National Australia Bank Limited (ABN ) (incorporated with limited liability in Australia)

Transcription

1 National Australia Trustees Limited (ABN 8000' and Australian Financial Services Licence No ) (incorpomaxl with limited liability in Australia) in its capacity as trustee of National Capital Trust III A$400,000,000 Floating Rate National Capital Instruments bane Price 100 per cent. National Australia Bank Limited (ABN ) (incorporated with limited liability in Australia) The AS400,000,000 Floating Rate National Capital Instruments (the "NCIs") are expected to be issued on 18 September 2006 (the "Issue Date"). The NCIs will entitle holders, subject to the conditions described in this Information Memorandum, to receive non-cumulative distributions ("Distributions") quarterly in arrears on each 31 March, 30 June, 30 September and 31 December, commencing on 31 December 2006 (each, a "Distribution Payment Date"). Distributions on the NCIs will accrue from (but not including) the Issue Date at a rate equal to the Bank Bill Rate (as defined in clause 3.1 ("Distributions") of the tams of issue of the NCIs (the "NCI Terms") (see Terms and Concktions of the NCIs below) plus a margin of 0.95 per cent. per =MUM (the -Initial Margin") up to (aid including) 30 September 2016 (the "Step-Up Date') and, from (but not including) the Step-Up Date at a rate equal to the Bank Bill Rate plus a margin of 1.95 per cent per annum (the "Distribution Rate") (see further Terms and Conditions of the NCIs - Distributions below). Payment of any Distribution on the NCIs is subject to the Trust (as defined below) having sufficient funds to pay that Distribution. The funds available to the Trust in respect of any Distribution Payment Date will be limited to the funds it receives in respect of the securities issued by National Capital htstruments (AM] LLC 2 ("National LLC 2") and held by the Trust (the "LLC 2 Securities"). The funds available to National LLC 2 to make a payment on the LLC 2 Securities will, in turn, be limited to the interest received from the notes issued by National Capital Instruments [AM) LLC 1 ("National LLC 1") and held by National LLC 2 (the "LLC Notes"). Payments of interest on the LLC Notes are limited to payments received by National LLC 1 on the subordinated debentures issued by National Australia Bank Limited ("National") acting through its New York Branch and held by National LLC 1 (the "Subordinated Debentures"). In addition, interest on the LLC Notes and the Subordinated Debentures is subject to the payment tests and conditions contained in the terms of the LLC Notes and Subordinated Debentures (see Summary of Prinipal Documents - Terms of the LLC Notes and Summary of Principal Documents - Terms of the Subortfinated Debentures below). Distributions are non-cumulative and holders of NCIs ("NCI Holders") will not be entitled to recover my Distributions which are not paid because those tests have not been met. The NCIs are perpetual instruments with no set maturity date. However, the NCIs may be redeemed or converted into preference shares of National (the "Preference Shares") in the circumstances described in this Information Memorandum. NCI Holders will have no right to require the NCIs be redeemed or converted into Preference Shares. The NCIs are expected to be assigned on issue a rating of "A2" by Moody's Investor Services Pty Ltd ("Moody's"), "A-" by Standard & Poor's Rating Services, a division of the McGraw Hill Companies Inc. ("S&P") and an "A+" rating by Fitch Ratings Limited ("Fitch"). A credit rating is not a recoinmendatica to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the relevant rating agency. See Risk Factors bedew tor a &scission of certain factors that should be considered by prospective iavestors. The NCIs are not guaranteed by and do not represent deposits or other liabilities of National sr any related parties or associates of National Joint Lead Managers DEUTSCHE BANK NATIONAL AUSTRALIA BANK LIMITED The date of this Information Memorandum is 12 September doc

2 IMPORTANT NOTICE This Information Memorandum relates solely to a proposed issue of units (the "NCIs") in National Capital Trust III, a wait trust established under the laws of Victoria (the "Trust"), by National Australia Trustees Limited (ABN and Australian Financial Services Licence No ) ("NATL") in its capacity as trustee (the "Trustee") of the Trust (the "Issuer"). This Information Memorandum does not relate to, and is not relevant for, any other purpose than to assist the recipient to decide whether to proceed with a further investigation of the NCIs. It is only a summary of the terms and conditions of the NCIs and does not purport to contain all the information a person considering investing in the NCIs may require. The definitive terms and conditions of the NCIs and the Trust are contained in the Transaction Documents, which should be reviewed by any intending purchaser. If there is any inconsistency between this Information Memorandum and the Transaction Documents, the Transaction Documents should be regarded as containing the definitive information. A copy of the Transaction Documents may be viewed by intending purchasers at the office of the Trustee referred to in the Directory at the back of this Information Memorandum. This Information Memorandum is not, and should not be construed as, an offer or invitation to any person to subscribe for or purchase or otherwise deal in any NCIs, and must not be relied upon by intending purchasers of the NCIs. Definitions All defined terms used in this Information Memorandum are indexed in the Index of Defined Terms appearing at the end of this Information Memorandum. Unless otherwise stated, references in this Information Memorandum to "AS", "S", "Australian dollars" or "dollars" are to the lawful currency of Australia. Documents Incorporated by Reference This Information Memorandum is to be read in conjunction with all of the documents that are incorporated by reference (see Documents Incorporated by Reference below). Responsibility for Information The Issuer and National (each a "Primary Party") have prepared this Information Memorandum and have requested and authorised the distribution of this Information Memorandum and have sole responsibility for its accuracy. None of the Joint Lead Managers, the Initial Subscriber, NATL (in any capacity other than as the Issuer), National LLC 1, National LLC 2, the LLC Manager, the Registrar, the Issuing and Paying Agent, any other party named or referred to in this Information Memorandum (other than the Primary Parties) or any of their respective "Related Parties" or "Associates" (each as defined in the Corporations Act 2001 of Australia (the "Corporations Act")), or any external adviser to the Primary Parties or any of the foregoing (each, an "Other Party") makes any representation or warranty, express or implied, as to, nor assumes any responsibility or liability for, the authenticity, origin, validity, accuracy or completeness of, or any errors or omissions in, any information, statement, opinion or forecast contained in this Information Memorandum or any previous, accompanying or subsequent material or presentation. The Other Parties and the Primary Parties are together referred to in this Information Memorandum as the "Parties". 2

3 Except for having checked their respective names and addresses in the Directory at the back of this InformMien Memorandum, no person listed in the Directory other than the Primary Parties has authorised, caused the issue of, or have any responsibility for, any part of this Information Memorandum. No recipient of this Information Memorandum can assume that any person referred to in it has conducted any investigation or due diligence concerning, or has carried out or will carry out any independent audit of, or has independently verified or will verify, the information contained in this Information Memorandum. Preparation Date This Information Memorandum has been prepared based on information available and facts and circumstances known to the Issuer and National as at 12 September 2006 (the "Preparation Date"). The delivery of this Information Memorandum, or any offer or issue of NCIs, at any time after the Preparation Date does not imply, nor should it be relied upon as a representation or warranty, that: (a) there has been no change since the Preparation Date in the affairs or financial condition of the Issuer, the Trust, the Trustee, National LLC 1, National LLC 2, National or any other party named in this Information Memorandum; or the information contained in this Information Memorandum is correct at such later time. No one undertakes to review the financial condition or affairs of the Issuer, the Trust, the Trustee, National LLC 1, National LLC 2, National or any other party named in this Information Memorandum at any time or to keep a recipient of this Information Memorandum or a holder of NCIs (a "NCI Holder") or a holder of Preference Shares (if issued) informed of changes in, or matters arising or coming to their attention which may affect, anything referred to in this Information Memorandum. Neither the Primary Parties nor any other person (including any Other Party) accepts any responsibility to purchasers of the NCIs or intending purchasers of the NCIs to update this Information Memorandum after the Preparation Date with regard to information or circumstances which come to its attention after the Preparation Date. It should not be assumed that the information contained in this Information Memorandum is necessarily accurate or complete in the context of any offer to subscribe for or an invitation to subscribe for or buy any of the NCIs at any time after the Preparation Date, even if this Information Memorandum is circulated in conjunction with the offer or invitation. Authorised Material No person is authorised to give any information or to make any representation which is not expressly contained in or consistent with this Information Memorandum and any information or representation not contained in or consistent with this Information Memorandum must not be relied upon as having been authorised by or on behalf of the Primary Parties. Intending Purchasers to make Independent Investment Decision This Information Memorandum is not intended to be, and does not constitute, a recommendation by any Party that any person subscribe for or purchase any NCIs. Accordingly, any person contemplating the subscription or purchase of the NCIs must: 3

4 (a) make their own independent investigation of: () the terms of the NCIs, including reviewing the Transaction Documents; and (ii) the financial condition, affairs and creditworthiness of the Issuer and the other Parties, after taking all appropriate advice from qualified professional persons; and base any investment decision on the investigation and advice referred to in paragraph (a) and not on this Information Memorandum. Offering restrictions This Information Memorandum is not a Product Disclosure Statement for the purposes of Chapter 7 of the Corporations Act or a prospectus for the purposes of Chapter 6D of the Corporations Act and is not required to be lodged with the Australian Securities and Investments Commission ("ASIC") under the Corporations Act as each offer for the issue, and invitation to apply for the issue, and any offer for sale of, and any invitation for offers to purchase: (i) (ii) NCIs must not be made to a person who is a retail client for the purposes of Chapter 7 of the Corporations Act; or Preference Shares, if issued, must not be made to a person for which disclosure is required under Part 6D.2 of the Corporations Act. The distribution of this Information Memorandum and the offer or sale of NCIs and Preference Shares (if issued) may be restricted by law in certain jurisdictions. No Party represents that this document may be lawfully distributed, or that any NCIs or Preference Shares (if issued) may be lawfully offered, in compliance with any application, registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by any Party which would permit a public offering of any NCIs or Preference Shares (if issued) or distribution of this Information Memorandum in any jurisdiction where action for that purpose is required. Accordingly, no NCIs or Preference Shares (if issued) may be offered or sold, directly or indirectly, and neither this Information Memorandum nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Information Memorandum or any NCIs or Preference Shares (if issued) come must inform themselves about, and observe, any such restrictions. In particular, there are restrictions on the distribution of this Information Memorandum and the offer and sale of NCIs in Australia, the United Kingdom, the European Economic Area, Hong Kong, Singapore, Japan and the United States of America (see Subscription and Sale below). Limited Liability of the Issuer The liability of the Trustee as the Issuer to make payments in respect of the NCIs is limited to the assets of the Trust. The personal assets of the Trustee are not available to meet payments in respect of the NCIs except to the extent of the Trustee's fraud, negligence or wilful default. See further Description of the Issuer below. 4

5 Disclosure of Interest Each of the Joint Lead Managers and the Initial Subscriber discloses that it and its respective Related Parties or Associates and their respective directors and employees: (a) may have a pecuniary or other interest in the NCIs; and will receive fees, brokerage and commissions, and may act as principal, in any dealings in the Wis. References to credit ratings There are references in this Information Memorandum to credit ratings. A credit rating is not a recommendation to buy, sell or hold securities and does not comment on the adequacy of market price or the suitability of any security for a particular investor. A credit rating may be subject to revision, suspension, withdrawal or placed on ratings watch at any time by the relevant rating agency. Each rating should be evaluated independently of any other rating. No rating agency has been involved in the preparation of this Information Memorandum. References in this Information Memorandum to: (a) "S&P" are to Standard & Poor's Rating Services, a division of the McGraw Hill Companies Inc. or any of its subsidiaries or successors; (a) "Moody's" are to Moody's Investor Services Pty Ltd or any of its subsidiaries or successors; and "Fitch" are to Fitch Ratings Limited or any of its subsidiaries or successors. Disclaimers The NCIs do not represent deposits or other liabilities of National or any Related Parties or Associates of National. No Party in any way: (a) (c) (d) stands behind the NCIs, the Trust or the Preference Shares (if issued), except to the extent of their specific obligations under the Transaction Documents; makes any representation about the value or performance of the NCIs, the Trust or the Preference Shares (if issued); makes any representation with respect to income tax or other taxation consequences of any investment in or holding of NCIs or the Preference Shares (if issued); or guarantees the distributions or return of investment in respect of the NCIs or the Preference Shares (if issued). The holding of the NCIs is subject to investment risk, including possible delays in repayment and loss of distributions or return of investment in respect of the NCIs (see Risk Factors below). 5

6 U.S. INFORMATION NEITHER THE NCIS NOR THE PREFERENCE SHARES HAVE BEEN OR WILL BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. NEITHER THE NCIS NOR THE PREFERENCE SHARES (IF ISSUED) MAY BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) UNLESS THE NCIS OR THE PREFERENCE SHARES (AS THE CASE MAY BE) ARE REGISTERED UNDER THE SECURITIES ACT OR OFFERED AND SOLD IN COMPLIANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. NEITHER THE NCIS NOR THE PREFERENCE SHARES HAVE BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY IN THE UNITED STATES, NOR HAVE THE FOREGOING AUTHORITIES APPROVED THIS INFORMATION MEMORANDUM OR CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE INFORMATION CONTAINED IN THIS INFORMATION MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. NO PARTY MAKES ANY REPRESENTATION TO ANY INVESTOR IN THE NCIS OR THE PREFERENCE SHARES (IF ISSUED) REGARDING THE LEGALITY OF ITS INVESTMENT UNDER ANY APPLICABLE LAWS. ANY INVESTOR IN THE NCIS OR THE PREFERENCE SHARES (IF ISSUED) SHOULD BE ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN THE NCIS OR THE PREFERENCE SHARES (AS THE CASE MAY BE) FOR AN INDEFINITE PERIOD OF TIME. 6

7 TABLE OF CONTENTS TRANSACTION DIAGRAM TRANSACTION SUMMARY.-- 9 RISK FACTORS DOCUMENTS INCORPORATED BY REFERENCE DESCRIPTION OF THE ISSUER-. 26 DESCRIPTION OF NATIONAL LLC DESCRIPTION OF NATIONAL LLC 1 35 DESCRIPTION OF NATIONAL TERMS AND CONDITIONS OF THE NCIS 44 SUMMARY OF PRINCIPAL DOCUMENTS 66 USE OF PROCEEDS TAXATION.. 88 SUBSCRIPTION AND SALE GENERAL INFORMATION 97 INDEX OF DEFINED TERMS DIRECTORY

8 TRANSACTION DIAGRAM The diagram below setts out a simplified form of the structure of the transaction and of the expected periotrtc cash flows in the structure. This diagram is qualified in its entirety by the more detailed information contained elsewhere in this Information Memorandum. National Head Office National legal entity Convertible Debentures Non-interest bearing LLC Notes National LLC 2 LLC 2 Seenriti LLC 2 Distributions National Capital Trust III National Capital Instruments (NCIs) Distributions 8

9 TRANSACTION SUMMARY These tables provide a sinmnary of certain principal parties and of certain principal terms of the Nat This summary is qualed in its entirety by the more detailed information contained elsewhere in this Information Memorandum. Key parties Issuer National Australia Trustees Limited (ABN and Australian Financial Services Licence No ) in its capacity as trustee (the "Trustee") of the Trust. See further Description of the Issuer below. Trust National LLC 2 National LLC 1 National National New York Branch A Victorian law governed special purpose trust (the "Trust"). See further Description of the Issuer below. National Capital Instruments [AUD] LLC 2, a limited liability company established under the laws of Delaware. A subsidiary of National will be the manager of National LLC 2 under Delaware law but neither it, nor National, will hold any equity interest in National LLC 2. See further Description of National LLC 2 below. National Capital Instruments [AUD] LLC 1, a limited liability company established under the laws of Delaware. A subsidiary of National will be the manager of National LLC 1 under Delaware law and a subsidiary of National ("National Sub") will hold all memberships interests in National LLC 1. See further Description of National LLC 1 below. National Australia Bank Limited (ABN ), a limited liability company established under the laws of Australia. National is the holding company of the National group, which consists of National and its consolidated subsidiaries (the "National Group"). See further Description of National below. National acting through its office at Level 28, 245 Park Avenue, New York, New York, United States of America ("National New York Branch"). National Head Office National acting through its head office at Level 13, 140 William Street, Melbourne, Victoria 3000, Australia ("National Head Office"). Initial Subscriber Registrar Deutsche New Zealand Limited, a limited liability company established under the laws of New Zealand, with its registered office at Level 6, 66 Wyndham Street, Auckland, New Zealand. The Issuer or any other person appointed by the Issuer to maintain the register of NCIs. 9

10 ssuing and Paying Agent Austraclear Services Limited (ABN ), a limited liability company incorporated under the laws of Australia, with its registered office at 30 Grosvenor Street, Sydney, New South Wales, Australia 2000 (the "Issuing and Paying Agent"). Summary of the Offering.. Issue The Issuer will issue A$400,000,000 Floating Rate National Capital Instruments (the "NCIs") to investors. Each NCI is a unit in the Trust conferring an undivided share in the beneficial interest in the assets of the Trust. NCIs do not represent deposits or securities of National, are not guaranteed by National and a NCI Holder has no claim on National for payment of any amount in respect of the NCIs. Issue Date The NCIs are expected to be issued on 18 September 2006 (the "Issue Date"). Maturity Date Use of Proceeds The NCIs are perpetual instruments with no set maturity date. However, a NCI is redeemable for cash (subject to APRA's prior written approval) and in certain circumstances will be automatically converted into a preference share of National ("Preference Share") according to the terms of issue of the NCIs (the "NCI Terms"). The proceeds of issue of the NCIs will be used to purchase the LLC 2 Securities the proceeds which will be used, in turn, to purchase other Component Instruments as described under Subscription and Sale - Subscription, Assignment and Sale of the Relevant Instruments below. National New York Branch will use the ultimate proceeds of issue for its general business purposes including on-lending (see further Use of Proceeds below). Distributions on the NCIs NCIs will pay distributions ("Distributions") at a floating rate. Distributions on the NCIs will be paid quarterly in arrears on 31 March, 30 June, 30 September and 31 December of each year commencing on 31 December 2006 (each a "Distribution Payment Date"). The amount of each Distribution will be calculated in accordance with the relevant formula set out in the terms and conditions of the NCIs (the "NCI Terms") (see Terms and Conditions of the NCIs - Distributions below). 10

