13.7 APPENDICES

 

 

SUMMARY OF ABBREVIATIONS

 

CA Corporate Analyst

CGMGPS Chief General Manager Group Planning & Subsidiaries

CM Chief Manager

MCCQ Manager Corporate Credit & Quality

SCM Senior Corporate Manager

SM State Manager

 

Appendix A

 

Summary of Movement in Facilities

 

Date

Recommendation

Facilities Details

Fee

Structure

Prepared

By

Supported and Recommended By

LCC

Sub Board Approval

Board Confirmation

   

Type

Amount ($M)

     

Approved By

Date

Approved By

Date

 

08.04.88

Approval to participate with BFCL in a facility to assist purchase of the site.

Six Month Bridging Facility

30.0

Establishment Fee of 0.125% flat.

Margin of 1.25% above the 90 or 180 day Bank Bill Rate.

P W Walkom SCM

J V Henderson

SM Victoria & Tasmania

Approved

K S Matthews

G S Ottaway

T L Mallett

S G Paddison

11.04.88

A G Summers

M V Byrne

K S Matthews

11.04.88

Confirmed

24.04.88

L Barrett

D W Simmons

R D E Bakewell

M V Byrne

R E Hartley

W F Nankivell

R P Searcy

A G Summers

T M Clark

09.08.88

Approval to participate in a syndicated facility to finance construction of the hotel complex to replace bridging facility

Construction Facility over term of Construction

60.0

Establishment Fee of 0.25% flat on total facility amount.

1.50%pa margin over the applicable Bank accepted Bill Rate.

0.25%pa unutilised fee on the unused portion, capitalised monthly in arrears.

P Davenport, CA

P W Walkom, SCM

J V Henderson, SM Victoria & Tasmania

Approved

G S Ottaway

V R Pfeiffer

R L Wright

I R Tucker

11.08.88

    Approved

29.08.88

L Barrett

D W Simmons

R D E Bakewell

M V Byrne

W F Nankivell

R P Searcy

A G Summers

T M Clark

13.10.88

Approval to extend bridging facility 30 days

Bridging facility to be replaced by Construction Facility.

30.0

Establishment Fee of 0.25% flat on total facility amount.

1.50%pa margin over the applicable Bank accepted Bill Rate.

0.25%pa unutilised fee on the unused portion, capitalised monthly in arrears.

P W Walkom, SCM

J V Henderson, SM Victoria & Tasmania

Confirmed

K S Matthews

G S Ottaway

S G Paddison

D C Masters

T L Mallett

P F Mullins

R L Wright

15.11.88

     

10.11.88

Approval to extend bridging facility 3 months

Bridging facility to be replaced by Construction Facility.

30.0

Establishment Fee of 0.25% flat on total facility amount.

1.50%pa margin over the applicable Bank accepted Bill Rate.

0.25%pa unutilised fee on the unused portion, capitalised monthly in arrears.

P W Walkom, SCM

J V Henderson, SM Victoria & Tasmania()

Approved

K S Matthews

G S Ottaway

S G Paddison

D C Masters

T L Mallett

P F Mullins

R L Wright

15.11.88

     

13.01.89

Approval to extend term for the period of construction plus five years.

Construction Facility

60.0

Establishment Fee of 0.45% flat on total facility amount.

1.75%pa margin over the applicable Bank accepted Bill Rate and 1.50% following construction.

0.50%pa unutilised fee on the unused portion, capitalised quarterly in arrears.

P W Walkom, SCM

JV Henderson, SM Victoria & Tasmania

Approved

T M Clark

T L Mallett

P F Mullins

R L Wright

17.01.89

    Approved 26.01.89

L Barrett

D W Simmons

R D E Bakewell

W F Nankivell

R P Searcy

T M Clark

09.02.89

Approval to extend bridging facility to May 1989

Bridging Facility to be replaced by a construction facility

30.0

1.25%pa over Bank Bill Rate

P W Walkom, SCM

J V Henderson SM Victoria & Tasmania

Approved

T L Mallett

J B Macky

P F Mullins

R L Wright

14.02.89

     

05.05.89

Approval to extend bridging facility to 30 June 1989

Bridging Facility to be replaced by a construction facility

30.0

1.25%pa over Bank Bill Rate

P W Walkom, SCM

J V Henderson, SM Victoria & Tasmania

Approved

G S Ottaway

J B Macky

T L Mallett

R L Wright

P F Mullins

10.05.89

     

21.06.89

Approval to extend bridging facility to 31 July 1989

Bridging Facility to be replaced by a construction facility

30.0

1.25%pa over Bank Bill Rate

P W Walkom, SCM

J V Henderson, SM Victoria & Tasmania

Approved

K S Matthews

G S Ottaway

S G Paddison

D C Masters

R L Wright

V R Pfeiffer

27.06.89

     

28.07.89

Approval to extend bridging facility to 31 August 1989

Bridging Facility to be replaced by a construction facility

30.0

1.25%pa over Bank Bill Rate

D Larsen, CA

P Walkom, SCM

Approved

K S Matthews

G S Ottaway

S G Paddison

J B Macky

D C Masters

V R Pfeiffer

R L Wright

01.08.89

     

30.08.89

Approval to extend bridging facility to 15 September 1989

Bridging Facility to be replaced by a construction facility

30.0

1.25%pa over Bank Bill Rate

P W Walkom, SCM

M A Fildes, MCCQ()

Confirmed(2)        

26.02.90

Approval to provide facilities to Beneficial Finance to enable them to make an offer to the First Tier Syndicate to purchase their existing debt at the rate of 50-75 cents per dollar. In addition, approval requested to provide $25.0M to enable completion of the car park and retail component of the Project.

Construction Facility

70.9

Insufficient information on file

M Hamilton, CGMGPS

          Approved on "round robin" basis only.

M V Byrne

T M Clark

R D E Bakewell

W F Nankivell

R P Searcy

A G Summers

R E Hartley

20.03.90

Approval to provide facilities to BFCL to purchase First Tier Syndicate up to 100 cents in the dollar.

Approval also sought for a further facility to enable completion of carpark and partial retail component of the project.

Construction Facility

45.9

19.5

Insufficient information on file.

M Hamilton, CGMGPS

T M Clark and Beneficial Finance Board

        Approved

22.03.90

D W Simmons

R D E Bakewell

M V Byrne

W F Nankivell

R P Searcy

T M Clark

19.07.90

Approval to increase the facility to enable completion of the carpark and partial retail components of the project.

Construction Facility

(Total facility exposure $81.0M)

8.3

Insufficient information on file.

P W Walkom

Beneficial Finance Board and

J V Henderson

        Approved

26.07.90

D W Simmons

R D E Bakewell

M V Byrne

R E Hartley

A R G Prowse

R P Searcy

A G Summers

T M Clark

14.11.90

Approval to increase the facility to allow for further variations and holding cost increases to the carpark/partial retail components of the project.

Construction Facility

(Total facility exposure $91.5M)

10.5

Insufficient information on file.

