As filed with the Securities and Exchange Commission on March 17, 2010

Registration No. 333-      

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form F-4

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

JAMES HARDIE INDUSTRIES SE

(Exact name of registrant as specified in its charter)

 

 

Atrium, 8th floor
Strawinskylaan 3077
1077 ZX Amsterdam, The Netherlands
+31 20 301 2980 (Telephone) +31 20 404 2544 (Facsimile)
(Address, including zip code and telephone number, including area code of registrant’s principal executive offices)

 

CT Corporation System
111 Eighth Avenue
New York, New York 10011
(212) 894-8940
(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:
Michael E. Gizang
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036-6522
(212) 735-3000

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this registration statement becomes effective and all other conditions to the consummation of the transactions described in this prospectus have been satisfied or waived.

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

 

CALCULATION OF REGISTRATION FEE

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine

 

 

PRELIMINARY COPY — SUBJECT TO COMPLETION, MARCH 17, 2010

 

 

IMPORTANT NOTICES

 

Terminology

 

In this Explanatory Memorandum, references to:

 

 

Certain other capitalised terms used in this Explanatory Memorandum have the meanings ascribed to them in the Glossary in Section 18.

 

This Explanatory Memorandum, which constitutes a prospectus under US federal securities laws, has been prepared in connection with the registration of 102,000,000 shares of JHI SE, with the number of shares being registered based on (i) the estimated number of JHI SE shares beneficially held by securityholders resident in the US, and (ii) the one-to-one basis on which each JHI SE share will be transformed into a Irish SE share.

 

This Explanatory Memorandum and the Notice of Meetings included herein have been prepared to assist shareholders in deciding how to vote on Stage 2 of the Proposal. You should read this Explanatory Memorandum and the Notice of Meetings in their entirety before making a decision about how to vote on the resolution to be considered at the extraordinary general meeting.

 

This Explanatory Memorandum contains important information relating to the Proposal. The Notice of Meetings contains important information relating to voting at the extraordinary general meeting, including the record date, the quorum and vote required for approval and how to vote your CUFS or ADSs and the resolution that shareholders are being asked to approve with respect to Stage 2 of the Proposal.

 

Information Incorporated by Reference

 

This Explanatory Memorandum incorporates important business and financial information about us by reference and, as a result, this information is not included in or delivered with this Explanatory Memorandum. For a list of those documents that are incorporated by reference into this Explanatory Memorandum, see “Incorporation of Certain Documents by Reference” in Section 13.

 

Documents incorporated by reference are available from us upon oral or written request without charge. As we file annual reports and furnish other information to the US Securities and Exchange Commission, you also may obtain documents incorporated by reference into this Explanatory Memorandum from the website of the US Securities and Exchange Commission at the URL (or uniform resource locator) http://www.sec.gov or by requesting them from us by calling the Information Helpline in Australia at 1-800-675-021 (between 8:00 a.m. and 5:00 p.m.

(AEDT)) or elsewhere in the world at +1-949-367-4900 (between 8:00 a.m. and 5:00 p.m. (US Central Time)) or in writing by regular and electronic mail at the following address:

 

James Hardie Industries SE
Atrium, 8th floor
Strawinskylaan 3077
1077 ZX Amsterdam, The Netherlands
Attention: Company Secretary
E-Mail: [email protected]

 

In order to receive timely delivery of the documents in advance of the extraordinary general meeting for Stage 2 of the Proposal, you should make your request no later than May 26, 2010.

 

A number of documents related to the Proposal also may be found at the Investor Relations area of our website (www.jameshardie.com, select “James Hardie Investor Relations”).

 

Forward-looking Statements

 

This Explanatory Memorandum, Notice of Meetings and the documents incorporated herein by reference contain forward-looking statements. We may from time to time make forward-looking statements in our periodic reports filed with or furnished to the US Securities and Exchange Commission on Forms 20-F and 6-K, in our annual reports to shareholders, in offering circulars, invitation memoranda and prospectuses, in media releases and other written materials and in oral statements made by our officers, directors or employees to analysts, institutional investors, existing and potential lenders, representatives of the media and others. Statements that are not historical facts are forward-looking statements and for US purposes such forward-looking statements are statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include:

 

 

Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “aim,” “will,” “should,” “continue” and similar expressions are intended to identify

forward-looking statements but are not the exclusive means of identifying such statements. Readers are cautioned not to place undue reliance on these forward-looking statements and all such forward-looking statements are qualified in their entirety by reference to the following cautionary statements.

 

Forward-looking statements are based on our estimates and assumptions and because forward-looking statements address future results, events and conditions, they, by their very nature, involve inherent risks and uncertainties. Such known and unknown risks, uncertainties and other factors may cause our actual results, performance or other achievements to differ materially from the anticipated results, performance or achievements expressed, projected or implied by these forward-looking statements. These factors, some of which are discussed under “Risk Factors” beginning on page 15 including those incorporated by reference from our Annual Report on Form 20-F filed with the US Securities and Exchange Commission, include but are not limited to: all matters relating to or arising out of the prior manufacture of products that contained asbestos by our current and former subsidiaries; required contributions to the Asbestos Injuries Compensation Fund and the effect of currency exchange rate movements on the amount recorded in our financial statements as an asbestos liability; compliance with and changes in tax laws and treatments; competition and product pricing in the markets in which we operate; the consequences of product failures or defects; exposure to environmental, asbestos or other legal proceedings; general economic and market conditions; the supply and cost of raw materials; the success of research and development efforts; reliance on a small number of customers; a customer’s inability to pay; compliance with and changes in environmental and health and safety laws; risks of conducting business internationally; the company’s proposal to transfer its corporate domicile from The Netherlands to Ireland to become an Irish “SE” company compliance with and changes in laws and regulations; currency exchange risks; the concentration of our customer base on large format retail customers, distributors and dealers; the effect of natural disasters; changes in our key management personnel; inherent limitations on internal controls; use of accounting estimates; and all other risks identified in our reports filed with Australian, Dutch and US securities agencies and exchanges (as appropriate). We caution that the foregoing list of factors is not exhaustive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements. Forward-looking statements speak only as of the date they are made and are statements of our current expectations concerning future results, events and conditions.

 

You should carefully review all of the information included in this Explanatory Memorandum and the Notice of Meetings, before making a decision on how to vote on Stage 2 of the Proposal to be considered at the extraordinary general meeting.

 

Intellectual Property

 

“James Hardie” and any logos are trademarks of James Hardie International Finance Limited, which may be registered in certain jurisdictions. Names of other companies and any other trademarks are owned by their respective owners.

