Notice of Annual General Meeting 20 July 2006

Transcription

1 Notice of Annual General Meeting 20 July 2006 MACQUARIE BANK LIMITED ACN AM, THE GRAND BALLROOM LOWER LEVEL, THE WESTIN SYDNEY, NO. 1 MARTIN PLACE, SYDNEY, NSW

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3 Macquarie Bank Limited ABN No.1 Martin Place Telephone (61 2) Treasury Facsimile Sydney NSW 2000 Facsimile (61 2) Foreign Exchange Facsimile GPO Box 4294 Telex Metals and Energy Capital Facsimile Sydney NSW 1164 Internet Futures Telex DX SSE Debt Markets Facsimile SWIFT MACQAU2S Agricultural Commodities Facsimile June 2006 Dear Shareholder Please find enclosed notice of the 2006 Annual General Meeting of Macquarie Bank Limited (the Bank ) which will be held in The Grand Ballroom, Lower Level, The Westin Sydney, No. 1 Martin Place, Sydney, New South Wales on Thursday, 20 July 2006, at am. The Managing Director and I will comment briefly on the Bank s performance during the year to 31 March 2006 at the meeting and you are also referred to the comments in the Bank s 2006 Annual Review for further information. The meeting will cover the ordinary business transacted annually, an external nomination for election to the Board, together with the following special business: the issue of options to Executive Voting Directors; and changes to the Bank s constitution. If you are unable to attend the meeting, please appoint a proxy to attend and vote on your behalf, either online using the share registry s website or using the enclosed Proxy Form (see notes 1 to 4 on pages 3 and 4 of this booklet). Shareholders are invited to join the Board for light refreshments at the conclusion of the meeting. If you plan to attend the meeting, please bring the enclosed Proxy Form to facilitate your registration. I look forward to seeing you then. Yours faithfully David S Clarke Chairman MACQUARIE BANK LIMITED 1

4 NOTICE OF MEETING Notice is hereby given that the 2006 Annual General Meeting of Macquarie Bank Limited (ACN ) (the Bank ), will be held in The Grand Ballroom, Lower Level, The Westin Sydney, No. 1 Martin Place, Sydney, New South Wales on Thursday, 20 July 2006, at am. Registration will open at am. Ordinary Business 1. Financial Statements To consider and receive the Financial Report, the Directors Report and the Auditor s Report of the Bank for the year ended 31 March Remuneration Report To consider and, if thought fit, to pass the following as an ordinary resolution: To adopt the Remuneration Report of the Bank for the year ended 31 March Re-election of Mr HK McCann as a Voting Director To consider and, if thought fit, to pass the following as an ordinary resolution: That Mr HK McCann be re-elected as a Voting Director of the Bank. 4. Re-election of Mr LG Cox as a Voting Director To consider and, if thought fit, to pass the following as an ordinary resolution: That Mr LG Cox be re-elected as a Voting Director of the Bank. 5. Election of Mr SD Mayne as a Voting Director To consider and, if thought fit, to pass the following as an ordinary resolution: That Mr SD Mayne be elected as a Voting Director of the Bank with effect from the conclusion of the Bank s 2006 Annual General Meeting. Special Business Approval of Executive Voting Directors Participation in the Employee Share Option Plan 6. Mr AE Moss To consider and, if thought fit, to pass the following as an ordinary resolution: That the following be approved: a) participation in the Macquarie Bank Employee Share Option Plan ( Plan ) as to a maximum of 165,400 options, by Mr AE Moss, Managing Director or, if Mr Moss so elects, a Controlled Company (as defined in the rules of the Plan) of his; and b) acquisition accordingly by Mr Moss or his Controlled Company of options up to the stated maximum and, in consequence of exercise of those options, of ordinary shares of the Bank, all in accordance with the terms of the Plan and on the basis described in the Explanatory Notes on Items of Business accompanying the Notice of Meeting convening this meeting. 7. Mr MRG Johnson To consider and, if thought fit, to pass the following as an ordinary resolution: That the following be approved: a) participation in the Macquarie Bank Employee Share Option Plan ( Plan ) as to a maximum of 18,495 options, by Mr MRG Johnson, Executive Director or, if Mr Johnson so elects, a Controlled Company (as defined in the rules of the Plan) of his; and b) acquisition accordingly by Mr Johnson or his Controlled Company of options up to the stated maximum and, in consequence of exercise of those options, of ordinary shares of the Bank, all in accordance with the terms of the Plan and on the basis described in the Explanatory Notes on Items of Business accompanying the Notice of Meeting convening this meeting. 2 MACQUARIE BANK LIMITED

