National Australia Trustees Limited (ABN 8000 7 350405 and Australian Financial Services Licence No. 230703) (incorpomaxl with limited liability in Australia) in its capacity as trustee of National Capital Trust III A$400,000,000 Floating Rate National Capital Instruments bane Price 100 per cent.
National Australia Bank Limited (ABN 12 004 044 937) (incorporated with limited liability in Australia)
The AS400,000,000 Floating Rate National Capital Instruments (the "NCIs") are expected to be issued on 18 September 2006 (the "Issue Date"). The NCIs will entitle holders, subject to the conditions described in this Information Memorandum, to receive non-cumulative distributions ("Distributions") quarterly in arrears on each 31 March, 30 June, 30 September and 31 December, commencing on 31 December 2006 (each, a "Distribution Payment Date"). Distributions on the NCIs will accrue from (but not including) the Issue Date at a rate equal to the Bank Bill Rate (as defined in clause 3.1 ("Distributions") of the tams of issue of the NCIs (the "NCI Terms") (see Terms and Concktions of the NCIs below) plus a margin of 0.95 per cent. per =MUM (the -Initial Margin") up to (aid including) 30 September 2016 (the "Step-Up Date ) and, from (but not including) the Step-Up Date at a rate equal to the Bank Bill Rate plus a margin of 1.95 per cent per annum (the "Distribution Rate") (see further Terms and Conditions of the NCIs - Distributions below).
Payment of any Distribution on the NCIs is subject to the Trust (as defined below) having sufficient funds to pay that Distribution. The funds available to the Trust in respect of any Distribution Payment Date will be limited to the funds it receives in respect of the securities issued by National Capital htstruments (AM] LLC 2 ("National LLC 2") and held by the Trust (the "LLC 2 Securities"). The funds available to National LLC 2 to make a payment on the LLC 2 Securities will, in turn, be limited to the interest received from the notes issued by National Capital Instruments [AM) LLC 1 ("National LLC 1") and held by National LLC 2 (the "LLC Notes"). Payments of interest on the LLC Notes are limited to payments received by National LLC 1 on the subordinated debentures issued by National Australia Bank Limited ("National") acting through its New York Branch and held by National LLC 1 (the "Subordinated Debentures"). In addition, interest on the LLC Notes and the Subordinated Debentures is subject to the payment tests and conditions contained in the terms of the LLC Notes and Subordinated Debentures (see Summary of Prinipal Documents - Terms of the LLC Notes and Summary of Principal Documents - Terms of the Subortfinated Debentures below). Distributions are non-cumulative and holders of NCIs ("NCI Holders") will not be entitled to recover my Distributions which are not paid because those tests have not been met.
The NCIs are perpetual instruments with no set maturity date. However, the NCIs may be redeemed or converted into preference shares of National (the "Preference Shares") in the circumstances described in this Information Memorandum. NCI Holders will have no right to require the NCIs be redeemed or converted into Preference Shares.
The NCIs are expected to be assigned on issue a rating of "A2" by Moody s Investor Services Pty Ltd ("Moody s"), "A-" by Standard Poor s Rating Services, a division of the McGraw Hill Companies Inc. ("S P") and an "A+" rating by Fitch Ratings Limited ("Fitch"). A credit rating is not a recoinmendatica to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the relevant rating agency.
See Risk Factors bedew tor a scission of certain factors that should be considered by prospective iavestors.
The NCIs are not guaranteed by and do not represent deposits or other liabilities of National sr any related parties or associates of National
Joint Lead Managers
DEUTSCHE BANK NATIONAL AUSTRALIA BANK LIMITED
The date of this Information Memorandum is 12 September 2006
8578329 11.doc IMPORTANT NOTICE
This Information Memorandum relates solely to a proposed issue of units (the "NCIs") in National Capital Trust III, a wait trust established under the laws of Victoria (the "Trust"), by National Australia Trustees Limited (ABN 80 007 350 405 and Australian Financial Services Licence No. 230703) ("NATL") in its capacity as trustee (the "Trustee") of the Trust (the "Issuer"). This Information Memorandum does not relate to, and is not relevant for, any other purpose than to assist the recipient to decide whether to proceed with a further investigation of the NCIs. It is only a summary of the terms and conditions of the NCIs and does not purport to contain all the information a person considering investing in the NCIs may require. The definitive terms and conditions of the NCIs and the Trust are contained in the Transaction Documents, which should be reviewed by any intending purchaser. If there is any inconsistency between this Information Memorandum and the Transaction Documents, the Transaction Documents should be regarded as containing the definitive information. A copy of the Transaction Documents may be viewed by intending purchasers at the office of the Trustee referred to in the Directory at the back of this Information Memorandum. This Information Memorandum is not, and should not be construed as, an offer or invitation to any person to subscribe for or purchase or otherwise deal in any NCIs, and must not be relied upon by intending purchasers of the NCIs.
Definitions All defined terms used in this Information Memorandum are indexed in the Index of Defined Terms appearing at the end of this Information Memorandum.
Unless otherwise stated, references in this Information Memorandum to "AS", "S", "Australian dollars" or "dollars" are to the lawful currency of Australia.
Documents Incorporated by Reference This Information Memorandum is to be read in conjunction with all of the documents that are incorporated by reference (see Documents Incorporated by Reference below).
Responsibility for Information
The Issuer and National (each a "Primary Party") have prepared this Information Memorandum and have requested and authorised the distribution of this Information Memorandum and have sole responsibility for its accuracy. None of the Joint Lead Managers, the Initial Subscriber, NATL (in any capacity other than as the Issuer), National LLC 1, National LLC 2, the LLC Manager, the Registrar, the Issuing and Paying Agent, any other party named or referred to in this Information Memorandum (other than the Primary Parties) or any of their respective "Related Parties" or "Associates" (each as defined in the Corporations Act 2001 of Australia (the "Corporations Act")), or any external adviser to the Primary Parties or any of the foregoing (each, an "Other Party") makes any representation or warranty, express or implied, as to, nor assumes any responsibility or liability for, the authenticity, origin, validity, accuracy or completeness of, or any errors or omissions in, any information, statement, opinion or forecast contained in this Information Memorandum or any previous, accompanying or subsequent material or presentation. The Other Parties and the Primary Parties are together referred to in this Information Memorandum as the "Parties".
2 Except for having checked their respective names and addresses in the Directory at the back of this InformMien Memorandum, no person listed in the Directory other than the Primary Parties has authorised, caused the issue of, or have any responsibility for, any part of this Information Memorandum.
No recipient of this Information Memorandum can assume that any person referred to in it has conducted any investigation or due diligence concerning, or has carried out or will carry out any independent audit of, or has independently verified or will verify, the information contained in this Information Memorandum.
Preparation Date
This Information Memorandum has been prepared based on information available and facts and circumstances known to the Issuer and National as at 12 September 2006 (the "Preparation Date").