 

TABLE OF CONTENTS

 

LETTER FROM THE CHAIRMEN

 

 

 

On August 21, 2009, shareholders approved Stage 1 of the two-stage proposal to re-domicile the company, with over 99% of votes cast at the extraordinary general meeting being in favour of the resolution.

 

Following this vote, on February 19, 2010, James Hardie Industries SE completed its transformation from a public limited liability corporation registered in The Netherlands (Naamloze Vennootschap (NV)) to a European Company (Societas Europaea (SE)) registered in The Netherlands.

 

We now seek your approval to proceed with Stage 2 of the Proposal, to transform JHI SE to Irish SE by moving our corporate domicile from The Netherlands to Ireland. Your approval of Stage 2 will result in JHI SE becoming subject to Irish law in addition to the SE Regulation.

 

In connection with the Stage 1 extraordinary general meeting, we received comments on the proposed articles of association for Irish SE. Based on that feedback, we committed to solicit comments on the proposed articles of association for Irish SE prior to presenting them to shareholders for approval in connection with Stage 2.

 

Since then, we have reviewed the comments we received in connection with Stage 1 and have met with and received comments from investor advisory groups. Following our review of these comments, your directors made a number of changes to the proposed articles of association for Irish SE as described in this Explanatory Memorandum.

 

We reiterate that implementing the Proposal will not change James Hardie’s overall commitment to make contributions to the Asbestos Injuries Compensation Fund under the Amended and Restated Final Funding Agreement. However, if, as seems likely, a contribution is due to the Asbestos Injuries Compensation Fund during the company’s financial year ending March 31, 2011, it will be reduced by an amount of up to 35% of the costs associated with the Proposal incurred in the financial year ending March 31, 2010.

 

Because the capacity of the Asbestos Injuries Compensation Fund to satisfy claims is linked to the long-term financial success of James Hardie, especially the company’s ability to generate net operating cash flow, completing the Proposal through implementing Stage 2 is expected to have medium and long-term benefits for the Asbestos Injuries Compensation Fund.

 

KEY BENEFITS

 

We need to implement Stage 2 of the Proposal to obtain all of the favourable aspects of the Proposal and avoid the risks and disadvantages of staying in The Netherlands, as described in this Explanatory Memorandum.

 

Your directors continue to be of the view that implementing Stage 2 of the Proposal is the best course of action for James Hardie and its shareholders at this time because it:

 

 

SUMMARY

 

Your directors continue to be of the view that the Proposal is the best course of action at this time for James Hardie and its shareholders.

 

This Explanatory Memorandum sets out material information relevant to Stage 2. As there are certain risks involved in connection with the implementation of Stage 2, we urge all shareholders to read this document in full. Your vote in favor of the approval of Stage 2 is important for James Hardie and its shareholders.

 

This Explanatory Memorandum includes a Notice of Meetings for Stage 2 of the Proposal. If shareholders approve Stage 2, your directors anticipate that Stage 2 of the Proposal will be implemented early in the second half of 2010. It is important to implement the Proposal as soon as practicable, as there are risks and costs associated with delay.

 

 

The key dates for consideration and implementation of Stage 2 of the Proposal are shown below. All times referred to are Australian Eastern Time (which we refer to as AET) unless otherwise stated

 

 

The final timetable will depend on a number of factors, some of which will be outside of our control, including various regulatory filings and approvals (see “Key Steps in Connection with the Proposal” in Section 1.2).

 

Any material changes to the above timetable will be announced to the Australian Securities Exchange (which we refer to as the ASX), furnished to the US Securities and Exchange Commission on a Form 6-K and made available on the James Hardie Investor Relations website (www.jameshardie.com, select “James Hardie Investor Relations”).

 

The following are some of the questions that you, as a shareholder, may have regarding the Proposal and answers to those questions. This section highlights selected information from this Explanatory Memorandum and the Notice of Meetings, but does not contain all of the information that may be important to you. Section numbers in parentheses following certain of the questions in this part refer to some of the other places in this Explanatory Memorandum or the Notice of Meetings that contain more detailed information regarding the subject matter discussed.

 

 

 

 

James Hardie Industries SE
Atrium, 8th floor
Strawinskylaan 3077
1077 ZX Amsterdam, The Netherlands
Attention: Company Secretary
E-mail: [email protected]

 

 

SUMMARY

	•	providing key senior managers with global responsibilities to spend more time with James Hardie’s operations and in its markets;
	•	providing more certainty for James Hardie to obtain benefits under the US/Ireland Treaty than is the case under the US/Netherlands Treaty;

	•	increasing our flexibility to undertake certain transactions under Irish company law, which your directors believe expands our future strategic options;
	•	simplifying our governance structure to a single board of directors; and
	•	permitting most shareholders to be eligible to receive dividends not subject to withholding tax.

	•	holders of 10% of Irish SE’s issued share capital, as compared to 1% (which we believe will likely be raised to 3% the first half of 2010) of JHI SE’s issued share capital or holders of JHI SE shares representing at least EUR 50 million in value (which we believe will likely be abolished), having the right, subject to complying with specified time periods and providing specified information, to request that the board place a matter on the agenda of any general meeting;
	•	holders of 10% of Irish SE’s issued share capital, as compared to either 5% of JHI SE’s issued share capital or at least 100 shareholders of JHI SE, having the right to request the board to call an extraordinary general meeting and, subject to complying with specified time periods and providing specified information, to request the board to place items on the agenda for such meeting;
	•	holders of 10% of Irish SE’s issued share capital, as compared to any shareholder of JHI SE, having the right, subject to complying with specified time periods and providing specified information, to nominate candidates for election as directors at any general meeting;
	•	a takeover offer will, in general, be required of a person who acquires 30% or more of the voting rights of Irish SE, as compared to 20% of the voting rights of JHI SE;
	•	a person who acquires 80% or more of Irish SE’s issued share capital through acceptances of an offer to all shareholders, as compared to 95% of JHI SE’s issued share capital, can compel the acquisition of the remaining outstanding issued share capital; and
	•	a change from a two-tiered board to a single-tiered board.

	•	Removing the ability of directors of Irish SE to remove a fellow director; this power is now reserved for shareholders;
	•	Simplifying the specified time periods and information required for shareholders to request the board to put items of business on the agenda of general meetings or nominate directors;
	•	Increasing the minimum notice period for all extraordinary general meetings from 14 to 21 days; and
	•	Setting the threshold for shareholders to request the board to put items of business on the agenda of general meetings or nominate directors at 10% of Irish SE’s issued share capital.

