FACTOR BANKA D.D. EUR 100,000, per cent. Notes due Guaranteed by the Republic of Slovenia

Transcription

1 FACTOR BANKA D.D. EUR 100,000, per cent. Notes due 2015 Guaranteed by the Republic of Slovenia The issue price of the Euro 100,000, per cent. Notes due 2015 (the "Notes") of Factor banka d.d.(the "Issuer") is per cent. of their principal amount. The Notes benefit from the guarantee provided by the Republic of Slovenia. The Notes are subject to redemption in whole at their principal amount at the option of the Issuer at any time in the event of certain changes affecting taxation in the Republic of Slovenia (see "Terms and Conditions of the Notes - Redemption and Purchase"). Unless previously redeemed or cancelled, the Notes will be redeemed at their principal amount on 9 June The Notes are subject to redemption in whole at their principal amount at the option of the Issuer at any time in the event of certain changes affecting taxation in the Republic of Slovenia. The Notes will bear interest from and including 9 June 2010 at the rate of 3.25 per cent. per annum payable annually in arrears on 9 June each year commencing on 9 June Payments on the Notes will be made in Euro without deduction for or on account of taxes imposed or levied by the Republic of Slovenia to the extent described under "Terms and Conditions of the Notes Condition 6 (Taxation)". Application has been made to list the Notes on the Official List of the Luxembourg Stock Exchange and to trade them on the regulated market, which is a regulated market for the purposes of Article of the directive on markets in financial instruments (Directive 2004/39/EC). This Information Memorandum constitutes a simplified prospectus pursuant to Chapter 2 of Part III of the Luxembourg law on prospectuses for securities (loi relative aux prospectus pour valeurs mobilières) dated 10 July 2005 (the "Luxembourg Prospectus Law"). The Notes have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the "Securities Act") and are subject to United States tax law requirements. The Notes are being offered outside the United States by the Lead Manager (as defined in "Subscription and Sale") in accordance with Regulation S under the Securities Act ("Regulation S"), and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Notes are unrated. The Notes will be in bearer form and in the denomination of Euro 50,000 and integral multiples of Euro 1,000 in excess thereof up to and including Euro 99,000. The Notes will initially be in the form of a temporary global note (the "Temporary Global Note"), without interest coupons, which will be deposited on or around 9 June 2010 (the "Closing Date") with a common safekeeper for Euroclear Bank, S.A./N.V. ("Euroclear") and Clearstream Banking, société anonyme, Luxembourg ("Clearstream, Luxembourg"). The Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global note (the "Permanent Global Note"), without interest coupons, not earlier than 40 days after the Closing Date upon certification as to non-u.s. beneficial ownership. Interest payments in respect of the Notes cannot be collected without such certification of non-u.s. beneficial ownership. The Permanent Global Note will be exchangeable in certain limited circumstances in whole, but not in part, for Notes in definitive form ("Definitive Notes") in the denomination of Euro 50,000 and integral multiples of Euro 1,000 in excess thereof up to and including Euro 99,000 and with interest coupons attached. See "Summary of Provisions Relating to the Notes in Global Form". Investing in the Notes involves certain risks. The principal risk factors that may affect the abilities of the Issuer to fulfil its obligations under the Notes are discussed under "Risk Factors" below. Prospective investors should have regard to the section herein entitled "Risk Factors", and should read Condition 6 (Taxation), "Risk Factors If the Notes are not admitted to the trading on an organised (regulated) market or a multilateral trading facility within an EU member state or an Organisation for Economic Co-operation ( OECD ) member state, payments of interest under the Notes will be subject to Slovenian withholding tax" and "Taxation Republic of Slovenia" carefully before investing in the Notes. The tax treatment of Noteholders depends on their individual circumstances and may vary according to the jurisdiction of the Noteholder and is only correct as at the date hereof. Noteholders should seek their own professional tax advice if they are unsure of their tax position. Lead Manager UniCredit 7 June 2010