The delivery of this Information Memorandum, or any offer or issue of NCIs, at any time after the Preparation Date does not imply, nor should it be relied upon as a representation or warranty, that:
(a) there has been no change since the Preparation Date in the affairs or financial condition of the Issuer, the Trust, the Trustee, National LLC 1, National LLC 2, National or any other party named in this Information Memorandum; or
(b) the information contained in this Information Memorandum is correct at such later time.
No one undertakes to review the financial condition or affairs of the Issuer, the Trust, the Trustee, National LLC 1, National LLC 2, National or any other party named in this Information Memorandum at any time or to keep a recipient of this Information Memorandum or a holder of NCIs (a "NCI Holder") or a holder of Preference Shares (if issued) informed of changes in, or matters arising or coming to their attention which may affect, anything referred to in this Information Memorandum.
Neither the Primary Parties nor any other person (including any Other Party) accepts any responsibility to purchasers of the NCIs or intending purchasers of the NCIs to update this Information Memorandum after the Preparation Date with regard to information or circumstances which come to its attention after the Preparation Date.
It should not be assumed that the information contained in this Information Memorandum is necessarily accurate or complete in the context of any offer to subscribe for or an invitation to subscribe for or buy any of the NCIs at any time after the Preparation Date, even if this Information Memorandum is circulated in conjunction with the offer or invitation.
Authorised Material
No person is authorised to give any information or to make any representation which is not expressly contained in or consistent with this Information Memorandum and any information or representation not contained in or consistent with this Information Memorandum must not be relied upon as having been authorised by or on behalf of the Primary Parties.
Intending Purchasers to make Independent Investment Decision
This Information Memorandum is not intended to be, and does not constitute, a recommendation by any Party that any person subscribe for or purchase any NCIs. Accordingly, any person contemplating the subscription or purchase of the NCIs must:
3 (a) make their own independent investigation of:
() the terms of the NCIs, including reviewing the Transaction Documents; and
(ii) the financial condition, affairs and creditworthiness of the Issuer and the other Parties,
after taking all appropriate advice from qualified professional persons; and
(b) base any investment decision on the investigation and advice referred to in paragraph (a) and not on this Information Memorandum.
Offering restrictions
This Information Memorandum is not a Product Disclosure Statement for the purposes of Chapter 7 of the Corporations Act or a prospectus for the purposes of Chapter 6D of the Corporations Act and is not required to be lodged with the Australian Securities and Investments Commission ("ASIC") under the Corporations Act as each offer for the issue, and invitation to apply for the issue, and any offer for sale of, and any invitation for offers to purchase:
(i) NCIs must not be made to a person who is a retail client for the purposes of Chapter 7 of the Corporations Act; or
(ii) Preference Shares, if issued, must not be made to a person for which disclosure is required under Part 6D.2 of the Corporations Act.
The distribution of this Information Memorandum and the offer or sale of NCIs and Preference Shares (if issued) may be restricted by law in certain jurisdictions. No Party represents that this document may be lawfully distributed, or that any NCIs or Preference Shares (if issued) may be lawfully offered, in compliance with any application, registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by any Party which would permit a public offering of any NCIs or Preference Shares (if issued) or distribution of this Information Memorandum in any jurisdiction where action for that purpose is required. Accordingly, no NCIs or Preference Shares (if issued) may be offered or sold, directly or indirectly, and neither this Information Memorandum nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Information Memorandum or any NCIs or Preference Shares (if issued) come must inform themselves about, and observe, any such restrictions. In particular, there are restrictions on the distribution of this Information Memorandum and the offer and sale of NCIs in Australia, the United Kingdom, the European Economic Area, Hong Kong, Singapore, Japan and the United States of America (see Subscription and Sale below).
Limited Liability of the Issuer
The liability of the Trustee as the Issuer to make payments in respect of the NCIs is limited to the assets of the Trust. The personal assets of the Trustee are not available to meet payments in respect of the NCIs except to the extent of the Trustee s fraud, negligence or wilful default.
See further Description of the Issuer below.
4 Disclosure of Interest
Each of the Joint Lead Managers and the Initial Subscriber discloses that it and its respective Related Parties or Associates and their respective directors and employees:
(a) may have a pecuniary or other interest in the NCIs; and
(b) will receive fees, brokerage and commissions, and may act as principal, in any dealings in the Wis.
References to credit ratings
There are references in this Information Memorandum to credit ratings. A credit rating is not a recommendation to buy, sell or hold securities and does not comment on the adequacy of market price or the suitability of any security for a particular investor. A credit rating may be subject to revision, suspension, withdrawal or placed on ratings watch at any time by the relevant rating agency. Each rating should be evaluated independently of any other rating.
No rating agency has been involved in the preparation of this Information Memorandum.
References in this Information Memorandum to:
(a) "S P" are to Standard Poor s Rating Services, a division of the McGraw Hill Companies Inc. or any of its subsidiaries or successors;
(a) "Moody s" are to Moody s Investor Services Pty Ltd or any of its subsidiaries or successors; and
(b) "Fitch" are to Fitch Ratings Limited or any of its subsidiaries or successors.
Disclaimers
The NCIs do not represent deposits or other liabilities of National or any Related Parties or Associates of National.
No Party in any way:
(a) stands behind the NCIs, the Trust or the Preference Shares (if issued), except to the extent of their specific obligations under the Transaction Documents;
(b) makes any representation about the value or performance of the NCIs, the Trust or the Preference Shares (if issued);
(c) makes any representation with respect to income tax or other taxation consequences of any investment in or holding of NCIs or the Preference Shares (if issued); or
(d) guarantees the distributions or return of investment in respect of the NCIs or the Preference Shares (if issued).
The holding of the NCIs is subject to investment risk, including possible delays in repayment and loss of distributions or return of investment in respect of the NCIs (see Risk Factors below).
5 U.S. INFORMATION
NEITHER THE NCIS NOR THE PREFERENCE SHARES HAVE BEEN OR WILL BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. NEITHER THE NCIS NOR THE PREFERENCE SHARES (IF ISSUED) MAY BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) UNLESS THE NCIS OR THE PREFERENCE SHARES (AS THE CASE MAY BE) ARE REGISTERED UNDER THE SECURITIES ACT OR OFFERED AND SOLD IN COMPLIANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. NEITHER THE NCIS NOR THE PREFERENCE SHARES HAVE BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY IN THE UNITED STATES, NOR HAVE THE FOREGOING AUTHORITIES APPROVED THIS INFORMATION MEMORANDUM OR CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE INFORMATION CONTAINED IN THIS INFORMATION MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.
NO PARTY MAKES ANY REPRESENTATION TO ANY INVESTOR IN THE NCIS OR THE PREFERENCE SHARES (IF ISSUED) REGARDING THE LEGALITY OF ITS INVESTMENT UNDER ANY APPLICABLE LAWS. ANY INVESTOR IN THE NCIS OR THE PREFERENCE SHARES (IF ISSUED) SHOULD BE ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN THE NCIS OR THE PREFERENCE SHARES (AS THE CASE MAY BE) FOR AN INDEFINITE PERIOD OF TIME.