	•	Transaction and implementation costs in connection with the Proposal and the transfer of our intellectual property and treasury and finance operations currently are calculated to be approximately US$63 million. This includes approximately US$20 million in advisory fees and other expenses incurred in connection with the implementation of Stage 1, and approximately US$41 million in Dutch taxes as a result of a capital gain on the transfer of our intellectual property and treasury and finance operations out of the Financial Risk Reserve regime in The Netherlands and the termination of that regime. The remaining estimated costs of approximately US$2 million consist primarily of advisory fees and other expenses expected to be incurred in connection with the implementation of Stage 2, including costs related to the establishment of a new head office in Ireland.

	•	Our consolidated annual accounts will continue to be prepared under Generally Accepted Accounting Principles applicable in the US (which we refer to as US GAAP). Commencing with the first financial year end after Stage 2 of the Proposal is completed (i.e., year ended March 31, 2011 if Stage 2 is implemented prior to April 1, 2011) in order to comply with Irish law, we also will prepare consolidated annual accounts under “modified” US GAAP, which is US GAAP to the extent that it is not inconsistent with Irish company law. The annual entity accounts of Irish SE also will be prepared under Generally Accepted Accounting Principles applicable in Ireland (which we refer to as Irish GAAP).
	•	In connection with the approval of Stage 2, we are asking shareholders to approve the abolishment of the merger revaluation reserve established in connection with our 2001 reorganisation and set off the amount at the expense of share premium and retained earnings in order to maintain the historical cost bases of our consolidated net assets from directly before the 2001 reorganisation. If this reclassification is approved in connection with Stage 2 of the Proposal, the amounts available to Irish SE for distribution as dividends and to repurchase shares will be substantially the same as for JHI SE.

	•	After implementation of Stage 2, Irish SE’s ability to pay dividends and repurchase shares will be subject to Irish company law and will be determined based on profits accounted for in the individual accounts of Irish SE, calculated under Irish GAAP. However, as a result of the proposed reclassification referred to above, we do not believe these changes will have a material impact on Irish SE’s ability to pay dividends or repurchase shares as compared to JHI SE.

 

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

		Nine Months Ended
		December 31								Fiscal Year Ended March 31,
		2009				2008				2009				2008				2007				2006				2005
		(Unaudited)
		In million US$
		(except sales price per unit and per share data)
Consolidated Statements of Operations Data:
Net Sales
USA and Europe Fibre Cement			631.3				740.6				929.3				1,170.5				1,291.2				1,246.7				974.3
Asia Pacific Fibre Cement			218.4				220.7				273.3				298.3				251.7				241.8				236.1
Total net sales			849.7				961.3				1,202.6				1,468.8				1,542.9				1,488.5				1,210.4
Operating (loss) income			(32.8	)			334.0				173.6				(36.6	)			(86.6	)			(434.9	)			196.2
Interest expense			(4.8	)			(7.4	)			(11.2	)			(11.1	)			(12.0	)			(7.2	)			(7.3	)
Interest income			2.9				5.5				8.2				12.2				5.5				7.0				2.2
Other income (expense)			6.0				—				(14.8	)			—				—				—				(1.3	)
(Loss) income from continuing operations before income taxes			(28.7	)			332.1				155.8				(35.5	)			(93.1	)			(435.1	)			189.8
Income tax (expense) benefit			(53.9	)			(66.2	)			(19.5	)			(36.1	)			243.9				(71.6	)			(61.9	)
(Loss) income from continuing operations			(82.6	)			265.9				136.3				(71.6	)			150.8				(506.7	)			127.9
Net (loss) income			(82.6	)			265.9				136.3				(71.6	)			151.7				(506.7	)			126.9
(Loss) income from continuing operations per common share — basic			(0.19	)			0.62				0.32				(0.16	)			0.32				(1.10	)			0.28
Net (loss) income per common share — basic			(0.19	)			0.62				0.32				(0.16	)			0.33				(1.10	)			0.28
(Loss) income from continuing operations per common share — diluted			(0.19	)			0.61				0.31				(0.16	)			0.32				(1.10	)			0.28
Net (loss) income per common share — diluted			(0.19	)			0.61				0.31				(0.16	)			0.33				(1.10	)			0.28
Dividends paid per share			—				0.08				0.08				0.27				0.09				0.10				0.03
Book value per share(1)			(0.30	)			(0.09	)			(0.25	)			(0.47	)			0.55				0.20				1.36
Weighted average number of common shares outstanding
Basic			432.7				432.2				432.3				455.0				464.6				461.7				458.9
Diluted			432.7				433.5				434.5				455.0				466.4				461.7				461.0
Consolidated Cash Flow Information:
Net cash provided by (used in) operating activities			198.6				25.3				(45.2	)			319.3				(67.1	)			238.4				219.4
Net cash used in investing activities			(35.2	)			(16.8	)			(26.1	)			(38.5	)			(92.6	)			(154.0	)			(149.8	)
Net cash (used in) provided by financing activities			(122.8	)			(0.8	)			25.0				(254.4	)			(136.4	)			118.7				(27.2	)

		Nine Months Ended
		December 31								Fiscal Year Ended March 31,
		2009				2008				2009				2008				2007				2006				2005
		(Unaudited)
		In million US$
		(except sales price per unit and per share data)
Other Data:
Depreciation and amortization			45.6				41.6				56.4				56.5				50.7				45.3				36.3
Adjusted EBITDA			12.8				375.6				230.0				19.9				(35.9	)			(389.6	)			232.5
Capital expenditures			35.2				16.8				26.1				38.5				92.1				162.8				153.0
Volume (million square feet)
USA and Europe Fiber Cement			989.7				1,218.3				1,526.6				1,951.2				2,216.2				2,244.4				1,952.4
Asia Pacific Fiber Cement			292.1				301.4				390.6				398.2				390.8				368.3				376.9
Average sales price per unit (per thousand square feet)
USA and Europe Fiber Cement			638				608				609				600				583				555				499
Asia Pacific Fiber Cement (A$)			897				877				879				862				842				872				846
Consolidated Balance Sheet Data:
Net current assets			64.1				60.2				149.7				183.7				259.0				150.8				180.2
Total assets			2,130.9				1,827.0				1,898.7				2,179.9				2,128.1				1,445.4				1,088.9
Total debt			192.0				298.2				324.0				264.5				188.0				302.7				159.3
Common stock			221.0				219.7				219.2				219.7				251.8				253.2				245.8
Shareholders’ (deficit) equity			(131.1	)			(37.5	)			(108.7	)			(202.6	)			258.7				94.9				624.7

(1)		Book value per share is calculated by dividing total shareholders’ (deficit)/equity by common stock issued at December 31, 2009 and 2008 and at March 31, 2009, 2008, 2007, 2006 and 2005, respectively.