P W Walkom

J V Henderson

M J Wilcox, CM, Victoria & Tasmania

        Approved 22.11.90

D W Simmons

R D E Bakewell

M V Byrne

R E Hartley

W F Nankivell

A R G Prowse

R P Searcy

A G Summers

T M Clark

 

 

Appendix B

 

Chronology od Events
During the Life of the Loan

 

DATE

CHRONOLOGY OF EVENTS

SOMERLEY PTY LTD

08.03.88

Letter from Sallmanns to Beneficial Finance Corporation providing an opinion on the current market value of the site of the order of $55.0M.

28.03.88

Credit proposal advanced by I C McLennan to Regional Credit Committee of Beneficial Finance Corporation. Recommended by Regional Lending Credit Committee 30 March 1988.

08.04.88

Submission prepared and recommended by Mr Walkom and supported by Mr Henderson recommending that the Lending Credit Committee approve the submission of the proposal to Sub-Board. The proposal recommended the Bank participate with Beneficial Finance Corporation in a facility to Somerley to assist them in purchasing a commercial site situated on the corner of Bourke and Exhibition Streets, Melbourne. The total cost of the site was $60.0M, including capitalised interest and legal fees. The borrower would be contributing $11.0M cash at settlement. Beneficial Finance was to fund $19.0M and the Bank $30.0M. The $30.0M was to be an interim facility for a maximum of six months, pending the proposed construction of a hotel/entertainment complex on the site.

08.04.88

Lending Credit Committee meeting 348 approved submission of the proposal to Board Sub-Committee.

11.04.88

Board Sub Committee approved the facility. Letter from Bank to Beneficial Finance Corporation agreeing to participate in the facility in favour of Somerley.

14.04.88

Memorandum from Mr Walkom to Mr Masters advising that an amendment to the security position originally approved had been effected. Leases had not (as asserted in Lending Credit Committee submission) been executed by Hoyts and Interwest the transaction was settled nevertheless on that day.

19.04.88

Sub-Board recommendation to Board that approval of facility be confirmed.

28.04.88

Board confirmed the approval.

28.04.88

Board confirms Sub-Committee decision of 11 April 1988.

14.06.88

Colliers's valuation of the project for Beneficial Finance Corporation. Value estimated at $275.0M as of 1 June 1991 (at completion).

09.08.88

Recommendation to the Lending Credit Committee that the facility be increased from $30.0M to $60.0M. (Mr Davenport, Mr Walkom, Mr Henderson)

11.08.88

The Lending Credit Committee approved the proposal for submission to the Board.

18.08.88

Recommended that the Board approve an increase in an existing facility for the Borrower from $30.0M to $60.0M. The paper was presented by Mr Masters.

29.08.88

Recommendation was approved.

13.10.88

Memorandum from Mr Henderson to Mr Masters advising that the original facility was due to expire on 14 October 1988. The syndicate had yet to be put in place and consequently the current funding would not be repaid on the due date. It was proposed to extend the facility for a further 30 days with interest being paid by Somerley, and then to conduct a full joint review of the project during that period. Confirmation of this was sought from Mr Masters. Mr Masters confirmed the action on the 17 October 1988.

10.11.88

Recommendation to the Lending Credit Committee that the original facility be extended for a further 3 months to 14 February 1989.

15.11.88

Lending Credit Committee approves three months extension, on two conditions.

13.01.89

An amendment to the approved $60.0M facility recommended by the Lending Credit Committee.

The major revision sought was to extend the term of the loan from construction period only, to construction period plus a further period of five years. This was predicated on the basis that the project would be virtually self-servicing on completion with Tricontinental Group providing a promissory note to reduce the overall debt by $50.0M on satisfactory completion of the project.

17.01.89

Approved by the Lending Credit Committee.

18.01.89

Recommended that the Board approve an amendment to the existing approval for a $60.0M direct facility to Somerley. Paper was presented by Mr Masters. The variation was to extend the facility beyond the construction phase to construction plus five years on 31 May 1996 whichever was the earlier.

26.01.89

Approved by the Board.

09.02.89

Recommended to Lending Credit Committee that the facility be extended for a further 3 months to 14 May 1989. The extension was sought to enable final documentation and syndication matters to be completed. Approval was granted on 14 February 1989.

.. 04.89

Site works (excavation) begins.

05.05.89

Submission to the Lending Credit Committee to extend the facility until 30 June 1989.

Tricontinental Group had received firm commitments for the First Mortgage funding facility from eight banks totalling $190.0M.

Both Tricontinental Group and Beneficial Finance agreed to participate in a subordinated debt facility of $45.0M which ranked behind the First Tier Syndicate. It was a condition of approval that these funds were fully advanced prior to any drawing under the First Tier Syndicate.

10.05.89

Submission approved by Lending Credit Committee.

29.05.89

Memorandum from Mr Henderson to Mr Masters advising that syndicate commitments totalled $195.0M (an oversubscription). The Bank's commitment would therefore be reduced to $55.0M.

Mr Henderson further advised that any cost overruns - whether they be as a result of increased construction costs or as a result of interest rates - be rectified by the sponsor as they occur by way of cash contribution. At least 50 per cent of the subordinated debt was to be drawn down prior to any sharing under the First Tier Syndicate.

Confirmation of this was requested by Mr Henderson from Mr Masters.

31.05.89

Mr Masters advised Mr Henderson of approval of the above. Mr Masters further advised that 50 per cent of the subordinated debt was to be advanced prior to any draw down under the Bank's first mortgage and that subsequent subordinated debt of $22.5M is to be progressively drawn and approved with the Bank's debt on a priority basis of subordinated debt to senior debt.

21.06.89

Submission to the Lending Credit Committee to extend the facility to 31 July 1989 to allow State Bank of Victoria to consider their role in the facility following their absorption of Tricontinental Group. The Bank was further informed that the $22.5M of subordinated debt would be the minimum participation of State Bank of Victoria in the transaction.

The extension was approved on 27 June 1989.

07.89

Construction activities begin.

28.07.89

Submission to Lending Credit Committee recommending approval of extension of facility to 31 August 1989 following acceptance by State Bank of Victoria of Tricontinental Group's obligations under the facility and that settlement was expected to occur prior to 31 August 1989.

01.08.89

Submission approval.

01.08.89

Memorandum from Mr Walkom to Mr Masters summarising the current status of the Bank's involvement in the facility.

He advised that the Bank would be undertaking a full review of the project during the following two weeks to ensure that the Bank's original security and credit position was unaltered.

He further advised that although the Bank's original offer to participate had expired without formal acceptance by Tricontinental Group, he recommended the Bank's continued participation in the project unless anything untoward was discovered during the review.

He informed that the position was as follows:

$M

Construction Syndicate

(The Bank's participation $55.0M) 190.0

Mezzanine Debt (State Bank of Victoria & Beneficial Finance)

45.0

$35.0

On completion State Bank of Victoria would repay $50.0M of the construction syndicate funding on a pari-passu basis. It was anticipated that the remaining debt funds would be serviced by the lease payments from the committed tenants to the project, Hoyts and Interwest.

17.08.89

Report on Interwest by Mr S O New, Mr I C McLennan and Mr R C Hansen from Structured Finance and Project Division Credit Committee, Beneficial Finance. Report was prepared to satisfy pre-settlement condition number 3 as set by Beneficial Finance.