2 The Issuer accepts responsibility for the information contained within this document. To the best of its knowledge and belief, the information contained within this Information Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information. Save for the Issuer, no person has authorised the whole or any part of this Information Memorandum and accordingly no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by UniCredit Bank AG (the "Lead Manager") as to the accuracy or completeness of the information contained in this Information Memorandum or any other information provided by the Issuer in connection with the Notes or their distribution. The Lead Manager accepts no liability in relation to information contained or incorporated by reference in this Information Memorandum or any other information provided by the Issuer in connection with the offering of the Notes or their distribution. The Republic of Slovenia has neither reviewed this Information Memorandum nor verified the information contained in it, and the Republic of Slovenia makes no representation with respect to, and does not accept any responsibility for, the contents of this Information Memorandum or any other statements made or purported to be made on its behalf in connection with the Issuer or the offering of the Notes. The Republic of Slovenia accordingly disclaims all and any liability whether arising in tort or contract or otherwise, which it might otherwise have in respect of this Information Memorandum or any such statement. The Lead Manager expressly does not undertake to review the financial condition or affairs of the Issuer during the life of the Notes or to advise any investor in the Notes of any information coming to their attention. No person is or has been authorised to give any information or to make any representation which is not contained in, or which is not consistent with, this Information Memorandum or any other information supplied by or on behalf of the Issuer in connection with the Notes and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer or the Lead Manager. This Information Memorandum may only be used for the purposes for which it has been published. Neither this Information Memorandum nor any other information supplied in connection with the Notes (i) is intended to provide the basis of any credit or other evaluation or (ii) should be considered as a recommendation or constituting an invitation or offer by the Issuer that any recipient of this Information Memorandum should purchase any Notes. Each investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness of the Issuer. Neither the delivery of this Information Memorandum nor any sale made in connection herewith shall, under any circumstances, create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the affairs of the Issuer since the date hereof or the date upon which this Information Memorandum has been most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer since the date hereof or the date upon which this Information Memorandum has been most recently amended or supplemented or that any other information supplied in connection with the Notes is correct as of any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same. The distribution of this Information Memorandum and the offer or sale of Notes may be restricted by law in certain jurisdictions. The Issuer and the Lead Manager do not represent that this document may be lawfully distributed or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken 1

3 by the Issuer or the Lead Manager which would permit a public offering of the Notes or distribution of this document in any jurisdiction where action for that purpose is required. Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this Information Memorandum nor any advertisement or other offering material may be distributed or published, in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Information Memorandum or any Notes come must inform themselves about, and observe any such restrictions. In particular there are restrictions on the distribution of this Information Memorandum and the offer or sale of Notes in the United States, the United Kingdom and Italy. For a description of further restrictions on offers and sales of Notes and distribution of this Information Memorandum see "Subscription and Sale" below. The Notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") and are subject to U.S. tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to U.S. persons. This Information Memorandum does not constitute a prospectus pursuant to Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 (the "Prospectus Directive"). Accordingly, this Information Memorandum does not purport to meet the format and the disclosure requirements of the Prospectus Directive and Commission Regulation (EC) No. 809/2004 implementing the Prospectus Directive, and it has not been, and will not be, submitted for approval to any competent authority within the meaning of the Prospectus Directive and in particular the Supervisory Commission of the Financial Sector (Commission de Surveillance du Secteur Financier), in its capacity as competent authority under the Luxembourg Prospectus Law. The Notes, issued pursuant to this Information Memorandum, will therefore not qualify for the benefit of the single European passport pursuant to the Prospectus Directive. The Securities Market Agency (Agencija za trg vrednostnih papirjev) is the competent authority of the Republic of Slovenia for the purposes of the Prospectus Directive. In this Information Memorandum, unless otherwise specified or the context otherwise requires, references to a "Member State" are references to a Member State of the European Economic Area, references to " ", "EUR" or "Euro" are to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union (as amended from time to time); references to "USD" are to the lawful currency of the United States of America; and references to "SIT" are to the former lawful currency of the Republic of Slovenia. Certain figures included in this Information Memorandum have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be arithmetic aggregation of the figures which precede them. 2

4 CONTENTS Page INFORMATION INCORPORATED BY REFERENCE... 4 RISK FACTORS... 5 TERMS AND CONDITIONS OF THE NOTES SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM USE OF PROCEEDS DESCRIPTION OF THE ISSUER DESCRIPTION OF THE GUARANTEE TAXATION SUBSCRIPTION AND SALE GENERAL INFORMATION