		Nine Months Ended
		December 31								Fiscal Year Ended March 31,
		2009				2008				2009				2008				2007				2006				2005
		(Unaudited)
		In million US$
Net cash provided by (used in) operating activities			198.6				25.3				(45.2	)			319.3				(67.1	)			238.4				219.4
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities			(296.5	)			172.8				(3.5	)			(318.9	)			4.5				(789.1	)			(60.8	)
Change in operating assets and liabilities, net			15.3				67.8				185.0				(72.0	)			214.3				44.0				(31.7	)
Net (loss) income			(82.6	)			265.9				136.3				(71.6	)			151.7				(506.7	)			126.9
Loss from discontinued operations			—				—				—				—				—				—				1.0
Cumulative effect of change in accounting principle			—				—				—				—				(0.9	)			—				—
Income tax expense (benefit)			53.9				66.2				19.5				36.1				(243.9	)			71.6				61.9
Interest expense			4.8				7.4				11.2				11.1				12.0				7.2				7.3
Interest income			(2.9	)			(5.5	)			(8.2	)			(12.2	)			(5.5	)			(7.0	)			(2.2	)
Other (income) expense			(6.0	)			—				14.8				—				—				—				1.3
Depreciation and amortization			45.6				41.6				56.4				56.5				50.7				45.3				36.3
Adjusted EBITDA			12.8				375.6				230.0				19.9				(35.9	)			(389.6	)			232.5

 

MARKET PRICE INFORMATION

	•	CUFS trade on the ASX; and
	•	ADSs trade on the NYSE,

	•	as reported on ASX for CUFS; and
	•	as reported on the NYSE for ADSs.

	•	the last full trading day on ASX and the NYSE prior to the public announcement of the Proposal; and
	•	the most recent practicable trading date prior to the date of this Explanatory Memorandum.

		James Hardie
		CUFS (A$)				ADSs (US$)
June 22, 2009		$	4.20			$	16.18
March 16, 2010		$	7.41			$	34.20

 

Our most recent Annual Report on Form 20-F, which is incorporated by reference into this Explanatory Memorandum, describes a variety of risks relevant to our business and financial condition, which you are urged to read in full. The following discussion concerns key risk factors relating specifically to the Proposal.

 

Irish SE will be exposed to the risk of future adverse changes in Irish and US law, as well as changes in tax rates, which could materially adversely affect us, including by reducing or eliminating the anticipated benefits of the Proposal.

 

Upon implementation of Stage 2 of the Proposal, Irish SE will be subject to Irish law. As a result, Irish SE would be subject to the risk of future adverse changes in Irish law (including Irish company and tax law). In addition, the tax rates for which we expect Irish SE and its subsidiaries to be eligible on our transformation may be increased in the future.

 

Irish SE also will be subject to the risk of future adverse changes to US law, as well as changes of law in other countries in which Irish SE or its subsidiaries operate.

 

For example, the US Congress may take legislative action that could override tax treaties upon which we rely or could subject Irish SE or Dutch SE to US tax. A number of legislative proposals in recent years have sought to deny benefits or impose penalties on companies domiciled outside of the US that conduct substantial business in the US or whose executives with decision-making responsibility are located primarily in the US. We cannot predict the outcome of any specific legislative proposal.

 

Our effective tax rate may be higher in future years whether or not we implement the Proposal.

 

James Hardie’s effective tax rate for the year ended March 31, 2009 was the result of tax expense incurred in a number of jurisdictions, principally the US, Australia, New Zealand, the Philippines and The Netherlands. The primary drivers of James Hardie’s effective tax rate are the tax rates of the jurisdictions in which we operate, the level and geographic mix of pre-tax earnings, intra-group royalties, interest rates and the level of debt which give rise to interest expense on external debt and intra-group debt, the benefits derived from the Financial Risk Reserve regime in The Netherlands while we are subject to such regime, extraordinary and non-core items, and the value of adjustments for timing differences and permanent differences, including the non-deductibility of certain expenses, all of which are subject to change and which could result in a material increase in our effective tax rate.

 

Other than the Financial Risk Reserve regime, these factors will continue to drive James Hardie’s effective tax rate. Whether James Hardie implements the Proposal or remains in The Netherlands, we cannot provide any assurance as to what our effective tax rate will be in the future.

 

Revenue rulings received from Irish and Dutch Revenue authorities are based upon facts that may not be met in the future, in which case there is a risk that the conclusions reached in the rulings will not apply to us, including that Irish SE will not be treated as an Irish tax resident for purposes of the US/Ireland Treaty and The Netherlands/Ireland Treaty.

 

In connection with the Proposal, we requested and received certain revenue rulings from Irish and Dutch Revenue authorities, which are described in further detail in this Explanatory Memorandum (see “Revenue Rulings” in Section 5). Revenue rulings represent advice received from taxing authorities as to the tax consequences of particular circumstances or a transaction and are based upon the specific facts presented to the taxing authority in the ruling request. In the case of the Irish Revenue authorities’ rulings, the Irish Revenue authorities have the ability to review their advice when a transaction is complete and all the facts are known.

 

One of the rulings received from the Irish Revenue authorities confirms, among other things, that so long as Irish SE is centrally managed and controlled in Ireland, it will be a tax resident of Ireland once Stage 2 of the Proposal has been approved and implemented. The ruling received from the Dutch Revenue authorities confirms, among other things, that if the Proposal is implemented, Irish SE will be no longer subject to Dutch corporate income tax (except on Dutch source income) nor Dutch dividend withholding tax as long as Irish SE remains an Irish tax resident for purposes of The Netherlands/Ireland Treaty. Two of the Irish Revenue authorities’ other rulings

relate to the tax status in Ireland of two of our subsidiaries to which our intellectual property and our treasury and finance operations have been transferred in connection with the Proposal.

 

The issue as to whether a company is centrally managed and controlled in Ireland is a question of fact directed at the highest level of control of a company’s business, as distinct from day-to-day control to carry out normal business operations. Irish SE intends to establish that it is centrally managed and controlled in Ireland by, among other things, holding a majority of its board meetings in any one year in Ireland with participation of a majority of its directors in Ireland: the board deciding on corporate strategy, such as decisions relating to significant transactions and investments, capital expenditures, equity and debt raising and dividend payments in Ireland: and maintaining its head office function in Ireland. One of the rulings from the Irish Revenue authorities confirms that if Irish SE operates in this manner, Irish SE will be deemed a tax resident of Ireland.