6 TABLE OF CONTENTS
TRANSACTION DIAGRAM -... 8
TRANSACTION SUMMARY.-- 9
RISK FACTORS.---- 15
DOCUMENTS INCORPORATED BY REFERENCE ...... 24
DESCRIPTION OF THE ISSUER-. 26
DESCRIPTION OF NATIONAL LLC 2.. 32
DESCRIPTION OF NATIONAL LLC 1 35
DESCRIPTION OF NATIONAL .... 37
TERMS AND CONDITIONS OF THE NCIS 44
SUMMARY OF PRINCIPAL DOCUMENTS 66
USE OF PROCEEDS .... 87
TAXATION. . 88
SUBSCRIPTION AND SALE-- ------.---.... 92
GENERAL INFORMATION 97
INDEX OF DEFINED TERMS ..... .. .. 100 DIRECTORY - . ------.---- 103
7 TRANSACTION DIAGRAM
The diagram below setts out a simplified form of the structure of the transaction and of the expected periotrtc cash flows in the structure. This diagram is qualified in its entirety by the more detailed information contained elsewhere in this Information Memorandum.
National National legal Head Office entity
Convertible Non-interest Debentures bearing
LLC Notes
National LLC 2
LLC 2 LLC 2 Distributions Seenriti
National Capital Trust III
National Capital Instruments Distributions (NCIs)
8 TRANSACTION SUMMARY
These tables provide a sinmnary of certain principal parties and of certain principal terms of the Nat This summary is qualed in its entirety by the more detailed information contained elsewhere in this Information Memorandum.
Key parties
Issuer National Australia Trustees Limited (ABN 80 007 350 405 and Australian Financial Services Licence No. 230703) in its capacity as trustee (the "Trustee") of the Trust. See further Description of the Issuer below.
Trust A Victorian law governed special purpose trust (the "Trust"). See further Description of the Issuer below.
National LLC 2 National Capital Instruments [AUD] LLC 2, a limited liability company established under the laws of Delaware. A subsidiary of National will be the manager of National LLC 2 under Delaware law but neither it, nor National, will hold any equity interest in National LLC 2. See further Description of National LLC 2 below.
National LLC 1 National Capital Instruments [AUD] LLC 1, a limited liability company established under the laws of Delaware. A subsidiary of National will be the manager of National LLC 1 under Delaware law and a subsidiary of National ("National Sub") will hold all memberships interests in National LLC 1. See further Description of National LLC 1 below.
National National Australia Bank Limited (ABN 12 004 044 937), a limited liability company established under the laws of Australia. National is the holding company of the National group, which consists of National and its consolidated subsidiaries (the "National Group"). See further Description of National below.
National New York Branch National acting through its office at Level 28, 245 Park Avenue, New York, New York, United States of America 10167 ("National New York Branch").
National Head Office National acting through its head office at Level 13, 140 William Street, Melbourne, Victoria 3000, Australia ("National Head Office").
Initial Subscriber Deutsche New Zealand Limited, a limited liability company established under the laws of New Zealand, with its registered office at Level 6, 66 Wyndham Street, Auckland, New Zealand.
Registrar The Issuer or any other person appointed by the Issuer to maintain the register of NCIs.
9 ssuing and Paying Agent Austraclear Services Limited (ABN 80 007 350 405), a limited liability company incorporated under the laws of Australia, with its registered office at 30 Grosvenor Street, Sydney, New South Wales, Australia 2000 (the "Issuing and Paying Agent").
Summary of the Offering . . Issue The Issuer will issue A$400,000,000 Floating Rate National Capital Instruments (the "NCIs") to investors.
Each NCI is a unit in the Trust conferring an undivided share in the beneficial interest in the assets of the Trust.
NCIs do not represent deposits or securities of National, are not guaranteed by National and a NCI Holder has no claim on National for payment of any amount in respect of the NCIs.
Issue Date The NCIs are expected to be issued on 18 September 2006 (the "Issue Date").
Maturity Date The NCIs are perpetual instruments with no set maturity date. However, a NCI is redeemable for cash (subject to APRA s prior written approval) and in certain circumstances will be automatically converted into a preference share of National ("Preference Share") according to the terms of issue of the NCIs (the "NCI Terms").
Use of Proceeds The proceeds of issue of the NCIs will be used to purchase the LLC 2 Securities the proceeds which will be used, in turn, to purchase other Component Instruments as described under Subscription and Sale - Subscription, Assignment and Sale of the Relevant Instruments below.
National New York Branch will use the ultimate proceeds of issue for its general business purposes including on-lending (see further Use of Proceeds below).
Distributions on the NCIs NCIs will pay distributions ("Distributions") at a floating rate.
Distributions on the NCIs will be paid quarterly in arrears on 31 March, 30 June, 30 September and 31 December of each year commencing on 31 December 2006 (each a "Distribution Payment Date").
The amount of each Distribution will be calculated in accordance with the relevant formula set out in the terms and conditions of the NCIs (the "NCI Terms") (see Terms and Conditions of the NCIs - Distributions below).
10 Distranstion Limitations Distributions on the NCIs are limited to the distributions received from National LLC 2 on the LLC 2 Securities and distributions on the LLC 2 Securities are limited to interest received by National LLC 2 from National LLC 1 on the LLC Notes. Payment of interest on the LLC Notes is subject to the tests and conditions set out in the terms of the LLC Notes (see Summary of Principal Documents - Terms of the LLC Notes below). In turn, interest on the LLC Notes is limited to interest received by National LLC I from National New York Branch in respect of the Subordinated Debentures. Payment of interest on the Subordinated Debentures is also subject to similar tests and conditions as set out in the terms of the Subordinated Debentures (see Summary of Principal Documents - Terms of the Subordinated Debentures below).
Distributions are non-cumulative and the holders of the NCIs (the "NCI Holders") will have no claim for any Distribution not paid, or for any part of any Distribution not paid pursuant to the limitations discussed above.
Consequences of Non-Payment Failure to pay in full, for any reason, Distributions on or of Distributions within seven Business Days of the scheduled Distribution Payment Date, will trigger the Conversion Event (see Terms and Conditions of the NCIs - Conversion), but will not constitute an event of default and will not otherwise entitle the NCI Holder to a return of its investment.
Failure to pay in full, for any reason, Distributions on the scheduled Distribution Payment Date, will also immediately trigger distribution restrictions for National as described in the Terms and Conditions of the NCIs - Distributions - Restrictions in the case of non-payment and, when the Preference Shares are issued, substantially in the form described in Summary of Principal Documents - Terms of the Preference Shares - Dividends - Distribution Restrictions below.
1 1 Withholding Tax and The Issuer will make all payments of Distributions without Additional Amounts deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, the Issuer must pay the full amount required to be deducted to the relevant revenue authority and, subject to:
(a) certain exceptions (see Terms and Conditions of the NCIs - Payments to NCI Holders - Gross-up below); and
(b) having received sufficient amounts from National LLC 2 in respect of the LLC 2 Securities or from National under the NCI Gross-up Indemnity (as defined below),
an additional amount ("Additional Amount") to the NCI Holders so that the NCI Holders receive the same amount in respect of that payment as if no such deduction had been made from the payment.