5 INFORMATION INCORPORATED BY REFERENCE The information set out in the tables below shall be deemed to be incorporated in, and to form part of, this Information Memorandum provided however that any statement contained in any document incorporated by reference in, and forming part of, this Information Memorandum shall be deemed to be modified or superseded for the purpose of this Information Memorandum to the extent that a statement contained herein modifies or supersedes such statement. Such documents will be made available, free of charge, during usual business hours at the specified offices of the Fiscal Agent and The Bank of New York Mellon (Luxembourg) S.A. (the "Luxembourg Listing Agent"), unless such documents have been modified or superseded. Such documents will also be available to view on the website of the Luxembourg Stock Exchange ( For ease of reference, the tables below set out the relevant page references for the consolidated financial statements of the Group for the years ended 31 December 2009 and 2008 (together, the "Annual Consolidated Financial Statements"), the notes to such consolidated financial statements and the independent auditor's reports, as set out in the respective annual reports. Any information not listed in the cross-reference table but included in the documents incorporated by reference is given for information purposes only. The Issuer publishes interim financial statements on a semi annual basis and will publish financial data for the first half of 2010 in the third quarter of Audited Consolidated Financial Statements for the year ended 31 December 2009 * Independent Auditors' Report Consolidated Statement of Financial Position Consolidated Income statement Consolidated Statement of Changes in Shareholders' Equity Consolidated Cash flow statement Notes to the Consolidated Financial Statements Audited Consolidated Financial Statements for the year ended 31 December 2008 * Independent Auditors' Report Consolidated Balance sheet Consolidated Income statement Consolidated Statement of Changes in Shareholders' Equity Consolidated Cash flow statement Notes to the Consolidated Financial Statements * Prepared in accordance with International Financial Reporting Standards as adopted by the European Union. 4

6 RISK FACTORS The Issuer believes that the following factors may affect its ability to fulfil its obligations under the Notes. These factors are contingencies that may or may not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency occurring. Factors (although not exhaustive) which the Issuer believes could be material for the purpose of assessing the market risks associated with the Notes are described below. The Issuer believes that the factors described below represent the principal risks inherent in investing in the Notes, but the Issuer does not represent that the statements below regarding the risks of holding any Notes are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Information Memorandum and reach their own views prior to making any investment decision. Before making an investment decision with respect to the Notes, prospective investors should consult their own stockbroker, bank manager, lawyer, accountant or other financial, legal and tax advisers and carefully review the risks entailed by an investment in the Notes and consider such an investment decision in the light of the prospective investor's personal circumstances. Words and expressions defined elsewhere in this Information Memorandum have the same meanings in this section, unless otherwise stated. Risks relating to the Issuer Risks regarding increased competition in the banking sector where the Issuer conducts its business operations The banking sector in Slovenia, and in all countries where the Issuer operates, is highly competitive. The Issuer competes with a number of other domestic and foreign financial institutions, which may offer broader array of products and lower prices for the services provided. The Issuer is relatively small in terms of assets and related resources as compared with other financial institutions in the markets in which it operates. As a result, the Issuer may be less able than other financial institutions to react to increased competition. If the Issuer does not adapt its business operations as competition increases, this could have a material adverse effect on its business, results of operations and its financial position. Risks concerning general economic conditions and other business conditions The Issuer's business operations are subject to various risks, including market risk, credit risk and liquidity risk. All of the above-mentioned risks are linked to the general economic conditions and a severe downturn could result in an increase of those risks. An increase in such risks could have a materially adverse effect on the Issuer's business and funding profile. Risks relating to disruptions in the global credit markets and economy Since the second half of 2007, disruption in the global credit markets, coupled with the repricing of credit risk, has created increasingly difficult conditions in the financial markets. Financial markets are subject to periods of historic volatility which may impact the Issuer's ability to raise debt in a similar manner, and at a similar cost, to the funding raised in the past. Challenging market conditions have resulted in greater volatility but also in reduced liquidity, widening of credit spreads and lack of price 5

