MERGER INFO RMATIO N D O C UMENT

Transcription

1 MERGER INFO RMATIO N D O C UMENT P ROP OSED TRA NSFER OF BUSINESS By SEL ECT CREDIT UNION L TD To ENCOM PA SS CREDIT UNION L TD Select Credit Union Ltd ACN (Select) and Encompass Credit Union Ltd ACN (Encompass) propose to merge by transferring all of Select s business to Encompass. The Boards of directors of both Select and Encompass decided that cost effectiveness would be the most important factor in determining which would be the transferring, and which would be the receiving institution. Since Encompass owns its head office in Surry Hills, a transfer to Select would incur a significant transfer duty liability. Since the proposed merger is designed to benefit members overall, the respective Boards determined that Select would transfer to Encompass. The merger will proceed if members of Select and Encompass approve the merger proposal at their respective Special General Meetings and the Australian Prudential Regulation Authority (APRA) provides the necessary regulatory approvals. Please note that the merger proposal is a total package. Members can only choose to approve or not approve the merger proposal in its entirety as described in this Merger Information Document. Your Board prepared this Merger Information Document in order to provide members with information about the merger proposal. The Boards of both credit unions unanimously endorse the contents of this Merger Information Document and are not aware of any other information that is material to members' decision whether or not to approve the merger and has not previously been disclosed to members. Attached are 4 Schedules, which form part of this Merger Information Document: Schedule 1 highlights the products and services that Encompass and Select currently offer. Schedule 2 compares loans, savings and term deposit products for both credit unions. Schedule 3 sets out the fees andcharges that both credit unions currently charge members. Schedule 4 includes assurances from the Board of Select. Please read this Merger Information Document and the attachments carefully before deciding whether to attend the Special General Meeting and vote. If you have any queries, please call one of the member information lines below. Encompass Credit Union Ltd Member Information Line Telephone: bbennett@encompasscu.com.au Select Credit Union Ltd Member Information Line Telephone: mworthington@selectcu.com.au S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 OF 2 5

2 DISCLAIMER The Australian Prudential Regulation Authority (APRA) has approved this Merger Information Document pursuant to Rule 9 of the Transfer Rules No 1 of 2015 for purposes of the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth). In deciding whether to approve this Merger Information Document, APRA has consulted with the Australian Securities and Investments Commission (ASIC). Both APRA and ASIC accept no responsibility for the accuracy or otherwise of any matters contained in this Merger Information Document or attached to this Merger Information Document. THE MERGER The merger will involve a total transfer of business by Select to Encompass under the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth). On the merger date: all of the assets and liabilities of Select become assets and liabilities of Encompass; the duties, obligations, immunities, rights and privileges applying to Select apply to Encompass; each member of Select will become a member of Encompass and will be issuedwith a full paid $10 member share in Encompass (unless the member is already a member of Encompass in which case Encompass will refund the amount paid up on the Select member share); each member share in Select will be cancelled, other than the member shares of the directors of Select. If the members of Select and Encompass approve the transfer proposal, and subject to APRA granting the necessary regulatory approvals, the merger between Select and Encompass will take effect on 01 July 2016 or such later date approved by APRA. Further information about the effect of the merger on the rights and liabilities of Select s members is set out under Effect of the Merger On the Rights and Liabilities of Select Members. DEREGISTRATION OF SELECT AFTER MERGER After the merger, Select will be an empty shell company without any assets and with its directors being its only members. The Board of Select gives its assurance that it will deregister the Select company, that it will ensure that all Select funds are transferred to Encompass, and that it will prepare, sign-off and lodge financial statements for the Select company, to the extent required by law (see Schedule 4).! For the reasons set out in this Merger Information Document, both the Select and Encompass Board of directors unanimously endorse the merger proposal and recommend that you vote FOR it. Each director of Encompass and Select intends to vote FOR the merger proposal. BACKGROUND SELECT CREDIT UNION LTD Select was established in 1963 to provide financial services to the employees of Sydney County Council. In the last five years Select has accepted transfers of business from CSR & Rinker Employees Credit Union Ltd, MemberFirst Credit Union Ltd, and Tartan Credit Union Ltd. Select s current distribution and members access network comprises a head office at Sydney Olympic Park and seven branches, located in Gosford, Gymea, Homebush, S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 2 OF 2 5