11 Distranstion Limitations Distributions on the NCIs are limited to the distributions received from National LLC 2 on the LLC 2 Securities and distributions on the LLC 2 Securities are limited to interest received by National LLC 2 from National LLC 1 on the LLC Notes. Payment of interest on the LLC Notes is subject to the tests and conditions set out in the terms of the LLC Notes (see Summary of Principal Documents - Terms of the LLC Notes below). In turn, interest on the LLC Notes is limited to interest received by National LLC I from National New York Branch in respect of the Subordinated Debentures. Payment of interest on the Subordinated Debentures is also subject to similar tests and conditions as set out in the terms of the Subordinated Debentures (see Summary of Principal Documents - Terms of the Subordinated Debentures below). Distributions are non-cumulative and the holders of the NCIs (the "NCI Holders") will have no claim for any Distribution not paid, or for any part of any Distribution not paid pursuant to the limitations discussed above. Consequences of Non-Payment of Distributions Failure to pay in full, for any reason, Distributions on or within seven Business Days of the scheduled Distribution Payment Date, will trigger the Conversion Event (see Terms and Conditions of the NCIs - Conversion), but will not constitute an event of default and will not otherwise entitle the NCI Holder to a return of its investment. Failure to pay in full, for any reason, Distributions on the scheduled Distribution Payment Date, will also immediately trigger distribution restrictions for National as described in the Terms and Conditions of the NCIs - Distributions - Restrictions in the case of non-payment and, when the Preference Shares are issued, substantially in the form described in Summary of Principal Documents - Terms of the Preference Shares - Dividends - Distribution Restrictions below. 1 1

12 Withholding Tax and Additional Amounts The Issuer will make all payments of Distributions without deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, the Issuer must pay the full amount required to be deducted to the relevant revenue authority and, subject to: (a) certain exceptions (see Terms and Conditions of the NCIs - Payments to NCI Holders - Gross-up below); and having received sufficient amounts from National LLC 2 in respect of the LLC 2 Securities or from National under the NCI Gross-up Indemnity (as defined below), an additional amount ("Additional Amount") to the NCI Holders so that the NCI Holders receive the same amount in respect of that payment as if no such deduction had been made from the payment. National will covenant in a deed of covenant entered into between National, National LLC 1, National LLC 2 and the Issuer (the "Deed of Covenant") to indemnify the Issuer for the payment of any Additional Amounts (See Summary of Principal Documents - Terms of the Deed of Covenant - Undertakings by National below) (the "NCI Gross-up Indemnity"), subject to the same tests and conditions that apply to payment of interest on the Subordinated Debentures (see Summary of Principal Documents - Terms of the Subordinated Debentures - Interest below). Conversion Events Conversion Mechanics Optional Redemption In certain circumstances the Conversion Event (as defined in the NCI Terms (see Terms and Conditions of the NCIs - Conversion below)) will occur with respect to the NCIs. A NCI Holder may not initiate the Conversion Event. Upon the occurrence of the Conversion Event, each NCI will be redeemed in consideration for the delivery of a Preference Share in accordance with the steps set out under Summary of Principal Documents - Terms of the Convertible Debentures - Conversion below. In certain circumstances National may be prevented by law from issuing the Preference Shares (see Summary of Principal Documents - Terms of the Convertible Debentures - Failure to Issue Preference Shares below). Subject to APRA's prior written approval, National has the option to redeem for cash: (a) all (but not some) of the Convertible Debentures on the occurrence of a Regulatory Event, a Tax Event or an Acquisition Event (each as defined in the NCI Terms (see Terms and Conditions of the NCIs - Interpretation and Definitions - Definitions below)); 12

13 and some or all of the Convertible Debentures on the Step- Up Date or any subsequent date which is a Distribution Payment Date in respect of the NCIs. A redemption of the Convertible Debentures will, in turn, trigger a redemption of the NCIs for cash (see Terms and Conditions of the NCIs - Redemption below). Redemption Price Where the NCIs are redeemed as provided under "Optional Redemption" above, they will be redeemed in consideration of the payment of the Redemption Price. This will generally be an amount equal to the Liquidation Amount of the NCIs plus any accrued but unpaid Distribution for the then current Distribution Period. See further - Terms and Conditions of the NCI's - Redemption - Redemption Price below. Voting and Other Rights The Trust Deed contains provisions for convening meetings of the NCI Holders to consider any matter affecting their interests, including any variation of the NCI Terms which requires the consent of NCI Holders. Subject as provided above, NCI Holders will have no voting rights in respect of National Head Office, National New York Branch, National LLC 1, National LLC 2, the LLC Manager, National Sub or the Trustee (each a "National Entity") unless and until the Preference Shares are issued (see further Summary of Principal Documents - Terms of the Preference Shares - Voting and Other Rights below). No Set-Off No Guarantee Not Deposit Liabilities Rating Listing Clearing and Settlement A NCI Holder has no right to set off any amounts owing by it to any National Entity against any claims owing by any National Entity and no offsetting rights or claims on any National Entity if a National Entity does not pay a Distribution or interest when scheduled under any Component Instrument. Payments on the NCIs are not guaranteed by National or any Related Parties or Associates of National. The NCIs do not represent deposits or other liabilities of National or any Related Parties or Associates of National. It is expected that the NCIs, when issued, will be assigned an "A2" rating by Moody's, on "A-" rating by S&P and in "A+" rating by Fitch. Neither the NCIs nor the Preference Shares (if issued) will be listed on any stock exchange. It is expected that the NCIs will be eligible to be lodged into 13

14 Austraclear. If issued, it is expected that the Preference Shares will also be eligible to be lodged into Austraclear. See further General information - Clearing Systems below. Risk Factors Selling Restrictions An investment in the NCIs is subject to investment risks, including possible delays in repayment and loss of distributions and the amount invested in respect of the NCIs. See Risk Factors below. The NCIs are not to be offered and sold in Australia to any person who is a retail client for the purposes of Chapter 7 of the Corporations Act and the Preference Shares, if issued, must not be offered or sold in Australia to a person for which disclosure is required under Part 6D.2 of the Corporations Act and, in each case, only in circumstances which otherwise comply with laws and restrictions or any applicable jurisdiction. There are also specific restrictions on offering or selling the NCIs in the United Kingdom, the European Economic Area, Hong Kong, Singapore, Japan and the United States. See Subscription and Sale below. Governing Law The LLC 2 Securities, the LLC 2 Security Terms, the LLC 2 Agreement, the LLC 1 Agreement, the LLC 2 Management Agreement, the LLC 1 Management Agreement and the LLC I Common Securities are governed by the laws of the State of Delaware, United States of America. The Preference Shares (if issued), the Preference Share Terms and each of the other Component instruments and Transaction Documents will be governed by the laws of Victoria, Australia other than the Agency Agreement, which will be governed by the laws of New South Wales, Australia. Transaction Documents means: (a) each Component Instrument (including, in each case, the terms of such Component Instrument); each document constituting a Component Instrument; (c) the Agency Agreement, the NCI Subscription Agreement and the Subscription, Sale and Assignment Agreement; (d) the LLC 1 Agreement, LLC 1 Management Agreement and the LLC 2 Management Agreement; and (e) any other document agreed by the parties to be a Transaction Document, (the "Transaction Documents"). 14

15 RISK FACTORS Prospective isvestors should consider carefully the risks set forth below and the other information contained in this Information Memorandum prior to making any investment decision with respect to the NCIs. Each of the risks highlighted below as being risks relating to National and its business could have a material adverse effect on National's business, operations, financial condition or prospects, which, in turn, could have a material adverse effect on the amount which investors will receive in respect of the NCIs. In addition, each of the risks highlighted below as being risks relating to the Nas could adversely affect the trading price of the NCIs or the rights of investors under the NCIs and, as a result, investors could lose some or all of their investment. Praspective investors should note that the risks described below are not the only risks faced by the Issuer and National. The Issuer and National have described only those risks relating to their operations that they consider to be material. There may be additional risks that the Issuer or National currently considers not to be material or of which it is not currently aware, and any of these risks could have the effects set forth above. Risks relating to the Issuer Payments on the NCIs will only be made from the assets of the Trust The Trustee will issue the NCIs in its capacity as trustee of the Trust. A NCI Holder's claim against the Trustee with respect to the NCIs is limited to and can be enforced only to the extent to which the claim can be satisfied out of the assets of the Trust. Except in the case of fraud, wilful default or negligence of the Trustee, the assets of the Trustee in its personal capacity are not available to meet payments of Distributions or repayments of the amount invested in respect of the NCIs. The assets of the Trust are limited The assets of the Trust consist only of the LLC 2 Securities and the rights of the Issuer under the Transaction Documents. If the assets of the Trust are not sufficient to make payments of Distributions or repayments of the amount invested in respect of the NCIs, then payments to NCI Holders will be reduced. Risks relating to National and its business General Economic Activity The business activities of National are dependent on the level of banking, fmance and financial services required by its customers. In particular, levels of borrowing are heavily dependent on customer confidence, employment trends, the state of the economy and market interest rates at the time. As National conducts its business in various locations, including Australia, the United Kingdom and New Zealand, its performance is influenced by the level and cyclical nature of business activity in those locations, which is, in turn, affected by both domestic and international economic and political events. There can be no assurance that a weakening in the economies in which National operates will not have a material effect on its future results. Risks relating to the business of National As a result of its business activities, National is exposed to a variety of risks, the most significant of which are credit risk, market risk, operational risk and liquidity risk. Failure to control these 15

16 risks could result in material adverse effects on the financial performance and reputation of National. Credit Risk Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of the businesses of National. Adverse changes in the credit quality of its borrowers and counterparties or a general deterioration in the economic conditions in the locations in which it operates or globally, or arising from systemic risks in the financial systems, could affect the recoverability and value of its assets and require an increase in the provision for bad and doubtful debts and other provisions of National. Market Risk The most significant market risks National faces are interest rate, foreign exchange and bond and equity price risks. Changes in interest rate levels, yield curves and spreads may affect the interest rate margin realised between lending and borrowing costs. Changes in currency rates affect the value of assets and liabilities dominated in foreign currencies and may affect income from foreign exchange dealing. The performance of financial markets may cause changes in the value of the investment and trading portfolios of National. National has implemented risk management methods to mitigate and control these and other market risks to which it is exposed and exposures are constantly measured and monitored. However, it is difficult to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on the financial performance and business operations of National. Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Losses can result from fraud, errors by employees, failure to document transactions properly or to obtain proper internal authorisation, failure to comply with regulatory requirements and conduct of business rules, equipment failures, natural disasters or the failure of external systems, for example, those of suppliers or counterparties. Although National has implemented risk controls and loss mitigation actions and substantial resources are devoted to developing efficient procedures and to staff training, there are always elements of residual operational risk which cannot be entirely mitigated. Liquidity Risk The inability of any bank, including National, to anticipate and provide for unforeseen decreases or changes in funding sources could have consequences on such bank's ability to meet its obligations when they fall due. Impact of Regulatory Changes National is subject to financial services laws, regulations, administrative actions and policies in the locations in which it operates. Changes in supervision and regulation, in particular in Australia, could materially affect the business of National, the products and services offered or the value of its assets. Although National works closely with its regulators and continually monitors the situation, future changes in regulation, fiscal or other policies can be unpredictable and are beyond the control of National. National is subject to capital requirements that could limit its operations National is subject to capital adequacy guidelines adopted by the Australian Prudential Regulation Authority ("APRA") for a bank or a bank holding company, which provide for a minimum ratio of total capital to risk-adjusted assets both on a solo basis and on a consolidated basis. National's l6

17 failure to maintain its ratios may result in administrative actions or sanctions against it which may impact its ability to fulfil its obligations under the Subordinated Debentures (with the effect that the Issuer would not be able to make scheduled payments on the NCIs) or the Preference Shares (if issued)). APRA has recently revised its capital adequacy regime following the introduction of Australian equivalent International Financial Reporting Standards. This revised regime became effective on 1 July 2006 and the NCIs are being issued under this regime. The revised regime also provides for transition arrangements and National is working in conjunction with APRA as to the application of transition provisions to it. In addition, the risk-adjusted capital guidelines (the "Basel Accord") promulgated by the Basel Committee on Banking Supervision (the "Basel Committee"), which form the basis for APRA' s capital adequacy guidelines, have recently been revised. In June 2004, the Basel Committee published International Convergence of Capital Measurement and Capital Standards, a Revised Framework ("Basel II"). APRA currently expects to implement Basel II on a common starting date of I January The principal changes effected by the revised guidelines include the application of risk-weighting (depending upon the credit status of certain customers, using an "internal ratings-based" approach to credit risk, and subject to approval of supervising authorities), allocation of risk assets in relation to operational risk and supervisory review of the process of evaluating risk measurement and capital ratios. At this time, National is unable to predict how the revised guidelines will affect its calculations of capital and the impact of these revisions on other aspects of its operations. Risks relating to the NCIs NCIs may not be a suitable investment for all investors Each potential investor in any NCIs must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (a) (c) (d) (e) have sufficient knowledge and experience to make a meaningful evaluation of the NCIs, the merits and risks of investing in the NCIs and the information contained or incorporated by reference in this Information Memorandum; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the NCIs and the impact such investment will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the NCIs, including where the currency for payments in respect of the NCIs is different from the potential investor's currency; understand thoroughly the terms of the NCIs; and be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. The NCIs are complex financial instruments. A potential investor should not invest in NCIs unless it has the expertise (either alone or with a financial adviser) to evaluate how the NCIs will perform under changing conditions, the resulting effects on the value of the NCIs and the impact this investment will have on the potential investor's overall investment portfolio. 17

18 If National's financial condition were to deteriorate, holders could lose all or a part of their investment If National's financial condition were to deteriorate, payments of distributions or other payments on the Subordinated Debentures (and, therefore, the NCIs) or the Preference Shares (if issued) could be suspended and holders would not receive any distributions or other payments. Potential investors should not assume that unfavourable market or other conditions or events will not harm National's financial condition. If National liquidates, dissolves or winds up, NCI Holders and holders of the Preference Shares (if issued) could lose all or a part of their investment. No Component Instrument is a deposit liability of National for the purposes of the Banking Act or any other similar law of any jurisdiction and no Component Instrument will be insured by any governmental agency or compensation scheme of Australia or any other jurisdiction. If National does not issue the Preference Shares pursuant to the terms of the Convertible Debentures following the occurrence of the Conversion Event, NCI Holders will not receive them and will continue to hold the NCIs and the LLC Notes will automatically vest in National Head Office as assignee (see further Summary of Principal Documents - Terms of the LLC Notes - Assignment below). In addition, in the event of the liquidation or dissolution of the Trust in circumstances where National has not issued the Preference Shares in redemption of the NCIs, NCI Holders may not receive the full liquidation amount per NCI and the accrued and unpaid distribution for the then current Distribution Period if the Trust does not have sufficient funds after it pays its (.3 editors. Distributions on the NCIs are subject to payment and other restrictions and are non-cumulative A Distribution on the NCIs will only be payable if and to the extent that the Trust has sufficient funds to make the payment of that Distribution. The funds available to the Trust in respect of any Distribution Payment Date will be limited to the funds it receives in respect of the LLC 2 Securities. The funds available to National LLC 2 to make a payment on the LLC 2 Securities will, in turn, be limited to the interest received from National LLC I on the LLC Notes. Payments of interest on the LLC Notes are limited to payments received by National LLC 1 on the Subordinated Debentures. In addition, interest on the LLC Notes and the Subordinated Debentures is subject to the payment tests and conditions described in the LLC Notes and Subordinated Debentures (see Summary of Principal Documents - Terms of the LLC Notes and Summary of Principal Documents - Terms of the Subordinated Debentures for details of these tests and conditions). These conditions include the exercise of the sole discretion of: (a) in the case of the LLC Notes, the LLC Manager as manager of National LLC I; and in the case of the Subordinated Debentures, the directors of National. Distributions will only be paid when so determined and applicable law so permits, if sufficient resources exist and if all the conditions to payment are satisfied. NCI Holders will not be entitled to recover missed Distributions because they are non-cumulative. Accordingly, if Distributions on the NCIs for any Distribution Period are not paid, the NCI Holders will not be entitled to receive such Distributions (or any payment in respect of such Distributions) whether or not funds are, or subsequently become, available. Upon the occurrence of the Conversion Event (see further Summary of Principal Documents - Terms of the Convertible Debentures - Conversion below), unless National is legally unable or otherwise fails to issue the Preference Shares on the scheduled Conversion Date, the NCIs will be redeemed for Preference Shares. Dividends on the Preference Shares are also non-cumulative and subject to payment tests and conditions (See Summary of Principal Documents - Terms of the Preference Shares below). If the Conversion Event is the failure of the Issuer to pay a 18