5 NOTICE OF MEETING 8. Mr LG Cox To consider and, if thought fit, to pass the following as an ordinary resolution: That the following be approved: a) participation in the Macquarie Bank Employee Share Option Plan ( Plan ) as to a maximum of 9,245 options, by Mr LG Cox, Executive Director or, if Mr Cox so elects, a Controlled Company (as defined in the rules of the Plan) of his; and b) acquisition accordingly by Mr Cox or his Controlled Company of options up to the stated maximum and, in consequence of exercise of those options, of ordinary shares of the Bank, all in accordance with the terms of the Plan and on the basis described in the Explanatory Notes on Items of Business accompanying the Notice of Meeting convening this meeting. beneficiaries are family members of the relevant Voting Director), such that: a) a trustee of a unit trust in which a relevant Voting Director holds less than 20% of the trust units; or b) a trustee of a fixed trust (other than a unit trust) in which a relevant Voting Director has a beneficial interest in less than 20% of the trust assets, is not excluded from voting on Items 6, 7 and 8. By order of the Board Dennis Leong Company Secretary 8 June Adoption of New Constitution To consider and, if thought fit, to pass the following as a special resolution: That with effect from the close of this meeting, the constitution of the Bank is repealed and the constitution in the form tabled at the meeting and initialled by the Chairman for the purpose of identification, is adopted as the constitution of the Bank. Voting Exclusion Statement The Bank will disregard any votes cast on Items 6, 7 and 8 by any Voting Director and any associate of a Voting Director. However, the Bank need not disregard a vote if: a) it is cast by a Voting Director or any associate of a Voting Director as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or b) it is cast by a Voting Director who is chairing the meeting, as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides. ASX has granted a waiver allowing the Bank to limit the application of ASX Listing Rule to trustees of trusts in relation to which a Voting Director benefits, or is capable of benefiting (other than a trustee of a trust in which the majority of beneficiaries or potential Notes 1. Proxies If you cannot attend, you may appoint a proxy to attend and vote for you. If you are entitled to cast two or more votes, you may nominate two persons to vote on your behalf at the meeting. If two proxies are appointed, each proxy may be appointed to represent a specified number or proportion of your votes. Fractions of votes will be disregarded. If no such number or proportion is specified, each proxy may exercise half your votes. A Proxy Form and a reply paid envelope have been included for shareholders with this Notice of Meeting. Proxy voting instructions are provided on the back of the Proxy Form. A proxy need not be a shareholder. If you wish to direct a proxy how to vote on any resolution, place a mark (e.g. a cross) in the appropriate box on the Proxy Form and your votes may only be exercised in that manner. You may split your voting direction by inserting the number of shares or percentage of shares that you wish to vote in the appropriate box. MACQUARIE BANK LIMITED 3

6 NOTICE OF MEETING 2. Online Proxy Facility You may also submit your proxy appointment online by visiting the webpage: To use this Online Proxy Facility, you will need your Shareholder Reference Number (SRN) or Holder Identification Number (HIN) and postcode, as shown on your Proxy Form. You will be taken to have signed the Proxy Form if you lodge it in accordance with the instructions on the website. If you wish to use this facility, you must lodge your Proxy Form through the facility by no later than am (Sydney time) on Tuesday, 18 July A proxy cannot be appointed electronically if they are appointed under a power of attorney or similar authority. The Online Proxy Facility may not be suitable for some shareholders who wish to split their votes on an item of business or appoint two proxies with different voting directions. Please read the instructions for the Online Proxy Facility carefully before you lodge your proxy using this facility. 3. Proxy Delivery Proxies given by post, fax or delivery must be received by the Bank s share registry, Computershare Investor Services Pty Limited, at GPO Box 242, Melbourne, Victoria, 8060 (facsimile number (03) ) or at Level 2, 60 Carrington Street, Sydney, NSW, 2000 or at the Bank s registered office in the ACT, by no later than am (Sydney time) on Tuesday, 18 July Any revocations of proxies (including online proxies) must be received at one of these places before the commencement of the meeting, or at the registration desk at The Westin Sydney for the 2006 Annual General Meeting from am on the day of the meeting until the commencement of the meeting. 4. Power of Attorney 5. Corporate Representatives If a corporate shareholder wishes to appoint a person to act as its representative at the meeting, that person should be provided with a letter or certificate authorising him or her as the company s representative (executed in accordance with the company s constitution) or with a copy of the resolution appointing the representative, certified by a secretary or director of the company. A form of certificate may be obtained from the Bank s share registry. 6. Shareholders Eligible to Vote Pursuant to Regulation of the Corporations Regulations 2001 (Cth), the holders of the Bank s ordinary shares for the purposes of the meeting, will be those registered holders of the Bank s ordinary shares at 7.00pm (Sydney time) on Tuesday, 18 July This Notice of Meeting is also being sent to holders of Macquarie Income Securities. Holders of these securities may attend the Annual General Meeting but are not entitled to vote on any of the proposed resolutions. 7. Voting at the Meeting In light of the large number of proxy votes which are usually received from the Bank s shareholders, it is intended that voting at this meeting will generally be conducted by poll, rather than on a show of hands. 8. Definitions The terms Voting Director and Executive Voting Director are defined in the Explanatory Notes on Items of Business accompanying this Notice of Meeting. If a shareholder has appointed an attorney to attend and vote at the meeting, or if the proxy is signed by an attorney, the power of attorney (or a certified copy of the power of attorney) must be received by the Bank s share registry, Computershare Investor Services Pty Limited, at the addresses or facsimile number in 3. above, or at the Bank s registered office in the ACT, by no later than am (Sydney time) on Tuesday, 18 July 2006, unless the power of attorney has been previously lodged with the Bank s share registry for notation. 4 MACQUARIE BANK LIMITED