3 North Ryde, Revesby, Hamilton and Merrylands, together with a suite of remote access facilities incorporating Bank@post, ATM access, EFTPOS, internet banking, mobile app banking, and telephone banking. As at 30 June 2015 Select Credit Union has 36 (full time equivalent) employees, 13,500 members, and $334million in assets. ENCOMPASS CREDIT UNION LTD The origins of Encompass Credit Union date back to 1953 when the Motor Transport Savings & Loans cooperative was formed. Subsequent mergers between several credit unions servicing various sectors of the NSW transport industry resulted in Encompass Credit Union being formed in The current Encompass distribution and members access network comprises a head office at Surry Hills and four branches, located in Chippendale near Central railway station, Parramatta, Chullora and Hamilton in Newcastle. A suite of remote access facilities incorporating Bank@post, ATM access, EFTPOS, internet banking, mobile app banking, and telephone banking is available to members. As at 30 June 2015 Encompass Credit Union has 40 (full time equivalent) employees, 16,500 members, and $286 million in assets. WHAT ARE THE REASONS FOR THE MERGER? In considering suitable merger partners, both the Select and Encompass Boards considered the benefit to members as the driver of any proposed partnership. As relatively smaller financial institutions, Select and Encompass have been exposed to market and regulatory challenges and associated cost pressures. These same market challenges have caused an escalation in voluntary merger activity throughout the credit union sector, as credit unions have sought to maintain their competitiveness by harnessing the benefits of enhanced scale and operational efficiency. The consequence of these changes is that credit unions have become stronger and more viable financial institutions. Both Select and Encompass are companies with a mutual structure registered under the Corporations Act. The mutual structure is defined by an economic test where members have equal rights, and a governance test which is effectively one member, one vote. Select and Encompass use the brands Select Mutual Banking and Encompass - People Friendly Banking respectively, because both credit unions are Authorised Deposit-taking Institutions regulated by the Australian Prudential Regulation Authority under the Banking Act. Individually however, both Select and Encompass are too small to be able to use the word bank. Both the Encompass and Select Boards recognised that a merger with each other will allow an application to be made to use the word bank, while remaining a mutual. While members understand that a credit union is a banking institution, consumer surveys consistently show that non-members do not understand the credit union model, whereas everyone understands the word bank. The proposed merger will result in a very strong and secure banking institution, it will offer staff better opportunities for development, and the expected economies of scale will allow staff to do what they do best, service and support the members. Both Encompass and Select Boards are comfortable that each has similar values. The culture of people helping people, profits remaining with the members, community participation (locally and overseas) and support of each core industry groups will not change. In arriving at the decision to recommend this merger to members, the Encompass and Select Boards reviewed the potential of a number of other credit unions and concluded this proposed merger to be the best strategic fit for the reasons outlined in this document. Both Select and Encompass Boards have been closely monitoring the market environment and regulatory trends, and expect them to intensify in the years ahead. Consequently, both Boards have recognised an opportunity to S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 3 OF 2 5

4 pursue this voluntary merger in order to achieve greater scale economies and to acquire the financial capacity to respond more easily to increasing competition. The merger will deliver tangible and immediate benefits to both Encompass and Select members in terms of access to a broader product range than is currently the case. Following the merger, it is anticipated that the merged entity will commence with assets of approximately $620 million, 30,000 members and 75 full time equivalent employees. Within 2 years, it is expected that overall operating expenses will reduce delivering an improvement in efficiency. The Boards of both Encompass and Select firmly believe this merger is in the best interests of members as it is expected to achieve an outcome that delivers a financially stronger financial institution more capable of competing in the current market, while importantly retaining both branch and distribution networks. ADVANTAGES AND DISADVANTAGES OF THE MERGER FOR MEMBERS The Boards of Select and Encompass Credit Unions believe that the merger proposal has the following advantages for members: General The merged Credit Union company name will be changed to Select Encompass Credit Union Ltd as at the merger date. The merged credit union will have a greater capacity to meet its ongoing prudential and regulatory requirements as a viable banking alternative for members. The merged credit union will remain a mutual and retain the mutuality principle of one memberone vote. This allows all members an equal opportunity to contribute to the governance of the credit union. The merged entity will use its largersize to compete for more members' business. Once the two credit unions have been fully integrated, the mergerwill release operational cost savings that will be used to enhance the range and competitiveness of member products and services. An estimated reduction in annual operational costs of over $1m per annum is expected to deliver a more efficient business cost to income ratio. The new Board will comprise four directors nominated by the Board of Select and four directors nominated by the Board of Encompass to ensure that both original entities continue to have input into the strategy of the combined entity and a role in ensuring sound governance of the combined entity. Select and Encompass currently have a wide range of retail financial services and the combined strength will allow the merged entity to provide a broader product range at competitive prices with fair fees and charges. There will be no forced redundancies as a result of the merger, indeed the staff members of the merged organisation may have improved career opportunities in the larger structure. The merger will reduce concentration risk for both parties. The merged entity will therefore have broader market coverage. Members from both Select and Encompass will have access to an increased number of branches. Specific Select members will gain access to the following existing products that Encompass members currently have access to: Savings accounts: A deeming account designed for members in receipt of a social security pension. Loan accounts: A Basic Home Loan account, fixed rate products for 2 and 5 years, a Home improvement Personal loan S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 4 OF 2 5