19 Distribution in MI on the Nis, holders of the Preference Shares issued as a result of that Conversion Event will also not receive any Dividends on those Preference Shares for the corresponding Dividend period, unless National pays an Optional Dividend in its absolute discretion and with the consent of APRA. National will pay Dividends on the Preference Shares only if and when declared by the directors. If the directors do not declare all or any part of a Dividend payable on any Dividend Payment Date, then holders will have no right to receive that Dividend at any time, even if National pays other Dividends in the future. Distributions on the NCIs may be restricted by the terms of other similar instruments The terms of certain of National's outstanding instruments could limit National's ability to make payments on the Subordinated Debentures, the Convertible Debentures or the Preference Shares (if issued). If the Issuer does not make payments on the NCIs, distributions may not be permitted to be made in respect of other capital instruments National has previously issued having similar economic rights and benefits as the NCIs (such as certain other Tier 1 capital instruments issued by National, directly or indirectly). If a scheduled payment is not made in full on those capital instruments, Distributions will not be permitted to be made in respect of the NCIs. Perpetual nature of the NCIs and the Preference Shares Neither the NCIs nor the Preference Shares (if issued) have a fixed final maturity date and holders have no rights to call for the redemption of the NCIs or the Preference Shares. Although the NCIs or the Preference Shares (if issued) may be redeemed (subject to APRA's prior written approval) in certain circumstances (including at National's option on the Step-Up Date or on any Distribution Payment Date thereafter or following the occurrence of a Tax Event, a Regulatory Event or an Acquisition Event through the redemption of the Convertible Debentures which will, in turn, trigger a redemption of the NCIs), there are limitations on National's ability to do so. Therefore, holders should be aware that they may be required to bear the financial risks of an investment in the NCIs for an indefinite period of time. If a holder wishes to obtain the cash value of its investment, that holder will have to sell the NCIs or the Preference Shares (if issued). Neither the Distribution rate on the NCIs nor the Dividend rate on the Preference Shares will be adjusted to reflect subsequent changes in interest rates or other market conditions, National's results of operations or financial condition or any decline in the market price of National's ordinary shares. As a result, a holder may not be able to sell the NCIs or the Preference Shares (if issued) for the amount of that holder's original investment. NCIs may be redeemed at the option of National National's ability to cause the NCIs to be redeemed may limit the market value of the NCIs (see Summary of Principal Documents - Terms of the Convertible Debentures and Terms and Conditions of the NCIs - Redemption for the circumstances in which this optional redemption right may be exercised by National). During any period when National may elect to cause the NCIs to be redeemed, the market value of the NCIs generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any redemption period. The Preference Shares (if issued) will be subject to similar redemption rights and, accordingly, their market value may be similarly limited. In the period post the Step-Up Date, National may be expected to bring about the redemption of the NCIs or the Preference Shares (if issued) when its cost of borrowing is lower than the distribution rate on the NCIs or the Preference Shares (as the case may be). At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective rate as high as the rate of Distribution on the NCIs or the rate of Dividend on the Preference Shares (as the case may be) being redeemed and may only be able to do so at a significantly lower rate. 19

20 Potential investors should consider reinvestment risk in light of other investments available at that time. NCIs may he converted into Preference Shares Because NCI Holders will receive Preference Shares when the Conversion Event occurs (unless National is legally 'pubic or otherwise fails to issue the Preference Shares at that time), in connection with any investment decision with regard to the NCIs, investors are also making an investment decision with regard to the Preference Shares. Prospective investors should carefully review all the information regarding the Preferences Shares contained in this Information Memorandum. If NCI Holders receive Preference Shares following the Conversion Event, the trading value of those Preference Shares may be lower than the trading value of the NCIs, which may result in a lower return upon a sale of those Preference Shares. Subordination National's obligations under the Subordinated Debentures and the Convertible Debentures are unsecured and will rank subordinate and junior in right of payment to National's obligations to its depositors and other creditors, including other subordinated creditors, other than subordinated creditors holding subordinated indebtedness that by its terms ranks equally with, or junior to, the holders of the Subordinated Debentures and the Convertible Debentures. Accordingly, National's obligations under the Subordinated Debentures and the Convertible Debentures will not be satisfied unless it can satisfy in full all of its other obligations ranking senior to the Subordinated Debentures and the Convertible Debentures. Further, in the event that National is wound-up, liquidated or dissolved, the assets of National would be available to pay obligations under the Subordinated Debentures only after all payments have been made on such senior liabilities and claims. There are no terms in the NCis, the LLC 2 Securities, the LLC Notes, the Subordinated Debentures, the Convertible Debentures or the Preference Shares (if issued) that limit National's ability to incur additional indebtedness, including indebtedness that ranks senior to or equally with the Subordinated Debentures, the Convertible Debentures or the Preference Shares (if issued) or to issue other instruments which rank senior to or equally with the Subordinated Debentures, the Convertible Debentures or the Preference Shares (if issued) (including other Tier 1 capital securities). In addition to the issue of the NCIs, National may issue further Tier I capital securities which are similar to the NCIs in other capital markets. As part of its ongoing capital management programme, National is currently considering a further Tier I capital issue in the offshore markets. Whether such an issue proceeds is dependent on market conditions, necessary approvals and other factors. if such an issue proceeds, it will be announced to ASX. Although the NCIs may pay a higher rate of interest than comparable instruments which are not subordinated, there is a real risk that an investor in NCIs will lose all or some of his investment should National become insolvent. The NCIs and the Preference Shares have limited voting rights A NCI Holder has limited voting rights (see Terms and Conditions of the NCIs below) at a meeting of NCI Holders. A holder of Preference Shares after the Conversion Date will also have limited voting rights as a shareholder of National (see Summary of Principal Documents - Terms of the Preference Shares - Voting and Other Rights below). This limits the rights of holders to take action with respect to the NCIs or the Preference Shares (as the case may be). 20

21 In addition, holders acknowledge in the terms of the NC's and in the terms of the Preference Shares (if issued) that they have no right to apply for the winding-up or administration of any National Entity, or k cause a receiver, or a receiver and manager, to be appointed in respect of a National Entity merely on the grounds that the National Entity does not make a scheduled payment of Distributions or iterest. NCI Holders will not receive Preference Shares on the Conversion Date if National is legally anable or otherwise fails to issue the Preference Shares If on the Conversion Date National is prohibited by law from issuing the Preference Shares, National will issue the Preference Shares if and when it is no longer prohibited from doing so. Under current Australian law, National may be prevented from issuing the Preference Shares on the Conversion Date if: National is in liquidation; APRA has assumed control of National under the Banking Act 1959 of Australia (the "Banking Act") and APRA does not cause National to issue the Preference Shares; or APRA has appointed a statutory manager under the Banking Act to take control of National's business and the statutory manager does not cause National to issue the Preference Shares. See further Summary of Principal Documents - Terms of the Convertible Debentures - Failure to Issue Preference Shares below. A holder of NC's has no rights as a shareholder of National A holder of NCIs, will not have any rights conferred on holders of the Preference Shares, including rights to receive any Dividends or other distributions in respect of the Preference Shares or to vote as a holder of the Preference Shares, until the Preference Shares are issued on the Conversion Date. There is no prior market for NCIs or the Preference Shares The NCIs and the Preference Shares (if issued) each constitute new issues of securities with no established trading market. National cannot predict whether an active or liquid trading market for the NCIs or the Preference Shares (if issued) will develop or be sustained. Therefore, investors may not be able to sell their NCIs or their Preference Shares (if issued) easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Illiquidity may have a severely adverse effect on the market value of the NCIs or the Preference Shares (if issued). Modification, waivers and substitution Provisions in the Trust Deed permit defined majorities to bind all NCI Holders including NCI Holders who did not attend and vote at the relevant meeting and NCI Holders who voted in a manner contrary to the majority. The Trust Deed also provides that: (a) the Trustee may, without the consent of the NCI Holders, agree to certain additions and amendments to the Trust Deed (including the NCI Terms) without the consent of NCI Holders; and 21

22 each Component Instrument (other than the NCIs and the Preference Shares (if issued) but inchmfmg the Preference Share Terms prior to the issue of the Preference Shares) may be added to or amended in certain circumstances without the consent of NCI Holders. See further Description of the issuer - The Trust - Amendments and Modifications below. Similar provisions are contained in the terms of the Preference Shares (if issued). Change of law The terms of each instrument (other than the LLC 2 Securities and the LLC 1 Common Securities) are based on Australian law in effect as at the Preparation Date. The terms of the LLC 2 Securities and the LLC I Common Securities are based on Delaware law at that date. National, NATL and the Trust are formed under and subject to the laws in force in Australia and National LLC 1 and National LLC 2 are formed under and subject to the laws in force in Delaware. No assurance can be given as to the impact of any possible change to Australian or Delaware law, judicial decision or administrative practice after the Preparation Date. Exchange rate risks and exchange controls Distributions and repayments of amounts invested in respect of the NCIs and the Preference Shares (if issued) will be made in Australian dollars. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the "Investor's Currency") other than Australian dollars. These include the risk that exchange rates may significantly change (including changes due to devaluation of Australian dollars or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to Australian dollars would decrease (a) the Investor's Currency-equivalent yield on the NCIs or the Preference Shares (if issued), the Investor's Currency-equivalent value of any repayments of amounts invested in respect of the NCIs or the Preference Shares (if issued) and (c) the Investor's Currency-equivalent market value of the NCIs or the Preference Shares (if issued). Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive lesser amounts in respect of the NCIs or the Preference Shares (if issued) than expected, or no amounts. Credit ratings may not reflect all risks One or more independent credit rating agencies may assign credit ratings to the NCIs. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the NCIs. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (a) NCIs or, if issued, the Preference Shares, are legal investments for it, NCIs or, if issued, the Preference Shares, can be used as collateral for various types of borrowing and (c) other restrictions apply to its purchase or pledge of any NCIs or, if issued, the Preference Shares. Financial institutions should consult their legal advisors or 22

23 the appropriate regulators to determine the appropriate treatment of NCIs under any applicable risk-based capital or similar rules. 23

24 DOCUMENTS INCORPORATED BY REFERENCE The lb lowing documents are incorporated in, and form part of, this Information Memorandum: (a) National's Annual Reports on Form 20-F for the financial years ended 30 September 2004 and 30 September 2905 (including the audit report and the consolidated audited financial statements of the National Group and the non-consolidated audited financial statements of National for the financial years ended 30 September 2004 and 30 September 2005 respectively); National's Half Year Consolidated Report on Appendix 4D for the six months ended 31 March 2006 (including the consolidated unaudited financial statements of the National Group for the six months ended 31 March 2006); and (c) the statutory documents of National. Copies of documents incorporated by reference in this Information Memorandum can be obtained from the registered office of National. Requests for such documents should be directed to National at its offices set out in the Directory at the end of this Information Memorandum. The documents listed at (a) and above contain financial information on National, as described in the table below. Other information contained in such documents is incorporated by reference into this Information Memorandum for information purposes only. Balance sheet 2004 Page 101 Form 20-F 2005 Page 115 Form 20-F 2006 Page 20 Appendix 4D Income statement 2004 Page 100 Form 20-F 2005 Page 114 Form 20-F 2006 Page 19 Appendix 4D Cash flow statement 2004 Page 102 Form 20-F 2005 Page 1/6 Form 20-F 2006 Page Appendix 4D Accounting policies and explanatory notes 2004 Page Form 20-F 24

25 Review report Audit reports Legal and arbitration proceedings 2005 Form 20-F 2006 Appendix 4D 2006 Appendix 4D 2004 Form 20-F 2005 Form 20-F 2006 Appendix 4D 2005 Form 20-F 2006 Appendix 4D Page Page Page 82 Page 228 Page Page 82 Note 44 at page Note 16 at page

26 DESCRIPTION OF THE ISSUER The Trustee incorporation National Australia Trustees Limited ("NATL") was incorporated as a public limited company under the laws of Australia on 29 December The ABN of NATL is Its registered office is at Miller Street, North Sydney, New South Wales 2060, Australia. NATL will issue the NCIs in its capacity as trustee of the Trust and will acquire and hold the LLC 2 Securities in accordance with the terms of the Transaction Documents. Details of the Trust are set out under Description of the Issuer - The Trust below. Share Capital NATL has 5 million fully paid ordinary shares on issue with a paid amount of A$2.5 million. All of the shares are held by National. Ownershi p Structure NATL is a wholly owned direct subsidiary of National. Business The principal activities of NATL are the provision of trustee, manager, executor, agent, succession and other associated commercial services. NATL is an authorised trustee corporation and holds an Australian Financial Services License under Part 7.6 of the Corporations Act (Australian Financial Services License No ). Experience NATL provides a range of services including custodial and administrative arrangements to the funds management, superannuation, property, infrastructure and capital markets sectors. Directors The directors of NATL are as follows: Name Business Address Principal Activities Michael John Sharpe Miller Street Non-Executive Director North Sydney New South Wales 2060 Australia Robin Edward Clements Miller Street Non-Executive Director North Sydney New South Wales 2060 Australia Richard Louis Morath Miller Street Executive Director North Sydney New South Wales 2060 Australia 26

27 Name Business Address Principal Activities Neil James McKissock Miller Street Non-Executive Director North Sydney New South Wales 2060 Australia Powers of the Trustee The Trustee has all the powers in respect of the Trust that it is legally possible for a natural person or corporation to have and as though it were the absolute owner of the assets of the Trust and acting in its personal capacity. However, the Trust is a special purpose trust as described under Description of the Issuer - The Trust - Purpose of the Trust below and, accordingly, specific restrictions on the activities of the Trustee are included in the Trust Deed to reflect that special purpose (see further Description of the Issuer - The Trust - Purpose of the Trust and Description of the Issuer - The Trust - Assets of the Trust below). Fees and Expenses of the Trustee Fees The Trustee is not entitled to a management fee out of the assets of the Trust. However, while the Trustee is a member of the National Group, the Trustee has the benefit of an agreement from National in the Deed of Covenant under which the Trustee is entitled to be paid fees by National (see further Summary of Principal Documents - Terms of the Deed of Covenant below). This agreement does not apply if the Trustee is not a member of the National Group. Expenses While the Trustee is a member of the National Group, the Trustee has the benefit of an undertaking from National in the Deed of Covenant which entitles the Trustee to recover expenses from National (see further Summary of Principal Documents - Terms of the Deed of Covenant below). This undertaking does not apply if the Trustee is not a member of the National Group. The Trustee is only entitled to make a claim against the assets of the Trust for expenses to the extent that National fails to honour this undertaking or the undertaking does not apply. Delegation by the Trustee The Trustee may authorise any person to act as its agent or delegate to hold title to any Asset, perform any act or exercise any discretion within the Trustee's power, including the power to appoint in turn its own agent or delegate. An agent or delegate may be an associate of the Trustee or a member of the National Group. Limitation of liability NATL enters into the Transaction Documents and issues the NCIs only in its capacity as trustee of the Trust and in no other capacity. A liability arising under or in connection with the Transaction Documents or the Trust or in respect of the NCIs is limited to and can be enforced against NATL only to the extent of the Assets of the Trust. This limitation of NATL's liability applies despite any other provision of the Transaction Documents and extends to all liabilities and obligations of NATL in any way connected with any representation, warranty, conduct, omission, agreement or transaction related to the Transaction Documents or the Trust, however, the limitation will not apply if under a Transaction Document or by operation of law there is a 27

28 reduction in the limitation of NATL's liability as a result of NATL's fraud, negligence or wilful default. Removal or Retirement of the Trustee Vohmkny retirement The Trustee may retire as the trustee of the Trust by giving 30 days' notice to National and the NCI Holders. Mandatory retirement The Trustee must retire as trustee if: (a) the Trustee becomes "insolvent" within the meaning of section 95A of the Corporations Act; required by law; or (e) the Trustee ceases to carry on business as a professional trustee. When retirement or removal takes effect The retirement or removal of the Trustee as trustee takes effect when: (a) a successor trustee is appointed; and the successor trustee obtains title to, or obtains the benefit of, the Assets, the Trust Deed and each other Component Instrument to which the Trustee is a party in its capacity as trustee. The successor trustee and each other party to the Transaction Documents will have the same rights and obligations among themselves as they would have had if the successor trustee had been party to them at the dates of those documents. Appointment of successor trustee If the Trustee retires or is removed as trustee, the Trustee agrees to use its best endeavours to ensure that a successor trustee is appointed as soon as possible. Any successor trustee appointed under the Trust Deed must be acceptable to National (acting reasonably). The Trust The Trust Deed The Trust was established in and subject to the laws of Victoria, Australia, on 12 September 2006 (being the date on which the Trust Deed was executed (the "Pre-Issue Date")), by National or a nominee of National (the "Initial NCI Holder") paying an initial settlement amount (the "Initial Settlement Amount") to subscribe for one partly paid NCI (the "Initial NCI") in settlement of the Trust. The Initial NCI is to be fully paid when all other NCIs are issued and from that time have the same rights as the other NCIs. The detailed terms of the Trust are set out in the Trust Deed. The Trust will terminate on the earliest of: 28