7 Item 1: Financial Statements As required by section 317 of the Corporations Act 2001 (Cth) (the Act ), the Financial Report, Directors Report and Auditor s Report of Macquarie Bank Limited (the Bank ) for the most recent financial year will be laid before the meeting. Shareholders will be provided with the opportunity to ask questions about the reports or about the Bank generally but there will be no formal resolution put to the meeting. Item 2: Remuneration Report As required by section 250R(2) of the Act, a resolution that the Bank s Remuneration Report be adopted must be put to the vote. The Report is contained within the Directors Report in the Bank s 2006 Annual Review on pages 49 to 82. Section 250R(3) of the Act provides that the vote on the resolution is advisory only and does not bind the Voting Directors or the Bank. Shareholders will be provided with the opportunity to ask questions about or make comments on the Remuneration Report. The following paragraphs summarise the objectives and governance framework that apply to the Bank s remuneration arrangements, as presented in more detail in the Remuneration Report. Objectives With only incremental variations, Macquarie s executive remuneration approach has been in place since the Bank was founded in The overarching goal of the Bank s remuneration approach is to drive shareholder returns over the short and longer term. It does this by structuring its remuneration approach to reflect two subsidiary objectives, namely to: align the interests of staff and shareholders; and attract and retain high quality staff. Driving Shareholder Returns by Aligning the Interests of Staff and Shareholders Principles The Bank aims to grow total returns for shareholders by motivating staff through its remuneration policy to increase the Bank s net profit after tax while sustaining a high relative return on ordinary equity ( ROE ). Growing net profit after tax and sustaining a high ROE are fundamental drivers of total shareholder returns. These twin objectives encourage staff to expand existing businesses and establish promising new activities. The following principles underpin the first objective of driving shareholder returns by aligning the interests of staff and shareholders and are embedded in the Bank s remuneration system: ensuring a significant amount of remuneration is at risk and solely dependent on performance; creating a profit share pool by a formula that is linked to the key drivers of shareholder returns, namely the Bank s profitability and ROE in excess of the cost of capital; providing for staff equity purchases or option participation that create identification with shareholder interests; and providing retention and deferral arrangements that encourage a long-term commitment to the Bank and hence to shareholders. Driving Shareholder Returns by Aligning the Interests of Staff and Shareholders Outcomes The Voting Directors consider that the remuneration approach and its consistency over time have been significant factors in driving the Bank s growth in earnings, and the maximisation of both ROE and total returns to shareholders: the Bank s net profit after tax attributable to ordinary shareholders has increased from $93 million in 1996 to $916 million in 2006; and the Bank s Total Shareholder Return from its listing in 1996 to 31 March 2006 has been 1,343 per cent, more than any company in the ASX Top 50 at the time the Bank listed its shares on ASX. More details of the outcomes are provided in the Remuneration Report. Driving Shareholder Returns by Attracting & Retaining High Quality Staff Principles The second objective of driving shareholder returns by attracting and retaining high quality staff is underpinned by the following additional principles that are embedded in the Bank s remuneration system: providing remuneration arrangements which are competitive on a global basis with the Bank s peers; and providing consistency over time to ensure staff have the confidence that efforts over multiple years will be rewarded. MACQUARIE BANK LIMITED 5