 

If Irish SE fails to satisfy the requirement that it be centrally managed and controlled in Ireland because it fails to operate in the manner set out in the ruling from the Irish Revenue authorities or otherwise, it may not qualify as an Irish tax resident for the purposes of the US/Ireland Treaty and The Netherlands/Ireland Treaty. If this occurred, Irish SE would not receive some or all of the anticipated benefits under the Proposal. In such circumstances, Irish SE also could be subject to tax in another jurisdiction, including The Netherlands. Irish SE or its subsidiaries may also in the future fail to operate in a manner consistent with other facts upon which our rulings are based. In such event, the conclusions reached in the revenue rulings would no longer apply and we may not receive some or all of the anticipated benefits of the Proposal. See “Revenue Rulings” in Section 5.

 

The US/Ireland Treaty may be amended in the future and there is a risk that Irish SE would be unable or unwilling to make changes required to qualify for treaty benefits.

 

While the US/Ireland Treaty contains an article regarding limitations on benefits (which requires the relevant person claiming relief to be an Irish resident who meets one or more requirements set out in the treaty), the limitations of benefits article in the US/Ireland Treaty does not presently contain an equivalent to the substantial presence requirement included in the US/Netherlands Treaty. See “The US/Netherlands Treaty” and “The US IRS 30-Day Letter” in Sections 2.2.2 and 2.2.3, respectively, for a further description of “substantial presence,” as that term is used in the context of the US/Netherlands Treaty.

 

However, the US/Ireland Treaty may be amended in the future in a manner that would adversely affect Irish SE or its ability to qualify for benefits under the US/Ireland Treaty, including in a manner that would result in Irish SE and its subsidiaries not receiving some or all of the anticipated benefits of the Proposal. A risk of such an amendment to the US/Ireland Treaty arises from, among other things, the fact that the US Model Income Tax Convention of November 15, 2006, which generally serves as a basis for US tax treaty negotiations, contains an equivalent of the substantial presence requirement included in the US/Netherlands treaty.

 

In the event the US/Ireland Treaty were amended in a manner that would adversely affect Irish SE or its ability to qualify for benefits under the US/Ireland Treaty, including in a manner that would result in Irish SE and its subsidiaries not receiving some or all of the anticipated benefits of the Proposal, Irish SE would need to consider its available alternatives at that time.

 

There is a risk that the US IRS will react adversely as a result of our decision to pursue the Proposal.

 

Although we do not believe our decision to pursue the Proposal should increase the likelihood that the US IRS will seek to examine any tax years or portions thereof not examined prior to the move to Ireland, we cannot predict how the US IRS will react to our decision to pursue the Proposal. There can be no assurance that, as a result of the Proposal, the US IRS will not seek to examine other tax years or portions thereof. In addition, the US IRS could seek to challenge our move to Ireland and our ability to receive benefits under the US/Ireland Treaty. However, because we expect Irish SE will be able to satisfy the requirements of the US/Ireland Treaty, we believe Irish SE will be eligible to receive the benefits under the US/Ireland Treaty.

Certain of the actual tax consequences of the Proposal to Australian tax resident shareholders may differ from those described in this Explanatory Memorandum.

 

In connection with the Proposal, we have received a final class ruling from the Australian Taxation Office that no capital gain or capital loss will arise under the Australian capital gains tax provisions for Australian tax resident shareholders who hold their shares or CUFS on capital account as a result of the Proposal.

 

We also have received an opinion from PricewaterhouseCoopers LLP, our Australian tax advisor, relating to other tax consequences to Australian shareholders that hold their shares or CUFS on capital account. However, this opinion is subject to a degree of uncertainty because there can be no assurance that the Australian Taxation Office would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described in Sections 8.1.1, 8.1.2.3, 8.1.2.4 and 8.1.2.5. As a result, there is a risk that the actual tax consequences to Australian shareholders with respect to the matters described in these sections could be different than those described in the sections and any such differences could be adverse to Australian shareholders.

 

The rights of shareholders after our transformation to Irish SE will not be the same as at present.

 

More significant changes to the rights of shareholders will occur upon implementation of Stage 2 of the Proposal as compared to Stage 1. Irish SE will be a company registered under the laws of Ireland and the rights of holders of Irish SE securities will be governed by Irish company law, the SE Regulation and the memorandum and articles of association of Irish SE. Due to the differences between Dutch and Irish laws and the differences between our constituent documents both before and after implementing Stage 2 of the Proposal, your rights as a shareholder will change.

 

By way of example, as a result of the Proposal, the present takeover regime under our articles of association will no longer apply and Irish SE instead will be subject to the Irish takeover rules and the regulation of the Irish Takeover Panel.

 

For more information regarding these differences and the changes in the rights for shareholders see “Summary of Key Corporate Law Differences Between JHI SE and Irish SE” in Section 4.4.

 

In connection with the implementation of Stage 1, we and certain of our subsidiaries were required to negotiate the terms of future employee involvement in JHI SE and certain of its subsidiaries with SNBs representing employees from EEA member states in which James Hardie operates. These negotiations resulted in an agreement that requires us, among other things, to provide information to employees annually and upon certain other events and for us to consult with employees on these matters.

 

Under the SE Regulation and other relevant legislation, formation of an SE through merger requires the companies involved in the merger to enter into negotiations with a special negotiating body (which we refer to as the SNB), made up of employee representatives in EEA member states to come to an arrangement on future employee involvement in the SE. As part of the process, we and certain of our subsidiaries provided our European employees with the opportunity to nominate and elect employees to be part of the SNB. As a result of the SNB process, we and certain of our subsidiaries have entered into an agreement on the involvement of employees materially in accordance with the Standard Rules (which we define in Section 3.9) governing the provision of information to and consultation with our European employees. The agreement generally provides that the management of JHI SE and certain of our subsidiaries will provide information to our European employees regarding Material Matters (which we describe in further detail in Section 3.9) both annually and as such matters may arise. The agreement also provides that we will, subject to certain conditions, provide additional information and engage in a dialogue and exchange of views with those European employees who express an interest in these communications in a manner and with a content that allows those employees to express an opinion on the Material Matters in such a way that their opinion may be taken into account in our decision-making process. We also have agreed that we will convene a meeting with non-EEA member state employees to discuss information related to Material Matters.

 

As contemplated by the agreement, we provided notice to, and will consult with, our European employees regarding the migration of our corporate seat from The Netherlands to Ireland.

While we do not expect that the entry into the employee involvement agreement will result in a material change to our governance or the way James Hardie runs its business, we have not operated under this type of agreement before and there can be no assurance that it will not affect our governance or decision making process.

 

For more information about the agreement on the involvement of employees, see “Agreement on the Involvement of Employees” in Section 3.9.

 

Changes in our board structure and the composition of our board of directors may lead to a loss of continuity of directors and adversely affect our decision-making and governance.