29 (a) (c) the date specified by the Trustee as the date of termination of the Trust in a notice given to NCI Holders, (which notice the Trustee must give (unless National consents otherwise) if all the NCIs have been converted into Preference Shares); the date of the final distribution on dissolution of National; and the date on which the Trust otherwise terminates in accordance with the Trust Deed or by law. If the law allows, the Trustee may extend the life of the Trust beyond the date set for termination if in the Trustee's opinion it is in the interests of NCI Holders to do so. However, no NCIs may be redeemed after the 80th anniversary of the day preceding the day the Trust commenced, unless that redemption would not offend the rule against perpetuities, or any other rule of law or equity. Purpose of the Trust The Trust has been established as a special purpose entity for the sole purpose of issuing the NCIs, acquiring the LLC 2 Securities and entering into the transactions and associated activities contemplated by the Transaction Documents. The terms of the Trust Deed restrict the ability of the Trustee to borrow money, grant security and dispose of the LLC 2 Securities in a manner not otherwise contemplated by the Transaction Documents. As at the Preparation Date, and prior to the issue of the NCIs, the Trust has not commenced operations (save for the issue of the Initial NCIs) and the Trust will, following the Preparation Date, undertake no activities other than those contemplated by the Transaction Documents. Capital The beneficial interest in the Trust will be represented by the NCIs. There will be no ordinary units in the Trust and the Trustee will not be permitted to issue any NCIs after the issue Date. Office All communications in respect of the Trust must flow through the Trustee. The Trust does not have, nor is it required under Australian law to have, a separate registered office. Securities The Trustee (in its capacity as trustee of the Trust) will not issue any units other than the NCIs and will not issue any other securities. Assets of the Trust The Trustee is prevented by the terms of the Trust Deed from acquiring an interest in any asset other than: the LLC 2 Securities; the Preference Shares to be issued to NCI Holders on a conversion; interests in bank accounts in which income or capital of the Trust is invested; cash, rights and benefits under the Deed of Covenant; cash, rights and benefits under the NCI Subscription Agreement; 29

30 cash, rights and benefits under the Subscription, Sale and Assignment Agreement; cash, rights and benefits under the Agency Agreement; and income or other rights arising in connection with those assets. Amendments and Modifications Each NCI Holder will acknowledge and agree in the Trust Deed that the Trust Deed (including the NCI Terms) may be amended without the consent or approval of NCI Holders, but with the approval of National in writing and with the approval of APRA (if required), if the Trustee is of the opinion that the amendment: is of a formal, minor or technical nature; is made to cure any ambiguity or correct any manifest error; is expedient for the purpose of enabling NCIs to be lodged in the Austraclear System or to remain lodged in the Austraclear System or to be offered for sale or for subscription under the laws for the time being in force in any place and it is otherwise not considered by the Trustee to be materially prejudicial to the interests of NCI Holders as a whole; is necessary to comply with the provisions of any statute or the requirements of any statutory authority; or in any other case, will not materially adversely affect the NCI Holders' rights. If the Trustee reasonably considers the amendment will materially adversely affect NCI Holders' rights, the amendment may only be made if it has been approved by a Special Resolution. A "Special Resolution" is defined in the Trust Deed as a resolution passed: (a) at a meeting of NCI Holders by a majority of at least 75% of the votes cast; or by NCI Holders representing at least 75% of the aggregate Liquidation Amount of the NCIs signing a document stating they are in favour of the resolution, in each case as provided in the Trust Deed. Each NCI Holder will acknowledge and agree in the Trust Deed that each of the Component Instruments (other than the NCIs and the Preference Shares (if issued) but including the Preference Share Terms prior to the issue of the Preference Shares) may be amended without the consent or approval of NCI Holders, but with the approval of National in writing and with the approval of APRA (if required), if the issuer of the Component Instrument (the "Relevant Issuer") (or, in the case of the Deed of Covenant, the Trustee) is of the opinion that the amendment: is of a formal, minor or technical nature; is made to cure any ambiguity or correct any manifest error; is expedient for the purpose of enabling NCIs to be lodged in the Austraclear System or to remain lodged in the Austraclear System or to be offered for sale or for subscription under the laws for the time being in force in any place and it is otherwise not considered by the 30

31 Relevant issuer (or, in the case of the Deed of Covenant, the Trustee) to be materially prejudicial to the interests of NCI Holders as a whole; is necessary to comply with the provisions of any statute or the requirements of any statutory authority; or in any other case, will not materially adversely affect the NCI Holders' rights. If the Relevant Issuer (or, in the case of the Deed of Covenant, the Trustee) reasonably considers the amendment will materially adversely affect NCI Holders' rights, the amendment may only be made if it has been approved by a Special Resolution. In addition, the Convertible Debenture Terms may be amended without the consent of NCI Holders as described under Summary of Principal Documents - Terms of the Preference Shares - Redemption below. In any other case, the terms of any Component Instrument (other than the NCIs and the Preference Shares (if issued) but including the Preference Share Terms prior to the issue of the Preference Shares) may be amended or added to if the amendment or addition has been approved by a Special Resolution. Notices to NCI Holders The Trust Deed contains provisions for notices to NCI Holders to be: (a) given in writing (which includes a fax or other electronic communication) or in such other manner as the Trustee determines; and either: (i) (ii) delivered or sent to the NCI Holder at the NCI Holder's fax number or physical, postal or (if acceptable to the Trustee) electronic address last advised to the Trustee or the Registrar for delivery of notices; or given by an advertisement published in the Australian Financial Review or The Australian newspapers. Meetings of NCI Holders The Trust Deed contains provisions for convening meetings of the NCI Holders to consider any matter affecting their interests, including any variation of the NCI Terms which requires the consent of NCI Holders. NCI Holders will have no voting rights in respect of National or any other National Entity. 31

32 Introduction and Organisational Structure DESCIUPT1ON OF NATIONAL LLC 2 National Capital instruments [AUDI LLC 2 ("National LLC 2") is a Delaware limited liability company that will be formed on or about 12 September 2006 under the Delaware Limited Liability Company Act (the "LLC Act") by filing a certificate of formation with the Secretary of the State of Delaware in the United States pursuant to a limited liability company agreement (the "LLC 2 Agreement"). National Capital Holdings I Inc. will be the manager of National LLC 2 (the "LLC Manager"). The LLC 2 Agreement provides, among other things, for the issuance by National LLC 2 of one class of limited liability company interests, the LLC 2 Securities, which are expected to be issued concurrently with this offering. Terms of the LLC 2 Securities are set forth in the LLC 2 Agreement. National LLC 2 will not issue any other class of membership interest. National LLC 2 has agreed to issue the LLC 2 Securities to the Initial Subscriber in consideration for the transfer by the Initial Subscriber of the LLC Notes and the Convertible Debentures to National LLC 2. See further Description of National LLC 2 - Administration below. The registered Delaware office of National LLC 2 is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, United States of America, telephone number All correspondence in respect of National LLC 2 should be directed to the LLC Manager (see Description of National LLC 2 - Administration below). Sole Activity National LLC 2 was established for the sole purpose of: issuing the LLC 2 Securities to be held by the Issuer; using the proceeds of the LLC 2 Securities to acquire the LLC Notes and the Convertible Debentures from the Initial Subscriber as provided under Subscription and Sale - Subscription, Assignment and Sale of the Relevant Instruments below; and engaging in any related or incidental activities. National LLC 2 has carried out no operations since its registration other than in relation to the creation of the LLC 2 Securities and the other transactions contemplated by the Transaction Documents to which it is a party, including holding the LLC Notes and the Convertible Debentures. Under the Deed of Covenant, National will agree to pay or reimburse National LLC 2 on a quarterly basis for all expenses incurred in connection with the Tier 1 Capital Instrument. However, National will not guarantee any payments under the LLC 2 Securities and no NCI Holder will be permitted to take action against National to enforce the Deed of Covenant. 32

33 LLC 2 Distrilmtions National LLC 2 expects to pay distributions on the LLC 2 Securities as described under Summary of Principal Documents - Terms of the LLC 2 Securities - Distributions below. Under applicable Delaware law, National LLC 2 cannot make a Distribution on the LLC 2 Securities to the extent that at the time of the Distribution, after giving effect to the Distribution, all liabilities of National LLC 2 (other than liabilities to the Issuer on account of the LLC 2 Securities) exceed the fair value of its assets. It is expected that the aggregate periodic interest payments on the LLC Notes held by National LLC 2 will equal or exceed the aggregate periodic Distribution payments on the LLC 2 Securities. Administration National LLC 2 will be solely managed and administrated by the LLC Manager, a wholly-owned subsidiary of, and fully controlled by, National, pursuant to and on the terms of a management agreement to be entered into between National LLC 2 and the LLC Manager (the "LLC 2 Management Agreement"). No NCI Holder may participate in the management or administration of National LLC 2. The registered office of the LLC Manager is do Corporation Service Company, 2711 Centreville Road, Suite 400, Wilmington, Delaware 19808, United States of America, telephone number The business address of the LLC Manager (to which all correspondence should be addressed) is do National Australia Bank Limited, Level 28, 245 Park Avenue, New York, New York 10167, United States of America (attention: Senior Counsel). The Directors of the LLC Manager are as follows: Name Business Address Principal Activities Rick Sawers Bruce Richards Mark Cahaney Dwayne McCallum Thomas DeMaio Level 13, 140 William Street, Melbourne, Victoria 3000, Australia 245 Park Avenue, New York, New York, United States of America 245 Park Avenue, New York, New York, United States of America 245 Park Avenue, New York, New York, United States of America 245 Park Avenue, New York, New York, United States of America Group Treasurer, National Australia Bank Limited General Manager - Americas, National Australia Bank Limited Head of Legal & Risk - Americas, National Australia Bank Limited Senior Vice President & Head of Finance - Americas, National Australia Bank Limited Senior Vice President, Markets Division - Americas, National Australia Bank Limited 33

34 Under the terms of the LLC 2 Management Agreement, the LLC Manager may appoint a successor LLC Manager, which must be a wholly-owned direct or indirect subsidiary of National. National will also undertake I the Deed of Covenant to procure that the LLC Manager will at all times be a directly or indirectly wholly-owned subsidiary of National. The LLC Manager is also the manager of National LLC 1, which is separately established and whose assets are segregated from those of National LLC 2. Capitalisation and Indebtedness Capitalisation As at the Issue Date, the capitalisation of National LLC 2 will consist of A$400,000,000 in aggregate liquidation amount of LLC 2 Securities. Indebtedness Since the date of its registration, National LLC 2 has not had any loan capital outstanding, has not incurred any borrowings, has had no contingent liabilities, has not granted any guarantees and does not intend to have outstanding any such loan capital, incur any such borrowings, have any such contingent liabilities or grant any such guarantees other than in connection with the Transaction Documents. Legal and arbitration proceedings Since the date of its formation, National LLC 2 has not been involved in or threatened with any governmental, legal or arbitration proceedings which may have, or have had in the recent past, significant effects on National LLC 2's and/or the National Group's position or profitability. 34

35 Introduction and Organisational Structure DESCRIPTION OF NATIONAL LLC 1 National Capital Instruments [AUDI LLC I ("National LLC 1") is a Delaware limited liability company that will be formed on or about 12 September 2006 under the LLC Act by filing a certificate of formation with the Secretary of the State of Delaware in the United States pursuant to a limited liability company agreement (the "LLC 1 Agreement"). The LLC Manager will be the manager of National LLC I. The LLC 1 Agreement provides, among other things, for the issuance by National LLC 1 of one class of limited liability company interests in the form of common securities (the "LLC 1 Common Securities"), which are expected to be issued concurrently with this offering and will be held by National Capital Holdings I Inc. Terms of the LLC 1 Common Securities are set forth in the LLC 1 Agreement. See further Description of National LLC 2 - Administration below. National LLC 1 has agreed to issue the LLC Notes to the Initial Subscriber and to subscribe for the Subordinated Debentures from National New York Branch. The registered office of National LLC 1 is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, United States of America, telephone number All correspondence in respect of National LLC 1 should be directed to the LLC Manager (see Description of National LLC 2 - Administration above). Sole Activity National LLC I was established for the sole purpose of: issuing the LLC 1 Common Securities to National Sub; issuing the LLC Notes as provided under Subscription and Sale - Subscription, Assignment and Sale of the Relevant Instruments below; investing the proceeds of the LLC Notes in the Subordinated Debentures; investing the proceeds of the LLC 1 Common Securities in a non-interest bearing account with National; and engaging in any related or incidental activities. National LLC 1 has carried out no operations since its registration other than in relation to the creation of the LLC 1 Common Securities and the LLC Notes and the other transactions contemplated by the Transaction Documents to which it is a party, including holding the Subordinated Debentures. Under the Deed of Covenant, National will agree to pay or reimburse National LLC 1 on a quarterly basis for all expenses incurred in connection with the Tier 1 Capital Instrument. However, National will not guarantee any payments under the LLC Notes and no NCI Holder will be permitted to take action against National to enforce the Deed of Covenant. 35

36 Dividends and LLC Note Interest National LLC I expects to dividend any residual income after payments on the LLC Notes and operating expenses to the holder of the LLC 1 Common Securities. Under applicable Delaware law, National LLC I cannot make a distribution on the LLC 1 Common Securities to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of National LLC 1 (other than liabilities to National Capital Holdings I Inc. on account of the LLC 1 Common Securities) exceed the fair value of its assets. It is expected that the aggregate periodic interest payments on the Subordinated Debentures held by National LLC I will equal or exceed the aggregate periodic interest payments on the LLC Notes. Administration National LLC I will be solely managed and administered by the LLC Manager pursuant to and on the terms of a management agreement to be entered into between National LLC 1 and the LLC Manager (the -LLC 1 Management Agreement"). No NCI Holder may participate in the management or administration of National LLC 1. The registered office of the LLC Manager and the Directors of the LLC Manager are as set out under Description of National LLC 2 - Administration above. Under the terms of the LLC I Management Agreement, the LLC Manager may appoint a successor LLC Manager, which must be a wholly-owned direct or indirect subsidiary of National. National will also undertake in the Deed of Covenant to procure that the LLC Manager will at all times be a directly or indirectly wholly-owned subsidiary of National. The LLC Manager is also the manager of National LLC 2, which is separately established and whose assets are segregated from those of National LLC 1. Capitalisation and Indebtedness Capitalisation As at the Issue Date, the capitalisation of National LLC I will consist of A$400,000,000 in aggregate liquidation amount of LLC I Common Securities. Indebtedness Since the date of its registration, National LLC 1 has not had any loan capital outstanding, has not incurred any borrowings, has had no contingent liabilities, has not granted any guarantees and does not intend to have outstanding any such loan capital, incur any such borrowings, have any such contingent liabilities or grant any such guarantees other than in connection with the Transaction Documents. Legal and arbitration proceedings Since the date of its formation, National LLC 1 has not been involved in or threatened with any governmental, legal or arbitration proceedings which may have, or have had in the recent past, significant effects on National LLC l's and/or the National Group's position or profitability. 36

37 DESCRIPTION OF NATIONAL Information about National History and development of National The legal name of National is "National Australia Bank Limited" and it trades commercially as "National Australia Bank" and, particularly within Australia, as "National" or "nab". National was incorporated on 23rd June, National is a public limited company incorporated in the Commonwealth of Australia and it operates under Australian legislation including the Corporations Act 2001 of Australia (the "Corporations Act"). Its registered office is Level 13, 140 William Street, Melbourne, Victoria 3000, Australia (telephone number ) and its Australian Business Number ("ABN") is Business Overview Principal activities The National Group is an international financial services group, providing a comprehensive and integrated range of financial products and services. Globally, as at 31 March 2006, the National Group had: total assets of A$459 billion; A$96 billion in funds under management and administration; and A$442 billion in assets under custody and administration. The principal activities of the National Group are banking services, credit and access card facilities, leasing, housing and general finance, international banking, investment banking, wealth management, funds management, life insurance, and custodian, trustee and nominee services. The National Group business operating model runs along regional lines for Australia, Europe and New Zealand, together with Institutional Markets & Services, which operates on a global basis. This operating model is a change to the model that operated before 2005_ Total Australia The Australian and Asian-based businesses are managed as one regional operation. This has resulted in the former operations of Financial Services Australia, the Australian components of Corporate & Institutional Banking's Corporate Banking, National Custodian Services and Transactional Solutions units, the Asian component of Corporate & Institutional Corporate Banking, and the Australian components of Wealth Management, being managed as Total Australia. As at 31 March 2006, Total Australia had 22,871 full-time equivalent employees. Total UK The National Group's UK businesses are now managed as one regional operation. This has resulted in the former operations of Financial Services Europe, the European component of Corporate & Institutional Banking's Corporate Banking unit, and the European components of Wealth Management, being managed as Total UK. 37

38 As at 31 March 2006, Total UK bad 9,246 full-time equivalent employees. Total New Zealand The New Zealand-based businesses of the National Group are now managed as one regional operation. This has resulted in the former operations of Financial Services New Zealand, the New Zealand component of Corporate & Institutional Banking's Corporate Banking unit, and the New Zealand components of Wealth Management, being managed as Total New Zealand. As at 31 March 2006, Total New Zealand had 4,628 full-time equivalent employees. Institutional Markets & Services Institutional Markets & Services ("IMS") is a global business with operations in Australia, the United Kingdom, New Zealand, Asia and the United States. Key business lines include Global Markets, Corporate Finance, Structuring & Investments, and Institutional Banking - IMS's relationship management unit in Australia incorporating blue chip corporate clients and organisations served by National's Financial Institutions group globally. In Corporate Finance, IMS provides funding solutions via Project Finance, Leveraged Finance, Structured Asset Finance, Structured Property, Mezzanine Finance and non-quoted equity product. The Structuring & Investments group is responsible for managing the asset portfolio and structuring investment products across such areas as Structured Finance, Alternative Investments, Capital Markets Solutions, Securitisation and Strategic Transactions. As at 31 March 2006, Institutional Markets & Services had 1,944 full-time equivalent employees. Corporate Centre and Global Funding The National Group's other services segment comprises Corporate Centre and Global Funding, which are not considered to be separate reportable operating segments. Corporate Centre comprises Corporate Development, Financial Risk Management, People & Culture, Technology, and the office of the CEO. As at 31 March 2006, these areas had 609 full-time equivalent employees. Principal markets The principal markets in which the National Group operates are banking services, credit and access card facilities, leasing, housing and general finance, international banking, wealth management, funds management, life insurance and custodian, trustee and nominee services. Organisational Structure National is the holding company for the National Group, as well as being the main operating company. As at the Preparation Date, National had four main operating subsidiaries: the Bank of New Zealand, MLC Limited, National Australia Financial Management Limited and Clydesdale Bank PLC (which includes the whole business and undertaking carried on under the Yorkshire Bank brand). Trend Information There has been no material adverse change in the prospects of National since 31 March There are no known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on National's prospects for at least the current financial year, other than as disclosed in the Financial Reports (as defined in Description of National - Financial 38