8 The Bank aims to ensure that it attracts high quality staff and retains them by offering a competitive performance-driven remuneration package that encourages both long-term commitment and superior performance. The retention of staff has become even more critical as the Bank has expanded internationally, such that the Bank must be able to provide remuneration which is globally competitive. In 2006, 48 per cent of income came from offshore activities. As at 31 March 2006, 31 per cent of staff were based offshore. Driving Shareholder Returns by Attracting & Retaining High Quality Staff Outcomes Macquarie s success in staff retention is demonstrated by the very low levels of turnover experienced by the Bank. In the year to 31 March 2006, turnover at the Director levels (Executive Directors, Division Directors and Associate Directors) was less than six per cent. A consequence of this high retention is that Directors have a high average tenure at the Bank, with over one-quarter of Directors having at least ten years experience at Macquarie (or an acquired company) and another third having between five and ten years experience at Macquarie (or an acquired company), as at 31 March Board Oversight Board oversight of the Bank s remuneration policies and practices incorporates the following features: the Board Remuneration Committee comprises a majority of independent directors, with a formal charter which is available on the Bank s website; stringent processes are in place for managing conflicts of interest; and an approval framework is in place which ensures that remuneration recommendations for executives and Non- Executive Voting Directors are approved at the most appropriate level. Independent Review The Voting Directors have again sought independent advice from a US office of Towers Perrin. The key conclusions of this Review included: Macquarie has used essentially the same remuneration system since the Bank was founded; the objectives on which Macquarie s remuneration system are built are similar to those cited in other leading global investment banks; Macquarie s remuneration system: has assisted Macquarie s top-of-market total shareholder return, ROE and earnings growth over the past decade; has helped ensure that pay and performance are linked tightly; and has several links between executive reward and shareholder value creation; Macquarie s remuneration components support its remuneration principles and are very much in line with practices at peer global investment banks: fixed remuneration is modest relative to total compensation, the bulk of which is delivered through variable means (annual and long-term incentives); the annual profit share is based on profit and ROE; individual profit share awards to executives are highly differentiated based on individual contribution and results; part of the annual incentive is withheld for several years, in part in the form of company equity; and equity-based compensation (in the form of options) is used as a long-term incentive for executives; Macquarie s program differs from most of its overseas investment banking competitors in that: a much longer vesting period is imposed on Macquarie s deferred profit share; and Macquarie uses performance hurdles on its options to Executive Directors, whereas typical US practice is either to have options vest solely after the fulfilment of service requirements, or to use restricted shares which also typically vest solely based on service; and Macquarie s total remuneration as a percent of income or earnings before tax is in line with other investment banks. The findings of this review were critically evaluated by the Board s Independent Directors, being the seven Non-Executive Voting Directors. Detailed descriptions of the Bank s remuneration arrangements and other relevant disclosures are also contained in the Remuneration Report. 6 MACQUARIE BANK LIMITED

9 Noting that each Voting Director has a personal interest in their own remuneration from the Bank, as described in the Remuneration Report, the Board unanimously recommends that shareholders vote in favour of adopting the Remuneration Report. Items 3 and 4: Re-election of Voting Directors Retiring by Rotation Voting Directors, Barrie Martin, Kevin McCann and Laurie Cox, retire by rotation. Mr McCann and Mr Cox offer themselves for re-election. Mr Martin has decided not to stand for reelection and so will retire from the Board at the end of this annual general meeting. He has been an Independent Non-Executive Voting Director of the Bank since August The Board and the Bank thank Mr Martin for his significant and valuable contribution during his period on the Board. H Kevin McCann, AM, BA LLB (Hons) (Syd) LLM (Harv) FAICD Independent Voting Director joined the Board in December 1996 Lead Independent Voting Director Chairman of the Board Corporate Governance Committee Member of the Board Audit and Compliance Committee He is 65 years of age Kevin McCann brings over 30 years legal experience and considerable experience as a non-executive director of successful Australian companies to the Board. He is a former Partner of Allens Arthur Robinson, a leading firm of Australian lawyers. He was Chairman of the firm from 1995 to He practiced as a commercial lawyer specialising in Mergers and Acquisitions, Mineral and Resources Law and Capital Markets Transactions. Mr McCann is currently Chairman of Healthscope Limited, Origin Energy Limited, Triako Resources Limited and the Sydney Harbour Federation Trust and a director of BlueScope Steel Limited. His community activities include membership of the Takeovers Panel, the Defence Procurement Advisory Board and the Council of the National Library of Australia. The Board unanimously recommends that shareholders vote in favour of Mr McCann s reelection. Laurence G Cox, AO, BCom (Melb), FCPA, SF Fin Voting Director since January 1996 Executive Voting Director since March 2004 He is 67 years of age Laurie Cox has been the Joint Chairman of Macquarie Corporate Finance Limited since January 1996 and works actively within the Investment Banking Group on client relationships and assisting staff on advisory and capital market projects. He was previously Executive Chairman of the Potter Warburg Group of Companies and a Director of S G Warburg Securities of London. Mr Cox was Chairman of Australian Stock Exchange Limited from 1989 to 1994 and was a Director of ASX from its inception in He is also a former member of the International Markets Advisory Board of the NASDAQ Stock Market (USA) and was a member of the Executive Committee of the Internationale Bourses des Valeurs from 1990 to He is currently an associate of ASX and on the Executive Committee of the Australia Japan Business Co-operation Committee. Mr Cox is currently Chairman of Transurban Group, SMS Management & Technology Limited and the Murdoch Childrens Research Institute and is a Director of Smorgon Steel Group Limited. Mr Cox brings many years experience in domestic and international financial markets to the Board, which unanimously recommends that shareholders vote in favour of his reelection. Item 5: Election of External Nominee as a Voting Director In addition to the two retiring directors who are offering themselves for re-election, an external candidate, Stephen Mayne, seeks election to the Board. The following statement is based on information provided by Mr Mayne with his nomination. Stephen D Mayne, BCom (Melb) Not currently a Voting Director He is 37 years of age Stephen Mayne is a Walkley Award-winning business journalist who has worked for a range of newspapers, including The Australian Financial Review and The Age, where he was banking writer. He is also a retail corporate governance campaigner and was the founder MACQUARIE BANK LIMITED 7