7 transparency in credit markets. Changes in investment markets, including changes in interest rates, exchange rates and returns from equity, property and other investments, may affect the financial performance of the Issuer. In addition, the financial performance of the Issuer could be adversely affected by a worsening of general economic conditions in the markets in which it operates. Regulatory and tax risks The Issuer is subject to extensive regulation which is applicable to the banking industry as a whole. Regulatory changes imposed by the government or a regulatory body can increase the cost of operating a business and/or change the competitive landscape. The same is true for changes in tax laws, where an increase in taxes could negatively impact the Issuer's business operations and financial position. The Issuer may have a limited capacity to raise additional capital Regulatory rules oblige the Issuer to maintain its ratio of total regulatory capital to the risk-weighted asset value above 8 per cent. (the "total capital ratio"). The ten largest shareholders of the Issuer held 91.2 per cent. of the Issuer's share capital as at 31 December 2009, while the total share of the three largest shareholders stood at 60.7 per cent. as at that date. If, in the future, the total capital ratio were projected to decline from current levels to below the regulatory 8 per cent. level as a result of increased credit activities and/or deterioration of the Issuer's operating results, the Issuer would need to raise additional capital. Concentrated ownership could pose an obstacle to raising additional capital if some of the largest shareholders were not able to participate in the capital-raising process. No assurances can be given that, if additional capital is required to be raised in future, the Issuer will be able to raise this capital on favourable terms, in a timely manner, or at all. If the Issuer is unable to raise further capital to support its growth or to strengthen its capital ratios in a timely manner, or at all, or if its capital position otherwise declines, then this may have an adverse impact on the Issuer's financial performance and its ability to implement its business strategy. The Issuer is subject to credit risk Credit risk is related to the risk of loss due to a debtor's non-payment of a loan or other line of credit (either the principal or interest or both). Credit risk is among the most important risks the Issuer faces since the Issuer's main activity is lending to third parties. The ability of the Issuer's customers to generate sufficient cash flow to repay debt and associated interest payments is highly dependent on general economic conditions. Deterioration in macroeconomic conditions could lead to a worsening of financial performance of the debtors of the Issuer, which could result in a reduction of the recoverability and value of the Issuer's assets and potential credit losses for the Issuer. Even if the loans are sufficiently covered by collateral, weaker economic conditions could lead to a decrease in the value of the collateral and result in credit loss for the Issuer. In addition, a significant deterioration in the performance of certain sectors of the Slovenian economy (in particular the financial and construction sectors), which would be driven by factors outside of the Issuer's control such as a decrease in the value of real estate and an increase in unemployment, could adversely impact the ability of borrowers in that industry to service their debt obligations to the Issuer. As a result the Issuer could experience increased delinquency risk, increased impairment charges and more write-offs, which could have a materially adverse effect on the Issuer's financial condition and results of operations. 6

8 The Issuer's exposure to markets in Central Eastern Europe may adversely affect its results of operations The Issuer has significant loan exposure to various markets in Central Eastern Europe, especially countries of the former Yugoslavia such as Croatia, Serbia and Kosovo. Specifically, as of 31 December per cent. of loans and advances to costumers of the Group was to countries in the former Yugoslavia. Also, the Issuer is exposed to other Central Eastern European countries such as Bulgaria, Poland and Ukraine. These countries are marked by better business opportunities as well as increased risks. Risks include increased volatility in economic conditions as well as political, regulatory and legal risks. If the macroeconomic conditions in those countries were to deteriorate, the abilities of borrowers from those markets to repay their debt would be severely impaired. Furthermore, an adverse movement in foreign exchange rates (i.e. a depreciation of foreign currency) may impair the ability of borrowers to repay their Euro denominated debt. If other risks, such as political risk (risks related to political changes or instability in a country) and regulatory risk (risks related to changes in regulations) were also to materialise, the Issuer's financial performance could be materially adversely affected. A deterioration of the current macroeconomic conditions, weaknesses in financial markets and increased volatility could materially adversely affect the Issuer's financial condition and results of operations Increased risk premiums, demanded by investors during a severe macroeconomic downturn, generally lead to worsening equity markets, and potentially, also debt markets. In such a situation, the Issuer's investment banking, securities trading and brokerage activities could be negatively affected. Also, the Issuer's investments in various financial instruments could fall in value. Above all, any further downturn in the economy could prevent the Issuer's debtors from fulfilling their obligations. As a result, the Issuer's financial condition and results of operations could be materially adversely affected. Risks associated with fluctuations in interest rates and other market factors are inherent in the Issuer's business Changes in interest rate levels, yield curves and spreads may affect the fair value of the Issuer's assets and the interest rate margin realised by the Issuer. An increase in interest rates may generally decrease the fair value of fixed rate loans and investment securities portfolios. However, the Issuer mitigates these risks by adhering to an interest rate risk policy based on strict internal limits of interest rate gaps. The composition of the Issuer's assets and liabilities, and any related basis risk, may cause the Issuer's reported income to vary with changes in interest rates and there can be no assurance that efforts by the Issuer to manage such risks will be entirely successful and any failure to do so may therefore adversely affect the financial performance of the Issuer. The Issuer is subject to foreign exchange risk Foreign exchange risk arises from the exposure to changes in foreign exchange rates which may adversely affect the Issuer's income. Foreign exchange risk is identified, measured, controlled and monitored in line with the established foreign exchange risk management policy of the Issuer. Policy implementation is controlled by the Assets and Liabilities Committee, but the Treasury Department operationally manages foreign exchange risk and manages the level of exposure for overnight and 7