39 Information concerning National's Assets and Liabilities, Financial Position and Profits and Lasses - Historical financial in ton below) of National (as incorporated by reference in this Information Memorandinn) and the contingent liabilities described under Description of National - Legal and arbitration proceedings below. Profit Forecasts or Estimates National does not intend to make or imply any profit forecasts or profit estimates in this Information Memorandum. No statement contained in this Information Memorandum should be interpreted as such a forecast or estimate. Administrative, Management and Supervisory Bodies The name and function of each of the Directors of National are listed below. The business address of each Director is Level 13, 140 William Street, Melbourne, Victoria 3000, Australia. John Stewart Managing Director, Group Chief Executive Officer and an Executive Director of National Equities Limited. Michael J Miner Director, Finance & Risk, Group Chief Financial Officer and an Executive Director of National Equities Limited. Ahmed Fahour Executive Director, Chief Executive Officer, Australia, and an Executive Director of National Equities Limited. Michael A Chaney Non-Executive Director, Chairman and a Non-Executive Director of National Equities Limited. Peter J B Duncan Non-Executive Director, Chairman of the Remuneration Committee and a Non-Executive Director of National Equities Limited. Daniel T Gilbert Non-Executive Director, member of the Principal Board Audit Committee and a Non-Executive Director of National Equities Limited. Paul J Rizzo Non-Executive Director, member of the Principal Board Audit Committee, Chairman of the Principal Board Risk Committee and a Non-Executive Director of National Equities Limited. Jillian S Segal Non-Executive Director, member of the Remuneration Committee, member of the Principal Board Risk Committee and a Non-Executive Director of National Equities Limited. John G Thorn Non-Executive Director, Chairman of the Principal Board Audit Committee and a Non-Executive Director of National Equities Limited. 39

40 Geoffrey A Tomarmson Non-Executive Director, member of the Remuneration Committee and a Director of the following National Group companies: National Equities Limited, MLC Holdings Limited, MLC Limited, MLC Investments Limited, National Wealth Management Holdings Limited, Your Prosperity Limited, Heritage Management Limited, National Australia Financial Management Limited and National Australia Fund Management Limited. G Malcolm Williamson Non-Executive Director, Chairman of National Australia Group Europe Limited and a Non- Executive Director of National Equities Limited. T Kerry McDonald Non-Executive Director, Chairman of Bank of New Zealand, member of the Principal Board Audit Committee and a Non-Executive Director of National Equities Limited. Patricia A Cross Non-Executive Director, member of the Principal Board Risk Committee and a Non-Executive Director of National Equities Limited. There are no conflicts of interest between any duties of these people to National and their private interests or their other duties. Major Shareholders National is a public limited company. As at 31 July 2006, the following shareholders each held more than 1% of the issued share capital of National: National Nominees Limited (13.13%) J.P. Morgan Nominees Australia Limited (10.96%) Westpac Custodian Nominees Limited (10.08%) Citicorp Nominees Pty Limited (3.11%) ANZ Nominees Limited (3.04%) Cogent Nominees Pty Limited (1.55%) Queensland Investment Corporation (1.12%) AMP Life Limited (1.08%) There are several provisions of Australian law that are relevant to the ability of any person to gain control of National. Mergers, acquisitions and divestments of Australian public companies listed on the Australian Stock Exchange (such as National) are regulated by detailed and comprehensive legislation and the rules and regulations of the Australian Stock Exchange. In summary, under the Corporations Act, a person must not acquire a relevant interest in issued voting shares in an Australian listed company if, broadly, because of the transaction, that person's 40

41 or someone else's voting power in the company increases from 20% or below to more than 20%, or from a starting point that is above 20% and below 90%, unless those shares are acquired in a manner specifically permitted by law. This restriction also limits the options available to a shareholder wanting to sell a shareholding of more than 20% in an Australian listed company. Australian law also regulates acquisitions which would have the effect, or be likely to have the effect, of substantially lessening competition in a market in Australia, in a state or in a territory of Australia. Acquisitions of certain interests in Australian listed companies by foreign interests are also subject to review and approval by the Treasurer of the Commonwealth of Australia ("Australian Treasurer"). There are also specific limitations on the acquisition of a shareholding in a bank under the Financial Sector (Shareholdings) Act 1998 of Australia (the "FSSA"). Under the FSSA, a person (including a company) must not acquire an interest in an Australian financial sector company where the acquisition would take that person's voting power (which includes the voting power of the person's associates) in the financial sector company to more than 15% of the voting power of the financial sector company without first obtaining the Australian Treasurer's approval. Even if a person has less that 15% of the voting power, the Australian Treasurer has the power to declare that a person has practical control of that company and, by applying for an order from the Federal Court of Australia may require the person to relinquish that control. The definition of a financial sector company includes banks such as National. Financial Information concerning National's Assets and Liabilities, Financial Position and Profits and Losses Historical financial information The following financial information in relation to National for its financial years ended 30 September 2004 and 30 September 2005 is contained in its Annual Reports on Form 20-F for the years ended 30 September 2004 and 30 September 2005 respectively (the "Full Year Reports") and in its Half Year Consolidated Report on Appendix 4D for the six months ended 31 March 2006 (the "2006 Half Year Report" and, together with the Full Year Reports, the "Financial Reports") (at the locations listed) which are incorporated by reference in this Information Memorandum: the balance sheet for each such year (at pages 101, 115 and 20 respectively, referred to as the "Statement of Financial Position"); the income statement for each such year (at pages 100, 114 and 19 respectively, referred to as the "Statement of Financial Performance"); the cash flow statement for each such year (at pages 102, 116 and respectively, referred to as the "Statement of Cash Flows"); and the accounting policies and explanatory notes (at pages , and respectively, referred to as the "Notes to the financial statements"). The financial information relating to National in the Full Year Reports described above and incorporated by reference into this Information Memorandum has been prepared in accordance with Australian generally accepted accounting principles ("AGAAP"). However, the financial information relating to National in the 2006 Half Year Report described above and incorporated 41

42 by reference into this Information Memorandum has been prepared in accordance with the Australian equivalents to international financial reporting standards ("IFRS") ("MFRS"). There may have been material differences in the financial information had the same accounting standards been applied to each of the Financial Reports. The financial statements referred to above contain both National's own statements and consolidated statements for the National Group. See further Documents Incorporated by Reference above. Auditing of historical annual financial information The historical annual financial information referred to above has been audited; please see the Auditors' Statements at page 228 of the Annual Report on Form 20-F for the year ended 30 September 2004 and at pages 251 and 252 of the Annual Report on Form 20-F for the year ended 30 September 2005 which are incorporated by reference in this Information Memorandum. Legal and arbitration proceedings Except as listed below, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which National is aware) in the 12-month period before the date of this Information Memorandum which may have, or have had in the recent past, significant effects on the financial position or profitability of National and/or that of the National Group. On 29 August 2003, a civil class action complaint was filed in the US District Court, Southern District of New York, against the National Group and others for alleged violations of the US federal securities law relating primarily to disclosure concerning the valuation of the mortgage servicing rights held by HomeSide US (sold in October 2002). The complaint failed to specify any quantum of damages. The plaintiffs in the complaint filed their consolidated amended class action complaint on 30 January 2004, and the National Group moved to dismiss the consolidated amended class action complaint on 11 March It is anticipated that the court will rule on the motion to dismiss during the 2006 financial year. On 26 February 2004, National announced that it had received a voluntary document request from the US Securities and Exchange Commission ("SEC") as part of an investigation into certain Australian registrants and public accounting firms. The document request covers National and controlled entities and includes issues relating to audit independence. In addition, National has provided certain information to the SEC about the accounting and internal controls of National and its controlled entities, including the foreign currency options trading matter and HomeSide US. For further information on contingent liabilities of the National Group, refer to note 44 in the financial report included in National's Annual Report on Form 20-F for the year ended 30 September 2005 incorporated by reference into this Information Memorandum. These contingent liabilities include amended assessments from the Australian Tax Office regarding ExCaps and amended assessments from the New Zealand Inland Revenue Department. Recent events National continues to consider a range of options to optimise its corporate structure to best support the bank's operations domestically and internationally. 42

43 A non-operating hokfing company structure is one of the options being considered in response to the changing regulatory environment and its impact on capital and for future flexibility to deliver shareholder value. Consideration of various structural options involves a range of complex issues and the analysis, and any subsequent decision on a particular path, are expected to take some time to complete. National is currently participating in industry-wide consultation with regulators in relation to the matter. As part of any structural review process, National remains committed to retaining the existing level of credit ratings for the National Group. Any non-operating holding company would continue to be regulated by APRA. Once any proposal is sufficiently advanced stakeholders will be consulted. There are no recent events particular to National that are, to a material extent, relevant to the evaluation of its solvency. Significant change in the financial or trading position of National There has been no significant change in the financial or trading position of the National Group since 31 March

44 TERMS AND CONDITIONS OF THE NCIs The following ore the terms end conditions of the NCIs in the form in which they will be set out in the Trust Deed These terms and conditions are subject to the provisions of the Trust Deed. 1 Liquidation Amount Each NCI will be issued with a Liquidation Amount of $50,000. Each NCI must be paid for in full on application. 2 Form and ranking 2.1 Form Each National Capital Instrument (NCI) is a unit in the Trust conferring an undivided share in the beneficial interest in the assets of the Trust. A NCI is Redeemable for cash and Convertible into a Preference Share according to these NCI Terms. NCIs do not represent deposits or securities of National, are not guaranteed by National and a NCI Holder has no claim on National for payment of any amount in respect of the NCIs. NCIs are issued according to the Trust Deed of which these NCI Terms form part. 2.2 Entries in the Register NCIs are issued in registered form by entry in the Register. 2.3 No certificates No certificates will be issued in respect of any NCIs unless the Trustee determines that certificates should be available or they are required by any applicable law. 2.4 Clearing system NCIs may be held in the Austraclear System. If NCIs are held in the Austraclear System, the rights of the members of the Austraclear System and any person claiming through or under a member holding an interest in those NCIs are subject to the Austraclear Regulations. The Trustee is not responsible for anything the Austraclear System does or omits to do. 2.5 Ranking Subject to the Trust Deed, each NCI ranks equally with all other NCIs in all respects and subordinate to all creditors of the Trust. 3 Distributions 3.1 Distributions Subject to these NCI Terms, each NCI entitles the NCI Holder on a Record Date to receive on the relevant Distribution Payment Date a distribution of the Distributable Amount for the Distribution Period ending on that Distribution Payment Date (Distribution) calculated according to the following formula: 44

45 Distribution Distribution Rate x Liquidation Amount x D 365 where: Distribution Rate (expressed as a percentage per annum) is calculated according to the following formula: Distribution Rate = Bank Bill Rate + Margin where: Bank Bill Rate (expressed as a percentage per annum) means, for a Distribution Period, the average mid-rate for bills of a term of 90 days which average rate is displayed on Reuters page BBSW (or any page which replaces that page) on the first Business Day of that Distribution Period, or if there is a manifest error in the calculation of that average rate or that average rate is not displayed by 10:30am (Sydney time) on that date, the rate specified in good faith by National at or around that time on that date having regard, to the extent possible, to: (a) the rates otherwise bid and offered for bills of a term of 90 days or for funds of that tenor displayed on Reuters page BBSW (or any page which replaces that page) at that time on that date; and if bid and offer rates for bills of a term of 90 days are not otherwise available, the rates otherwise bid and offered for funds of that tenor at or around that time on that date; Margin (expressed as a percentage per annum) means, for a Distribution Period: (a) up to (and including) the Step-Up Date, the Initial Margin; and from (but not including) the Step-Up Date, the Initial Margin plus 1.00% per annum; and D means in respect of: (a) the first Distribution Payment Date, the number of days from (but not including) the Issue Date to (and including) the first Distribution Payment Date; and each subsequent Distribution Payment Date, the number of days from (but not including) the preceding Distribution Payment Date to (and including) that Distribution Payment Date. 3.2 Distribution Payment Dates The Distribution Payment Dates are each 31 March, 30 June, 30 September and 31 December, commencing on 31 December 2006, until the date on which the NCIs are Redeemed or Converted in accordance with these NCI Terms (and, if such date is also a Distribution Payment Pate, including such date). 45

46 If adistannion Payment Date is a day which is not a Business Day, then that day remains the Distrintion Payment Date and the Distribution scheduled to be paid on that day will be paid on the next day which is a Business Day without any adjustment of the amotmt of the Distribution or any other payment in respect of the delay in payment. 3.3 Distributions subject to the Trust having Distributable Amount (a) (c) The payment of a Distribution, including payment of any gross-up payable under clause 7.2 ("Gross-up"), is subject to the Trust having a sufficient Distributable Amount during the relevant Distribution Period. The Trust will not have a sufficient Distributable Amount in a Distribution Period if, for any reason, (including because an APRA Condition has occurred) a distribution scheduled to be paid for that Distribution Period on any of the Component Instruments has not been paid or has not been paid in full or is subject to a withholding or deduction for which the issuer of that instrument is not required to gross up. If, in any Distribution Period, the Distributable Amount is less than or greater than the amount which is required to pay the scheduled Distribution in respect of each NCI in full, the NCI Holder will receive its share of the Distributable Amount in accordance with the Trust Deed. 3.4 Distributions are non-cumulative Distributions are non-cumulative. If all or any part of a Distribution is not paid (an Unpaid Distribution) on or within seven days after the relevant Distribution Payment Date because of the restrictions in clause 3.3 ("Distributions subject to the Trust having Distributable Amount"), the Trustee has no liability to pay the Unpaid Distribution and, notwithstanding the ability of the Issuer to make an Optional Distribution, the NCI Holder has no claim in respect of such Unpaid Distribution. No interest accrues on any unpaid Distribution or Optional Distribution and the NCI Holder has no claim or entitlement in respect of interest on any Unpaid Distribution or Optional Distribution. 3.5 Restrictions in the case of non-payment Subject to clause 3.6 ("Exceptions to restrictions"), if: (a) a Distribution (including any gross-up on that Distribution payable under clause 7.2 ("Gross-up")) has not been paid in full on the Distribution Payment Date because of the restrictions in clause 3.3 ("Distributions subject to the Trust having Distributable Amount"); or a Conversion Event has occurred as a result of the Trustee for any reason not paying in full the Distribution payable on the NCIs on any Distribution Payment Date, National must not without approval of an Ordinary Resolution passed by NCI Holders: (i) pay any interest, dividends or similar distributions on any other capital instruments of National which rank for dividends equal with or junior to the Preference Shares (as if such Preference Shares were issued); or 46

47 (ii) redeem, buy-back or reduce capital on any other capital instruments of National which rank for return of capital in a winding up equal with or junior to the Preference Shares (as if such Preference Shares were issued), in each case other than by way of pro rata payments on the NCIs and the other capital instruments of National which rank for distributions or return of capital in a winding up (as the case may be) equal with the Preference Shares and unless and until, since the date of the failure to pay a Distribution as stated in clause 3.5(a) or the occurrence of a Conversion Event as stated in clause 3.5: (A) National shall have paid in full, either: ( I) consecutive Distributions on the NC's on each Distribution Payment Date during the 12 month period following the non-payment of the Distribution; or (2) with APRA's prior written approval, an optional Distribution equal to the unpaid amount of the scheduled Distributions for the period of 12 months prior to the date of payment of the optional Distribution (Optional Distribution); or (B) all NCIs have been: 3.6 Exceptions to restrictions (1) Redeemed; or The foregoing restrictions do not apply to: (2) Converted and National is permitted to do so in accordance with the Preference Share Terms. (a) a redemption, buy-back or return of capital in connection with: (i) (ii) (iii) any employment contract, benefit plan or other similar arrangement; any dividend reinvestment plan or shareholder share purchase plan; or the issuance of National's shares, or securities convertible into or exercisable for such shares, as consideration in an acquisition entered into prior to the occurrence of the Unpaid Distribution or the Conversion Event; an exchange, redemption or conversion of any class of National's shares, or any shares of a subsidiary of National, for any class of National's shares, or any class of National's indebtedness for any class of National's shares; (c) the purchase of fractional interests in National's shares under the conversion or exchange provisions of the shares or the security being converted or exchanged; (d) any payment or declaration of a dividend in connection with any shareholder's rights plan or the redemption or repurchase of rights pursuant to the plan; 47