10 of the independent website He has stated that he is standing on a platform that Macquarie Bank adopt US best practice and implement a blanket ban on staff from taking up shares in floats or capital raisings the Bank is managing. He has also stated that, if elected, he will resign once this policy is comprehensively implemented. Voting Directors Recommendations The Board s policy on the appointment of Directors, which is published on the Bank s website, states that the Board believes that its membership should comprise directors with an appropriate mix of skills, experience and personal attributes that allow the directors individually, and the Board collectively, to: discharge their responsibilities and duties under the law effectively and efficiently; understand the business of the Bank and the environment in which the Macquarie Bank Group operates so as to be able to agree with management the objectives, goals and strategic direction which will maximise shareholder value; and assess the performance of management in meeting those objectives and goals. Under the policy, the Board Nominating Committee has identified a number of fundamental factors as relevant to the selection and appointment of new directors. Relevantly, these include being: outstanding in capability with extensive and senior commercial experience, preferably with a listed company; and cultural fit with existing Board members and empathy to the Bank s culture. Having regard to the above and the scale and complexity of the Bank s businesses, each Voting Director believes that Mr Mayne lacks the experience and skill required of a Voting Director of the Bank. Therefore, each Voting Director believes that it is not in the best interests of the Bank s shareholders that Mr Mayne be elected and recommends that shareholders vote against his election. Macquarie s Staff Personal Dealing Policy The Bank does not permit firm allocations to staff of securities in floats or capital raisings in relation to which a Macquarie entity acts as underwriter, unless prior approval is obtained from senior management and the proposed allocation is clearly disclosed in the prospectus. Historically, such approval has only been granted in limited circumstances where the issuer of the securities is a Macquarie specialist vehicle and in order to align the interests of the relevant staff and the issuer vehicle. Whilst firm allocations to staff are prohibited, staff may apply for securities offered as part of a general public offer by completing an application form in the same manner as other retail investors. Such staff applications do not receive any priority over those of other retail investors and the Bank s policy is that all staff should be treated equally. If the issuer is already listed, applications by staff are subject to prior clearance in accordance with the Bank s embargo procedures. The US practice to which Mr Mayne refers is based on a US regulatory requirement which restricts an underwriter from allocating securities in initial public offerings to its own staff and also prohibits such allocations to employees of any investment banks, portfolio managers and certain other financial institutions and their employees, subject to exceptions. The US regulations address specific issues that arise because, in the US, securities are usually only available from underwriters. The Bank s US subsidiaries are subject to the US regulations. The Bank is of the view that its current practice in Australia is appropriate having regard to its own standards and applicable regulatory requirements. Items 6, 7 and 8: Approval of Executive Voting Directors Participation in the Employee Share Option Plan Requirement for Approval ASX Listing Rule provides that a listed company may only permit a director of the company to acquire shares or rights to shares under an employee incentive scheme where that director s participation has been approved by an ordinary resolution of shareholders. This rule applies to Voting Directors of the Bank. The approval of shareholders is sought to permit Allan Moss, Mark Johnson and Laurie Cox to participate this year, with other executives, in the Macquarie Bank Employee Share Option Plan ( Plan ) up to the maximum acquisition amounts specified in the resolutions. 8 MACQUARIE BANK LIMITED