5 Encompass members will gain access to the following existing products that Select members currently have access to: Savings account: Edvest Savings account and a fixed term product for Edvest members Loan accounts: An Introductory Home Loan A disadvantage of the merger may be that some products and services, including fees, charges, interest rates and features may change as they are aligned over time. The Boards of Select and Encompass believe that members of both credit unions will benefit from access to the combined set of current facilities. While the interest rates applicable to current loan and term deposit facilities will be maintained for the duration of their existing term, new facilities opened post-merger will be at be at interest rates available at the time, which may or may not be better. At the time of writing, there are some differences which may be considered less favourable to members of both organisation, these items include: Select and Encompass provide different interest rates for different Saving and Loan products at the time of the merger. However, it is intended that interest rates will be aligned over time. Both Credit Unions charge different loan establishment fees. However, it is intended that loan establishment fees will be aligned over time. Fees and charges vary between both organisations, however a full review will be undertaken following the merger (refer comments below). The merged credit union intends to conduct a full review of fees and charges subsequent to integration of the two banking systems. This is anticipated to occur within 12 months of the formal merger approval. No decision on detailed fees and charges alignment has been taken to date. For further information please refer to information under Products and Services in the Encompass Directors Statement below, and to the comparison of Select s and Encompass s existing products and services in Schedules 1, 2, and 3 including details of fees, charges and interest rates. The Encompass Directors Statement reports that the merged entity intends to provide the full range of services provided prior to the merger by either credit union, upon integration of the two banking systems. The intention is to integrate the banking systems by the end of July The merger will result in 13,500 Select members joining 16,500 Encompass members. Although each member will remain entitled to one vote, some members may perceive that their voting rights are diluted as part of a larger membership group in the merged entity. The Board has considered the entirety of the merger and believes that the advantages significantly outweigh the disadvantages for members arising from the merger. EFFECT OF THE MERGER ON THE RIGHTS AND LIABILITIES OF SELECT MEMBERS After the merger, each member of Select (except its directors) will cease to be a member of Select and their $10 member share in Select will be cancelled. Each Select member will be issued with a fully paid $10 member share in Encompass and will become a member of Encompass, unless the member is already a member of Encompass in which case Encompass will refund the amount paid up on the member s Select member share. There are minor differences between the rights and liabilities attaching to member shares in Select and Encompass as set out below. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 5 OF 2 5

6 In relation to the credit union terminating membership for cause, Select members have a right to attend and be heard at the board meeting deciding whether to terminate their membership, whereas Encompass members do not have this right; Select members have no right to be paid dividends, whereas Encompass members have a right to be paid dividends determined by the board and approved by members however, Encompass has never paid dividends and has no current intention to do so; In a voluntary winding up of Select members may resolve to distribute the surplus to another credit union or mutual companyinstead of paying the surplus out equally to all members, whereas in a voluntary winding up of Encompass the surplus must be distributed equally to all members. ENCOMPASS DIRECTORS STATEMENT The directors of Encompass have provided the following statement setting out their intentions in relation to future management of the business. FUTURE DIRECTIONS The business of Encompass and Select will be integrated as soon as practical following the merger date approved by APRA. Further details about the integration process are provided in the following sections. NAMES The merged Credit Union name will be changed to Select Encompass Credit Union Ltd on the merger date. As mentioned previously, the boards of Encompass and Select intend for the merged entity to apply to APRA to allow it to use the word bank. This requires APRA consent, and member approval to change the company name. This is not expected to occur until after the merger. Members of the merged entity will be asked to approve any company name change in relation to bank. BRANCHES The administrative headquarters and registered office of Encompass is located at 59 Buckingham Street, Surry Hills, NSW Shortly following the date of the merger the head office of Select at Level 2, Quad 2, 8 Parkview Drive, Sydney Olympic Park NSW 2127 will cease to operate. Select members will be able to use the Encompass branches located at Central, Chullora, and Parramatta. Encompass members will be able to use Select s branches located at Gosford, Gymea, Homebush, North Ryde, Revesby, and Merrylands. Encompass and Select presently share a branch at Hamilton. STAFF The Select staff will become staff members of Encompass on employment terms and conditions, including salaries and accrued leave entitlements that are no less favourable than those that applied to them immediately prior to the merger. The Chief Executive of Select, Mark Worthington, will become the Chief Executive Officer of Encompass. The Chief Executive Officer of Encompass, Brian Bennett, will retire and receive a payment according to the terms of his employment contract. PRODUCTS AND SERVICES Immediately after the merger, all products currently held by members of either credit union will continue under their existing terms and conditions including interest rates, fees and charges. There will be a phase-in change to BSB, and banking authorities. Some members will have their membership numbers change. Interest rates on term deposits and fixed rate loans held at the date of the merger will remain fixed for the remainder of the term. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 6 OF 2 5

7 Encompass will maintain existing transaction fees on products held by Select members at the date of the merger for a minimum period of 12 months. After the merger Encompass will review current interest rates, fees and charges in order to ensure that pricing is fair, profitable and sustainable. Encompass will also review all loan, savings and investment products with the intention of developing a range of products that meets members needs. Members will be informed of any changes to their products in accordance with the existing terms and conditions of the products. Encompass intends to continue to provide the full range of services currently provided by either credit union. Schedules 1, 2 and 3 list and compare the products and services that Encompass and Select currently provide, including details of fees, charges and interest rates. WHAT IF THE MERGER DOES NOT PROCEED? For reasons explained elsewhere in this Merger Information Document, your Board believes the proposed merger will provide benefits to members. If the merger proposal does not proceed, the operations of Encompass and Select will continue on the basis that they do today. However, neither Encompass nor Select would have the same capacity to deliver the enhanced member services that the merged credit union would have and the credit unions would continue to absorb increasing regulatory and compliance burdens individually. Further, the Select and Encompass Boards expect the various competitive and market pressures explained elsewhere in this Merger Information Document will intensify in the years ahead, and may require both Credit Unions to identify an alternative merger partner in the medium term. There is no guarantee that an alternative future merger would be on the same terms as proposed here. Having considered a number of strategic alternatives including pursuing partnership alliances, merging with much larger mutuals, creating agency arrangements by handing over the banking licences to non-mutuals, demutualisation, and participating in a mutual aggregated balance sheet model, the boards of both Select and Encompass independently concluded that a merger of two similar sized, equally well capitalised mutual organisations with a similar geographic presence and industry based membership, was the preferred strategic option. FINANCIAL POSITION OF THE CREDIT UNIONS The following tables summarise the financial position of Encompass and Select and are based on audited financial reports for each credit union as at 30 June If you require further financial information about either credit union please call or the credit union. Contact details are set out on the front page of this Merger Information Document. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 7 OF 2 5