48 (c) any dividend in the form of shares, warrants, options or other rights where the dividend shares or the shares issuable upon exercise of such warrants, options or other rights are the same class of shares as those on which the dividend is being paid or rank equal or junior to those shares; or (f) any capital raising through a rights issue. 4 Redemption 4.1 Redemption If NCIs are to be Redeemed, on the Redemption Date the Trustee must pay to the NCI Holder the Redemption Price in respect of each NCI which is Redeemed (Redemption). 4.2 Redemption by Trustee If National redeems: (a) (c) some or all of the Convertible Debentures on the Step-Up Date; some or all of the Convertible Debentures on a Distribution Payment Date after the Step-Up Date; or all (but not some) of the Convertible Debentures on or following the occurrence of a Tax Event, an Acquisition Event or a Regulatory Event, and National LLC 2 accordingly redeems the LLC 2 Securities, the Trustee must Redeem a corresponding number of NCIs upon receipt of the proceeds of redemption of the LLC 2 Securities. 4.3 Redemption Price The Redemption Price is equal to the Par Redemption Amount. The Redemption Price comprises a repayment of the NCI Holder's capital investment in the NCIs to the extent of the Liquidation Amount and an amount of income to the extent that the Redemption Price exceeds the Liquidation Amount. 4.4 Redemption Notice Before it Redeems, the Trustee must give a Redemption Notice which must state: (a) the Redemption Date, being a date no less than 20 Business Days after the date of the Redemption Notice; and if less than all NC1s are being Redeemed on the Redemption Date, state the proportion of NCIs to be Redeemed on that Redemption Date. A Redemption Notice is irrevocable once given and constitutes a promise by the Trustee, subject to receipt of the proceeds of the redemption of a corresponding number of the LLC 2 Securities, to Redeem the NCIs specified in the Redemption Notice on the Redemption Date. 48

49 4.5 Partial Redemption If some bet not all NCIs are Redeemed the Trustee must, in each case, endeavour to treat all NCI Holders on an approximately proportionate basis but may discriminate to take account of the effect on marketable parcels and other logistical considerations. 5 Conversion 5.1 Meaning of Conversion Conversion of a NCI means that the NCI is redeemed by the Trustee either delivering, or directing National to issue, the Preference Share to the NCI Holder on the Conversion Date. 5.2 Conversion The NCIs are to be Converted when the first of the following events occurs (the Conversion Event): (a) the Business Day prior to 30 September 2055; National Head Office gives a National Conversion Notice (which National Head Office may do in its absolute discretion); (c) a scheduled Distribution is not paid in full for any reason on or within seven Business Days after any Distribution Payment Date; (d) National LLC I or National LLC 2: (i) (ii) ceases to be managed by a wholly-owned subsidiary of National ; or is wound up or dissolved; (e) an order is made or effective resolution is passed for the winding up of National; (f) an APRA Capital Event; or (g) the Redemption Price is not paid in full for any reason on or within seven Business Days of a Redemption Date. 5.3 Conversion Dates The Conversion Date will be, if the Conversion Date occurs under: (a) (c) clause 5.2(a), 5.2(d) or 5.2(e) ("Conversion"), the date of the Conversion Event; clause 5.2 ("Conversion"), the date specified in National Conversion Notice (which must be no later than 20 Business Days after the date of National Conversion Notice); or clause 5.2(c), 5.2(0 or 5.2(g) ("Conversion"), the date which is 10 Business Days after the date the Conversion Event occurs. 49

50 5.4 Conversion Notice Except where clause 5.2(a) ("Conversion") applies, the Trustee must give a Conversion Notice stating the Conversion Date in accordance with clause 5.3 ("Conversion Dates"): (a) where clause 5.2 applies, immediately on receipt of a National Conversion Notice; and in any other case within 3 Business Days of the Conversion Event. A Conversion Notice is irrevocable once given. Failure to give a Conversion Notice when required by this clause 5.4 ("Conversion Notice") does not affect the obligation of National to Convert. 5.5 Failure to Convert If on a Conversion Date, a Preference Share is not issued or delivered in respect of a NCI, that NCI remains on issue until the Preference Share is issued or delivered to the NCI Holder or the NCI Holder receives the Redemption Price in accordance with clause 4 ("Redemption"). This clause 5.5 ("Failure to Convert") does not affect the obligation of National to issue the Preference Share. 6 Redemption and Conversion common provisions 6.1 Effect of Redemption or Conversion Upon Redemption or Conversion of a NCI, and payment of the Redemption Price or the issue of the Preference Share and payment of any amount due and payable on the Conversion Date, in both cases, in respect of that NCI, all other rights conferred, or restrictions imposed, by that NCI will no longer have effect. 6.2 NCI Holder acknowledgements Each NCI Holder irrevocably: (a) upon a Conversion, consents to becoming a member of National and agrees to be bound by the Preference Share Terms; agrees it is obliged to accept the Preference Shares upon a Conversion notwithstanding anything which might otherwise affect Conversion including: (i) (ii) (iii) (iv) any change in the financial position of National since the Issue Date; any disruption to the market or potential market for the Preference Shares or to capital markets generally; any breach by any National Entity of any obligation in connection with the Tier I Capital Instrument; or it being impossible or impracticable to sell or otherwise dispose of Preference Shares; (c) agrees to provide to the Trustee any information the Trustee considers necessary or desirable to give effect to a Redemption or a Conversion; 50

51 (d) appoints the Trustee as its agent and attorney with power in the name and on behalf of the NCI Holder to do all things necessary to give effect to a Redemption or a Conversion, including: (i) (ii) completing and executing such instruments for and on the NCI Holder's behalf as the Trustee considers necessary or desirable to give effect to a Redemption or a Conversion; and appointing in turn its own agent or delegate; (e) (f) (g) acknowledges and agrees that a NCI Holder has no right to request a Redemption or a Conversion; acknowledges and agrees that a NCI Holder has no right to apply for any National Entity to be wound up, or placed in administration, or to cause a receiver, or a receiver and manager, to be appointed in respect of a National Entity merely on the grounds that a National Entity does not pay a Distribution or interest when scheduled under any Component Instrument; and acknowledges and agrees that these NCI Terms contain no events of default. Accordingly (but without limitation) failure to pay in full, for any reason, a Distribution on the scheduled Payment Date will not constitute an event of default. 7 Payments to NCI Holders 7.1 Calculation of payments All calculations of payments will be rounded to four decimal places. For the purposes of making any payment in respect of a NCI Holder's aggregate holding of NCIs, any fraction of a cent will be disregarded. 7.2 Gross-up The Trustee may deduct from any payment payable to a NCI Holder the amount of any withholding or other tax, duty or levy required by law to be deducted in respect of such payment. If any deduction is required the Trustee must pay: (a) the full amount required to be deducted to the relevant revenue authority within the time allowed for such payment without incurring penalty under the applicable law; and subject to clause 3.3 ("Distributions subject to the Trust having Distributable Amount"), an additional amount (Additional Amount) to the NCI Holder so that the NCI Holder receives the same amount in respect of that payment as if no such deduction had been made from the payment, except that no Additional Amount is payable: (i) if the deduction is required on account of a NCI Holder being a non-tax resident of Australia or a tax resident of Australia acting through a permanent establishment outside of Australia; 51

52 (ii) (iii) if the deduction is required on account of a NCI Holder having failed to comply with statutory requirements or make a declaration or claim; or where a NCI Holder is entitled to a credit, refund or offset against the NCI Holder's Australian income tax liability on account of a withholding, deduction, duty or levy made or imposed under Australian tax law. 7.3 No set-off or offsetting rights A NCI Holder has: (a) no right to set off any amounts owing by it to any National Entity against any claims owing by any National Entity to it in respect of any Component Instrument; and no offsetting rights or claims on any National Entity if a National Entity does not pay a Distribution or interest when scheduled under any Component Instrument. 7.4 Payments to accounts Payments in respect of NCIs will be made: (a) if the NCIs are held in the Austraclear System, by crediting on the Payment Date, the amount due to: (i) (ii) the Australian dollar account of Austraclear (as the NCI Holder) previously notified to the Trustee and the Registrar; or if requested by Austraclear, the accounts of the persons in whose Security Record (as defined in the Austraclear Regulations) a NCI is recorded, being accounts in Australia previously notified by Austraclear to the Trustee and the Registrar in accordance with the Austraclear Regulations; and if the NCIs are not held in the Austraclear System, by crediting on the Payment Date, the amount then due under each NCI to an Australian dollar account previously notified by the NCI Holder to the Trustee and the Registrar. 7.5 Payments by cheque If the NCIs are not held in the Austraclear System and the NCI Holder has not notified the Registrar of an Australian dollar account to which payments to it must be made by the close of business on the Record Date, payments in respect of the NCI will be made by cheque sent by prepaid post on the Business Day immediately before the Payment Date, at the risk of the registered NCI Holder, to the NCI Holder (or to the first named joint NCI Holder of the NCI) at its address appearing in the Register at the close of business on the Record Date. Cheques sent to the nominated address of a NCI Holder are taken to have been received by the NCI Holder on the relevant Payment Date and, no further amount is payable by the Trustee in respect of the NCIs as a result of the NCI Holder not receiving payment on the relevant Payment Date. 52

53 7.6 Unpresented cheques Cheques issued by the Trustee that are not presented within six months of being issued or such lesser period as determined by the Trustee may be cancelled. Where a cheque which is cancelled was drawn in favour of a NCI Holder, the moneys are to be held by the Trustee for the NCI Holder as a non-interest bearing deposit until the NCI Holder or any legal personal representative of the NCI Holder claims the amount or the amount is paid by the Trustee according to the legislation relating to unclaimed moneys. 7.7 Unsuccessful attempts to pay Subject to applicable law, where the Trustee: (a) (c) decides that an amount is to be paid to a NCI Holder by a method of direct credit and the NCI Holder has not given a direction as to where amounts are to be paid by that method; or attempts to pay an amount to a NCI Holder by direct credit, electronic transfer of funds or any other means and the transfer is unsuccessful; or has made reasonable efforts to locate a NCI Holder but is unable to do so, the amount is to be held by the Trustee for the NCI Holder in a non-interest bearing deposit with a bank selected by the Trustee until the NCI Holder or any legal personal representative of the NCI Holder claims the amount or the amount is paid by the Trustee according to the legislation relating to unclaimed moneys. 7.8 Payment to joint NCI Holders A payment to any one of joint NCI Holders will discharge the Trustee's liability in respect of the payment. 7.9 Time limit for claims A claim against the Trustee for a payment under a NCI is void unless made within 10 years from the date on which payment first became due. 8 Title and transfer of NCIs 8.1 Title Title to a NCI passes when details of the transfer are entered in the Register. 8.2 Effect of entries in Register Each entry in the Register for a NCI constitutes an entitlement to the benefits given to the NCI Holder under these NCI Terms and the Trust Deed in respect of the NCI. 8.3 Register conclusive as to ownership Entries in the Register in relation to a NCI constitute conclusive evidence that the person so entered is the absolute owner of the NCI subject to correction for fraud or error. 53

54 8.4 Non-recognition of interests Except as required by law, the Trustee and the Registrar must treat the person whose name is entered in the Register as the NCI Holder as the absolute owner of that NCI. No notice of any trust or other interest in, or claim to, any NCI will be entered in the Register. Neither the Trustee nor the Registrar need take notice of any trust or other interest in, or claim to, any NCI, except as ordered by a court of competent jurisdiction or required by law. This clause 8.4 ("Non-recognition of interests") applies whether or not a payment has been made when scheduled on a NCI and despite any notice of ownership, trust or interest in the NCI_ 8.5 Joint holders Where two or more persons are entered in the Register as the joint NCI Holders then they are taken to hold the NCI as joint tenants, but the Registrar is not bound to register more than three persons as joint holders of a NCI. 8.6 Transfers in whole NCIs may be transferred in whole but not in part in accordance with these NCI Terms and the Trust Deed. 8.7 Compliance with law A NCI may only be transferred if: (a) (c) (d) the offer or invitation giving rise to the transfer does not constitute an offer or invitation for which disclosure is required to be made to investors under Part 7.9 of the Corporations Act; the offer is not to a person who is a "retail client" for the purposes of Chapter 7 of the Corporations Act; the transfer complies with any applicable law or directive of the jurisdiction where the transfer takes place and the transfer would not impose or give rise to any duty of disclosure on any National Entity under any applicable law or directive of the jurisdiction where the transfer takes place; and the transfer is in accordance with the provisions of the Trust Deed. The Registrar may decline to register a transfer if it is not satisfied that the transfer would comply with this clause 8.7 ("Compliance with law"). 54

55 8.8 Transfer procedures Interests in NCIs held in the Austraclear System may only be transferred in accordance with the Austraclear Regulations. Application for the transfer of NCIs not held in the Austraclear System must be made by the lodgment of a transfer form with the Registrar at its registered office. To be valid, a transfer form must be: (a) (c) in the form provided by the Registrar; duly completed and signed by, or on behalf of, the transferor and the transferee; and accompanied by any evidence the Registrar may require to establish that the transfer form has been duly signed. No fee is payable to register a transfer provided that, if required by the Registrar a transfer form must be presented for registration duly stamped. 8.9 Effect of transfer Upon registration and entry of the transferee in the Register the transferor ceases to be entitled to future benefits under these NCI Terms and the Trust Deed in respect of the transferred NCIs and the transferee becomes so entitled in accordance with clause 8.2 ("Effect of entries in Register") Estates A person becoming entitled to a NCI as a consequence of the death or bankruptcy of a NCI Holder or of a vesting order or a person administering the estate of a NCI Holder may, upon producing such evidence as to that entitlement or status as the Registrar considers sufficient, transfer the NCIs or, if so entitled, become registered as the holder of the NCIs Unincorporated associations A transfer to an unincorporated association is not permitted Transfer of unidentified NCIs Where the transferor executes a transfer of less than all NCIs registered in its name, and the specific NCIs to be transferred are not identified, the Registrar may (subject to the limit on minimum holdings) register the transfer in respect of such of the NCIs registered in the name of the transferor as the Registrar thinks fit, provided the aggregate Liquidation Amount of the NCIs registered as having been transferred equals the aggregate Liquidation Amount of the NCIs expressed to be transferred in the transfer Austraclear System If the NCIs are lodged in the Austraclear System, despite any other provision of these NCI Terms, the NCIs are not transferable on the Register, and the Trustee may not, and must procure that the Registrar does not, register any transfer of the NCIs and no member of 55

56 the Austraclear System has the right to request the registration of any transfer of any NCI, except: (a) kg any repurchase, redemption or cancellation (whether on or before the redemption of the NCIs) of the NCIs, a transfer from Austraclear to the Trustee may be entered in the Register; and if Austraclear exercises any power it may have under the Austraclear Regulations or these NCI Terms to require any NCIs to be transferred on the Register to a member of the Austraclear System, the relevant NCIs may be transferred on the Register from Austraclear to the member of the Austraclear System. In either ease, the NCIs will cease to be held in the Austraclear System. 9 Foreign NCI Holders Where NCIs held by a Foreign NCI Holder are to be Converted, unless National is satisfied that the laws of the Foreign NCI Holder's country of residence permit the issue of Preference Shares to the Foreign NCI Holder (but as to which National is not bound to enquire), either unconditionally or after compliance with conditions which National in its absolute discretion regards as acceptable and not unduly onerous, the Preference Shares which the Foreign NCI Holder is obliged to accept will be issued to a nominee who will sell those Preference Shares and pay a cash amount equal to the net proceeds received, after deducting any applicable brokerage, stamp duty and other taxes and charges, to the Trustee to hold on trust for that Foreign NCI Holder and distribute to the Foreign NCI Holder accordingly. For so long as the NCIs are held in the Austraclear System, National may (but is not bound to) consider the residence of the persons in whose account a NCI is recorded in determining whether Preference Shares will be sold under this clause 9 ("Foreign NCI Holders") if National or the Trustee has been previously notified of such residence by Austraclear or if National otherwise believes the ultimate holder of a NCI to be a Foreign NCI Holder_ 10 General provisions 10.1 Issues of National shares Except as set out in these NCI Terms, the NCIs carry no right to participate in any offering of securities by any National Entity or other member of the National Group Variation The Trust Deed contains provisions for amending the Trust Deed (including these NCI Terms) with the consent of NCI Holders and, in certain circumstances, without the consent of NCI Holders Voting The Trust Deed contains provisions for convening meetings of the NCI Holders to consider any matter affecting their interests, including any variation of these NCI Terms which requires the consent of NCI Holders. 56

57 NCI Holders will have no voting rights in respect of National or any other National Entity Provision of information Subject to applicable law, NCI Holders are not entitled to be provided with copies of: (a) any notices of general meeting of National; or other documents (including annual reports and financial statements) sent by National to holders of ordinary shares in National. 11 Interpretation and Definitions 11.1 Interpretation (a) (c) (d) (e) Unless otherwise specified in these NCI Terms, a reference to a clause or paragraph is a reference to a clause or paragraph of these NCI Terms. If a calculation is required under these NCI Terms, unless the contrary intention is expressed, the calculation will be rounded to four decimal places. Headings and boldings are for convenience only and do not affect the interpretation of these NCI Terms. The singular includes the plural and vice versa. A reference to a statute, ordinance, code or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them. Unless otherwise specified in these NCI Terms, if an event under these NCI Terms must occur on a stipulated day which is not a Business Day, then the stipulated day will be taken to be the next Business Day. A reference to dollars, A$, $ or cents is a reference to the lawful currency of Australia. Calculations, elections and determinations made by the Trustee, National or National directors under these NCI Terms are binding on NCI Holders in the absence of manifest error. Any provisions which refer to the requirements of APRA or any other prudential regulatory requirements will apply only if National is an entity, or the holding company of an entity, subject to regulation and supervision by APRA at the relevant time. Any provisions in these NCI Terms requiring the prior approval of APRA for a particular course of action to be taken do not imply that APRA has given its consent or approval to the particular action as of the Issue Date. The terms "takeover bid", "related body corporate", "relevant interest", "holding company", "wholly-owned subsidiary" and "subsidiary", when used in these NCI Terms have the meaning given in the Corporations Act. 57