11 Following shareholder approval at the Bank s 2005 AGM, the following options were issued to Voting Directors or their controlled companies on 1 August 2005 with an exercise price of $63.34: Allan Moss 180,000 options; Mark Johnson 16,000 options; Laurie Cox 5,620 options; and David Clarke 25,000 options. Approval Limits The maximum number of ordinary shares and options to acquire ordinary shares for which approval is sought assumes that all of the options offered to the Executive Voting Directors are granted and subsequently exercised. Terms of Issue The proposed options will be granted pursuant to the rules governing the Plan ( Rules ) and, other than as described in these Explanatory Notes, will have essentially the same terms as options issued to Executive Voting Directors under the Plan in recent years. The five year options will be granted for no cash consideration and be exercisable at the weighted average price of ordinary shares traded on ASX during the one week up to and including 1 August 2006 (adjusted for special trades and any cum-dividend trading). The options will vest as to one third of the allocation on each of 1 July 2008, 1 July 2009 and 1 July Each option cannot be exercised before vesting and will generally lapse unexercised if the relevant Executive Voting Director leaves the Bank before the option has vested. The Board has the authority to accelerate the vesting of options. The Board would consider exercising that discretion in the event of the bona fide retirement of an Executive Voting Director who has completed at least five years of service with Macquarie and who retires in good standing. Once vested, options may only be exercised if the Bank s average annual ROE for the three previous financial years has been above the 65th percentile of the corresponding figures for all companies in the then S&P/ASX 100 Index, with the condition to be examined at the time of vesting only. If the condition is not met at the time of vesting, those options which have just vested will no longer be exercisable. Background Further information about the Bank s remuneration policy for Executive Voting Directors, including details concerning the use of options, is set out in the Remuneration Report in the 2006 Annual Review (pages 49 to 82). As previously indicated, the Board Remuneration Committee commissioned an independent review of remuneration in 2006 by a US office of remuneration consultants, Towers Perrin. The review considered the overall approach to remuneration, the extent of alignment with shareholder interests and a comparison of individual remuneration for senior executives where relevant competitor information was available. General findings of the report are included in the Remuneration Report on page 57. Towers Perrin s specific conclusions on the Bank s use of options were: it is common for Macquarie s investment banking competitors to use equity-based compensation as an important part of their total remuneration programs in order to align management interests with those of shareholders; Macquarie s option program differs from typical US practice in that, in addition to the time-based vesting requirements, an ROE hurdle must be met before any option granted to an Executive Voting Director can be exercised, whereas most US option grants vest based solely on service; ROE is an appropriate measure to use for option vesting; and Macquarie s share utilisation is low relative to most other investment banking competitors. In summary, Towers Perrin s US office concluded that Macquarie s use of options provides another incentive for management to focus on ROE (a key part of value creation) as well as other factors that would drive share price appreciation. This year the Bank has made two modifications concerning the performance hurdles which apply to options issued to Executive Voting Directors: the reference group of companies has been modified to those companies comprising the S&P/ASX 100 Index in recognition of the Bank s increased size previously the larger S&P/ASX 300 Industrials Index was used; and the performance hurdle is now tested only once at the time of vesting such that the relevant tranche of options will no longer be exercisable if the performance hurdle is not MACQUARIE BANK LIMITED 9

12 satisfied at this point previously the performance hurdle, if not met, was able to be retested quarterly until expiry. As a result of the review, the Board is satisfied that for top management, compensation is appropriate and is structured in a way that is aligned with shareholder interests. The Bank believes that its remuneration policies and practices have been successful in meeting the Bank s remuneration objectives and delivering long-term value to shareholders. This is borne out by the Bank s very strong and sustained profit history and superior total shareholder returns, as discussed in the Bank s Remuneration Report. The majority of option allocations are made in broadly the same manner as the annual allocation of profit share. This allows the Bank to match reward with performance and, due to the vesting over time of employee options, provide further incentives for executives to stay with the Bank and improve the Bank s performance that will drive share price appreciation. This year, it is proposed to grant Allan Moss 165,400 options, Mark Johnson 18,495 options and Laurie Cox 9,245 options under the Plan, broadly consistent with the approach described above. The fair value of each option on grant will not be known precisely until they have been granted. However, as an indication for shareholders, the fair value has been estimated at $11.84 per option using a trinomial option pricing framework adjusted to take account of option trading period restrictions and the vesting timeframes. The following key assumptions were adopted in estimating the value of the proposed options: 5.9% p.a. risk free interest rate, four year expected average life of options, 20% volatility of share price and dividend yield of 3.2% p.a. The market price of the ordinary shares and the exercise price of the proposed options for the purpose of this calculation were assumed to be $63.99, the closing market price on 31 May Each option is exercisable into one ordinary share of the Bank. As at 31 May 2006, the number of ordinary shares on issue was 243,164,943. Assuming that each of the options that is proposed to be granted to Mr Moss, Mr Johnson and Mr Cox is exercised, the extent to which existing shareholders interests will be diluted by the exercise of these options is less than 0.1%. A summary of ASX trading in ordinary shares over the last year is shown in the following table. Summary of Trading in Macquarie Bank Limited ordinary shares on ASX from June 2005 to May 2006 Month Monthly Share Price ($) Monthly Volume (Millions) High Low Close 2005 June July August September October November December January February March April May The Executive Voting Directors eligible to participate in the Plan are Allan Moss, Mark Johnson, Laurie Cox and David Clarke. Details of the remuneration and existing Bank share and option holdings of the Executive Voting Directors are shown on pages 65 to 83 in the Directors Report in the 2006 Annual Review and in Note 37 Key management personnel disclosure in the 2006 Financial Report. As at 31 May 2006, the following options were held under the Plan by Allan Moss, Mark Johnson, Laurie Cox and David Clarke (or their controlled companies): Allan Moss 502,400 options, Mark Johnson 66,300 options, Laurie Cox 14,020 options and David Clarke 133,934 options. Mr Cox also held 1,700 options which were issued in 2001 under the Non-Executive Director Option Plan. Mr Cox became an Executive Director during the 2004 financial year. Noting the interests of the Executive Voting Directors, the proposed option grants (being consistent with the grant of options to other senior executives of the Bank) are unanimously recommended to shareholders by the Independent Directors of the Board and, if approved, will be made as soon as practicable and no later than 31 December MACQUARIE BANK LIMITED