Pre-settlement condition number 3 related to the building contract. This was reviewed and found to be unsatisfactory in certain areas, in particular, the potential for cost overruns to the order of $15.0M to $25.0M. Accordingly the review of Interwest assesses its capacity to meet any such overruns.

17.08.89

(Cont'd)

The cash flow forecast for the Group indicated surplus cash in the years ending 30 June 1990 and 30 June 1991 of $50.7M and $216.8M respectively. The estimated surplus was dependent upon the sale of several assets and developments. If these could be achieved, Interwest would have no problem in meeting any surplus costs.

Recommended that pre-settlement condition number 3 could be signed off.

25.08.89

Letter from Mr E Reichert, Chief General Manager Structured Finance and Project Division, Beneficial Finance to Beneficial Finance Corporation's Board comprising, Mr D W Simmons, Mr K D Williams, Mr T M Clark, Mr R D Malcolmson, Mr K S Matthews, Mr R P Searcy, Mr J B Studdy and Mr A G Summers.

The letter was to seek approval of the number of developments which had transpired since the Beneficial Finance Board had approved the facility in April 1989. It had been ascertained that the construction contract was not a true fixed term contract. Gostins have only $5.0M in cash. Interwest reliant on property sales to raise cash to fund construction cost overruns.

29.08.89

Letter from Mr Walkom to WT Partnership confirming their appointment as the "Expert" as defined in the facility documentation. Also noted the intention to hold quarterly project meetings to be attended by Somerley, the respective Agents, Tricontinental Group, the Project Manager and WT Partnership, the first to commence November 1989.

The letter identified the specific role of WT Partnership in the facility including:

· preparation of a cost verification estimate confirming the project cost to be a realistic market price;

· to review the total development cost, including fixed price building contract with Grocon, FF&E Budget, all design, consultancy management and development fees forming the capital cost of the project; and

· to review the building agreement conditions, particularly as they relate to potential scope for the builder to increase to the Contract Sum.

30.08.89

Memorandum from Mr Walkom to Mr Masters and Mr Matthews providing an update.

Recommended the Bank's continued participation in the syndication.

Noted the following:

· WT Partnership was seeking further information from both Grocon, builder, and Rider Hunt and Partners, Quantity Surveyors, to ensure that the building program remained feasible as to time and cost;

· WT Partnership confirmed in their initial report that they believed the project could be completed both within time and budget; and

· Awaiting a confirmatory valuation of the project by Colliers International Property Consultants which verbally advised the valuation of the project to be $275.0M.

30.08.89

The Bank stipulated that all second tier debt ($45.0M) was to be utilised first.

31.08.89

Recommendation to Mr Masters to note the report by the Melbourne office confirming the Bank's involvement as agent and participator in the facility; and, approval to extend the facility to 15 September 1989 by which time facility documents would be executed and funding lines in place.

The proposal was approved by Mr Masters and provided to the Lending Credit Committee as an update.

11.09.89

Letter from Colliers International Property Consultants to the Bank confirming that they were prepared to accept responsibility to the Bank for their valuation of the project carried out for Beneficial Finance on 14 June 1988. Additionally they were prepared to accept responsibility to the syndicate members.

19.09.89

Letter from Mr P Steinfort, Paul Steinfort and Associates, to Mr G Roberts, Project Manager providing a program which showed that the project could be brought to practical completion by April 1991.

19.09.89

Letter from WT Partnership to Mr G Manning, State Bank of Victoria, stating that it was their opinion that neither Grocon nor they could be certain of a precise completion date at the present time. More confident predictions would be possible in the following six to eight months when the car park structure would be complete. Delays of 60 days against the current Revision "D" program noted. Construction of the structure had not commenced. New construction program described as `extremely optimistic'. Letter copied to Mr Henderson at the Bank.

21.09.89

Letter from Mr Henderson of the Bank to Somerley: payment by Somerley of AIDC participation fees.

21.09.89

Letter from WT Partnership to Mr Manning, State Bank of Victoria, confirming that they had perused the Cash Flow Forecast presented by Sallmanns International Property Consultants on 20 September 1989 and were of the opinion that the document was a fair and reasonable assessment of the likely cash flow projections. [Copy sent to Mr Walkom.]

21.09.89

Syndicated Bill Acceptance and Discount Facility executed between Somerley and First Tier Syndicate lenders including State Bank. The Bank was appointed Agent of the First Tier Syndicate.

25.09.89

Letter from Mr L M Thomas, WT Partnership, to Mr Walkom advising that costs to complete the project were in the order of $110.6M excluding project opening costs, solicitors fees, payments to adjoining owners, acquisitions, authority payments and financing costs. Construction 60 days behind Revision of proposal.

The letter further advised that the revised completion date was 1 April 1991; however, WT Partnership consider this date to be optimistic. WT Partnership were of the opinion that whilst delays in construction had a cost penalty, the building could be constructed for the Adjusted Development Sum of $123.1M.

WT Partnership also stated that they had received the cash flows from Sallmanns and considered the document to be fair and reasonable.

26.09.89

Settlement of the funding package took place. The Bank's existing $30.0M facility was repaid. Beneficial Finance Corporation existing $19.75M repaid. Second and Third Tier Debts drawn down.

10.10.89

Facsimile to Mr M Oswald and Mr M Day, Adelaide Branch, attaching Swap Agreements completed by State Bank of Victoria on behalf of Somerley.

11.10.89

Letter WT Partnership to Mr Walkom enclosing Cost to Complete Report No 10.

30.10.89

Memorandum from Mr Matthews to all Senior Managers, State Managers and Managers requesting that they provide Corporate Credit with the details of all exposures in their portfolio that had any involvement with the following entities:

· Interwest;

· Pac Prop;

· Tourism and Leisure Corporation;

· MGH Limited; and

· Australian Tourism Property Trust.

The request followed recent events in the tourism industry and in particular, the article in that days Financial Review.

30.10.89

Trading in Interwest shares suspended by Australian Stock Exchange at request of Directors of Interwest.

01.11.89

Letter from Mr S Schneider, Chairman, Interwest to Mr Walkom informing of the current position of Interwest.

06.11.89

Meeting between Mr Henderson, Mr Walkom, Mr Schneider, Ms Ewart. Note by Mr Walkom to Mr Masters and Mr S Paddison, in relation to the meeting he and Mr Henderson had together with Mr Schneider and Ms S Ewart, Interwest Financial Controller, on Monday 6 November 1989.

Mr Schneider informed that the banks secured by negative pledge were considering their position in so far as providing further support for Interwest to meet its current cash shortfall position. These Banks were State Bank of Victoria, Hong Kong Bank (Australia), Commonwealth and AEFC Limited. He was confident that the support would be provided upon Interwest selling the Twin Waters Resort, the Old Melbourne and possibly two other smaller properties.

Peat Marwick had been commissioned by Interwest to report on the financial situation of the Interwest Group. The report was not released to the Bank because the Negative Pledge banks had requested it not be released until they had advised of their intentions. Mr Schneider informed them that he would however supply a copy by the end of the week if no decision had been made.

The main reason for the cash shortfall related to the need over the previous few months to use their group cash flow to continue work on the Twin Waters Resort.