National will covenant in a deed of covenant entered into between National, National LLC 1, National LLC 2 and the Issuer (the "Deed of Covenant") to indemnify the Issuer for the payment of any Additional Amounts (See Summary of Principal Documents - Terms of the Deed of Covenant - Undertakings by National below) (the "NCI Gross-up Indemnity"), subject to the same tests and conditions that apply to payment of interest on the Subordinated Debentures (see Summary of Principal Documents - Terms of the Subordinated Debentures - Interest below).
Conversion Events In certain circumstances the Conversion Event (as defined in the NCI Terms (see Terms and Conditions of the NCIs - Conversion below)) will occur with respect to the NCIs. A NCI Holder may not initiate the Conversion Event.
Conversion Mechanics Upon the occurrence of the Conversion Event, each NCI will be redeemed in consideration for the delivery of a Preference Share in accordance with the steps set out under Summary of Principal Documents - Terms of the Convertible Debentures - Conversion below. In certain circumstances National may be prevented by law from issuing the Preference Shares (see Summary of Principal Documents - Terms of the Convertible Debentures - Failure to Issue Preference Shares below).
Optional Redemption Subject to APRA s prior written approval, National has the option to redeem for cash:
(a) all (but not some) of the Convertible Debentures on the occurrence of a Regulatory Event, a Tax Event or an Acquisition Event (each as defined in the NCI Terms (see Terms and Conditions of the NCIs - Interpretation and Definitions - Definitions below));
12 and
(b) some or all of the Convertible Debentures on the Step- Up Date or any subsequent date which is a Distribution Payment Date in respect of the NCIs.
A redemption of the Convertible Debentures will, in turn, trigger a redemption of the NCIs for cash (see Terms and Conditions of the NCIs - Redemption below).
Redemption Price Where the NCIs are redeemed as provided under "Optional Redemption" above, they will be redeemed in consideration of the payment of the Redemption Price. This will generally be an amount equal to the Liquidation Amount of the NCIs plus any accrued but unpaid Distribution for the then current Distribution Period.
See further - Terms and Conditions of the NCI s - Redemption - Redemption Price below.
Voting and Other Rights The Trust Deed contains provisions for convening meetings of the NCI Holders to consider any matter affecting their interests, including any variation of the NCI Terms which requires the consent of NCI Holders.
Subject as provided above, NCI Holders will have no voting rights in respect of National Head Office, National New York Branch, National LLC 1, National LLC 2, the LLC Manager, National Sub or the Trustee (each a "National Entity") unless and until the Preference Shares are issued (see further Summary of Principal Documents - Terms of the Preference Shares - Voting and Other Rights below).
No Set-Off A NCI Holder has no right to set off any amounts owing by it to any National Entity against any claims owing by any National Entity and no offsetting rights or claims on any National Entity if a National Entity does not pay a Distribution or interest when scheduled under any Component Instrument.
No Guarantee Payments on the NCIs are not guaranteed by National or any Related Parties or Associates of National.
Not Deposit Liabilities The NCIs do not represent deposits or other liabilities of National or any Related Parties or Associates of National.
Rating It is expected that the NCIs, when issued, will be assigned an "A2" rating by Moody s, on "A-" rating by S P and in "A+" rating by Fitch.
Listing Neither the NCIs nor the Preference Shares (if issued) will be listed on any stock exchange.
Clearing and Settlement It is expected that the NCIs will be eligible to be lodged into
13 Austraclear. If issued, it is expected that the Preference Shares will also be eligible to be lodged into Austraclear. See further General information - Clearing Systems below.
Risk Factors An investment in the NCIs is subject to investment risks, including possible delays in repayment and loss of distributions and the amount invested in respect of the NCIs. See Risk Factors below.
Selling Restrictions The NCIs are not to be offered and sold in Australia to any person who is a retail client for the purposes of Chapter 7 of the Corporations Act and the Preference Shares, if issued, must not be offered or sold in Australia to a person for which disclosure is required under Part 6D.2 of the Corporations Act and, in each case, only in circumstances which otherwise comply with laws and restrictions or any applicable jurisdiction. There are also specific restrictions on offering or selling the NCIs in the United Kingdom, the European Economic Area, Hong Kong, Singapore, Japan and the United States. See Subscription and Sale below.
Governing Law The LLC 2 Securities, the LLC 2 Security Terms, the LLC 2 Agreement, the LLC 1 Agreement, the LLC 2 Management Agreement, the LLC 1 Management Agreement and the LLC I Common Securities are governed by the laws of the State of Delaware, United States of America.
The Preference Shares (if issued), the Preference Share Terms and each of the other Component instruments and Transaction Documents will be governed by the laws of Victoria, Australia other than the Agency Agreement, which will be governed by the laws of New South Wales, Australia.
Transaction Documents means: (a) each Component Instrument (including, in each case, the terms of such Component Instrument);
(b) each document constituting a Component Instrument;
(c) the Agency Agreement, the NCI Subscription Agreement and the Subscription, Sale and Assignment Agreement;
(d) the LLC 1 Agreement, LLC 1 Management Agreement and the LLC 2 Management Agreement; and
(e) any other document agreed by the parties to be a Transaction Document,
(the "Transaction Documents").
14 RISK FACTORS
Prospective isvestors should consider carefully the risks set forth below and the other information contained in this Information Memorandum prior to making any investment decision with respect to the NCIs.
Each of the risks highlighted below as being risks relating to National and its business could have a material adverse effect on National s business, operations, financial condition or prospects, which, in turn, could have a material adverse effect on the amount which investors will receive in respect of the NCIs. In addition, each of the risks highlighted below as being risks relating to the Nas could adversely affect the trading price of the NCIs or the rights of investors under the NCIs and, as a result, investors could lose some or all of their investment.
Praspective investors should note that the risks described below are not the only risks faced by the Issuer and National. The Issuer and National have described only those risks relating to their operations that they consider to be material. There may be additional risks that the Issuer or National currently considers not to be material or of which it is not currently aware, and any of these risks could have the effects set forth above.
Risks relating to the Issuer
Payments on the NCIs will only be made from the assets of the Trust The Trustee will issue the NCIs in its capacity as trustee of the Trust.
A NCI Holder s claim against the Trustee with respect to the NCIs is limited to and can be enforced only to the extent to which the claim can be satisfied out of the assets of the Trust. Except in the case of fraud, wilful default or negligence of the Trustee, the assets of the Trustee in its personal capacity are not available to meet payments of Distributions or repayments of the amount invested in respect of the NCIs.
The assets of the Trust are limited The assets of the Trust consist only of the LLC 2 Securities and the rights of the Issuer under the Transaction Documents.
If the assets of the Trust are not sufficient to make payments of Distributions or repayments of the amount invested in respect of the NCIs, then payments to NCI Holders will be reduced.