13 Item 9: Adoption of New Constitution The Bank s constitution ( Constitution ) has not been updated in a substantial fashion since before the Bank s shares were listed on ASX in Although changes have since been made to the Constitution to address specific matters, the Bank thought it appropriate to undertake a full review of the Constitution to bring it into line with the current law and common corporate practice. In particular, developments in electronic commerce, proposed amendments to the Trade Practices Act 1974 (Cth) and various amendments to the Act and the ASX Listing Rules ( Listing Rules ) make amendments to the current Constitution advisable. As the changes introduced affect numerous provisions in the Constitution, rather than amending the current Constitution, it is proposed that a new Constitution be adopted. The changes introduced under the new Constitution are mostly of an administrative nature and the Bank believes they will not have a significant impact on shareholders. References to Articles below are to the numbering of the Articles in the new Constitution, unless otherwise indicated. The more significant of the changes are: Electronic notices of meetings (Article 34(2)) The new Constitution will explicitly enable the Bank to provide notices of general meetings to shareholders electronically (for example by ). The Bank proposes to send electronic notices to those shareholders who elect to receive notices in this manner in future to reduce costs. Period for nomination of Voting Directors (Article 49(2)) The period in which a nominee (other than a retiring Voting Director), seeking election as a Voting Director, must lodge their nomination documents with the Bank, has been extended to 45 days from 35 days before the relevant shareholder meeting. Given the long lead times involved in the production and printing of a notice of meeting and required notice periods under the Act, a longer period is desirable. This will provide the Bank with sufficient time to include the necessary resolution about the nomination in the notice of meeting and proxy form and meet production deadlines. Voting Director retirement by rotation provisions (Article 51(1)(c) & (2)) The retirement requirements in the proposed new Constitution are more consistent with common corporate practice and the Listing Rules than the current provisions. The Listing Rules require directors to retire at the third Annual General Meeting after their appointment or after three years, whichever is longer. It is proposed to remove the additional requirement in the current Constitution for 1/3 of the Voting Directors to retire each year. This is expected to have little practical impact on future retirements by rotation of Voting Directors. Payment of dividends (Article 83) The new Constitution is consistent with common corporate practice and will give the Bank more flexibility in how it pays dividends, in particular, making it explicit that the Bank may pay dividends by any form of direct credit approved by the Board. The Bank encourages shareholders to receive their dividends by electronic direct credit rather than by cheque, as this provides shareholders with faster and more secure dividend payments and also provides cost savings to the Bank. Dividend reinvestment arrangements (Articles 84 & 85) Shareholder approval of dividend reinvestment arrangements is not required under the new Constitution, in line with current common practice. The Bank introduced a dividend reinvestment plan for ordinary shareholders in There are no present plans to amend this plan. Indemnity and insurance provided to directors and officers (Article 91) The new Constitution will ensure consistency with proposed amendments to the Trade Practices Act (which have yet to be enacted at the date of this Notice) and any other future Australian legislation which may restrict how the Bank indemnifies Bank officers, by ensuring that the officer indemnity and insurance provisions in the Constitution are restricted to those which are permitted by Australian legislation in force from time to time. MACQUARIE BANK LIMITED 11