 

In connection with the implementation of Stage 2 of the Proposal, our Supervisory and Managing Boards will be replaced with a single board of Irish SE, which, over time, is expected to consist of eight non-executive directors and one executive director. All of your seven directors currently serving on the Supervisory Board will continue as non-executive directors of Irish SE, with one new director expected to be added to the board of Irish SE over time. Our Supervisory Board includes one director that was appointed following shareholder approval of Stage 1.

 

Only one of the existing seven directors on our Supervisory Board who will continue as a director of Irish SE has served more than four years. The balance of the Irish SE board, other than our CEO, will be made up of directors with less than four years experience with James Hardie. The changes to our board structure and composition as a result of the implementation of the Proposal could for a period of time impact the effectiveness of your directors and of board-level decision-making at Irish SE.

 

For more information about our board structure and the composition of our boards, see “Corporate Governance” in Section 4.3.

 

The actual benefits that we realise from the Proposal could be materially different from our current expectations.

 

The Proposal is designed to enable us to reorganise James Hardie in a manner that would, among other things, allow key senior managers with global responsibilities to be free to spend more time with management at our local operations and in our markets and provide more certainty to James Hardie regarding its future tax obligations. In addition, the Proposal is partly driven by the desire to increase our future flexibility by becoming subject to Irish company law. However, there can be no assurance that the ability of our key senior managers with global responsibilities to spend more time with local operations and in our markets will result in an improvement to our results of operations, that the tax laws expected to apply to Irish SE’s operations will not adversely change in the future, that Irish company law will not become more restrictive or otherwise disadvantageous or that changes to our governance structure and board composition will not adversely affect us. A variety of other factors that are partially or entirely beyond our control could cause the actual benefits that we realise from the Proposal to be materially different from what we currently expect.

 

Our business may be adversely affected as a result of adverse action against us and negative publicity resulting from our announcement and implementation of the Proposal, including the reduction of amounts available for contributions under the AFFA resulting from the costs associated with the Proposal and the possibility of the AICF later not having sufficient funding to meet future obligations.

 

There is a possibility that, despite certain covenants agreed to by the New South Wales Government in the AFFA and the standby loan arrangements, adverse action could be directed against us by one or more of the New South Wales Government, the Government of the Commonwealth of Australia (which we refer to as the Australian Commonwealth Government), governments of the other states or territories of Australia or any other governments, unions or union representative groups, or asbestos disease groups in relation to the asbestos liabilities in respect of which the AICF has been established. Such action might arise as a result of the costs of the Proposal reducing the amounts available for contribution under the AFFA in the financial year following implementation of the Proposal, particularly if the AICF does not have sufficient funding in future years to meet obligations to claimants or requires additional loans to meet obligations to claimants. This risk is compounded by other factors adversely affecting our net operating cash flow, such as the difficult trading conditions we currently face in our key

markets and the payments we have made, and may make in the future, to taxation authorities in respect of prior taxation years.

 

The Proposal also could result in increased negative publicity related to James Hardie. There continues to be negative publicity regarding, and criticism of, companies that conduct substantial business in the US but are domiciled in countries like Bermuda. We cannot assure you that we will not be subject to similar criticism based on the Proposal. We previously have been the subject of significant negative publicity in connection with the events that were considered by the Special Commission of Inquiry and the Australian Securities & Investments Commission proceedings in Australia.

 

We believe that any such adverse action or negative publicity could materially adversely affect our financial position, liquidity, results of operations and cash flows, employee morale and the market prices of our publicly traded securities.

 

We may be unable to obtain the regulatory and other approvals required to implement the Proposal or the Proposal may be challenged by governmental entities or third parties.

 

Implementing Stage 2 of the Proposal requires the expiry of a two-month period after publication of the transfer proposal relating to Stage 2 (which will expire on May 3, 2010) without opposition from either (1) the company’s creditors to the change of corporate domicile to Ireland and the satisfactory resolution of any creditor objections, (2) the Dutch Ministry of Justice based on grounds of public interest or (3) the Dutch Authority for the Financial Markets (Stichting Autoriteit Financiële Markten) (which we refer to as the AFM). In addition, a Dutch civil law notary must issue a certificate attesting to the completion of the acts and formalities required to be accomplished before the move to Ireland and the certificate must be submitted to the Companies Registration Office of Ireland, together with appropriate filing documentation.

 

With respect to Dutch regulatory approvals required for Stage 2 of the Proposal, upon the advice of the Dutch civil law notary, we are seeking a statement of no objection from the Dutch Ministry of Finance in connection with the implementation of Stage 2, which we also sought and received in connection with Stage 1. In the event that the statement of no objection is not received from the Dutch Ministry of Finance, we may be delayed or prevented from implementing Stage 2 of the Proposal as described in this Explanatory Memorandum.

 

In addition, relevant state or foreign governmental authorities could revoke, fail to provide or challenge or seek to block Stage 2 of the Proposal, as such authority deems necessary or desirable in the public interest. Moreover, in some jurisdictions, a third party could initiate a private action challenging or seeking to enjoin Stage 2 of the Proposal, before or after it is implemented. We cannot be sure that a challenge to Stage 2 of the Proposal will not be made or that, if a challenge is made, our position will prevail. For a full description of the regulatory approvals required for Stage 2 of the Proposal, see “Key Steps in Connection with the Proposal” in Section 1.2.

 

Any delay in implementing the Proposal may significantly reduce the benefits expected to be obtained from the Proposal.

 

In addition to the required shareholder approval, consummation of Stage 2 of the Proposal is subject to several other conditions, some of which may prevent, delay or otherwise materially adversely affect its implementation. Although we expect that these conditions will be satisfied in a timely fashion, we cannot predict whether and when these other conditions will be satisfied. Any delay in implementing Stage 2 of the Proposal may significantly reduce some or all of the expected benefits from the Proposal and/or result in material increases to the estimated transaction and implementation costs.

 

Stage 2 of the Proposal may not proceed, in which event we will not receive the anticipated benefits from the Proposal.

 

If Stage 2 of the Proposal does not proceed, we will continue as a European Company with our corporate domicile in The Netherlands, with capacity to move our corporate domicile in the future to any other EU member state (that has implemented the SE Regulation) if shareholders approve such a move.

If Stage 2 is not implemented, none of the favourable aspects of Stage 2 of the Proposal will be obtained and the risks and adverse consequences for our staying in The Netherlands will continue to apply, including the requirement for our key senior managers with global responsibilities to spend a significant amount of their time in The Netherlands and the uncertainty regarding our tax obligations as a result of the US IRS interpretation of the application of the US/Netherlands Treaty to James Hardie. In such event, we will remain a Dutch SE and remain exposed to the risk of future adverse changes in Dutch law and we will have incurred significant transaction and implementation costs, as well as the diversion of management resources.