Risks relating to National and its business
General Economic Activity The business activities of National are dependent on the level of banking, fmance and financial services required by its customers. In particular, levels of borrowing are heavily dependent on customer confidence, employment trends, the state of the economy and market interest rates at the time. As National conducts its business in various locations, including Australia, the United Kingdom and New Zealand, its performance is influenced by the level and cyclical nature of business activity in those locations, which is, in turn, affected by both domestic and international economic and political events. There can be no assurance that a weakening in the economies in which National operates will not have a material effect on its future results.
Risks relating to the business of National As a result of its business activities, National is exposed to a variety of risks, the most significant of which are credit risk, market risk, operational risk and liquidity risk. Failure to control these
15 risks could result in material adverse effects on the financial performance and reputation of National.
Credit Risk Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of the businesses of National. Adverse changes in the credit quality of its borrowers and counterparties or a general deterioration in the economic conditions in the locations in which it operates or globally, or arising from systemic risks in the financial systems, could affect the recoverability and value of its assets and require an increase in the provision for bad and doubtful debts and other provisions of National.
Market Risk The most significant market risks National faces are interest rate, foreign exchange and bond and equity price risks. Changes in interest rate levels, yield curves and spreads may affect the interest rate margin realised between lending and borrowing costs. Changes in currency rates affect the value of assets and liabilities dominated in foreign currencies and may affect income from foreign exchange dealing. The performance of financial markets may cause changes in the value of the investment and trading portfolios of National. National has implemented risk management methods to mitigate and control these and other market risks to which it is exposed and exposures are constantly measured and monitored. However, it is difficult to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on the financial performance and business operations of National.
Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Losses can result from fraud, errors by employees, failure to document transactions properly or to obtain proper internal authorisation, failure to comply with regulatory requirements and conduct of business rules, equipment failures, natural disasters or the failure of external systems, for example, those of suppliers or counterparties. Although National has implemented risk controls and loss mitigation actions and substantial resources are devoted to developing efficient procedures and to staff training, there are always elements of residual operational risk which cannot be entirely mitigated.
Liquidity Risk The inability of any bank, including National, to anticipate and provide for unforeseen decreases or changes in funding sources could have consequences on such bank s ability to meet its obligations when they fall due.
Impact of Regulatory Changes National is subject to financial services laws, regulations, administrative actions and policies in the locations in which it operates. Changes in supervision and regulation, in particular in Australia, could materially affect the business of National, the products and services offered or the value of its assets. Although National works closely with its regulators and continually monitors the situation, future changes in regulation, fiscal or other policies can be unpredictable and are beyond the control of National.
National is subject to capital requirements that could limit its operations National is subject to capital adequacy guidelines adopted by the Australian Prudential Regulation Authority ("APRA") for a bank or a bank holding company, which provide for a minimum ratio of total capital to risk-adjusted assets both on a solo basis and on a consolidated basis. National s
l6 failure to maintain its ratios may result in administrative actions or sanctions against it which may impact its ability to fulfil its obligations under the Subordinated Debentures (with the effect that the Issuer would not be able to make scheduled payments on the NCIs) or the Preference Shares (if issued)). APRA has recently revised its capital adequacy regime following the introduction of Australian equivalent International Financial Reporting Standards. This revised regime became effective on 1 July 2006 and the NCIs are being issued under this regime. The revised regime also provides for transition arrangements and National is working in conjunction with APRA as to the application of transition provisions to it.
In addition, the risk-adjusted capital guidelines (the "Basel Accord") promulgated by the Basel Committee on Banking Supervision (the "Basel Committee"), which form the basis for APRA s capital adequacy guidelines, have recently been revised. In June 2004, the Basel Committee published International Convergence of Capital Measurement and Capital Standards, a Revised Framework ("Basel II"). APRA currently expects to implement Basel II on a common starting date of I January 2008. The principal changes effected by the revised guidelines include the application of risk-weighting (depending upon the credit status of certain customers, using an "internal ratings-based" approach to credit risk, and subject to approval of supervising authorities), allocation of risk assets in relation to operational risk and supervisory review of the process of evaluating risk measurement and capital ratios. At this time, National is unable to predict how the revised guidelines will affect its calculations of capital and the impact of these revisions on other aspects of its operations.
Risks relating to the NCIs
NCIs may not be a suitable investment for all investors Each potential investor in any NCIs must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
(a) have sufficient knowledge and experience to make a meaningful evaluation of the NCIs, the merits and risks of investing in the NCIs and the information contained or incorporated by reference in this Information Memorandum;
(b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the NCIs and the impact such investment will have on its overall investment portfolio;
(c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the NCIs, including where the currency for payments in respect of the NCIs is different from the potential investor s currency;
(d) understand thoroughly the terms of the NCIs; and
(e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
The NCIs are complex financial instruments. A potential investor should not invest in NCIs unless it has the expertise (either alone or with a financial adviser) to evaluate how the NCIs will perform under changing conditions, the resulting effects on the value of the NCIs and the impact this investment will have on the potential investor s overall investment portfolio.
17 If National s financial condition were to deteriorate, holders could lose all or a part of their investment If National s financial condition were to deteriorate, payments of distributions or other payments on the Subordinated Debentures (and, therefore, the NCIs) or the Preference Shares (if issued) could be suspended and holders would not receive any distributions or other payments. Potential investors should not assume that unfavourable market or other conditions or events will not harm National s financial condition. If National liquidates, dissolves or winds up, NCI Holders and holders of the Preference Shares (if issued) could lose all or a part of their investment. No Component Instrument is a deposit liability of National for the purposes of the Banking Act or any other similar law of any jurisdiction and no Component Instrument will be insured by any governmental agency or compensation scheme of Australia or any other jurisdiction.
If National does not issue the Preference Shares pursuant to the terms of the Convertible Debentures following the occurrence of the Conversion Event, NCI Holders will not receive them and will continue to hold the NCIs and the LLC Notes will automatically vest in National Head Office as assignee (see further Summary of Principal Documents - Terms of the LLC Notes - Assignment below). In addition, in the event of the liquidation or dissolution of the Trust in circumstances where National has not issued the Preference Shares in redemption of the NCIs, NCI Holders may not receive the full liquidation amount per NCI and the accrued and unpaid distribution for the then current Distribution Period if the Trust does not have sufficient funds after it pays its (.3 editors.
Distributions on the NCIs are subject to payment and other restrictions and are non-cumulative A Distribution on the NCIs will only be payable if and to the extent that the Trust has sufficient funds to make the payment of that Distribution. The funds available to the Trust in respect of any Distribution Payment Date will be limited to the funds it receives in respect of the LLC 2 Securities. The funds available to National LLC 2 to make a payment on the LLC 2 Securities will, in turn, be limited to the interest received from National LLC I on the LLC Notes. Payments of interest on the LLC Notes are limited to payments received by National LLC 1 on the Subordinated Debentures. In addition, interest on the LLC Notes and the Subordinated Debentures is subject to the payment tests and conditions described in the LLC Notes and Subordinated Debentures (see Summary of Principal Documents - Terms of the LLC Notes and Summary of Principal Documents - Terms of the Subordinated Debentures for details of these tests and conditions). These conditions include the exercise of the sole discretion of:
(a) in the case of the LLC Notes, the LLC Manager as manager of National LLC I; and
(b) in the case of the Subordinated Debentures, the directors of National.