14 Sale of Unmarketable Parcels (Article 93) In line with current common practice and as permitted under the Listing Rules, the new Constitution will provide the Bank with the flexibility to introduce a facility whereby the Bank may require the sale of unmarketable parcels of Bank shares. This requirement may be applied to a shareholder holding less than a marketable parcel (currently to the value of $500 or less) of Bank shares, which may be sold for the benefit of that shareholder. The Bank has no present plans to introduce such a facility but seeks the flexibility to do so, in future, should such holdings reach a level where the servicing costs become significant. Other changes of a more administrative nature proposed to be made under the new Constitution, having had regard to changes in the Act and the Listing Rules and current common practice, include: Updating the procedures relating to registering share transfers, including allowing the Bank to impose charges on registration of a share transfer if consistent with the Listing Rules (Articles 1, 18, 19, 20 and 21). Removing the requirement for shareholder approval of redeemable preference share issues (Article 4(1)) and ensuring articles relating to the issue of preference shares are consistent with the Act (current Article 4(4)). Changes to the quorum required for class meetings to enable the sole holder in a class to constitute a quorum and to enable corporate representatives to call a poll (Article 4(3)). Broadening the lien provisions to cover amounts the Bank is required to pay by law, reasonable interest and expenses as well as providing the Bank with a contractual right to be reimbursed for certain payments to any tax or government authority relating to a shareholder or their shares (Article 7). Clarifying that any calls made by the Bank for payments due by shareholders in respect of shares are subject to any notice requirements under the Listing Rules (Article 15). Clarifying that the Board must refuse to register share transfers in certain circumstances, including during an escrow period, where required by the Listing Rules (Article 20). Allowing the Bank to transfer shares to a representative of a shareholder who has become mentally incapacitated (consistent with the replaceable rule in section 1072A of the Act) (Article 25). Broadening procedural flexibility and clarifying the conduct of shareholder meetings, including: introducing more practical means for the Bank to notify shareholders of the cancellation, postponement or change of place of a shareholders meeting (Article 34(4)); clarifying the rights of the Voting Directors to attend and speak at shareholder meetings (Article 34(10)); specifying how voting entitlements will be determined based on the share register at a specified time before a shareholder meeting (Article 35(1)); clarifying the role of the Chairman in the conduct and adjournment of shareholder meetings (Articles 37(2) & 38); clarifying that a simple majority of shareholder votes is required to pass a resolution (Article 39(2)); clarifying poll procedures (Article 40); updating the procedure for accepting votes by joint shareholders (Article 43); deleting specifications regarding the form of proxy to be used by the Bank (current Article 46); and inserting procedures to be followed if a challenge to a right to attend or vote is made (Article 47). Removing the ability of the Bank to pay any retirement benefits (other than superannuation) to a Non-Executive Voting Director (Article 52). The Bank does not have, nor has it ever had, a retirement benefits plan for its Non-Executive Voting Directors (other than normal superannuation contributions where the contributions are included within the cap on Directors fees). The proposed changes will enshrine this in the Constitution. Clarifying the Voting Directors powers of delegation to committees (Article 67(2, 4 & 5)). Updating the power of Voting Directors to declare and pay a dividend having regard to changes in the Act (Article 77). 12 MACQUARIE BANK LIMITED

15 When capitalising profits and reserves, removing the ability for Voting Directors to issue fractional certificates, as this is not practical and, for efficient administration, enabling Voting Directors to fix the value of specified assets and vest property in a trustee (Article 87(5)). Allowing the Bank to give documents to shareholders by electronic means where nominated by the shareholder (Article 88). In addition, the following redundant articles in the current Constitution have been deleted in the proposed new Constitution: Definitions In these Explanatory Notes on Items of Business the terms Executive Voting Director, Non-Executive Voting Director and Voting Director have the meaning given in the Constitution. The Voting Directors as at the date of the Notice of Meeting are: David S Clarke, Mark RG Johnson, Allan E Moss, John G Allpass, Laurence G Cox, Peter M Kirby, Catherine B Livingstone, Barrie R Martin, H Kevin McCann, John R Niland and Helen M Nugent. compliance with the old ASX constitution (current Article 2(3)(c)); restrictions on paying commissions on the issue of shares (current Article 5); certificates and CHESS statements (current Article 7); and the proportional takeover approval provisions which expired last year (current Article 48). The Bank notes that while no changes are proposed to the articles on the shareholding requirements of Voting Directors, the Bank has in place minimum shareholding requirements for both Executive Voting Directors and Non- Executive Voting Directors. This is described in the Remuneration Report in the Bank s 2006 Annual Review. A copy of the proposed new Constitution (showing the changes to the current Constitution) is available for inspection on the Bank s website, au/about_macquarie/investor_information/ annual_general_meetings.htm#nom or by contacting our Investor Relations department on (02) to request a hard copy. The Board unanimously recommends that shareholders vote in favour of adopting the new Constitution. MACQUARIE BANK LIMITED 13

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