8 COMPARATIVE STATEMENTS OF FINANCIAL POSITION Encompass Credit Union Ltd Select Credit Union Ltd Audited Audited Audited Audited 30-Jun Jun Jun Jun-14 ($'000) ($'000) ($'000) ($'000) ASSETS Cash assets 1,402 1,374 6, Receivables due from other financial institutions 76,504 64, , ,980 Loans and advances 198, , , ,249 Other investments 1,134 1,134 2,016 2,230 Property, Plant & Equipment 7,289 7, Other assets 1,145 1,463 2,074 2,331 TOTAL ASSETS 286, , , ,604 LIABILITIES Overdrafts and borrowings 1,000 2, Deposits 242, , , ,778 Payables 2,072 2,134 2,983 3,026 Provisions 2,021 1,878 1,187 1,022 TOTAL LIABILITIES 248, , , ,826 NET ASSETS 38,220 37,539 39,795 38,778 MEMBERS' EQUITY Retained earnings (General Reserve) 33,524 32,954 37,129 36,125 Other reserves 4,696 4,585 2,666 2,653 TOTAL MEMBERS' EQUITY 38,220 37,539 39,795 38,778 COMPARATIVE STATEMENTS OF COMPREHENSIVE INCOME Encompass Credit Union Ltd Select Credit Union Ltd Audited Audited Audited Audited 30-Jun Jun Jun Jun-14 ($'000) ($'000) ($'000) ($'000) Interest income 13,388 13,900 14,118 14,804 Interest expense -5,240-5,848-5,930-6,746 Net interest income 8,148 8,052 8,188 8,058 Fee, commission & other income 1,769 1,937 1,133 1,301 Impairment losses Fee & commission expenses Other operating expenses -8,057-7,946-7,052-7,045 Total Non-Interest Expenses -8,992-8,843-7,967-7,903 Profit before income tax 925 1,146 1,354 1,456 Income tax expense Total comprehensive income for the year ,017 1,177 There has been no material change to the position of either credit union since 30 June Members will be informed of any material changes to the financial positions of either Select or Encompass. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 8 OF 2 5

9 THIRD PARTY ADVICE SELECT Select used its own internal resources to conduct a rigorous due diligence review of Encompass. Select engaged Jill Martin Consulting to review a sample of Encompass loan contracts for compliance. The purpose of the review was to satisfy the Board of Select that none of the areas under review would adversely affect the interests of depositing members. Jill Martin Consulting concluded that there were no issues reviewed that would be adversely material to the interests of member depositors on a transfer of business. ENCOMPASS A rigorous due diligence review process was performed by Encompass internal resources which formed a Due Diligence Review team. The process undertaken sought to identify any matters which warranted further investigation and identify any material issues which may impact on the viability of the entity after the transfer took effect. The review was undertaken based on due diligence templates provided by the Encompass Internal Auditor. In performing the review reliance was placed on Select reports which detailed the outcomes of assessments performed by Select Auditors, consultants and regulators over the review period. Based on the due diligence review activities undertaken the Encompass Due Diligence Review Team concluded that no adverse findings of a material nature had been identified which would negatively impact on the operations of the proposed merged entity THE PROPOSED MERGED CREDIT UNION BOARD If the merger is approved, the Board will consist of 8 elected directors, comprised of 4 current Encompass directors and 4 current Select directors, as set out in the table below. DIRECTORS OF ENCOMPASS CREDIT UNION LTD AFTER THE MERGER Director Current Credit Union Term Ends Fiona Louise Bennett Select 2018 AGM Alison Margaret Bruchhauser Encompass 2019 AGM Alexander Claassens Encompass 2019 AGM John Anthony Cottee Select 2018 AGM Paul Stephen Dunn Encompass 2017 AGM Neil Sydney Peninton Select 2019 AGM Eric Paul Priestley Encompass 2017 AGM Kristen Julie Watts Select 2017 AGM To ensure stability during the integration of Encompass and Select the boards intend that there will not be any election of directors in This is achieved by extending the term of some of the directors by 1 year. This will require approval by Encompass members at the Special General Meeting. The qualifications and experience of the 8 directors are set out in the table below. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 9 OF 2 5