Mr Schneider believed that if the Negative Pledge Banks provided bridging facilities to allow the orderly sale of the properties, then Interwest would have sufficient cash to meet all facilities and to continue trading.

10.11.89

Letter from Ms Ewart, to Mr Walkom, attaching a copy of the Executive Summary prepared by Peat Marwick. The report recommended that the banks provide short term funding facilities to Interwest whilst it proceeded to sell some of its assets. It noted that cash flow from ownership and management of Interwest hotel properties has been insufficient to cover interest and holding costs, and that the Group had covered cash flow deficiency through borrowings and property sales.

10.11.89

Memorandum from Mr Walkom to Mr Matthews advising that he had requested a review of existing documentation of the Somerley facilities. He advised that the probability of down-streaming of funds was considered minimal as both facilities were for specific projects and all payments had been made to respective builders and consultants based on progress certificates.

10.11.89

Memorandum from Mr Walkom to Mr Masters advising of the Banks exposure to Somerley of $55.0M drawn down to $11.1M.

14.11.89

Letter from Mr Walkom to Colliers International Property Consultants requesting a valuation of the site and the proposed development. A valuation was sought of the market value of the site and current works as of that days date and secondly, an on-completion valuation of the total development assuming that no hotel operator had committed to the project. In addition, he required:

· comment on the likelihood that an extended selling period may be experienced and the effect on the probable sale price if one was forced into a fire sale situation on both the assessed values;

· comment on any alternative uses for the development taking into account both the existing permits and/or permits available to this site. An estimate of any necessary costs of conversion to such, and any difficulties which may be encountered in securing satisfactory tenants;

· comments on the possible purchasers of the complex in both its current and completed state; and

· in the case of the development being completed the probable tenants available to undertake the operation of the hotel, and the expected rents likely to be generated by the hotel on an arms length basis.

16.11.89

Facsimile from Mr G Haustorfer, AIDC Melbourne to Mr Walkom attaching letters dated 26 January 1989 and 6 February 1989 from Jebb Associates Pty Ltd to AIDC. These letters provided estimates of value of the Hotel which were far lower than Colliers International Property Consultants valuation. The facsimile suggested that the Jebb valuations not be shown to State Bank of Victoria or Beneficial Finance Corporation "otherwise they will never guarantee anything".

28.11.89

Letter from Mr Walkom to Peat Marwick seeking their assistance in preparing a re-assessment of the project giving due consideration to current market conditions of demand and supply for this type of development.

29.11.89

Facsimile from Interwest to Mr Henderson regarding the agreement entered into by Interwest with a Hong Kong listed company to take a substantial interest in Interwest which would see introduction of new equity. IHD Holdings Ltd later withdrew from this proposal.

08.12.89

Letter Peat Marwick Hungerfords Management Consultants to Mr Walkom enclosing review of Eden Melbourne Hotel.

18.12.89

Facsimile from Interwest of the letter sent to the Australian Stock Exchange advising of the revised proposal received from IHD Holdings Ltd ("IHD Holdings") following the withdrawal of its previous proposal.

Facsimile also noted sale of its interest in the Quality Inns New Zealand hotel chain and Eden on the Park Hotel, Melbourne, for $88.0M.

18.12.89

Facsimile from Interwest to Mr Walkom advising of results of auctions conducted for ATP Trust as follows:

$M

· Mildura Grand Hotel 5.05

· Old Melbourne 31.00

· Chateau Melbourne Passed in 18.00

Hand written note suggested that Chateau Melbourne was sold later for $19.0M.

02.01.90

Letter from Colliers International Property Consultants to Mr Walkom replying to Mr Walkom's request of 14 November 1989. Advised that the property would attract no more than $50.0M in its current stage. Based on revised figures from KPMG Peat Marwick, the value upon completion was estimated to be no more than $200.0M. It notes that this valuation has been derived after allowing for a payment to an operator. Sale not recommended.

03.01.90

Announcement to Australian Stock Exchange that Interwest rejected the revised offer by IHD Holdings.

09.01.90

Copy of a letter to the Australian Stock Exchange from Interwest to advise that the company had received notice of demand to immediately repay an amount exceeding $80.0M due to the syndicate managed by Tricontinental Group, including Commonwealth Bank of Australia, Hong Kong Bank of Australia and Australian European Finance Corporation Ltd. Interwest were unable to make such payment and accordingly KPMG Peat Marwick were appointed by Tricontinental Group as Receivers and Managers of Interwest. The Bank is owed $13.0M.

10.01.90

Memorandum from Mr Walkom to Mr Masters advising that solicitors acting for the Bank as Agent of the First Tier Syndicate had issued a Letter of Demand for the Bank's current debt following the appointment of a Receiver & Manager to Interwest Ltd on 9 January 1990.

The memorandum further advised of the meeting held with lenders involved with the First Tier Syndicate and later the Second Mortgage Syndicate. It was the unanimous decision of the First Tier Syndicate to request on the establishment of a material event of default, which has occurred, immediate repayment of the facility by Second Mortgage Syndicate. This was conveyed to Second Mortgage Syndicate who were considering this and three other options.

10.01.90

Mr Walkom receives financial analysis from KPMG Peat Marwick Management Consultants

11.01.90

Letter from Mr Henderson to Somerley advising that events of default had occurred under the Facility Agreement namely KPMG Peat Marwick had been appointed Receivers and Managers of Interwest and Interwest had received a notice of demand to immediately repay an amount exceeding $80.0M to the syndicate managed by Tricontinental Group.

Accordingly, the Bank advised its termination of the Total Commitments and all other obligations of the participants under the Facility Agreement and made demand for the immediate payment of all amounts due or owing under the Facility Agreement. (approximately $45.0M)

11.01.90

Letter from Mr Henderson to Somerley informing that the Bank had immediately fixed and crystallised the security created by the charge over all property and assets in respect of which it had a floating charge.

11.01.90

Letter from Mr Henderson to Beneficial Finance and Tricontinental Group advising of the Letter of Demand and Notices of Crystallisation of Floating Charge served upon Somerley.

11.01.90

Memorandum from Mr Walkom to Mr Masters advising of exposure to Somerley of $55.0M, drawn down to $12.96M.

12.01.90

Letter from Mr M Robertson, Group Chief Executive, Sallmanns to KPMG Peat Marwick setting out his thoughts regarding the possible receivership of the Somerley joint venture in the hope that Sallmanns could help KPMG Peat Marwick to persuade the relevant banks to continue supporting construction through to completion.

07.02.90

Mr Walkom diary note of separate conversations with Mr G Manning and Mr New regarding Somerley's unofficial request for a further indemnity for the following 30 days for construction draw down. The Bank had been led to believe that State Bank of Victoria would not be participating in any further indemnity agreements with regard to the next draw down which was due to occur on 19 February 1990.

07.02.90

Mr Walkom diary note of conversation with Mr Manning requesting that the position of the Second Tier Syndicate and their request for a further indemnity be received by the Bank no later than the following day.

The valuation of the project received by State Bank of Victoria/Beneficial Finance from Jones Lang Wootton indicated a value between, $135.0M and $150.0M on completion. This compares with Colliers International Property Consultants assessment of $200.0M which had been received a week earlier.