9 intra-day positions. Failure to effectively manage foreign exchange risk could have an adverse effect on the financial condition and results of operations of the Issuer. Risks relating to liquidity could affect the Issuer's ability to meet its financial obligations as they fall due The Issuer's businesses are subject to risks relating to liquidity, which are inherent in its banking operations and could affect the Issuer's ability to meet its financial obligations as they fall due or to fulfil commitments to lend. As a consequence of the global financial crisis the Issuer dedicates additional attention to liquidity risk management. A renewed deterioration in credit conditions in the financial markets could affect the funding and liquidity environment. As a consequence the Issuer might be unable to continue to source a sustainable funding profile to be able to absorb these potential shocks, or to fund its financial obligations at a competitive cost, if at all. As a result, the Issuer's funding profile could be adversely affected. The Issuer is subject to operational risk Operational risk relates to the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The Issuer's operating risk is mostly present in the form of the information system risk and the human error risk. Both risks are managed by the Issuer in the way that processes, regulations and authorisations for performing transactions are constantly reviewed. Although the Issuer believes its processes and systems are sound, there can be no assurance that losses will not result from inadequate or failed internal control processes and systems, human error, fraud or external events that interrupt normal business operations. As a result, business and financial performance could be adversely impacted. Risks associated with the Issuer s risk-management systems The Issuer s risk management techniques and strategies may not be fully effective in mitigating its risk exposure in all economic market environments or against all types of risks, including risks that the Issuer fails to identify or anticipate. If the existing risk management system fails to identify certain material risks, the Issuer s reputation as well as revenues and profits and its financial condition may be negatively affected. Risks arising from pending legal proceedings The Issuer is subject to certain claims and is a party to legal proceedings in the normal course of its business. Although the Issuer's management believes that the financial provisions made for the legal proceedings that have been made in its financial statements are appropriate, a worse than expected outcome of any legal proceedings might cause such provisions to be insufficient to cover the Issuer's liabilities and have an adverse effect on the financial condition and results of operations of the Issuer (for further detail please see below "Description of the Issuer Litigation and Regulatory Proceedings"). 8

10 Risk relating to the Notes If the Notes are not admitted to the trading on an organised (regulated) market or a multilateral trading facility within an EU member state or an Organisation for Economic Co-operation ( OECD ) member state, payments of interest under the Notes will be subject to Slovenian withholding tax. Pursuant to recent amendments to the Slovenian (i) Corporate Income Tax, (ii) the Personal Income Tax Act and (iii) the Tax Procedure Act which entered into force on 1 June 2010, all payments of interest by the Issuer under the Notes shall be made free and clear of any withholding or deduction for or on account of taxes pursuant to the applicable Slovenian law provided that the Notes are admitted to trading in an organised (regulated) market or traded within a multilateral trading facility within: a) an EU member state or b) an Organisation for Economic Co-operation and Development ( OECD ) member state, (hereinafter referred to as Quoted Eurobonds ). However, in case the Notes do not qualify as Quoted Eurobonds (or no longer qualify as such), any payments of interest under such Notes shall be subject to withholding tax withheld and paid by the Issuer at the maximum rate applicable under any applicable Slovenian taxation law (currently being 20 per cent.). In such case, if interest under the Notes were subject to Slovenian withholding tax, Condition 6 (Taxation) provides that, subject to certain exceptions, the Issuer shall pay such additional amounts as will result in receipt by Noteholders and Couponholders after such withholding or deduction of such amounts as would have been received by them had no such withholding or deduction been required. Noteholders and Couponholders should note that Condition 6 (Taxation) further provides that the obligation on the Issuer to pay such additional amounts is subject to certain exceptions, including, among others, where the withholding or deduction of taxes, duties, assessments or governmental charges is imposed on a payment to or for (i) a person resident for taxation purposes in a non-eu jurisdiction where the general or average nominal income tax rate is lower than 12.5 per cent. and this jurisdiction is published on a list of countries prepared by the Ministry of Finance and Tax Administration of the Republic of Slovenia or (ii) an individual where tax exemptions do not apply. Accordingly, in such case certain holders of Notes or Coupons may not receive amounts of principal or interest equal to the respective amounts which would otherwise have been receivable in respect of the Notes or Coupons in the absence of such withholding or deduction. The Notes may not be a suitable investment for all investors Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (i) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained or incorporated by reference in this Information Memorandum or any applicable supplement; (ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio; (iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including where the currency for principal or interest payments is different from the potential investor's currency; (iv) understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant financial markets; and (v) be 9