Distributions will only be paid when so determined and applicable law so permits, if sufficient resources exist and if all the conditions to payment are satisfied. NCI Holders will not be entitled to recover missed Distributions because they are non-cumulative. Accordingly, if Distributions on the NCIs for any Distribution Period are not paid, the NCI Holders will not be entitled to receive such Distributions (or any payment in respect of such Distributions) whether or not funds are, or subsequently become, available.
Upon the occurrence of the Conversion Event (see further Summary of Principal Documents - Terms of the Convertible Debentures - Conversion below), unless National is legally unable or otherwise fails to issue the Preference Shares on the scheduled Conversion Date, the NCIs will be redeemed for Preference Shares. Dividends on the Preference Shares are also non-cumulative and subject to payment tests and conditions (See Summary of Principal Documents - Terms of the Preference Shares below). If the Conversion Event is the failure of the Issuer to pay a
18 Distribution in MI on the Nis, holders of the Preference Shares issued as a result of that Conversion Event will also not receive any Dividends on those Preference Shares for the corresponding Dividend period, unless National pays an Optional Dividend in its absolute discretion and with the consent of APRA. National will pay Dividends on the Preference Shares only if and when declared by the directors. If the directors do not declare all or any part of a Dividend payable on any Dividend Payment Date, then holders will have no right to receive that Dividend at any time, even if National pays other Dividends in the future.
Distributions on the NCIs may be restricted by the terms of other similar instruments The terms of certain of National s outstanding instruments could limit National s ability to make payments on the Subordinated Debentures, the Convertible Debentures or the Preference Shares (if issued). If the Issuer does not make payments on the NCIs, distributions may not be permitted to be made in respect of other capital instruments National has previously issued having similar economic rights and benefits as the NCIs (such as certain other Tier 1 capital instruments issued by National, directly or indirectly). If a scheduled payment is not made in full on those capital instruments, Distributions will not be permitted to be made in respect of the NCIs.
Perpetual nature of the NCIs and the Preference Shares Neither the NCIs nor the Preference Shares (if issued) have a fixed final maturity date and holders have no rights to call for the redemption of the NCIs or the Preference Shares. Although the NCIs or the Preference Shares (if issued) may be redeemed (subject to APRA s prior written approval) in certain circumstances (including at National s option on the Step-Up Date or on any Distribution Payment Date thereafter or following the occurrence of a Tax Event, a Regulatory Event or an Acquisition Event through the redemption of the Convertible Debentures which will, in turn, trigger a redemption of the NCIs), there are limitations on National s ability to do so. Therefore, holders should be aware that they may be required to bear the financial risks of an investment in the NCIs for an indefinite period of time.
If a holder wishes to obtain the cash value of its investment, that holder will have to sell the NCIs or the Preference Shares (if issued). Neither the Distribution rate on the NCIs nor the Dividend rate on the Preference Shares will be adjusted to reflect subsequent changes in interest rates or other market conditions, National s results of operations or financial condition or any decline in the market price of National s ordinary shares. As a result, a holder may not be able to sell the NCIs or the Preference Shares (if issued) for the amount of that holder s original investment.
NCIs may be redeemed at the option of National National s ability to cause the NCIs to be redeemed may limit the market value of the NCIs (see Summary of Principal Documents - Terms of the Convertible Debentures and Terms and Conditions of the NCIs - Redemption for the circumstances in which this optional redemption right may be exercised by National). During any period when National may elect to cause the NCIs to be redeemed, the market value of the NCIs generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any redemption period. The Preference Shares (if issued) will be subject to similar redemption rights and, accordingly, their market value may be similarly limited.
In the period post the Step-Up Date, National may be expected to bring about the redemption of the NCIs or the Preference Shares (if issued) when its cost of borrowing is lower than the distribution rate on the NCIs or the Preference Shares (as the case may be). At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective rate as high as the rate of Distribution on the NCIs or the rate of Dividend on the Preference Shares (as the case may be) being redeemed and may only be able to do so at a significantly lower rate.
19 Potential investors should consider reinvestment risk in light of other investments available at that time.
NCIs may he converted into Preference Shares Because NCI Holders will receive Preference Shares when the Conversion Event occurs (unless National is legally pubic or otherwise fails to issue the Preference Shares at that time), in connection with any investment decision with regard to the NCIs, investors are also making an investment decision with regard to the Preference Shares. Prospective investors should carefully review all the information regarding the Preferences Shares contained in this Information Memorandum.
If NCI Holders receive Preference Shares following the Conversion Event, the trading value of those Preference Shares may be lower than the trading value of the NCIs, which may result in a lower return upon a sale of those Preference Shares.
Subordination National s obligations under the Subordinated Debentures and the Convertible Debentures are unsecured and will rank subordinate and junior in right of payment to National s obligations to its depositors and other creditors, including other subordinated creditors, other than subordinated creditors holding subordinated indebtedness that by its terms ranks equally with, or junior to, the holders of the Subordinated Debentures and the Convertible Debentures. Accordingly, National s obligations under the Subordinated Debentures and the Convertible Debentures will not be satisfied unless it can satisfy in full all of its other obligations ranking senior to the Subordinated Debentures and the Convertible Debentures.
Further, in the event that National is wound-up, liquidated or dissolved, the assets of National would be available to pay obligations under the Subordinated Debentures only after all payments have been made on such senior liabilities and claims.
There are no terms in the NCis, the LLC 2 Securities, the LLC Notes, the Subordinated Debentures, the Convertible Debentures or the Preference Shares (if issued) that limit National s ability to incur additional indebtedness, including indebtedness that ranks senior to or equally with the Subordinated Debentures, the Convertible Debentures or the Preference Shares (if issued) or to issue other instruments which rank senior to or equally with the Subordinated Debentures, the Convertible Debentures or the Preference Shares (if issued) (including other Tier 1 capital securities). In addition to the issue of the NCIs, National may issue further Tier I capital securities which are similar to the NCIs in other capital markets. As part of its ongoing capital management programme, National is currently considering a further Tier I capital issue in the offshore markets. Whether such an issue proceeds is dependent on market conditions, necessary approvals and other factors. if such an issue proceeds, it will be announced to ASX.
Although the NCIs may pay a higher rate of interest than comparable instruments which are not subordinated, there is a real risk that an investor in NCIs will lose all or some of his investment should National become insolvent.
The NCIs and the Preference Shares have limited voting rights A NCI Holder has limited voting rights (see Terms and Conditions of the NCIs below) at a meeting of NCI Holders. A holder of Preference Shares after the Conversion Date will also have limited voting rights as a shareholder of National (see Summary of Principal Documents - Terms of the Preference Shares - Voting and Other Rights below). This limits the rights of holders to take action with respect to the NCIs or the Preference Shares (as the case may be).
20 In addition, holders acknowledge in the terms of the NC s and in the terms of the Preference Shares (if issued) that they have no right to apply for the winding-up or administration of any National Entity, or k cause a receiver, or a receiver and manager, to be appointed in respect of a National Entity merely on the grounds that the National Entity does not make a scheduled payment of Distributions or iterest.