58 (I) A reference to a party to an agreement or deed includes a reference to a replacement or substitute of the party according to that agreement or deed. (m) (n) A reference to an agreement or deed includes a reference to that agreement or deed as amended, added to or restated from time to time. The words "includes" or "including", "for example" or "such as" do not exclude a reference to other items, whether of the same class or genus or not Definitions The following words have these meanings in these NCI Terms unless the contrary intention appears: Acquisition Event means: (a) a takeover bid is made to acquire all or some of the ordinary shares in National and the offer is, or becomes, unconditional; and (i) (ii) the bidder has at any time during the offer period, a relevant interest in more than 50% of the ordinary shares in National on issue; or directors of National, acting as a board, issue a statement recommending acceptance of the offer; or a court orders the holding of meetings to approve a scheme of arrangement under Part 5.1 of the Corporations Act which scheme would result in a person having a relevant interest in more than 50'!.% of the ordinary shares in National that will be on issue after the scheme is implemented and either: the holders of National's ordinary shares pass a resolution approving the scheme; or an independent expert issues a report that the proposals in connection with the scheme are in the best interests of the holders of ordinary shares in National, in each case other than where such event is initiated by the directors of National, acting as a board, and the bidder or the person having a relevant interest in the ordinary shares in National after the scheme is implemented is a non-operating holding company within the meaning of the Banking Act 1959 of Australia. Additional Amount has the meaning given in clause 7.2 ("Gross-up"). APRA means the Australian Prudential Regulation Authority or any authority succeeding to its powers and responsibilities. APRA Capital Event means, unless APRA otherwise approves: (a) APRA determines in writing that National has a Tier 1 Capital Ratio of less than 5% (or such other percentage as may be required from time to time by APRA) or a Total Capital Adequacy Ratio of less than 8% (or such other percentage as may be required from time to time by APRA) at either or both of Level 1 or Level 2; 58

59 (c) (d) APRA issues a written directive to National under section 11 CA of the Banking Act 1959 of Australia for National to increase its capital; APRA appoints a statutory manager to National under subsection 13A(1) of the Banking Act 1959 or the assumption by APRA of control under Australian banking law or proceedings are commenced for the winding up of National (other than solvent reconstructions approved by APRA, including in relation to forming a holding company); or the retained earnings of National have become negative. APRA Condition means: (a) unless APRA otherwise agrees: (i) (ii) (iii) the payment of the Distribution (including any gross-up in connection with the Tier 1 Capital Instrument) will result in the Total Capital Adequacy Ratio or the Tier I Capital Ratio of National (on a Level I basis) or of National Group (on a Level 2 or, if applicable, Level 3 basis) not complying with APRA's then current capital adequacy guidelines as they are applied to National or National Group (as the case may be) at the time; the payment of the Distribution (or any corresponding payment on a Component Instrument) would result in a National Entity becoming, or being likely to become, insolvent; or the payment of the Distribution (including any gross-up in connection with the Tier 1 Capital Instrument) will exceed Distributable Profits as at the Distribution Payment Date for that Distribution; or APRA otherwise objects to the payment of the Distribution. Austraclear means Austraclear Limited (ABN ) or any successor operator of the Austraclear System. Austraclear Regulations means the regulations known as "Austraclear System Regulations" established by Austraclear to govern the use of the Austraclear System. Austraclear System means the system operated by Austraclear in Australia for holding securities and electronic recording and settling of transactions in those securities between members of the system. Bank Bill Rate has the meaning given in clause 3.1 ("Distributions"). Business Day means any day on which banking institutions are open for business in Sydney, Australia, Melbourne, Australia and New York, United States of America. Component Instruments means each of the NCIs, the Subordinated Debentures, the Convertible Debentures, the Preference Shares (if issued), the LLC Notes, the LLC 2 Securities and the Deed of Covenant. Conversion has the meaning given in clause 5.1 ("Meaning of Conversion"), and Convert, Convertible and Converted have a corresponding meaning. 59

60 Conversion Date means the date determined according to clause 5.3 ("Conversion Dates"). Conversion Event has the meaning given in clause 5.2 ("Conversion"). Conversion Notice means a notice given by the Trustee according to clause 5.4 ("Conversion Notice"). Convertible Debenture Deed Poll means the convertible debenture deed poll made by National on or about 15 September Convertible Debentures means the convertible debentures issued by National Head Office to National LLC 2 on the Issue Date on the Convertible Debenture Terms and convertible into Preference Shares on the occurrence of the Conversion Event. Convertible Debenture Terms means the terms of the Convertible Debentures set out in the schedule to the Convertible Debenture Deed Poll. Corporations Act means the Corporations Act 2001 (Cwlth). D has the meaning given in clause 3.1 ("Distributions"). Deed of Covenant means the deed so named to be dated on or about 15 September 2006 between the Trustee, National, National LLC 1 and National LLC 2. Distributable Amount has the meaning given in the Trust Deed. Distributable Profits means an amount calculated in accordance with the following formula: Distributable Profits = A B where: A is the consolidated net profit after income tax of National (determined before any interest, dividends or distributions paid or payable by a member of National Group on its Upper Tier 2 Capital and Tier 1 Capital) for the immediately preceding two six-monthly financial periods for which results have been publicly announced by National (or such other amount as determined by APRA in its discretion to be appropriate in National's circumstances for the purposes of paying dividends or distributions on National Group's Upper Tier 2 Capital and Tier I Capital); and B is the aggregate amount of any dividends or distributions paid or payable by a member of National Group before the relevant Distribution Payment Date on its Upper Tier 2 Capital and Tier 1 Capital in relation to the 12 month period prior to the most recent Distribution Payment Date, but not including any dividend or distribution paid or payable to a member of National Group by another member of National Group. Distribution has the meaning given in clause 3.1 ("Distributions"). Distribution Payment Date has the meaning given in clause 3.2 ("Distribution Payment Dates"). 60

61 Distranition Period means, in respect of a NCI: (a) for the first Distninnion Period, the period from (and including) the Issue Date to (mid including) the first Distribution Payment Date; and each subsequent period &nil (but not including) a Distribution Payment Date to (and including) the next Distribution Payment Date. Distribution Rate has the meaning given in clause 3.1 ("Distributions"). Foreign NCI Holder means a NCI Holder whose address in the Register is a place outside Australia or who National otherwise believes may be a Foreign NCI Holder. Initial Margin means 0.95% per annum. Issue Date means the date on which the NCIs are issued. Level 1, Level 2 and Level 3 means, in respect of the Total Capital Adequacy Ratio, the Tier I Capital Ratio or Tier I Capital, those terms as defined by APRA from time to time. Liquidation Amount has the meaning given in clause 1 ("Liquidation Amount"). LLC Manager means National Capital Holdings I Inc. LLC Note Deed means the deed to be entered into between National, National LLC 1 and National LLC 2 in relation to the LLC Notes. LLC Notes means the subordinated notes issued by National LLC I to National LLC 2 on the LLC Note Terms. LLC Note Terms means the terms of the LLC Notes set out in the schedule to the LLC Note Deed. LLC 2 Agreement has the meaning given in the LLC 2 Security Terms. LLC 2 Securities means the membership interests in National LLC 2 issued by National LLC 2 to the Trustee on the LLC 2 Security Terms. LLC 2 Security Terms means the terms of the LLC 2 Securities set out in the Schedule to the LLC 2 Agreement. Margin has the meaning given in clause 3.1 ("Distributions"). National means National Australia Bank Limited (ABN ). National Capital Instruments or NCIs means the $400,000,000 floating rate units in the Trust and issued by the Trustee according to the Trust Deed including these NCI Terms. National Conversion Notice means a conversion notice given by National under clause 5.2 ("Conversion") of the Convertible Debenture Terms. National Entity means each of the Trustee, National Head Office, National New York Branch, National LLC 1 and National LLC 2, the LLC Manager and National Sub. 61

62 National Group means National and its controlled entities. National Head Mice means National acting through its head office at Level 13, 140 William Street, Melbourne, Victoria, Australia National Sub means National Capital Holdings I Inc. National LLC I means National Capital Instruments [AUD] LLC 1, a limited liability company established under the laws of Delaware, United States of America. National LLC 2 means National Capital Instruments [AUD] LLC 2, a limited liability company established under the laws of Delaware, United States of America. National New York Branch means National acting through its branch office located at 245 Park Avenue, New York, New York, United States of America. NCI Holder means a person Registered as the holder of a NCI (including persons jointly Registered) as the context may require. If a NCI is held in the Austraclear System, references to the NCI Holder of that NCI are to Austraclear as operator of the Austraclear System. NCI Terms means these terms and conditions. Optional Distribution has the meaning given in clause 3.5 ("Restrictions in the case of non-payment"). Ordinary Resolution means a Resolution for the purposes of the Trust Deed where the required majority is 50%. Par Redemption Amount means, in respect of a NCI, the Liquidation Amount together with: (a) if the Redemption Date is also a Distribution Payment Date, any accrued but unpaid Distribution for the then current Distribution Period; or if the Redemption Date is not also a Distribution Payment Date, any accrued but unpaid Distribution for the then current Distribution Period to the Redemption Date calculated as if the Redemption Date were a Distribution Payment Date. Payment Date means a Distribution Payment Date, the Redemption Date or any other date on which the Trustee is to make a payment in respect of a NCI. Preference Share means a fully paid preference share in the capital of National issued on Conversion on the Preference Share Terms. Preference Share Terms means the terms of issue of the Preference Shares annexed to the terms of issue of the Convertible Debentures. Record Date means: (a) in respect of any Distribution to be made by the Trustee under these NCI Terms on a Distribution Payment Date, the date which is 8 Business Days before the Distribution Payment Date or such other date as may be approved by the Trustee; or 62

63 in respect of any Optional Distribution, the Business Day prior to the date of payment of the Optional Distribution that is determined by the Trustee. Redemption has the meaning given in clause 4.1 ("Redemption") and Redeem, Redeemable and Redeemed have the corresponding meaning. Redemption Date means the date specified according to clause 4.4 ("Redemption Notice") or, if NCIs are not redeemed on that day, the date on which the NCIs are redeemed. Redemption Notice means a notice given by the Trustee according to clause 4.4 ("Redemption Notice"). Redemption Price has the meaning given in clause 4.3 ("Redemption Price"). Register means the register, including any branch register, of holders of NCIs established and maintained by, or on behalf of, the Trustee. Registered means recorded in the Register. Registrar means the Issuer or any other person appointed by the Trustee to maintain the Register. Regulatory Event means: (a) (c) there is an introduction of, an amendment or clarification to or change in (or announcement of a prospective introduction of, amendment or clarification to or change in) a law or regulation of the Commonwealth of Australia or any State or Territory thereof or any directive, order, standard, requirement, guideline or statement of APRA (whether or not having the force of law) (a Change in Law); National receives an opinion of nationally recognised legal counsel in Australia experienced in such matters as to the effect of a Change in Law; or there is any statement, notification, or advice by APRA or a decision by any court or other authority interpreting, applying or administering any law, regulation, directive, order, standard, requirement, guideline or statement, in each case on or after the Issue Date to the effect that the Tier l Capital Instrument is not, or will not within 90 days be, eligible (in whole or in part) for inclusion in National's Tier 1 Capital on a Level 1, Level 2 or Level 3 (if applicable) basis. Step-Up Date means 30 September 2016, being the first Distribution Payment Date immediately following the tenth anniversary of the Issue Date. Subordinated Debenture Deed Poll means the subordinated debenture deed poll to be made by National New York Branch on or about 15 September Subordinated Debentures means the subordinated debentures issued by National New York Branch to National LLC 1 in accordance with the Subordinated Debenture Terms. Subordinated Debenture Terms means the terms of the Subordinated Debentures set out in the schedule to the Subordinated Debenture Deed Poll. 63

64 Tax Act means the Income Tax Assessment Act 1936 (1936 Act), the Income Tax Assessment Act 1997 (1997 Act) or both the 1936 Act and the 1997 Act, as appropriate. Tax Event means that, after the Issue Date, National receives an opinion from a reputable legal counsel or other tax adviser in Australia, the United States, the United Kingdom or New Zealand or any other jurisdiction (each a Relevant Jurisdiction), experienced in such matters that there is more than an insubstantial risk that, as a result of a Tax Law Change: (a) (c) (d) (e) there is a requirement to gross-up any Distribution, interest payment or dividend on the Tier 1 Capital Instrument or any Component Instrument; the rights entitling National to have transferred to it the LLC Notes upon the occurrence of a Conversion Event are, or will be, treated as controlled foreign entity equity for the purposes of Subdivision 820-D of the Tax Act; a payment in connection with the Tier 1 Capital Instrument or any Component Instrument (except the Preference Shares) would be a frankable dividend or frankable distribution for Australian income tax purposes, other than by reason of a Regulatory Event income of National LLC 1, National LLC 2, National Sub, the LLC Manager or the Trust would be subject to United States federal income tax or Australian income tax; one or more National Entity would be exposed to more than a de minimis amount of other taxes, assessments or other governmental charges in connection with the Tier 1 Capital Instrument; (1) the Subordinated Debentures would cease to be treated as equity of National for United States tax purposes; (g) (h) National New York Branch would suffer a material adverse change to its assessment to United States federal income tax in connection with its deployment of Subordinated Debentures issue proceeds; or taxes, duties or government charges would be imposed on the Trustee in connection with the NCIs. Tax Law Change means: (a) (c) (d) an amendment to, change in or announced prospective change in any laws or regulations under those laws; a judicial decision interpreting, applying or clarifying those laws or regulations; an administrative pronouncement or action that represents an official position, including a clarification of an official position of the governmental authority or regulatory body making the administrative pronouncement or taking any action; or a challenge asserted or threatened in connection with an audit of any National Entity or any member of the National Group, or a challenge asserted or threatened in writing against any other taxpayer that has raised capital through the issuance 64

65 of securities that are substantially similar to the Tier 1 Capital Instruments or any of its Component Instruments, which amendment or change is announced or which action or clarification or challenge occurs on or after the Issue Date. Tier I Capital means tier 1 capital as defined by APRA from time to time. Tier I Capital Instrument means the Tier 1 Capital Instrument comprising each of the Component Instruments. Tier I Capital Ratio means at any time the ratio as defmed by APRA. Total Capital Adequacy Ratio means at any time the ratio as defmed by APRA. Trust means National Capital Trust III, established under the Trust Deed. Trust Deed means the trust deed constituting the Trust dated 12 September 2006 of which these NCI Terms form part. Trustee means National Australia Trustees Limited (ABN ) or such other trustee as is appointed in accordance with the Trust Deed. Upper Tier 2 Capital means upper tier 2 capital as defined by APRA from time to time. 65

66 SUMMARY OF PRINCIPAL DOCUMENTS The following is a mammy of certain provisions of the principal documents relating to the transactions described in this Information Memorandum and is qualified in its entirety by reference to the detailed provisions of the Transaction Documents. Terms of the LLC 2 Securities General National LLC 2 will issue the LLC 2 Securities to the Initial Subscriber in consideration for the transfer by the Initial Subscriber of the LLC Notes and the Convertible Debentures to National LLC 2. The Initial Subscriber will then sell the LLC 2 Securities to the Issuer (see further Subscription and Sale - Subscription, Assignment and Sale of the Relevant Instruments below). Each LLC 2 Security ("LLC 2 Security") will be in registered form, denominated in Australian dollars and will represent a fully paid membership interest in National LLC 2 with a liquidation amount of $50,000 ("Liquidation Amount"). The LLC 2 Securities will rank pari passu among themselves in all respects. The terms of the LLC 2 Securities will be annexed to the LLC 2 Agreement (the "LLC 2 Security Terms"). Distributions LLC 2 Distributions LLC 2 Securities will pay distributions ("LLC 2 Distributions") at a floating rate. LLC 2 Distributions will be paid quarterly in arrears on 31 March, 30 June, 30 September and 31 December of each year commencing on 31 December 2006 (each a "LLC 2 Distribution Payment Date"). The LLC 2 Distribution Payment Dates will match the Distribution Payment Dates in respect of the NCIs. The amount of each LLC 2 Distribution will be calculated in accordance with the relevant formula set out in the LLC 2 Security Terms, which will equal the calculation of the Distributions on the NCIs (see Terms and Conditions of the NCIs - Distributions above). LLC 2 Distributions on the LLC 2 Securities are limited to the interest received by National LLC 2 from National LLC 1 on the LLC Notes. Payment of interest on the LLC Notes is subject to the tests and conditions set out in the terms of the LLC Notes (see Summary of Principal Documents - Terms of the LLC Notes below). In turn, payment of interest on the LLC Notes is limited to interest received by National LLC 1 from National New York Branch in respect of the Subordinated Debentures. Payment of interest on the Subordinated Debentures is also subject to tests and conditions (see Summary of Principal Documents - Terms of the Subordinated Debentures below). LLC 2 Distributions will not be cumulative and the Issuer (as holder of the LLC 2 Securities) will have no claim for any Distribution not paid, or for the portion of any LLC 2 Distribution not paid, because of the limitations on LLC 2 Distributions discussed above. Failure to pay in full, for any reason, LLC 2 Distributions on or within seven Business Day of the scheduled LLC 2 Distribution Payment Date, will result in the Issuer having insufficient funds to pay, in full, the corresponding Distribution scheduled to be paid on the corresponding Distribution Payment Date and, accordingly, will trigger the Conversion Event (see Terms and Conditions of 66