09.02.90

Mr Walkom diary note of meeting convened with First Tier Syndicate. Baker & McKenzie, Solicitors, to be directed to write to the Second Tier Syndicate and put them on notice as to the following points:

· that the First Tier Syndicate would not consider funding any further draw downs until there was some clear indication from Beneficial Finance and State Bank of Victoria as to their position regarding the facility.

· that the Bank would expect immediate repayment on the first tier debt following the maturity of the existing indemnity, being 15 February 1990.

· that the Second Tier Syndicate position and commitment to the project be formally clarified to the Bank by no later than 16 February 1990.

09.02.90

Diary note regarding conversation with Mr Manning. Noted that the possibility of State Bank of Victoria providing an indemnity for any further draw downs was extremely unlikely.

14.02.90

Letter from WT Partnership to Jones Lang Wootton enclosing their budget estimate of anticipated savings if the hotel portion of the project was not completed under the present contract with Grocon. The savings would be in the order of $54.0M, on a contract price of $123.4M, if completion of specified portions of the structure was deferred.

16.02.90

Mr Walkom diary note regarding meeting between himself, Mr Manning, Mr New and Mr M MacFarlane and Mr S Wiltshire, Macquarie Bank to discuss their involvement in the project. They had been mandated by Mr Gostin to seek both equity and operator participants in the project. Five different participants had been identified for either equity and or operator status.

20.02.90

Memorandum from Mr Walkom to Mr Masters advising that the First Tier Syndicate decided that they would appoint an Agent to act on behalf of them and take possession of and realise the secured property. Coopers & Lybrand were approached to act on their behalf. The joint and several appointees were Mr C T Daly and Mr E J Russell, partners of Coopers & Lybrand.

20.02.90

Report on Site of Proposed Hotel Complex prepared for Beneficial Finance by Jones Lang Wootton. In their opinion, an "indicative estimate" of value of the property in its current state was $28.75M, for sale in 60 days. It foresaw that sale at an acceptable price would be difficult to achieve. A reasonable selling period was to considered to be 6 months.

21.02.90

Report by Bonacci Winward ("Bonacci"), Consulting Structural Engineers, to Beneficial Finance on the consequences of delaying construction.

23.02.90

Letter from Beneficial Finance to Coopers & Lybrand, as agents for the First Tier Syndicate, advising that they had received a valuation of the current site from Jones Lang Wootton of $28.75M. They further advised that they had made investigations with Bonacci Winward, who had advised that the sides of the excavation were supported by vertical concrete soldiers tied back by temporary anchors and that they would have to be made permanent if construction was delayed by a further 12 months. In addition, Grollo had advised that if progress payments did not continue, he would walk away from the site. Beneficial Finance Corporation assess value of site at $22.53M.

23.02.90 to

27.02.90

Letters to all the guarantors including Interwest and Mr Gostin from Mr Walkom making demand under the Guarantee for immediate payment of monies owing by them.

26.02.90

Recommended that the Board approve the Bank providing facilities to Beneficial Finance to enable them to make an offer to the First Tier Syndicate to purchase their existing debt at the rate of 50 cents in the dollar with discretion to Group Managing Director up to 75 cents in the dollar, and additional expenditure of $25.0M to enable completion of the car park and retail components of the project. The recommendation was presented by Mr Hamilton.

The paper outlined the various options available to the Bank including disposal of the site as was, terminate the project at retail level, or, complete the overall project.

It was concluded that the most acceptable solution from a group point of view was to proceed with development to retail level while endeavouring to improve the overall position by seeking an owner/operator of a revised development or investigating an alternative end use for the site.

26.02.90

The Lending Credit Committee meeting 15A/90 approves the recommendation.

27.02.90

Letter from Arnold Bloch Leibler, Solicitors, to Mr Walkom enclosing letters from Holiday Inns (Asia Pacific) Ltd and Ramada International Pty Ltd. The letter from Holiday Inn contained a formal offer to enter into a Management Agreement for a term of twenty years and guaranteeing a minimum return for an initial five year period. Somerley "convinced that...Project...capable of sale and/or refinancing in a manner which will result in no loss being incurred by any of the First Tier or Second Tier financiers".

27.02.90

Letter of demand from the Bank to Pac Property Development under guarantee dated 21 September 1989.

28.02.90

Beneficial Finance Corporation offer to First Tier Syndicate of 50 cents in dollar made. Rejected.

01.03.90

Recommendation to the Board to confirm the Round Robin approval of 27 February 1990 enabling the Bank to provide facilities to Beneficial Finance in order to make an offer to the First Tier Syndicate to purchase their existing debt at the rate of 50 cents in the dollar with discretion up to 75 cents in the dollar, and additional expenditure of $25.0M to enable completion of the car park and retail components of the project.

02.03.90

Beneficial Finance Corporation offer to First Tier Syndicate of 82.4 cents in dollar made. Rejected.

06.03.90

Mr Henderson confirmed the treatment of the bills as non-accrual bills.

--.03.90

Work stopped on site.

07.03.90

Special submission to the Board of Beneficial Finance by Mr Blunt. The submission looks at the various strategies available.

The cap at retail level strategy had been more fully researched with valuations received from Jones Lang Wootton and Richard Ellis. Based on the valuations, these options resulted in a Bank Group loss ranging from $25.7M to $27.0M. In order for Beneficial Finance to reduce its potential loss it was necessary to take the project to full completion. In order for Beneficial Finance to achieve this it was necessary for Beneficial Finance to have control of the First Tier Syndicate. It was proposed that Beneficial Finance offer 95 cents in the dollar for the First Tier Syndicate.

08.03.90

Diary note of the receipt of a cheque from Beneficial Finance for their portion of the indemnities granted. State Bank of Victoria would forward the cheque on the following day.

15.03.90

Copy of report to the First Tier Syndicate from Coopers & Lybrand. The report concentrated on the assessment of the project, the cost of completion to various stages and the likely valuations.

The report concluded that each of Beneficial Finance and State Bank of Victoria be allowed the opportunity to take out the First Tier Syndicate at or very close to their total exposure, bearing in mind that there may be only a small upside benefit in the First Tier Syndicate continuing the project. If this was not forthcoming, then urgent consideration was to be given to completing the contract to an intermediate or final stage whilst at the same time seeking buyers for the separate stages of the total project.

16.03.90

Letter from Mr Blunt of Beneficial Finance Corporation to Coopers & Lybrand offering on behalf of Beneficial Finance to acquire the First Tier Syndicate debt and securities for one hundred cents in the dollar of the amount owing by Somerley to the First Tier Syndicate payable six months from the date of acceptance of the offer subject to approval by the Boards of the Bank and Beneficial Finance. An alternative offer of 90 cents in dollar payable in 14 days was also put. Open for acceptance until 21 March 1990.

19.03.90

Memorandum from Mr Walkom to Mr Masters recommending the transfer of the Somerley account into non-accrual as from 7 March 1990 given the uncertainty of the account.

19.03.90

Meeting of First Tier Syndicate to consider, among other things, offer from Beneficial Finance Corporation.

19.03.90

Facsimile counter offer (not signed) to Beneficial Finance Corporation of 95 cents in dollar.