NCI Holders will not receive Preference Shares on the Conversion Date if National is legally anable or otherwise fails to issue the Preference Shares If on the Conversion Date National is prohibited by law from issuing the Preference Shares, National will issue the Preference Shares if and when it is no longer prohibited from doing so.
Under current Australian law, National may be prevented from issuing the Preference Shares on the Conversion Date if:
• National is in liquidation;
• APRA has assumed control of National under the Banking Act 1959 of Australia (the "Banking Act") and APRA does not cause National to issue the Preference Shares; or
• APRA has appointed a statutory manager under the Banking Act to take control of National s business and the statutory manager does not cause National to issue the Preference Shares.
See further Summary of Principal Documents - Terms of the Convertible Debentures - Failure to Issue Preference Shares below.
A holder of NC s has no rights as a shareholder of National A holder of NCIs, will not have any rights conferred on holders of the Preference Shares, including rights to receive any Dividends or other distributions in respect of the Preference Shares or to vote as a holder of the Preference Shares, until the Preference Shares are issued on the Conversion Date.
There is no prior market for NCIs or the Preference Shares The NCIs and the Preference Shares (if issued) each constitute new issues of securities with no established trading market. National cannot predict whether an active or liquid trading market for the NCIs or the Preference Shares (if issued) will develop or be sustained.
Therefore, investors may not be able to sell their NCIs or their Preference Shares (if issued) easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Illiquidity may have a severely adverse effect on the market value of the NCIs or the Preference Shares (if issued).
Modification, waivers and substitution Provisions in the Trust Deed permit defined majorities to bind all NCI Holders including NCI Holders who did not attend and vote at the relevant meeting and NCI Holders who voted in a manner contrary to the majority.
The Trust Deed also provides that:
(a) the Trustee may, without the consent of the NCI Holders, agree to certain additions and amendments to the Trust Deed (including the NCI Terms) without the consent of NCI Holders; and
21 (b) each Component Instrument (other than the NCIs and the Preference Shares (if issued) but inchmfmg the Preference Share Terms prior to the issue of the Preference Shares) may be added to or amended in certain circumstances without the consent of NCI Holders.
See further Description of the issuer - The Trust - Amendments and Modifications below.
Similar provisions are contained in the terms of the Preference Shares (if issued).
Change of law The terms of each instrument (other than the LLC 2 Securities and the LLC 1 Common Securities) are based on Australian law in effect as at the Preparation Date. The terms of the LLC 2 Securities and the LLC I Common Securities are based on Delaware law at that date. National, NATL and the Trust are formed under and subject to the laws in force in Australia and National LLC 1 and National LLC 2 are formed under and subject to the laws in force in Delaware. No assurance can be given as to the impact of any possible change to Australian or Delaware law, judicial decision or administrative practice after the Preparation Date.
Exchange rate risks and exchange controls Distributions and repayments of amounts invested in respect of the NCIs and the Preference Shares (if issued) will be made in Australian dollars. This presents certain risks relating to currency conversions if an investor s financial activities are denominated principally in a currency or currency unit (the "Investor s Currency") other than Australian dollars. These include the risk that exchange rates may significantly change (including changes due to devaluation of Australian dollars or revaluation of the Investor s Currency) and the risk that authorities with jurisdiction over the Investor s Currency may impose or modify exchange controls. An appreciation in the value of the Investor s Currency relative to Australian dollars would decrease (a) the Investor s Currency-equivalent yield on the NCIs or the Preference Shares (if issued), (b) the Investor s Currency-equivalent value of any repayments of amounts invested in respect of the NCIs or the Preference Shares (if issued) and (c) the Investor s Currency-equivalent market value of the NCIs or the Preference Shares (if issued).
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive lesser amounts in respect of the NCIs or the Preference Shares (if issued) than expected, or no amounts.
Credit ratings may not reflect all risks One or more independent credit rating agencies may assign credit ratings to the NCIs. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the NCIs. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.
Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (a) NCIs or, if issued, the Preference Shares, are legal investments for it, (b) NCIs or, if issued, the Preference Shares, can be used as collateral for various types of borrowing and (c) other restrictions apply to its purchase or pledge of any NCIs or, if issued, the Preference Shares. Financial institutions should consult their legal advisors or
22 the appropriate regulators to determine the appropriate treatment of NCIs under any applicable risk-based capital or similar rules.
23 DOCUMENTS INCORPORATED BY REFERENCE
The lb lowing documents are incorporated in, and form part of, this Information Memorandum:
(a) National s Annual Reports on Form 20-F for the financial years ended 30 September 2004 and 30 September 2905 (including the audit report and the consolidated audited financial statements of the National Group and the non-consolidated audited financial statements of National for the financial years ended 30 September 2004 and 30 September 2005 respectively);
(b) National s Half Year Consolidated Report on Appendix 4D for the six months ended 31 March 2006 (including the consolidated unaudited financial statements of the National Group for the six months ended 31 March 2006); and
(c) the statutory documents of National.
Copies of documents incorporated by reference in this Information Memorandum can be obtained from the registered office of National. Requests for such documents should be directed to National at its offices set out in the Directory at the end of this Information Memorandum.
The documents listed at (a) and (b) above contain financial information on National, as described in the table below. Other information contained in such documents is incorporated by reference into this Information Memorandum for information purposes only.
Balance sheet 2004 Page 101 Form 20-F
2005 Page 115 Form 20-F
2006 Page 20 Appendix 4D
Income statement 2004 Page 100 Form 20-F
2005 Page 114 Form 20-F
2006 Page 19 Appendix 4D
Cash flow statement 2004 Page 102 Form 20-F
2005 Page 1/6 Form 20-F
2006 Page 22-23 Appendix 4D
Accounting policies and 2004 Page 103-226 explanatory notes Form 20-F
24 2005 Page 117-249 Form 20-F
2006 Page 24-80 Appendix 4D
Review report 2006 Page 82 Appendix 4D
Audit reports 2004 Page 228 Form 20-F
2005 Page 251-252 Form 20-F
2006 Page 82 Appendix 4D
Legal and arbitration 2005 Note 44 at page 201-204 proceedings Form 20-F
2006 Note 16 at page 77-78 Appendix 4D
25 DESCRIPTION OF THE ISSUER
The Trustee incorporation National Australia Trustees Limited ("NATL") was incorporated as a public limited company under the laws of Australia on 29 December 1989. The ABN of NATL is 80 007 350 405. Its registered office is at 105-153 Miller Street, North Sydney, New South Wales 2060, Australia.
NATL will issue the NCIs in its capacity as trustee of the Trust and will acquire and hold the LLC 2 Securities in accordance with the terms of the Transaction Documents. Details of the Trust are set out under Description of the Issuer - The Trust below.
Share Capital NATL has 5 million fully paid ordinary shares on issue with a paid amount of A$2.5 million. All of the shares are held by National.
Ownership Structure NATL is a wholly owned direct subsidiary of National.