10 Director Fiona Louise Bennett Alison Margaret Bruchhauser Alexander Claassens John Anthony Cottee Paul Stephen Dunn Neil Sydney Peninton Eric Paul Priestley Kristen Julie Watts Qualifications and Experience Fiona has been a Director of Select for four years, and was a director of CSR & Rinker Employees Credit Union from 1999 to Fiona s background is in accounting and financial management, primarily with CSR Ltd. Fiona is a Certified Practicing Accountant, a Graduate Member of the Australian Institute of Company Directors, and holds a Bachelor of Business degree. Alison has been a Director of Encompass Credit Union for three years. Alison s background is in Human Resource Management. Alison is currently a Lead Business Partner with Transport for NSW. Alison has completed a Diploma in Applied Business and an Advanced Personnel Management Certificate. Alex has been a Director of Encompass Credit Union for six years and is the current Chairperson of the Board Risk Committee. Alex s background is in management positions at the Rail Tram and Bus Union and he has been a Train Driver for 38 years. Alexis currently the Secretary of the Rail Tram and Bus Union, Board member of the State Super(STC), Board member of State Super Financial Services (SSFS), Executive member of Unions NSW and serves on a number of industry related committees. John has been a Director of Select for three years, and was a Director of MemberFirst Credit Union from 2006 to John s background is in Credit Union management and development. He is currently a Management Consultant. John is a Certified Practising Accountant, a Graduate Member of the Australian Institute of Company Directors, a Fellow of the Australasian Mutuals Institute and a Justice of the Peace. Paul has been a Board appointeddirectorof Encompass Credit Union for two years and is the current Chairperson of the Board Audit Committee. Paul s background is in accounting and finance management. Paul is currently the General Manager Finance and Administration for the State Transit Authority. Paul is a Chartered Accountant. Paul holds a Bachelor of Commerce degree, Master of Business Administration and a Graduate Diploma Applied Finance. Paul is a Graduate Member of the Australian Institute of Company Directors. Neil has been a director of Select Credit Union for twenty-one years and is currently Chair of the Board of Directors. Neil s background is in cost accounting and reporting and he has retired from his position as Executive Manager Business Support at Energy Australia. Neil s experience was in overseeing Energy Australia's Capital Governance Process as it applied to Enerserve. He also provided high level, extensive and detailed reporting to EA's Senior Management. Neil is a Fellow of the Australasian Mutuals Institute and a Member of the Australian Institute of Company Directors. Eric has been a director of Encompass Credit Unionfor eight years and is currently the Chairperson of the Board of Directors and the Chairperson of the Board Corporate Governance & Remuneration Committee. Eric s background is in accounting and finance management. Eric is currently the Senior Planner Assets and Systems for the State Transit Authority. Eric is a Certified Practicing Accountant. Eric holds a Bachelor of Business, Accounting degree and a Certificate of Transport Management. Eric is a Member of the Australian Institute of Company Directors. Kristen has been a director of Select Credit Union for five years. Kristen's background is in financial management and she specialises in investment governance and reporting. Kristen is currently the Group Manager Asset Programs at Ausgrid. Kristen is a Chartered Accountant, a Graduate Member of the Australian Institute of Company Directors and a Member of the Australasian Mutuals Institute. Kristen holds a Bachelor of Economics (Accounting) degree and Master of Commerce degree. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 0 OF 2 5

11 The current Directors of Select or Encompass listed below will not be directors of the merged credit union. NON-TRANSFERRING DIRECTORS Encompass Carol Anne Baillie Gillian George Mark David Harris Vicky Riddett Select John Edward Blackeby Michael Kean David Geoffrey Lee Paul John Strachan INTEREST OF OFFICERS AND OTHER STAKEHOLDERS IN THE MERGER The following directors of Select who will not become directors of Encompass will receive payments on the last business day before the merger, as listed below, subject to Select members approving the payments at its Special General Meeting. The Directors of Select are elected for three year terms. As a result of the merger proposal, four directors will voluntarily stand down from the board. Consistent with payments made to retiring directors during previous mergers with Select (CSR & Rinker Employees Credit Union Ltd in 2009 and MemberFirst Credit Union Ltd in 2012), the proposed payment represents two years of each Select director s annual remuneration. POSITION NAME BENEFIT Non-transferring Select director John Edward Blackeby John Blackeby has served as a Director for 19 years including 12 years as Chair of the Audit Committee, 2 years as Chair of the Audit and Risk Committee and 10 years as a member of the Executive and Remuneration Committee. John is currently a member of the Audit Committee. His term is due to expire in2016 Michael Kean Michael has served as a Director for 23 years including 10 years as Chair of the Corporate Governance Committee. Michael is currently a member of the Corporate Governance Committee. His term is due to expire in David Geoffrey Lee David has served as a Director for 8 years. David is currently a member of the Corporate Governance Committee. His term is due to expire in Paul John Strachan Paul has served as a Director for 10 years including 3 years as Chair of the Risk Committee. Paul is currently Chair of the Corporate Governance Committee. His term is due to expire in $44,000 (including statutory superannuation) provided he remains a director of Select until immediately before the merger. $44,000 (including statutory superannuation) provided he remains a director of Select until immediately before the merger. $44,000 (including statutory superannuation) provided he remains a director of Select until immediately before the merger. $46,000 (including statutory superannuation) provided he remains a director of Select until immediately before the merger. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 1 OF 2 5