20.03.90

Recommendation made to the Board to approve the provision of facilities to Beneficial Finance to enable them to make an offer to the First Tier Syndicate to purchase its existing debt at the rate of 95 cents in the dollar with discretion up to 100 cents in the dollar being given to the Group Managing Director. ie. $42.7M to $45.9M. Approval was also recommended for the provision of additional net expenditure of $19.5M to enable completion of the car park and partial retail components of the project.

The proposal was presented by Mr Hamilton as recommended by the Board of Beneficial Finance and the Group Managing Director. Mr Hamilton then took over management of the account.

The proposal stated that Beneficial Finance's exposure of $24.0M could be recouped only by the project being completed in full. Further it stated that First Tier Syndicate would not adopt this approach and therefore Beneficial Finance's only avenue to ensure maximum debt recovery was to take control of the project by paying out the First Tier Syndicate.

20.03.90

(Cont'd)

Beneficial Finance were conducting negotiations with potential equity partners including Ramada International which expressed strong interest in taking over the role of operator of the hotel and was prepared to consider an equity participation of between 10 per cent and 30 per cent.

Beneficial Finance estimated its cost to complete on best and worst case to be $180.5M and $210.2M respectively.

Valuations for the project ranged from $146.0M to $200.0M.

22.03.90

Recommendations were approved by the Board.

22.03.90

Minutes of Non Accrual Loans Meeting. Mr Masters, Mr Copley, Mr Matthews, Mr Baker and Mr Nerlich.

The facility had been transferred to non accrual basis as from 7 March 1990. It was likely that the facility would be taken out by Beneficial Finance. Mr Walkom was to report by 2 April 1990. Work stopped on site in March 1990.

22.03.90

Memorandum Walkom to Masters

23.03.90

Letter from Mr Blunt to Coopers & Lybrand.

Beneficial Finance offered to acquire the First Tier Syndicate debt and securities for 100 cents in the dollar of the amount owing by Somerley to the First Tier Syndicate. It was a condition of the offer that the Bank may acquire the First Tier Syndicate debt and securities in place of Beneficial Finance.

23.03.90

Letter from Coopers & Lybrand to Beneficial Finance accepting the offer on behalf of the First Tier Syndicate.

03.04.90

Memorandum from Mr Masters to Mr Henderson regarding attending to all security issues prior to payment to the First Tier Syndicate.

03.04.90

Memorandum to Mr Gillespie from Mr Walkom advising that a Receiver Manager was to be appointed to Somerley on that day or the following day.

05.04.90

Meeting Bank and Beneficial Finance representatives and legal advisers on ramifications of amending Grocon building contract.

06.04.90

Bank executes Deed of Appointment of Mr K J Russell & Mr C T Daly (Coopers and Lybrand) Receivers and Managers of Somerley

09.04.90

File note prepared by Mr Blunt and approved by Mr Hamilton as to the issues addressed and resolved at the meeting between Mr Hamilton, Mr Blunt, Mr Proudman, Thomson Simmons & Co and Mr J Wilkinson, Ross McCarthy & Co. The meeting was held to outline the conflict between proposed amendments to the building contract with Grocon, required to reduce the risk of substantial cost overruns, and maintaining Tricontinental Group's obligations under the Promissory Note.

It was resolved that:

. a new fixed price/fixed date contract would be entered into with Grocon to complete the project to the car park and retail component stage of the works notwithstanding that this may result in Tricontinental Group avoiding its Promissory Note liability;

. that the hotel component of the works be suspended in accordance with the existing building contract;

. that a declaration be sought from the Court that the Promissory Note obligation remain in place notwithstanding points 1 and 2 above but that it is understood that the application for this declaration could be unsuccessful;

. that construction commence as soon as possible under the contract outlined in point 1 above; and

. that a fixed time/fixed price contract for completion of the full project be negotiated and executed between Grocon and Somerley but commencement of hotel works to be subject to approval of funding by the Bank. The only variations to price in the contract would be owner instructed changes.

12.04.90

Loan transferred from non-accrual status to current ledger. The Bank acquires First Tier Syndicated Debt, by paying out First Tier Syndicate ($34.227M).

20.04.90

Memorandum from Mr Walkom to Mr Masters advising that the account be transferred from non accrual status to current ledger as from date of settlement being 12 April 1990. Interest was to continue to be capitalised at the default rate however the only income which was to be brought to account was the Acceptance Fee margin as applied to the previous syndicate.

20.04.90

Memorandum from Mr Walkom to Mr Henderson requesting assistance in clarifying various matters regarding the Bank's position on the facility post repayment of the First Tier Syndicate.

24.04.90

Letter from Mr A P Lees, WT Partnership advising of estimated costs for completing the project. The estimated costs were $125.0M. These did not include costs associated with the demobilisation and remobilisation of the scheme, miscellaneous legal fees, valuations, authority charges, rates and land taxes, compensations to adjoining owners and Sallmanns's financing costs.

16.05.90

Letter from the Bank (Mr Hamilton) to Tricontinental

21.05.90

Letter from Mr C H Hunt, Managing Director, Pacific Rim Leisure, to Mr Blunt setting out the relevant matters which should be addressed in the preparation of the formal mandate referred to in the meetings of 2 May 1990 and 5 May 1990, in relation to Pacific Rim Leisure's involvement in the development.

25.05.90

Letter from the Bank (Mr Hamilton) to Tricontinental

29.05.90

Letter from Mr I & J Rubinstein, Mr Hodges, to Coopers & Lybrand, requesting an authority or letter of appointment to sell the project on behalf of the parties associated with the project.

31.05.90

Letter from Coopers & Lybrand to Mr Hodges agreeing to provide authority to sell subject to certain terms and conditions.

04.06.90

Letter from Tricontinental to Mr Hamilton rejecting offer of 25 May 1990.

04.06.90

Memorandum from Mr Hamilton to Mr J Malouf, Northern Business Division, Beneficial Finance. The memorandum advised of the concern expressed at the delays arising from the need to refer matters through a chain of command before decisions were made. He advised that it was agreed that primary responsibility for the account would rest with Beneficial Finance; Mr Hamilton would continue to maintain an overall watching brief and coordinating role over the account; day to day matters rested with Mr New and Mr M de Vries; the project team was to include Mr Walkom, and Mr Henderson as and when required; Mr Lamond would not be part of the team but would provide technical input as and when needed; major decisions were to be referred to Mr Malouf or Mr Hamilton in Mr Malouf's absence; and, status reports were to be prepared monthly for Senior Management and the Boards of both the Bank and Beneficial Finance.

12.06.90

Memorandum from Mr de Vries to Mr Walkom advising that instructions had been given to Mr C Charles to proceed with the issue of a Writ against Colliers International Property Consultants to preserve whatever rights they may have. He advised that the Bank should examine their own valuation to see if it was subject to a two year deadline for action against Colliers International Property Consultants, given that there was now the possibility that the Bank could lose money on the transaction.

13.06.90

Memorandum from Mr New to Mr Walkom that approval to proceed with contract signing to enable car park/retail stage to be completed had been granted.

....

Letter from Mr Hamilton to Coopers & Lybrand Melbourne (Mr Hilton) authorising execution of a building contract with Grocon.