11 able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. Modification, waivers and substitution The Fiscal Agency Agreement contains provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders, including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority. The Terms and Conditions of the Notes also provide that the Notes, the Conditions and the Deed of Guarantee may be amended without the consent of the Noteholders or the Couponholders to correct a manifest error. In addition the Agency Agreement may be amended by further agreement among the parties thereto and without the consent of the Noteholders, but the Issuer shall not agree, without the consent of the Noteholders, to any such modification unless it is of a formal, minor or technical nature, it is made to correct a manifest error, it is made to correct an error which is in the opinion of the Issuer proven to comply with mandatory provisions of the law or it is, in the opinion of the Issuer, not materially prejudicial to the interests of the Noteholders. EU Savings Directive Under EC Council Directive 2003/48/EC on the taxation of savings income in the form of interest payments (the "EU Savings Directive"), each Member State is required to provide to the tax authorities of another Member State details of payments of interest or other similar income (within the meaning of the EU Savings Directive) paid by a person within its jurisdiction to, or collected by such a person for an individual resident or certain limited types of entity established in that other Member State; however, for a transitional period, Austria, Belgium and Luxembourg are permitted to apply an optional information reporting system, whereby if a beneficial owner (within the meaning of the EU Savings Directive) does not comply with one of two procedures for information reporting, the relevant Member State will levy a withholding tax on payments to such beneficial owner. The withholding tax system applies for a transitional period during which the withholding tax rate will rise, over time, to 35 per cent. (20 per cent. from 1 July 2008 to 30 June 2011 and 35 per cent. as from 1 July 2011). The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-eu countries to the exchange of information relating to such payments. Belgium has replaced this withholding tax with a regime of exchange of information to the Member State of residence as from 1 January On 15 September 2008 the European Commission issued a report to the Council of the European Union on the operation of the Directive, which included the Commission's advice on the need for changes to the Directive. On 13 November 2008 the European Commission published a more detailed proposal for amendments to the Directive, which included a number of suggested changes. The European Parliament approved an amended version of this proposal on 24 April If any of the proposed changes are made in relation to the Directive, they may amend or broaden the scope of the requirements described above. If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with 10

12 respect to any Note as a result of the imposition of such withholding tax. The Issuer will be required, as provided in Condition 10 of the Notes, to maintain a Paying Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive. A number of non-eu countries including Switzerland, and certain dependent or associated territories of certain Member States, have adopted similar measures (either provision of information or transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entity established in a Member State. In addition, the Member States have entered into provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident or certain limited types of entity established in one of those territories. Change of Law The conditions of the Notes are based on English law in effect as at the date of this Information Memorandum. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of this Information Memorandum. There is no active trading market for the Notes The Notes are new securities which may not be widely distributed and for which there is currently no active trading market. If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Issuer. Although application has been made for the Notes to be admitted to listing on the official list and trading on the Luxembourg Stock Exchange's regulated market, there is no assurance that such application will be accepted or that an active trading market will develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for the Notes. Exchange rate risks and exchange controls The Issuer will pay principal and interest on the Notes in Euro. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the "Investor's Currency") other than the Euro. These include the risk that exchange rates may change significantly (including changes due to devaluation of the Euro or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to Euro would decrease (i) the Investor's Currency-equivalent yield on the Notes, (ii) the Investor's Currency-equivalent value of the principal payable on the Notes and (iii) the Investor's Currencyequivalent market value of the Notes. Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal. 11