67 the NCLs - Conversion). Failure to pay will also immediately trigger distribution restrictions for National as described under Terms and Conditions of the NCIs - Distributions - Restrictions in the case of non-payment and, when the Preference Shares are issued, substantially in the form described in Smeary of Principal Documents - Terms of the Preference Shares - Dividends - Distribution Restrictions below but it will not constitute an event of default and it will not entitle the holder of the LLC 2 Securities to take any other action, including, for example, to require that the LLC 2 Securities be redeemed. Additional Amounts National LLC 2 will make all payments of LLC 2 Distributions without deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, National LLC 2 must pay the full amount required to be deducted to the relevant revenue authority and, subject to: (a) a demand being made for that amount by the Issuer (as holder of the LLC 2 Securities); and having received sufficient amounts from National LLC 1 in respect of the LLC Notes or from National under the LLC 2 Gross-up Indemnity (as defined below), an additional amount ("Additional Amount") to the Issuer (as holder of the LLC 2 Securities) so that the Issuer receives the same amount in respect of that payment as if no such deduction had been made from the payment. National will covenant in the Deed of Covenant to indemnify National LLC 2 for the payment of any Additional Amounts (See Summary of Principal Documents - Terms of the Deed of Covenant - Undertakings by National below) (the "LLC 2 Gross-up Indemnity"), subject to the same tests and conditions that apply to payment of interest on the Subordinated Debentures. Redemption Redemption The Issuer (as holder of the LLC 2 Securities) has no right to require the LLC 2 Securities be redeemed. Where National elects, subject to APRA's prior written approval, to redeem the Convertible Debentures, National LLC 2 will, upon receiving the proceeds of the redemption of the Convertible Debentures, redeem the LLC 2 Securities for the Redemption Price on the Redemption Date. The Redemption Price at any time in respect of the LLC 2 Securities will equal the Redemption Price on the NCIs at that time (see further Terms and Conditions of the NCIs - Redemption Price above). Conversion Following a Conversion Event, the LLC 2 Securities will be redeemed in connection with the conversion by National LLC 2 delivering or directing delivery of the Preference Shares to the Issuer (see further Summary of Principal Documents - Terms of the Convertible Debentures - Conversion below). Liquidation In the event of the dissolution, liquidation, termination or winding up of National LLC 2, whether voluntary or involuntary, the Issuer is entitled to claim the Liquidation Amount of the LLC 2 Securities and any accrued Distribution for the Distribution Period in which the winding up 67

68 commenced. However, if a Conversion Event occurs, but National fails to issue the Preference Shares, National LLC 2 will outlaw to hold the Convertible Debentures and, accordingly, will be entitled to the rights attached to the Convertible Debentures. In these circumstances, the rights to payment attached to the Convertible Debentures will become substantially the same as the rights to payment that would have attached to the Preference Shares had they been issued (see further Summary of Principal Documents - Terms of the Convertible Debentures - Failure to Issue Preference Shares). Any claim by the Issuer (as holder of the LLC 2 Securities) in a winding up of National LLC 2 will rank subordinate to all creditors and other indebtedness of National LLC 2. Voting and Other Rights The issuer (as holder of the LLC 2 Securities) has no right to vote as a shareholder of National, nor any right to vote on the management of National, National LLC 2 or any other National Entity. The Issuer (as holder of the LLC 2 Securities) will acknowledge in the LLC 2 Security Terms that a holder has no right to apply for any National Entity to be wound up, or placed in administration, or to cause a receiver, or a receiver and manager, to be appointed in respect of a National Entity merely on the grounds that a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. For the purposes of this Information Memorandum, "Component Instruments" means each of the NCIs, the Subordinated Debentures, the Convertible Debentures, the Preference Shares (if issued), the LLC Notes, the LLC 2 Securities and the Deed of Covenant. Amendments and Modifications The LLC 2 Security Terms can be amended with the prior written approval of APRA (if required) but, in certain circumstances (see Description of the Issuer - The Trust - Amendments and Modifications above), without the consent of NCI Holders or the Issuer (as holder of the LLC 2 Securities). Any other amendment to the LLC 2 Security Terms will require a Special Resolution of NCI Holders and the approval of the Issuer (as holder of the LLC 2 Securities). No Set-Off or Offsetting Rights The Issuer (as holder of the LLC 2 Securities) has no right to set off any amounts owing by it to any National Entity against any claims owing to it by any National Entity. The Issuer also has no offsetting rights or claims on any National Entity if a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. Governing Law The LLC 2 Security Terms and the LLC 2 Securities will be governed by, and construed in accordance with, the laws of the State of Delaware. Terms of the LLC Notes General National LLC I will issue the LLC Notes to the Initial Subscriber, who will then transfer the LLC Notes (together with the Convertible Debentures) to National LLC 2 in consideration for National LLC 2 issuing the LLC 2 Securities to the Initial Subscriber, as more fully described under Subscription and Sale - Subscription, Assignment and Sale of the Relevant Instruments below. 68

69 Each LLC Note ("LLC Note") will be a fully paid subordinated note, in registered form, denominated in Australian dollars, with a face value and principal amount of A$50,000 ("Face Value"). The LLC Notes will rank pari passu among themselves in all respects. The terms of the LLC Notes (the "LLC Note Terms") will be set out in a tripartite deed between National, National LLC 1 and National LLC 2 (the "LLC Note Deed"). Interest LLC Note Interest LLC Notes will pay interest ("LLC Note Interest") at a floating rate. LLC Note Interest will be paid quarterly in arrears on 31 March, 30 June, 30 September and 31 December of each year commencing on 31 December 2006 (each a "LLC Note Interest Payment Date"). The LLC Note Interest Payment Dates will match the LLC 2 Distribution Payment Dates in respect of the LLC 2 Securities. The amount of each payment of LLC Note Interest will be calculated in accordance with the relevant formula set out in the LLC Note Terms, which will equal the calculation of the LLC 2 Distributions on the LLC 2 Securities (see Summary of Principal Documents - Terms of the LLC 2 Securities - Distributions above). LLC Note Interest limitations, tests and conditions Payment of LLC Note Interest on the LLC Notes is subject and limited to the interest received by National LLC 1 from National New York Branch on the Subordinated Debentures. Payment of interest on the Subordinated Debentures is subject to tests and conditions (see Summary of Principal Documents - Terms of the Subordinated Debentures below). Further, a payment of LLC Note interest is subject to the LLC Manager resolving to pay the LLC Note Interest and the specific condition that no APRA Condition exists. The circumstances in which an "APRA Condition" will exist are set out in the NCI Terms (see Terms and Conditions of the NCIs - Interpretation and Definitions - Definitions above). LLC Note Interest will be cumulative and, accordingly, any unpaid LLC Note interest will accumulate. However: (a) (c) interest will not accrue on any unpaid amount of LLC Note Interest ("Accumulated LLC Note Interest"); National LLC 1 is not permitted (unless approved by APRA) to pay any Accumulated LLC Note Interest until the first LLC Note Interest Payment Date thereafter on which no APRA Condition exists and the other interest payment tests are met; and National LLC 2 (as holder of the LLC Notes) will have no claim for any Accumulated LLC Note Interest, or for any part of any Accumulated LLC Note Interest, because, upon the occurrence of a Conversion Date or Redemption Date, the Assignment will occur and, accordingly, the rights to such Accumulated LLC Note Interest will vest in National Head Office pursuant to the Assignment (see further Summary of Principal Documents - Terms of the LLC Notes - Assignment below). Failure to pay in full, for any reason, LLC Note Interest on or within seven Business Days of the scheduled LLC Note Interest Payment Date, will result in the Issuer having insufficient funds to pay, in full, the corresponding Distribution scheduled to be paid on the corresponding Distribution 69

70 Payment Date and, accordingly, will trigger the Conversion Event (see Terms and Conditions of the NCIs - Conversion). Fail= to pay the corresponding Distribution in respect of the NCIs will also immediately trigger distribution restrictions for National as described in the Terms and Conditions of the NCIs - Distributions - Restrictions in the case of non-payment above and, when the Preference Shares are issued, substantially in the form described in Summary of Principal Documents - Terms of the Preference Shares - Dividends - Distribution Restrictions below but it will not constitute an event of default and it will not entitle the holder of the LLC Notes to take any other action, including, for example, to require that the LLC Notes be redeemed. On and from the Assignment but prior to the LLC Notes being redeemed, National LLC 's obligation to pay LLC Note Interest may be satisfied by National New York Branch paying all interest (if any) payable on the Subordinated Debentures to National Head Office (see further Summary of Principal Documents - Terms of the LLC Notes - Assignment below). Additional Amounts National LLC I will make all payments of LLC Note Interest without deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, National LLC I must pay the full amount required to be deducted to the relevant revenue authority and, subject to: (a) a demand being made for that amount by National LLC 2 (as holder of the LLC Notes); and having received sufficient amounts from National New York Branch in respect of the Subordinated Debentures or from National under the LLC I Gross-up Indemnity (as defined below), an additional amount ("Additional Amount") to National LLC 2 (as holder of the LLC Notes) so that National LLC 2 receives the same amount in respect of that payment as if no such deduction had been made from the payment. National will covenant in the Deed of Covenant to indemnify National LLC I for the payment of any Additional Amounts (See Summary of Principal Documents - Terms of the Deed of Covenant - Undertakings of National below) (the "LLC 1 Gross-up Indemnity"), subject to the same tests and conditions that apply to payment of interest on the Subordinated Debentures. Assignment On the Issue Date, National Head Office (the "Assignee") will pay the Initial Subscriber the Assignment Payment (as defined in Subscription and Sale below) in consideration for the rights in connection with the Assignment (as defined below). Payment of the Assignment Payment will entitle the Assignee to receive on a Conversion Date or a Redemption Date (an "Assignment Date"), LLC Note Interest and the Face Value on that number of LLC Notes which equals the number of Convertible Debentures being converted or redeemed on the relevant Assignment Date. Specifically: (a) until an Assignment Date, all rights to principal and interest on the LLC Notes vest in National LLC 2 (as holder of the LLC Notes prior to the Assignment); but on and from an Assignment Date: 70

71 (ii) all rights to principal and interest payable on LLC Notes in number equal to the number of Convertible Debentures being redeemed or converted on that date will automatically vest in the Assignee; and (ii) that number of LLC Notes will be automatically transferred to the Assignee, (together the "Assignment"), but without affecting the obligation to pay to National LLC 2 (as holder of the LLC Notes prior to the Assignment) any Excluded Interest Amounts (as defined below). An "Excluded Interest Amount" is, in respect of an Assignment Date: (a) if the Assignment Date is also a LLC Note Interest Payment Date, any accrued but unpaid LLC Note Interest for the then current LLC Note Interest Period; or if the Assignment Date is not also a LLC Note Interest Payment Date and the Assignment Date occurs in connection with a redemption of the NCIs, any amount of LLC Note Interest payable on that date in accordance with the LLC Note Terms in respect of the period since the immediately preceding LLC Note Interest Payment Date (or the Issue Date if there has been no preceding LLC Note Interest Payment Date). For the avoidance of doubt, "Excluded Interest Amounts" do not include any other amounts of interest (including any Accumulated LLC Note Interest). Notwithstanding the Assignment, any Excluded Interest Amount will be paid by National LLC 1 to National LLC 2 (as holder of the LLC Notes prior to the Assignment). The Assignment will occur even if National fails to, or is unable on account of applicable law, to issue the Preference Shares on the Conversion Date. Redemption Redemption by holders Except for National Head Office (as Assignee), a holder of the LLC Notes has no right to require the LLC Notes be redeemed. Redemption after Assignment At any time after the Assignment occurs (with APRA's prior written approval), the LLC Notes may be redeemed by National LLC 1, in its sole discretion, at their Face Value together with accrued interest (if any). The LLC Notes must be redeemed if National New York Branch elects to redeem the Subordinated Debentures. On and from the Assignment occurring, National LLC 1 's obligation to pay to National Head Office (as Assignee) the Face Value and accrued interest on redemption of the LLC Notes will be satisfied by National New York Branch paying the Face Value and all accrued interest (if any) payable on the Subordinated Debenture to National Head Office. On the Issue Date, National LLC 1 will irrevocably direct National New York Branch to make those payments, without any further act or direction on the part of National LLC 1. Liquidation In the event of the dissolution, liquidation, termination or winding up of National LLC 1, whether voluntary or involuntary, the Assignee is entitled to claim the Face Value and all accumulated and accrued and unpaid LLC Note Interest on the LLC Notes. Any such claim will rank subordinate 71

72 to all creditors and other indebtedness of National LLC I and senior to the LLC 1 Common Securities. Voting and Other Rights National LLC 2 (as holder of the LLC Notes) has no right to vote as a shareholder of the National, nor any right to vote on the management of National, National LLC 1 or any other National Entity. National LLC 2 (as holder of the LLC Notes) will acknowledge in the LLC Note Terms that a holder has no right to apply for any National Entity to be wound up, or placed in administration, or to cause a receiver, or a receiver and manager, to be appointed in respect of a National Entity merely on the grounds that a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. Amendments and Modifications The LLC Note Terms can be amended with the prior written approval of APRA (if required) but, in certain circumstances (see Description of the Issuer - The Trust - Amendments and Modifications above), without the consent of the NCI Holders or National LLC 2 (as holder of the LLC Notes). Any other amendment to the LLC Note Terms will require a Special Resolution of NCI Holders and the approval of National LLC 2 (as holder of the LLC Notes). No Set-Off or Offsetting Rights National LLC 2 (as holder of the LLC Notes) has no right to set off any amounts owing by it to any National Entity against any claims owing to it by any National Entity. National LLC 2 also has no offsetting rights or claims on any National Entity if a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. Governing Law The LLC Note Deed, the LLC Note Terms and the LLC Notes will be governed by, and construed in accordance with, the laws of the State of Victoria. Terms of the Subordinated Debentures General National New York Branch will issue the Subordinated Debentures to National LLC I, as more fully described under Subscription and Sale - Subscription, Assignment and Sale of the Relevant Instruments below. Each Subordinated Debenture ("Subordinated Debenture") will be a fully paid subordinated note, in registered form, denominated in Australian dollars, with a face value of $50,000 ("Face Value"). The Subordinated Debentures will rank pari passu among themselves in all respects. The Subordinated Debentures will be constituted under a deed poll (the "Subordinated Debenture Deed Poll") and the terms of the Subordinated Debentures (the "Subordinated Debenture Terms") will be scheduled to the Subordinated Debenture Deed Poll. Interest Subordinated Debenture Interest Subordinated Debentures will pay interest ("Subordinated Debenture Interest") at a floating rate. 72

73 Subordinated Debenture Interest will be paid quarterly in arrears on 31 March, 30 June, 30 September and 31 December of each year commencing on 31 December 2006 (each a "Subordinated Debenture Interest Payment Date"). The Subordinated Debenture Interest Payment Dates will match the LLC Note Interest Payment Dates in respect of the LLC Notes (so long as the NCIs are on issue). The amount of each payment of Subordinated Debenture Interest will be calculated in accordance with the relevant formula set out in the Subordinated Debenture Terms, which will equal the calculation of the LLC Note Interest on the LLC Notes (see Summary of Principal Documents - Terms of the LLC Notes - Interest above). Subordinated Debenture Interest limitations, tests and conditions A payment of Subordinated Debenture Interest is subject to the directors of National resolving to pay that Subordinated Debenture Interest and the specific condition that no APRA Condition exists. The circumstances in which an "APRA Condition" will exist are set out in the NCI Terms (see Terms and Conditions of the NCIs - Interpretation and Definitions - Definitions above). The APRA Conditions in respect of the Subordinated Debentures will mirror the APRA Conditions in respect of the LLC Notes. Subordinated Debenture Interest will be cumulative and, accordingly, any unpaid Subordinated Debenture Interest will accumulate. However: (a) (c) interest will not accrue on any unpaid amount of Subordinated Debenture Interest ("Accumulated Subordinated Debenture Interest"); National New York Branch is not permitted (unless approved by APRA) to pay any Accumulated Subordinated Debenture Interest until the first Subordinated Debenture Interest Payment Date thereafter on which no APRA Condition exists and the other interest payment tests are met; and any Accumulated Subordinated Debenture Interest can never be distributed to NCI Holders, because, if the Assignment has occurred, National Head Office will be the holder of the LLC Notes and if the Subordinated Debentures are to be redeemed, National LLC 1 has irrevocably directed National New York Branch to pay the redemption amount to National Head Office (see further Summary of Principal Documents - Terms of the LLC Notes - Assignment and Summary of Principal Documents - Terms of the LLC Notes - Redemption above). Failure to pay in full, for any reason, Subordinated Debenture Interest on or within seven Business Days of the scheduled Subordinated Debenture Interest Payment Date, will ultimately result in the Issuer having insufficient funds to pay, in full, the corresponding Distribution scheduled to be paid on the corresponding Distribution Payment Date in respect of the NCIs and, accordingly, will trigger the Conversion Event (see Terms and Conditions of the NCIs - Conversion). Failure to pay that corresponding Distribution in respect of the NCIs will also immediately trigger distribution restrictions for National as described in the Terms and Conditions of the NCIs - Distributions - Restrictions in the case of non-payment and, when the Preference Shares are issued, substantially in the form described in Summary of Principal Documents - Terms of the Preference Shares - Dividends - Distribution Restrictions below but it will not constitute an event of default and it will not entitle the holder of the Subordinated Debentures to take any other action, including, for example, to require that the Subordinated Debentures be redeemed. 73