13.06.90

Memorandum from Mr Hamilton to Mr Walkom and others advising that he had "given formal approval for a building project" (sic) to be entered into with Grocon for construction of the car park and retail elements of the project only at a cost to complete of $19.0M.

In addition it was clear that substantial work had yet to be completed in conjunction with the prospective operators before any decision could be made on whether or not to proceed beyond retail level. The need to decide what level of provision was required as at 30 June 1990 was a further matter of urgency.

19.06.90

Memorandum to Mr Walkom from Mr Hamilton enclosing a letter to the Receiver and Manager authorising execution of various Agreements with Grocon.

19.06.90

Memorandum from Mr Walkom to Mr Hamilton enclosing letter to Coopers & Lybrand.

21.06.90

Letter from Mr I Herzog, First Abbott Corporation Ltd, to Mr McLennan, summarising the offer made by his Indonesian associates.

22.06.90

Memorandum from Mr C Hunt, Pacific Rim Leisure to Mr New and Mr McLennan in relation to the possibility of Ramada getting involved in the project.

22.06.90

Letter from Mallesons Stephen Jaques, Solicitors, to the Receivers and Managers of Somerley intimating that Tricontinental Group did not consent to any proposed variation to the Building Contract. Such variation would constitute breach of the debenture charge by Somerley. (Variation agreement between the Bank and Grocon, entered June 1990)

25.06.90

Notice of Demand upon Somerley by State Bank of Victoria to pay the sum of $2.3M pursuant to Interest Rate Swap Agreements dated 26 and 27 September 1989.

25.06.90

Memorandum from Mr McLennan to Mr New and Mr Walkom commenting on the offer made by First Abbot Corporation Ltd Associates. He believed the offer was worth considering.

27.06.90

Memorandum from Mr Fildes to Mr Walkom requesting that all Lending Credit Committee papers, Board papers, approval response/advice sheets and any other relevant information be put in the file so that the auditors had complete files to review. He was also querying why matters had bypassed Corporate Credit since General Manager Corporate Banking's approval of 22 March 1990 on Mr Walkom's memorandum to Mr Masters of 19 March 1990.

Memorandum from Mr Walkom to Mr Fildes advising that the account had been managed by Mr Hamilton since board approval was obtained on 20 March 1990. Mr Walkom was preparing a status paper for the Board which he would be sending to Adelaide on the following day for vetting by Mr Henderson. He states that this account was not 'normal' when the Bank Group position was taken into consideration, hence the involvement of Mr Hamilton, the Board of Beneficial Finance, the Bank's Board and the apparent by passing of Corporate Credit.

28.06.90

Board Update Paper to Beneficial Finance prepared by Mr McLennan and sent to Mr Malouf. The paper advised that the current exposure to Somerley was $74.5M represented by $24.2M from Beneficial Finance and $50.3M from the Bank. The value of the site at that stage was $13.0M. Approval had been given to develop the project to Stage 1, completing car park and first level of retail shops. Beneficial Finance's exposure would remain the same and the Bank's exposure would increase to $80.4M. The value at this stage would be in the order of $70.5M. If the project proceeded to full development, the Bank's exposure would increase to $211.0M, Beneficial Finance's exposure would remain the same, and the value of the project would be approximately $214.0M (this value was still being assessed).

Current actions being undertaken included: equity sale/reassignment; building contract negotiations; Pacific Rim Leisure/Ramada end take-out; possible equity by Indonesian syndicate; and, action against Colliers International Property Consultants.

04.07.90

Letter from Coopers & Lybrand to State Bank of Victoria and Tricontinental Group advising that if they proceeded with the order to wind up the company they would intervene and oppose the winding up. Legal advice received indicates that they would be successful in opposing such an application.

12.07.90

Memorandum from Mr R Matlouf, Ramada International Pty Ltd, to Mr Hunt in relation to Ramada's interest in the project.

12.07.90

File Note by Mr New in relation to a special Task Force meeting held on 12 July 1990. It was agreed to recommence works immediately under the original building contract of May 1988, and making an agreement with Grocon to transfer to the variation agreement when the Tricontinental Group issue was resolved.

13.07.90

Letter to State Bank of Victoria and Tricontinental Group from Coopers & Lybrand advising of above decision.

19.07.90

Recommended that the Board of Directors approve an increase in the Bank's existing exposure to the project from $72.7M to $81.0M to enable completion of the car park and partial retail components of the project as recommended by the Board of Beneficial Finance. Mr Hamilton, Mr Henderson, Mr Walkom, Mr McLennan. The additional amount represented variations ($3.5M) extra holding costs ($3.7M) and fees, rates and taxes ($3.0M).

26.07.90

The recommendation was approved.

06.08.90

Memorandum from Mr McLennan to Mr de Vries, Mr Sparkes, Mr New, Mr Lamond and Mr Malouf advising that Mr Hamilton called on that day to confirm that he had seen the recommendation from Mr Lamond and Mr de Vries that Beneficial Finance give to Grocon the limited indemnity negotiated by Mr Lamond with Mr C Aylward on Friday 3 August 1990.

06.08.90

Letter from Mr Walkom and Mr McLennan to Grocon, advising that Beneficial Finance and the Bank were prepared to waive certain rights and agree to a further variation of the Variation Agreement.

08.08.90

Letter from Mr B Fink, Director Southern Cross Hotels, to Mr McLennan, advising that Southern Cross would be interested in operating the hotel site.

08.08.90

Letter from Mallesons Stephen Jaques to Coopers & Lybrand advising that they would consent to the proposed variation in the building contract if payment of the whole of the amount outstanding by Somerley to Tricontinental Group. Should this not be forthcoming, Tricontinental Group would consider consenting to the proposed variation upon satisfaction of certain conditions.

16.08.90

Proposal to Board that the Bank grant a full indemnity to Grocon in connection with recommencement of work. Building work suspended pending identification of an operator of the hotel.

08.09.90

Asset Management Division, Monthly Status Report. (Beneficial Finance Corporation)

11.09.90

Letter from Sallmanns to Coopers & Lybrand expressing their concern with the apparent threat of the safety of the site and reminding them of the urgency to commence either of the alternative remedial works referred to in their previous correspondence.

11.09.90

Indemnity the Bank/Grocon executed.

16.09.90

Recommended that the Board of Directors approve the granting of a full indemnity to Grocon to enable work to recommence on the project as recommended by the Board of Beneficial Finance.

The recommendation was approved.

19.09.90

Board Paper noting the Bank's position with regard to facilities provided to Somerley. The facility had been transferred to Group Asset Management Division, under the control of Mr Wilcox. Attached was the Monthly Status Report prepared by Beneficial Finance.

The paper noted a best, probable and worst loss scenario of $24.0M, $44.0M and $64.0M, respectively. This prognosis was based only on the approved Stage 1 configuration and did not include the yet to be approved stage 2 hotel construction. Per Mr New, the value of carparks had dropped significantly as a result of the collapse in the car park market due to oversupply.

The paper was prepared and presented by Mr Henderson and supported by Mr Wilcox.

10.90

Somerley account transferred to Group Asset Management.

22.10.90

Letter from Sallmanns noting that construction works had recommenced on site (in September).