13 Interest rate risks Investment in the Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of the Notes. Credit risk Credit or corporate ratings may not reflect all risks. One or more independent rating agencies may assign ratings to the Notes and/or the Issuer. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed in this section, and other factors that may affect the value of the Notes or the standing of the Issuer and the Guarantor. A credit rating and/or a corporate rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. The Notes may be redeemed prior to maturity In the event that the Issuer were to be obliged to increase the amounts payable in respect of any Notes due to any withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Republic of Slovenia or any political subdivision thereof or any authority therein or thereof having power to tax, the Issuer may redeem all outstanding Notes in accordance with the Conditions. Because the Global Notes are held by or on behalf of Euroclear and Clearstream, Luxembourg, investors will have to rely on their procedures for transfer, payment and communication with the Issuer The Notes will be represented by the Global Notes except in certain limited circumstances described in the Permanent Global Note. The Global Notes will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in certain limited circumstances described in the Permanent Global Note, investors will not be entitled to receive definitive Notes. Euroclear and Clearstream, Luxembourg will maintain records of the beneficial interests in the Global Notes. While the Notes are represented by the Global Notes, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg. The Issuer will discharge its payment obligations under the Notes by making payments to or to the order of the common safekeeper for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a beneficial interest in a Global Note must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the Notes. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Notes. Holders of beneficial interests in the Global Notes will not have a direct right to vote in respect of the Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear and Clearstream, Luxembourg to appoint appropriate proxies. Similarly, holders of beneficial interests in the Global Notes will not have a direct right under the Global Notes to take enforcement action against the Issuer in the event of a default under the Notes but will have to rely upon their rights under the Deed of Covenant. 12

14 Minimum Denomination As the Notes have a denomination consisting of a minimum denomination of Euro 50,000 plus one or more higher integral multiples of Euro 1,000, it is possible that the Notes may be traded in amounts in excess of Euro 50,000 (or its equivalent) that are not integral multiples of Euro 50,000 (or its equivalent). In such a case a Noteholder who, as a result of trading such amounts, holds a principal amount of less than the minimum denomination may not receive a Definitive Note in respect of such holding (should Definitive Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to the minimum denomination. 13

15 TERMS AND CONDITIONS OF THE NOTES The following is the text of the Terms and Conditions of the Notes which (subject to completion and amendment) will be endorsed on each Note in definitive form: The Euro 100,000, per cent. Notes due 2015 (the "Notes", which expression includes any further notes issued pursuant to Condition 12 (Further Issues) and forming a single series therewith) of Factor banka d.d. (the "Issuer") are the subject of (a) a deed of guarantee dated 9 June 2010 (as amended or supplemented from time to time, the "Deed of Guarantee") entered into by the Republic of Slovenia, represented by the Minister of Finance (the "Guarantor") and (b) a fiscal agency agreement dated 9 June 2010 (as amended or supplemented from time to time, the "Agency Agreement") between the Issuer, The Bank of New York Mellon as fiscal agent (the "Fiscal Agent", which expression includes any successor fiscal agent appointed from time to time in connection with the Notes) and the paying agents named therein (together with the Fiscal Agent, the "Paying Agents", which expression includes any successor or additional paying agents appointed from time to time in connection with the Notes). Certain provisions of these Conditions are summaries of the Deed of Guarantee and the Agency Agreement and are subject to their detailed provisions. The holders of the Notes (the "Noteholders") and the holders of the related interest coupons (the "Couponholders" and the "Coupons", respectively) are bound by, and are deemed to have notice of, all the provisions of the Deed of Guarantee and the Agency Agreement applicable to them. Copies of the Deed of Guarantee and the Agency Agreement are available for inspection by Noteholders during normal business hours at the Specified Offices (as defined in the Agency Agreement) of each of the Paying Agents, the initial Specified Offices of which are set out below. 1. Form, Denomination and Title The Notes are serially numbered and in bearer form in denominations of Euro 50,000 and integral multiples of Euro 1,000 in excess thereof up to and including Euro 99,000 with Coupons attached at the time of issue. Notes of one denomination will not be exchangeable for Notes of another denomination. Title to the Notes and the Coupons will pass by delivery. The holder of any Note or Coupon shall (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing thereon or any notice of any previous loss or theft thereof) and no person shall be liable for so treating such holder. No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act Status and Guarantee (a) (b) Status of the Notes: The Notes constitute direct, general and unconditional obligations of the Issuer which will at all times rank pari passu among themselves and at least pari passu with all other present and future unsecured and unsubordinated obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are both mandatory and of general application. Guarantee of the Notes: The Guarantor's obligations in respect of the sums from time to time due and payable by the Issuer in respect of the Notes (the "Guarantee of the Notes") are contained in, and are subject to, the Deed of Guarantee