12 The following directors of Encompass who will not remain as directors of Encompass will receive payments on the last business day before the merger, as listed below, subject to Encompass members approving the payments at its Special General Meeting. The Directors of Encompass are elected for three year terms. As a result of the merger proposal, four directors will voluntarily stand down from the board. The proposed payment represents one and a half years of each Encompass director s annual remuneration. POSITION NAME BENEFIT Carol Anne Baillie $31,220 (including statutory Carol has served as a director for 5 superannuation) provided she Non-transferring Encompass years. Carol has been a member of the remains a director of Encompass director Risk Committee and the Audit until immediately before the Committee. Her term expires in merger. Mark David Harris Mark has served as a director for 9 years. Mark has served as Chair of the Risk Committee (3 years), Chair of the Audit Committee (3 years). Mark has been a member of the Risk Committee, the Audit Committee and the Board Corporate Governance and Remuneration Committee. His term expires in 2016 and he has indicated if the merger was not to proceed, he would be seeking re-election at the 2016 AGM. Vicky Riddett Vicky has served as a director for 5 years. Vicky has been a member of the Risk Committee and the Audit Committee. Her term expires in Gillian George Gillian has served as a director for 7 years. Gillian has served as the Chair of the Risk Committee (3 years). Gillian has been a member of the Risk Committee, the Audit Committee and the Board Corporate Governance and Remuneration Committee. Her term expires in $31,220 (including statutory superannuation) provided he remains a director of Encompass until immediately before the merger. $31,220 (including statutory superannuation) provided she remains a director of Encompass until immediately before the merger. $31,220 (including statutory superannuation) provided she remains a director of Encompass until immediately before the merger. After the merger, the directors of the merged entity will be entitled to share in the amount of aggregate annual remuneration approved at each Annual General Meeting, following a recommendation from the merged entity Board. The Board determines the recommended amount of aggregate annual remuneration on the basis of independent advice and relevant market surveys conducted by an external remuneration firm. Initially the board of the merged entity will be entitled to share in aggregate annual remuneration as approved by Encompass members at its 2015 Annual General Meeting. Brian Bennett will retire as the CEO of Encompass as a result of the merger. Encompass will pay him a redundancy payment in accordance with the Encompass remuneration policy and his contract of employment on the transfer date. There will be no forced redundancies, however any employee who expresses an indication to accept a voluntary redundancy payment may do so, this may be considered subject to normal business requirements. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 2 OF 2 5

13 Other than as described above or elsewhere in this Merger Information Document: no Director or Officer of either Select or Encompass has any interest in the proposedtransferof business; no Director, Officer, member or depositor of either Select or Encompass will receive any compensation, consideration, incentive or benefit in relation to the transfer of business; no Director, Officer, member or depositor of either Select or Encompass has any agreement that is conditional upon the proposed transfer of business. CHANGES TO THE CONSTITUTION OF ENCOMPASS Encompass s Constitution will be amended as part of the Encompass member special resolution to adopt the merger. The amendments will allow the merger to take effect as described in this Merger Information Document and make other changes to assist the merged company going forward. The changes are: Changing the company s name to Select Encompass Credit Union Ltd; Replacing the existing requirement for 7 memberelected directors with the requirement to have 5 member elected directors or such greater number as determined by the Board this will allow Encompass to have 8 member elected directors when the merger takes effect; Allowing the board to appoint up to 3 additional directors for a single term inthe event of anothertransfer of business (note that Encompass will not be using this new rule in relation to this merger with Select) this mirrors an existing rule in Select s Constitution; In relation to the existing condition for a member to have 3 continuous years of membership to nominate for election as director, allowing members who joinas a result of a merger by transfer of business to include their continuous membership with the transferring company at the date of the merger to meet this condition this will allowa Select member to meet the 3 year membership conditionif her or his combined continuous membership with Select then Encompass is at least 3 years at the date of nomination; To ensure a stable transition during the merger integration of Encompass and Select, the boards intend that there will not be any election of directors in This will be achieved by extending the terms of the four existing Encompass directors going forward by one year, and the appointment of four Select directors as outlined on page 40 of the Information Document. This proposal will require approval by Encompass members at the Special General Meeting; Clarifying that the board must ensure that a personseeking election or appointment as director appears to have the necessary skills and experience that would allow him or her to make an effective contribution to board deliberations and processes, as part of its fit and proper assessment this is consistent with the process under Select s Constitution; Removing the requirement for a person tomake a written application for membership this will allow Encompass to accept new members in other ways, such as over the telephone; Removing a rule that causes a member s attendance at a members meeting to revoke any proxy appointment as this exceeds the default legal position that attendance merely suspends the proxy appointment, meaning it can resume if the member subsequently leaves the meeting this aligns the treatment of proxies with that under Select s Constitution and that of most other credit unions; Expanding the common bondto include persons employed in, or who are members of a trade union or professional association involved in, the energy industry this is to cover part of Select s existing common bond. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 3 OF 2 5