 

More information regarding the costs associated with the Proposal and the costs associated with the transfer of our intellectual property and treasury and finance operations is described under the heading “Financial and Accounting Impact” in Section 1.3.

 

Implementing the Proposal and relocating our corporate headquarters from The Netherlands to Ireland might be disruptive.

 

Implementing the Proposal could divert our management resources from other transactions or activities that we may otherwise desire to undertake. Diversion of management attention from such activities could adversely affect our ongoing operations and business relationships. These diversions may prevent us from pursuing attractive business opportunities that may arise prior to implementing the Proposal.

 

In addition, relocating our head office from The Netherlands to Ireland upon implementation of Stage 2 of the Proposal could result in the loss of personnel. Terminating or replacing these people could be costly and have a negative impact on the continuity and progress of our business, including our operating results.

 

In December 2009, we refinanced US$130 million in facilities, which previously had maturity dates in or prior to June 2010. The maturity date of these new facilities is in December 2012.

 

As previously announced, Stage 2 is the second step in the Proposal to effect our transformation from a public limited liability corporation registered in The Netherlands (Naamloze Vennootschap (NV)) to a European Company (Societas Europaea (SE)) with our corporate domicile in Ireland.

 

Pursuant to Stage 1, we completed our transformation to a European Company (Societas Europaea (SE)) with our corporate domicile in The Netherlands. In connection with Stage 2, our registered office and head office will move from The Netherlands to Ireland and we will become Irish SE.

 

In connection with the implementation of Stage 1 of the Proposal, in October 2009, following shareholder approval of Stage 1, we transferred our intellectual property to a Bermudan subsidiary with its tax residence in Ireland and transferred our treasury and finance operations to an Irish subsidiary. The transfer of our treasury and finance operations from The Netherlands resulted in the early termination of our participation in the Financial Risk Reserve regime in The Netherlands and required the payment of all Dutch tax due on the balance remaining in our Financial Risk Reserve account at that time, including tax due on the transfer of our intellectual property from The Netherlands.

 

See “Financial and Accounting Impact” in Section 1.3 for further information regarding costs associated with the Proposal and the Dutch tax we incurred in connection with the transfer of our intellectual property and our treasury and finance operations.

 

1.2.1.  Stage 2

 

Our directors have approved Stage 2. The key remaining steps that must be satisfied to implement Stage 2 of the Proposal are:

 

 

With respect to Dutch regulatory approvals required for Stage 2 of the Proposal, upon the advice of the Dutch civil law notary, we are seeking a statement of no objection from the Dutch Ministry of Finance in connection with the implementation of Stage 2, which we also sought and received in connection with Stage 1. With respect to Dutch regulatory approvals required for Stage 2 of the Proposal, upon the advice of the Dutch civil law notary, we are seeking a statement of no objection from the Dutch Ministry of Finance in connection with the implementation of Stage 2, which we also sought and received in connection with Stage 1. In the event that the statement of no objection is not received from the Dutch Ministry of Finance, we may be delayed or prevented from implementing Stage 2 of the Proposal as described in this Explanatory Memorandum.

 

The significant financial and accounting impacts from the implementation of the Proposal and the transfer of our intellectual property and treasury and finance operations in connection with the Proposal are described below.

 

Transaction and implementation costs in connection with the Proposal and the transfer of our intellectual property and treasury and finance operations currently are calculated to be approximately US$63 million. This includes approximately US$20 million in advisory fees and other expenses incurred in connection with the implementation of Stage 1, and approximately US$41 million in Dutch taxes as a result of a capital gain on the transfer of our intellectual property and treasury and finance operations out of the Financial Risk Reserve regime in The Netherlands and the termination of that regime. The remaining estimated costs of approximately US$2 million consist primarily of advisory fees and other expenses expected to be incurred in connection with the implementation of Stage 2, including costs related to the establishment of a new head office in Ireland.

 

Primarily due to our utilization of Dutch net operating losses incurred during our financial year ending March 31, 2010, we expect the total cash costs of the Proposal to be approximately US$53 million. Of this approximately US$53 million cash cost, approximately US$10 million was paid in our financial year ending March 31, 2009, approximately US$21 million is expected to be paid in our financial year ending March 31, 2010 and the balance of approximately US$22 million is expected to be paid in our financial year ending March 31, 2011.

 

The Dutch tax charge of approximately US$41 million will be capitalized as a non-current asset and is being amortized to tax expense on the straight-line method over the life of the transferred assets of approximately 15 years.

 

Our calculation of the Dutch tax due is based on our correspondence with the Dutch Tax Authority on the Dutch tax consequences of the transfer of our intellectual property and treasury and finance operations from The Netherlands. Once the Company receives tax assessments from the Dutch Tax Authority for our financial years ending March 31, 2010 and March 31, 2011, we will be in a position to complete the calculation of the transaction and implementation costs. Until then, the total costs of the Proposal may differ from our calculation and the amount of that difference could be material.

 

Our consolidated annual accounts will continue to be prepared under US GAAP. Commencing with the first financial year end after Stage 2 is completed (i.e., year ended March 31, 2011 if Stage 2 is implemented prior to April 1, 2011) in order to comply with Irish law, we also will prepare consolidated annual accounts under “modified” US GAAP, which is US GAAP to the extent that it is not inconsistent with Irish company law. The annual entity accounts of Irish SE will be prepared under Irish GAAP.

 

In connection with our 2001 reorganisation (See “The 2001 and 2003 Reorganisations” in Section 2.1), a negative merger revaluation reserve was recorded in the company’s financial statements in order to maintain the historical cost bases of our consolidated net assets from directly before the 2001 reorganisation. Under Dutch and Irish company law, the merger revaluation reserve is included in the calculation of amounts available for distribution to shareholders by way of dividend or repurchase of shares. In The Netherlands, the share premium reserve also is included in such calculation. In Ireland, share premium reserve is not included in such calculation, which would result in a material reduction in the amount available for distribution to shareholders following our transformation to Irish SE in Stage 2.

 

As part of shareholder approval for Stage 2, you are being asked to approve the abolishment of the merger revaluation reserve and set off the amount at the expense of share premium and retained earnings. After implementation of Stage 2, our ability to pay dividends and repurchase shares will be subject to Irish company law and will be determined based on our profits calculated under Irish GAAP. However, if this reclassification is approved in connection with Stage 2, we do not believe these changes will have a material impact on our ability to pay dividends or repurchase shares.