23.10.90

Draft notes on proposed restructure of Somerley as prepared by Coopers & Lybrand.

25.10.90

Building novation agreement executed between the Bank/Grocon. The Bank substituted for Somerley as Developer.

14.11.90

Recommended that the Board of Directors approve an increase in the Bank's exposure from $81.0M to $91.5M to allow for further variations and holding cost increases to the car park/retail component of the project and to note the cost estimates and income projections for the hotel component of the project. Recommended by Mr Walkom, Mr Henderson and Mr Wilcox.

22.11.90

Recommendation was approved.

14.12.90

Board paper noted that the Banks exposure was $91.5M drawn to $66.9M.

A full review of all options available was to be undertaken over the following month and a recommendation was to be made at the January 1991 Board meeting as to the future of the project. (Beneficial Finance Corporation attachment forecast substantial loss)

Mr Henderson, Mr McLennan and Mr Sparkes had visited Indonesia for the purpose of holding discussions with potential owner operators. An offer was subsequently made in writing by the Indonesians and seemed to place a future value of $140.0M to $150.0M on the hotel component. Such an offer would result in a loss to the Bank.

Holiday Inn and Ramada both retained a strong interest in the project with their main emphasis being directed to a prime management role only.

01.01.91

Loan classified as non-accrual (for second time)

09.01.91

Memorandum from Mr New to the Task Force intended to be the basis of a report to the Bank and Beneficial Finance Corporation Boards.

16.01.91

Minute of Lending Credit Committee meeting no. 3/91. Present indications suggested that provisioning in the region of $20.0M to $40.0M may have been required.

17.01.91

Recommended that the Board of Directors note the Bank's position with regard to facilities provided to the subject applicant and approve deferral of construction of the hotel component, and that account be transferred to non-accrual status as from 1 January 1991. Stage 1 sale value less than $40.0M loss of between $40.0M and $85.0M forecast. Recommended provision for the whole Beneficial Finance Corporation debt.

The decisions were noted by the Board.

01.02.91

Diary note by Mr Walkom with regards to a telephone call from Mr Gostin on 29 January 1991 requesting a meeting.

A meeting was held that afternoon with discussions concerning Mr Gostin's wish to know whether the Bank intended to bankrupt him on the basis of the Bank calling on his personal and corporate guarantees. Mr Gostin stated that he had no assets as such except for his house which was fully encumbered to Macquarie Bank to secure advances made by them on Somerley and other projects. He was unable to offer any financial incentive to the Bank to settle out of court on the guarantee. Mr Gostin was prepared to sign an asset and liability statement complete with statutory declaration which would clearly show that he was insolvent and unable to offer any compensation to the Bank. Following receipt of this the Bank would consider its position.

12.02.91

Statutory Declaration by Mr Gostin that his net realisable asset value was approximately $13,900.

19.02.91

Memorandum from Mr Henderson to Mr McLennan requesting that prior to any final decision being made on the action against Mr Gostin, the following issues should be addressed:

· full assessment of Mr Gostin's original claimed statement of assets and liabilities and what has happened to them since.

· investigation as to Mr Gostin's activities since to ensure other projects entered into have not been hived off.

· brief summary from Mr de Vries as to the full list of defendants in the action, likely chances of success, possible amount recovered and costs of the whole exercise with his recommendation as to the most appropriate course of action from both a legal and commercial point of view.

21.02.91

Recommended that the Board of Directors note the Bank's position with regard to facilities. The paper was prepared by Mr Henderson and presented by Mr Mullins.

Outstanding liabilities were $71.6M. A specific provision for $23.8M existed as at January 1991.

Completion of the car park was expected mid to late September 1991. No increased costs were anticipated. Grocon were to be advised on 22 February 1991 that the hotel component was not proceeding at that stage. The penalty payment $3.5M would therefore be payable at the next claim. Discussions were continuing with the Indonesian parties and there may possibly be an offer forthcoming for the car park/retail component in the order of $60M. It was not intended at that stage to "fire sale" the project on an "as is" or "on completion" basis but continue to seek an operator/investor package that ultimately removed the Bank Group from the project at the least cost.

25.02.91

Facsimile from Mr N Manousaridis, Baker & McKenzie in relation to the legal proceedings by the Bank against Mr Gostin and the possibility of settlement. It also attached a background paper on settlement.

26.02.91

Memorandum from Mr de Vries to Mr McLennan, Mr New, Mr Walkom and Mr Wilcox regarding the action against Mr Gostin. He advised that the chances of succeeding on the question of liability were in excess of 90 per cent. The chances of succeeding in relation to the quantum of the liability of the guarantors was greater than 75 per cent.

07.03.91

Recommendation to the General Manager, National Corporate Accounts prepared and recommended by Mr Walkom and supported by Mr Wilcox. It was recommended that the Bank execute an Agreement with Mr Gostin and his Guarantor Companies to settle the matter.

It was approved by Mr Henderson, Acting General Manager, on the basis that shares in Somerley were transferred and all efforts were made for a similar transfer of units in the appropriate trusts.

08.03.91

Letter from Baker & McKenzie to Mr Walkom advising of the orders made by Justice Beach on that day to be as follows:

· judgement be entered against the third to the eleventh defendants (including Alan Gostin) in the sum of $58.0M;

· the counter claim be dismissed;

· judgement be entered against the tenth defendant Eden Hotel Corporation in the sum of $44.0M; and

· the claim against the second defendant be struck out with the right of reinstatement.

The next step was to transfer the shares in Somerley and the units in the Somerley Unit Trust to the Bank within fourteen days.

12.03.91

Letter from Clark and Kann, Solicitors, to Mr de Vries advising of the grounds on which action taken against Colliers International Property Consultants could be successful.

14.03.91

Letter from Mr D Archbold, Joint Managing Director, International Property Group to Mr Henderson regarding his assessment of a strategy for the Bank in relation to the project.

20.03.91

Diary note prepared by Mr Walkom in relation to his meeting with Mr T Hoskin and Mr F Kiel of Tricontinental Group to discuss the past present and future of Somerley.

Tricontinental Group had been mandated to close as many of their files as possible in the shortest possible time. Following without prejudice discussions, it was resolved that on the basis that the Bank Group undertook not to seek any redress against Tricontinental Group for any liabilities incurred in completing the building and did not seek to recover any funds under the $50.0M Promissory Note that remained outstanding, then in consideration of this Tricontinental Group would release its shares and units in the Somerley Unit Trust to the Bank. This would enable the Bank to get control of Somerley given that they were in the process of procuring Mr Gostin's holdings.

15.04.91

Letter from Tricontinental to the Bank regarding resolution of dispute.

26.04.91

Board notes and approves recommendation for provision. Tricontinental Promissory Note of $50.0M had become "a dead issue".

16.05.91

Letter from the Bank (Mr Travis, Corporate Manager) to Baker & McKenzie in relation to proposed assignment from Tricontinental to the Bank of shares and units in Somerley and Somerley Unit Trust. Bank "...has decided to..gain control of 100 %" of the shares and units. Transfer documents to be held in escrow.

22.05.91

Letter from Baker & McKenzie to the Bank (Mr Travis) in response to letter of 16 May 1991, advising on stamp duty aspects of share and unit transfers to Board.