14 HOW DO MEMBERS VOTE ON THE MERGER PROPOSAL? The merger proposal will only be approved if members of Select and Encompass pass special resolutions approving the proposal. This means that in order to approve the merger proposal, at least 75% of votes members of each credit union cast on the resolution will need to be FOR the resolution. Members can vote: In person: Please arrive early if you decide to attend the Special General Meeting, as you will need to register your attendance on arrival. By proxy: Even if you cannot attend the Special General Meeting, you can vote by completing the enclosed Appointment of Proxy and sending it back in the reply paid envelope included with this notice. Voting by proxy is simple and is explained in the Appointment of Proxy form. If you wish to vote by proxy please read the Appointment of Proxy form carefully before completing it. It is important that you complete the Appointment of Proxy form correctlyotherwise your vote may not be counted. The Appointment of Proxy Form allows you to appoint the Chair of the Special General Meeting as your proxy. The Chair must exercise your proxy vote according to your direction. You may appoint other people as your proxy, however, you should be certain that they will be attending the Special General Meeting. WHAT IF I HAVE QUESTIONS ABOUT THE MERGER PROPOSAL? The Special General Meeting will provide a forum for you to raise questions in relation to the proposed merger. The Chair of the Special General Meeting will act as moderator to facilitate discussion of the proposed transfer of business. No independent moderator will be appointed. We encourage you to raise any questions that you may have in relation to the merger before the Special General Meeting and contact details are set out on the front page of this Merger Information Document. S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 4 OF 2 5

15 Schedule 1 Comparison of Products and Services (as at 31 st January 2016) Products and Services Member Shares One $10 Member Share One $10 Member Share Savings Accounts Yes refer to Schedule 2 Yes refer to Schedule 2 Term Deposits Yes refer to Schedule 2 Yes refer to Schedule 2 Loan Accounts Yes refer to Schedule 2 Yes refer to schedule 2 Fees and Charges Yes refer Schedule 3 Yes refer Schedule 3 Statements Monthly and half yearly Monthly and quarterly E-Statements Telephone Banking Internet banking Mobile Banking Cheque Books Visa Debit Card Visa Credit Card Bank@Post BPAY ATM/EFTPOS Periodic Payments Direct Debit and Credits Counter Cheques Travellers Cheques General Insurance CTP Insurance N/A Consumer Credit Insurance Financial Planning Services Car Buying Services Branch Cash $1,000 per member/day at North Ryde & Merrylands, emergency cash only at other branches at this stage Internet Banking - external transfer $3,000 per day per account $2,000 per day per membership ATM & EFT using card & PIN $1,000 per card per day $1,000 per card per day S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 5 OF 2 5

16 Schedule 2 Comparison of Loans, Savings and Term Products (as at 31 st January 2016) Transaction Savings Account On Line Savings Account Account Name emoney Account No Regrets Online Saver Select Direct Balance tiers ($) Up to $249,999 $250,000+ Up to $2,999 $3,000+ Interest rates 1.00% 2.50% 0.25% 1.75% Interest calculation Daily on whole balance Daily on proportional balance Interest credited Interest credited monthly Interest credited monthly Kick Start Saver Account Name Transaction Account Access Plus Savings/Special Purpose Accounts* Balance tiers ($) Nil $1 - $20,000- $50,000- $19,999 $49,999 $99,999 $100,000+ Interest rates 0.05% 0.01% 0.10% 0.25% 0.50% Interest calculation Daily on whole balance Daily on whole balance Interest credited Interest credited monthly Interest credited monthly * Rate will be 0.05% on whole balance from 01 Mar 16 Account Name Balance tiers ($) Up to $5,000 $5,001- $10,000 Over $10,000 Up to $5,000 $5,001- $10,000 Over $10,000 Interest rates 5.00% 2.00% 0.01% 5.00% 2.00% 0.01% Interest calculation Daily on proportional balance Daily on proportional balance Interest credited Interest credited monthly Interest credited monthly For members under 18 years of age For members under 18 years of age Cash Management Account Account Name Cash Management Balance tiers ($) $1 $4,999 $5,000 $19,999 $20,000 $49,999 $50,000 $99,999 $100,000 $249,999 $250,000+ Interest rates 0.10% 0.10% 0.15% 0.20% 0.35% 1.50% Interest calculation Daily on whole balance Interest credited Interest credited monthly Cash Management Account Account Name Cash Management Balance tiers ($) $1 $4,999 $5,000 $9,999 $10,000 $24,999 $25,000 $49,999 $50,000 $99,999 $100,000+ Interest rates 0.10% 0.25% 0.25% 0.50% 0.75% 1.50% Interest calculation Daily on whole balance Interest credited Interest credited monthly S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 6 OF 2 5