Business The principal activities of NATL are the provision of trustee, manager, executor, agent, succession and other associated commercial services. NATL is an authorised trustee corporation and holds an Australian Financial Services License under Part 7.6 of the Corporations Act (Australian Financial Services License No. 230703).
Experience NATL provides a range of services including custodial and administrative arrangements to the funds management, superannuation, property, infrastructure and capital markets sectors.
Directors The directors of NATL are as follows:
Name Business Address Principal Activities
Michael John Sharpe 105-153 Miller Street Non-Executive Director North Sydney New South Wales 2060 Australia
Robin Edward Clements 105-153 Miller Street Non-Executive Director North Sydney New South Wales 2060 Australia
Richard Louis Morath 105-153 Miller Street Executive Director North Sydney New South Wales 2060 Australia
26 Name Business Address Principal Activities
Neil James McKissock 105-153 Miller Street Non-Executive Director North Sydney New South Wales 2060 Australia
Powers of the Trustee The Trustee has all the powers in respect of the Trust that it is legally possible for a natural person or corporation to have and as though it were the absolute owner of the assets of the Trust and acting in its personal capacity. However, the Trust is a special purpose trust as described under Description of the Issuer - The Trust - Purpose of the Trust below and, accordingly, specific restrictions on the activities of the Trustee are included in the Trust Deed to reflect that special purpose (see further Description of the Issuer - The Trust - Purpose of the Trust and Description of the Issuer - The Trust - Assets of the Trust below).
Fees and Expenses of the Trustee Fees The Trustee is not entitled to a management fee out of the assets of the Trust. However, while the Trustee is a member of the National Group, the Trustee has the benefit of an agreement from National in the Deed of Covenant under which the Trustee is entitled to be paid fees by National (see further Summary of Principal Documents - Terms of the Deed of Covenant below). This agreement does not apply if the Trustee is not a member of the National Group.
Expenses While the Trustee is a member of the National Group, the Trustee has the benefit of an undertaking from National in the Deed of Covenant which entitles the Trustee to recover expenses from National (see further Summary of Principal Documents - Terms of the Deed of Covenant below). This undertaking does not apply if the Trustee is not a member of the National Group. The Trustee is only entitled to make a claim against the assets of the Trust for expenses to the extent that National fails to honour this undertaking or the undertaking does not apply.
Delegation by the Trustee The Trustee may authorise any person to act as its agent or delegate to hold title to any Asset, perform any act or exercise any discretion within the Trustee s power, including the power to appoint in turn its own agent or delegate. An agent or delegate may be an associate of the Trustee or a member of the National Group.
Limitation of liability NATL enters into the Transaction Documents and issues the NCIs only in its capacity as trustee of the Trust and in no other capacity. A liability arising under or in connection with the Transaction Documents or the Trust or in respect of the NCIs is limited to and can be enforced against NATL only to the extent of the Assets of the Trust. This limitation of NATL s liability applies despite any other provision of the Transaction Documents and extends to all liabilities and obligations of NATL in any way connected with any representation, warranty, conduct, omission, agreement or transaction related to the Transaction Documents or the Trust, however, the limitation will not apply if under a Transaction Document or by operation of law there is a
27 reduction in the limitation of NATL s liability as a result of NATL s fraud, negligence or wilful default.
Removal or Retirement of the Trustee Vohmkny retirement The Trustee may retire as the trustee of the Trust by giving 30 days notice to National and the NCI Holders.
Mandatory retirement The Trustee must retire as trustee if:
(a) the Trustee becomes "insolvent" within the meaning of section 95A of the Corporations Act;
(b) required by law; or
(e) the Trustee ceases to carry on business as a professional trustee.
When retirement or removal takes effect The retirement or removal of the Trustee as trustee takes effect when:
(a) a successor trustee is appointed; and
(b) the successor trustee obtains title to, or obtains the benefit of, the Assets, the Trust Deed and each other Component Instrument to which the Trustee is a party in its capacity as trustee.
The successor trustee and each other party to the Transaction Documents will have the same rights and obligations among themselves as they would have had if the successor trustee had been party to them at the dates of those documents.
Appointment of successor trustee If the Trustee retires or is removed as trustee, the Trustee agrees to use its best endeavours to ensure that a successor trustee is appointed as soon as possible. Any successor trustee appointed under the Trust Deed must be acceptable to National (acting reasonably).
The Trust
The Trust Deed The Trust was established in and subject to the laws of Victoria, Australia, on 12 September 2006 (being the date on which the Trust Deed was executed (the "Pre-Issue Date")), by National or a nominee of National (the "Initial NCI Holder") paying an initial settlement amount (the "Initial Settlement Amount") to subscribe for one partly paid NCI (the "Initial NCI") in settlement of the Trust. The Initial NCI is to be fully paid when all other NCIs are issued and from that time have the same rights as the other NCIs.
The detailed terms of the Trust are set out in the Trust Deed.
The Trust will terminate on the earliest of:
28 (a) the date specified by the Trustee as the date of termination of the Trust in a notice given to NCI Holders, (which notice the Trustee must give (unless National consents otherwise) if all the NCIs have been converted into Preference Shares);
(b) the date of the final distribution on dissolution of National; and
(c) the date on which the Trust otherwise terminates in accordance with the Trust Deed or by law.
If the law allows, the Trustee may extend the life of the Trust beyond the date set for termination if in the Trustee s opinion it is in the interests of NCI Holders to do so. However, no NCIs may be redeemed after the 80th anniversary of the day preceding the day the Trust commenced, unless that redemption would not offend the rule against perpetuities, or any other rule of law or equity.
Purpose of the Trust The Trust has been established as a special purpose entity for the sole purpose of issuing the NCIs, acquiring the LLC 2 Securities and entering into the transactions and associated activities contemplated by the Transaction Documents. The terms of the Trust Deed restrict the ability of the Trustee to borrow money, grant security and dispose of the LLC 2 Securities in a manner not otherwise contemplated by the Transaction Documents.
As at the Preparation Date, and prior to the issue of the NCIs, the Trust has not commenced operations (save for the issue of the Initial NCIs) and the Trust will, following the Preparation Date, undertake no activities other than those contemplated by the Transaction Documents.
Capital The beneficial interest in the Trust will be represented by the NCIs. There will be no ordinary units in the Trust and the Trustee will not be permitted to issue any NCIs after the issue Date.
Office All communications in respect of the Trust must flow through the Trustee. The Trust does not have, nor is it required under Australian law to have, a separate registered office.
Securities The Trustee (in its capacity as trustee of the Trust) will not issue any units other than the NCIs and will not issue any other securities.
Assets of the Trust The Trustee is prevented by the terms of the Trust Deed from acquiring an interest in any asset other than:
• the LLC 2 Securities;
• the Preference Shares to be issued to NCI Holders on a conversion;
• interests in bank accounts in which income or capital of the Trust is invested;
• cash, rights and benefits under the Deed of Covenant;
• cash, rights and benefits under the NCI Subscription Agreement;
29 cash, rights and benefits under the Subscription, Sale and Assignment Agreement;
• cash, rights and benefits under the Agency Agreement; and