16 3. Interest The Notes bear interest from 9 June 2010 (the "Issue Date") at the rate of 3.25 per cent. per annum, (the "Rate of Interest"), payable in arrear on 9 June in each year (each, an "Interest Payment Date"), subject as provided in Condition 5 (Payments). Each Note will cease to bear interest from the due date for redemption unless, upon due presentation, payment of principal is improperly withheld or refused, in which case it will continue to bear interest in accordance with this Condition (both before and after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder and (b) the day which is seven days after the Fiscal Agent has notified the Noteholders that it has received all sums due in respect of the Notes up to such seventh day (except to the extent that there is any subsequent default in payment). The amount of interest payable on each Interest Payment Date in respect of each Note shall be calculated by applying the Rate of Interest to the Calculation Amount multiplying the product by the relevant Day Count Fraction and rounding the resulting figure to the nearest cent (half a cent being rounded upwards) and multiplying such rounded figure by a fraction equal to the denomination of such Note divided by the Calculation Amount, where: "Calculation Amount" means Euro 1,000; "Day Count Fraction" means, in respect of any period, the number of days in the relevant period, from (and including) the first day in such period to (but excluding) the last day in such period, divided by the number of days in the Regular Period in which the relevant period falls; and "Regular Period" means each period from (and including) the Issue Date or any Interest Payment Date to (but excluding) the next Interest Payment Date. 4. Redemption and Purchase (a) (b) Scheduled redemption: Unless previously redeemed, or purchased and cancelled, the Notes will be redeemed at their principal amount on 9 June 2015, subject as provided in Condition 5 (Payments). Redemption for tax reasons: The Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days' notice to the Noteholders (which notice shall be irrevocable), at their principal amount, together with interest accrued to the date fixed for redemption, if: (i) the Issuer has or will become obliged to pay additional amounts as provided for or referred to in Condition 6 (Taxation) as a result of any change in, or amendment to, the laws or regulations of the Republic of Slovenia or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after 7 June 2010; and

17 (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it; provided, however, that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts if a payment in respect of the Notes were then due. Prior to the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver to the Fiscal Agent: (A) (B) a certificate signed by two directors of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred; and an opinion of reputable independent legal advisers to the effect that the Issuer has or will become obliged to pay such additional amounts as a result of such change or amendment. Upon the expiry of any such notice as is referred to in this Condition 4(b), the Issuer shall be bound to redeem the Notes in accordance with this Condition 4(b). (c) (d) (e) (f) No other redemption: The Issuer shall not be entitled to redeem the Notes otherwise than as provided in Condition 4(a) (Scheduled Redemption) to Condition 4(b) (Redemption for tax reasons) above. Purchase: The Issuer or any of its Subsidiaries may at any time purchase Notes in the open market or otherwise and at any price, provided that all unmatured Coupons are purchased therewith. Cancellation: All Notes so redeemed or purchased by the Issuer or any of its Subsidiaries and any unmatured Coupons attached to or surrendered with them may be cancelled or held and resold. Any Notes so purchased, while held by or on behalf of the Issuer, shall not entitle the Issuer to vote at any meeting of Noteholders and shall not be deemed to be outstanding for the purposes of calculating quorums at any meeting of Noteholders. Any Notes cancelled may not be reissued. Interpretation: In these conditions: "Person" means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality; "Subsidiary" means, in relation to any Person (the "first Person") at any particular time, any other Person (the "second Person"): (a) whose affairs and policies the first Person controls or has the power to control, whether by ownership of share capital, contract, the power to appoint or remove members of the governing body of the second Person or otherwise; or