to the extent that such payments are needed to ensure those customers are treated in the same way as eligible customers covered by the Repurchase Scheme.

On accepting a repurchase offer, customers will be asked to:

• give up all civil claims/discontinue legal proceedings against Citibank HK and/or its present and past officers and employees in relation to LB Notes; and
• withdraw complaints about LB Notes lodged with Citibank HK, the SFC, the HKMA, the Consumer Council and other relevant authorities (excluding the Police).

The joint account is entitled to a repurchase offer in this case. The apportionment of the amount received is a private matter between the joint account holders.

Customers receiving Citibank HK's repurchase offer should carefully consider the terms of the offer, the conditions for acceptance, and their personal circumstances before deciding whether to accept the repurchase offer. If necessary, they should consider seeking independent professional advice before accepting the offer.

The Bank will, on or before July 22, 2011, send a notification letter on their eligibility of the Repurchase Scheme to clients with outstanding LB Notes bought from the Bank. The Bank will send to eligible clients an offer letter setting out details of their respective offer within 5 weeks of the date of the notification letter,

The steps for accepting or rejecting the repurchase offer/top up payment offer are set out in Citibank HK’s offer letter. The acceptance form and rejection form will be enclosed with each offer letter.

A customer has 60 days to return the acceptance form or the rejection form to Citibank HK. If no acceptance form or rejection form is received by Citibank HK by the stipulated deadline, the customer is deemed to have rejected the repurchase offer/top up payment offer.

Customers may return the acceptance form or the rejection form to Citibank HK via the mail or deposit the forms with any Citibank HK branch office in Hong Kong.

No, any qualifications made in relation to the acceptance form will be treated as a rejection of the repurchase offer/top up payment offer.

No, the customer cannot accept the repurchase offer/top up payment offer in respect of some but not all of the relevant series of LB Notes. Any acceptance of the repurchase offer/top up payment offer in respect of some but not all of the relevant series of LB Notes will be treated as a rejection of the offer.

An eligible customer who rejects a repurchase offer made under the Repurchase Scheme will not receive a repurchase payment. The rejection will not affect his/her pre-existing legal rights, if any. He/she may complain or maintain a complaint with the HKMA. The HKMA will handle complaints made by eligible customers who reject a repurchase offer or LB Notes customers who are not eligible for an offer if it has not already done so. However, HKMA has no power to order a bank to pay compensation. A customer who wants to take their own action against Citibank HK should seek legal advice.

A rejection of the top up payment offer by a settled customer will not affect his/her rights and obligations under the settlement agreement previously entered into between him/her and Citibank HK.

Customers have 60 days from the date of the offer letter to consider Citibank HK’s repurchase offer(s)/top up payment offer(s).

The Bank will, within 14 days, send a notification letter on their eligibility of the Repurchase Scheme to clients with outstanding LB Notes bought from the Bank. Customers who are not eligible for any repurchase offers/top up payment offers will be notified accordingly.

If a customer decides to accept Citibank HK's repurchase offer/top up payment offer, he/she should do so within 60 days from the date of the offer letter. Otherwise the repurchase offer/top up payment offer will lapse except for customers who can provide a valid explanation as to why he/she was prevented from accepting the offer within the stipulated deadline.

If the customer can offer a valid explanation acceptable to Citibank HK, Citibank HK will treat the repurchase offer/top up payment offer as being open for acceptance for another 30 days. If the customer again fails to accept the repurchase offer/top up payment offer within the new deadline, the offer will lapse permanently.

Citibank HK has agreed to make payments within 30 days from the day Citibank HK receives a valid acceptance form from a customer and the payment will be paid into the customer’s account with Citibank HK. In the case of persons who do not maintain an account with Citibank HK, they will be paid by cheque.

The payment will be made in Hong Kong Dollars, Australian Dollars, New Zealand Dollars, Pounds Sterling or US Dollars depending on the denomination of relevant series of LB Notes.

If a customer who purchased LB Notes has any queries about the Repurchase Scheme (including his/her eligibility or the terms of the repurchase offer or top up payment offer) or any complaint about the way the Repurchase Scheme is administered, he/she should contact Citibank HK through:

Hotline: (852) 2860-0125