17 Edvest Account Account Name Edvest Account $1 $2,000 Balance tiers ($) $30,000+ $1,999 $29,999 No equivalent product Interest rates 0.15% 0.25% 0.50% Interest calculation Daily - on tiered balance Interest credited Interest credited monthly Deeming Account Account Name Deeming Account Balance tiers ($) $1 - $48,000 Portion above $48,000 Interest rates 1.75% 3.25% Interest calculation Calculated daily Interest credited Interest credited monthly No equivalent product Christmas Savings Account Name Christmas Club Christmas Club Balance tiers ($) $1+ $1+ Interest rates 1.00% 1.00% Interest calculation Daily on balance Daily on balance Interest credited Interest credited monthly Interest credited monthly Early withdrawal fee Nil $10 (16 th Jan - 31 st Oct) Budget/Union Account Account Name Budget and Union Accounts Budget Accounts Balance tiers ($) $1+ $1+ Interest rates 0.50% 0% Interest calculation Daily on balance Daily on balance Interest credited Interest credited monthly Interest credited monthly Home Loan (variable rate) Account Name Standard Variable Rate Super Mortgage Loan Interest Rate (indicative) 4.90% 4.64% Establishment Fees $250-$350 Nil Valuation Fee From $220 From $187 Legal Costs On application On application Redraw Fee $20 Nil Discharge Fee $200 $ Interest Only Availability Y Y S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 7 OF 2 5

18 Encompass Home Loan Package (variable rate) Account Name Package Variable Rate Interest Rate (indicative) 4.70% Package Fee $375pa Establishment Fee $0 Valuation Fee From $220 Legal Costs On application Redraw Fee $20 Discharge Fee $200 Interest Only Availability Y No equivalent product Introductory Home Loan Account Name Introductory Rate for 12 months 1 Year Introductory No equivalent product 3.99% Encompass Basic Home Loan (variable rate - new loans only) Account Name Basic Home Loan Interest Rate (indicative) 4.30% Establishment Fee $250-$350 Valuation Fee From $220 Legal Costs On application Redraw Fee $20 Discharge Fee $200 Interest Only Availability Y No equivalent product Fixed Rate Home Loan (3 Year Fixed Rate) Account Name Fixed Interest Rate 3 Year Super 3 Year Fixed Interest Rate 4.34% 4.34% Establishment Fees $250-$350 Nil Valuation From $220 From $187 Legal Costs On application On application Redraw Fee $20 Nil Discharge Fee $200 $ Fixed Rate Loan Summary (All fixed rate loans) Account Name 1 Year Fixed 3.99% (package not offered) 3.99% (Introductory Home Loan) 2 Years Fixed 4.54% (package 4.44%) No equivalent product 3 Years Fixed 4.34% (package 4.24%) 4.34% 5 Years Fixed 4.94% (package 4.84%) No equivalent product S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 8 OF 2 5

19 Home Equity Line of Credit Account Name Equity Home Loan Super Equity Loan Interest Rate 5.40% 4.99% Establishment Fees $250-$350 Nil Valuation From $220 From $187 Legal Costs On application On application Redraw Fee $20 Nil Discharge Fee $200 $ Bridging Loan Account Name Bridging Loan Super Bridging Loan Interest Rate 5.60% 4.99% Establishment Fees $350 Nil Valuation From $220 From $187 Legal Costs On application On application Discharge Fee $200 $ Home Improvement Personal Loan Account Name Home Improvement Loan Interest Rate 12.00% Establishment Fees $100-$150 Legal Costs On application Redraw Fee $10 No equivalent product Offset Loan Account Name Offset Home Loan Super Offset Loan Rate 100% offset 100% offset Establishment Fees $250-$350 Nil Valuation From $220 From $187 Legal Costs On application On application Discharge Fee $200 On application Unsecured Personal Loan Account Name Unsecured Personal Loan Unsecured Personal Loan Interest rate 15.70%-18.70% 10.99% Establishment fee $100-$150 $0-$ Contract variation fee Nil Nil Administration fee $5.00 pm Nil Redraw fee $10 Nil S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 1 9 OF 2 5

20 Secured Personal Loan Account Name Secured Personal Loan Secured Personal Loan Interest rate 4.90% % 6.99%-10.99% Establishment fee $100-$150 $0-$150 Contract variation fee Nil Nil Administration fee $5.00 pm Nil Redraw fee $10 Nil New Car Loan Account Name New Car Loan New Car Loan Interest rate 6.45% 6.99% Establishment fee $100-$150 $0-$150 Contract variation fee Nil Nil Administration fee $5.00 pm Nil Redraw fee $10 Nil Used Car Loan Account Name Used Car Loan Used Car Loan Interest rate 7.99% 8.69% Establishment fee $100-$150 $0-$150 Contract variation fee Nil Nil Administration fee $5.00 pm Nil Redraw fee $10 Nil Overdraft/Line of Credit Account Name Overdraft/Line of Credit Overdraft/Line of Credit Interest rate 15.45%-15.70% 10.99% Establishment fee $100-$150 $0-$50 Contract variation fee Nil Nil Temporary limit increase fee Nil Nil Annual review fee Nil Nil Credit card Account Name Credit Card Credit Card Interest rate 15.00% 10.99% Establishment fee Nil Nil Contract variation fee Nil Nil Temporary limit increase fee Nil Nil Annual review fee $36 $30 S e l e ct Cre d i t Un io n L t d m e rg e r wi th E nc o m p a ss Cre d i t Uni o n L t d P AGE 2 0 OF 2 5