 

Shareholders will continue to hold the same number of CUFS or ADSs in Irish SE if Stage 2 is approved and implemented as they held beforehand. No action is required of shareholders in respect of their certificates or holding

statements in connection with the Proposal. If the Proposal is approved and implemented, shareholders’ current certificates or holding statements for our securities will remain effective and continue to represent their holdings in Irish SE until new holding statements are issued in the ordinary course as a result of future changes in security holdings.

 

Stage 2 of the Proposal requires the approval of 662/3% of shareholder votes cast at a properly held meeting at which at least 5% of our issued share capital is present or represented.

 

This section summarises the key background events leading to your directors’ recommendation of the Proposal and connected transactions.

 

In July 2001, we announced plans to establish a new corporate structure designed to place us and our shareholders in a position to maximise value from our existing operations and continuing international growth. The restructure resulted in the incorporation of our parent company in The Netherlands with a primary listing on the ASX in the form of CUFS and the listing of ADSs on the NYSE.

 

In 2003, we transferred ownership of certain intellectual property assets to The Netherlands to better manage our intellectual property assets by centralising the investment, holding and use of the intellectual property.

 

 

In June 2009, we announced the Proposal and our plans to transform from a public limited liability corporation registered in The Netherlands (Naamloze Vennootschap (NV)) to a European Company (Societas Europaea (SE)) with our corporate domicile in Ireland.

 

In February 2010, following shareholder approval, we implemented Stage 1 of the Proposal. As set out in the Stage 1 explanatory memorandum, prior to this, in October 2009 we transferred our intellectual property to a Bermudan subsidiary with its tax residence in Ireland and transferred our treasury and finance operations to an Irish subsidiary that is tax resident in Ireland.

 

2.2.1.  The Netherlands Financial Risk Reserve Regime

 

Prior to the transfer of our intellectual property and treasury and finance operations from The Netherlands, we derived commercial and tax benefits from the group finance operations of our Netherlands-based finance subsidiary through rulings from the Dutch Revenue authorities allowing that subsidiary to set aside certain amounts in a Financial Risk Reserve account subject to the Financial Risk Reserve regime. The Financial Risk Reserve Regime adopted by the tax authorities in The Netherlands permitted us to be taxed at a rate lower than the statutory rate of Dutch corporate tax for a percentage of qualifying financing income, the gain from the disposal of intellectual property and qualifying equity contributions used to finance capital and certain other expenditures. The favourable tax benefits provided under the Financial Risk Reserve regime are due to expire on December 31, 2010.

 

On September 15, 2009, the Dutch government announced a tax bill proposing the liberalization of the patent box regime, which was proposed to be re-named the innovation box as part of the 2010 budget. The patent box was first introduced in January 2008 as a special regime for income derived from certain self-developed intangibles. Under this regime, if a company had internally developed an intangible asset for which a patent had been granted, or from 2008 onward, for which a special research and development certificate had been issued by a Dutch government agency, the company could elect to apply the patent box regime for income received from that qualifying intangible asset and that income would then be taxable at an effective tax rate of 10%, subject to certain conditions and limitations. In its 2010 Budget, the Dutch government announced that the effective tax rate for the innovation box would be lowered to 5% from January 1, 2010 onward. In addition, under the proposal different limits for patented and un-patented (research and development certificated) assets would be removed, resulting in a wider scope of the innovation box regime. This proposal was enacted in December 2009 and has entered into force as from January 1, 2010. It appears that because our research and development is carried out by the contract research and development centers operated by us in the US and Australia, we would not have qualified for the innovation box so that the current statutory rate of 25.5% would have applied to royalty and finance income received after our exit from the FRR regime if our intellectual property and loan portfolio had remained in The Netherlands.

 

More importantly, this legislative change did not address permitting our senior managers with global responsibilities to spend more time with James Hardie’s operations and in its markets, providing greater certainty for James Hardie to obtain benefits under the US/Netherlands treaty or increasing our flexibility to undertake

certain transactions in the future. This legislative change also did not address the issue that any future transfer of our intellectual property from The Netherlands or a future restructuring or other transaction that resulted in such a transfer would likely result in more Dutch tax cost than the recently completed transfer.

 

We previously had considered remaining domiciled in The Netherlands and moving only our intellectual property and loan portfolio to another jurisdiction in the EU. While this strategy could have addressed the issue of the expiration of the Financial Risk Reserve regime in 2010 and, accordingly, the expiration of the favourable treatment of group royalty and finance income, it would not have addressed other issues, including allowing key senior managers with global responsibility to spend more time with James Hardie’s operations and in its markets, providing greater certainty for us to obtain benefits under the US/Ireland Treaty than under the US/Netherlands Treaty and increasing James Hardie’s flexibility in the future to undertake certain transactions, which directors believe expands our strategic options.

 

2.2.2.  The US/Netherlands Treaty

 

As a tax resident of The Netherlands, we have received and, as long as we are registered in The Netherlands, we believe are entitled to receive substantial tax benefits under the US/Netherlands Treaty, which we believe provides for no US withholding tax on dividends, interest and royalties paid by our US subsidiaries to us or our subsidiaries, subject to certain conditions being met, in The Netherlands.

 

2.2.3.  The US IRS 30-Day Letter

 

In July 2008, the US IRS concluded an audit to determine whether we satisfy the requirements under the amended US/Netherlands Treaty. As part of this audit process, the US IRS issued a 30-Day Letter in which it asserted that we and our subsidiaries in The Netherlands did not qualify for benefits under the amended US/Netherlands Treaty during 2006 and 2007.

 

We strongly disagreed with the assertions made by the US IRS, and contested the US IRS’s findings by filing a formal protest to the 30-Day Letter through the administrative appeals process. Following a conference with the Appeals Division of the US IRS and further discussions, we announced on April 15, 2009 that the US IRS has signed a settlement agreement with the company’s subsidiaries in which the US IRS conceded the US government’s position in full. As a result, the US IRS has now concluded that we and our subsidiaries did qualify for prior benefits under the amended US/Netherlands Treaty during 2006 and 2007.

 

We believe that we and our Dutch subsidiaries have qualified and continue to qualify for treaty benefits under the amended US/Netherlands Treaty. While we ultimately prevailed in the dispute with the US IRS for the years 2006 and 2007, the US IRS could reassert its position in respect of subsequent tax periods and, accordingly, your directors consider it prudent to mitigate the risk of further disputes with the US IRS. If the US IRS were to reassert its position in respect of subsequent tax periods and the Proposal is not implemented, we may be unable to receive tax benefits under the US/Netherlands Treaty, in which case we could be liable for 30% withholding tax on dividend, interest and royalty payments in periods ending after 2007 and, again, interest charges and penalties could apply. While the Proposal will not impact the risk of withholding taxes being imposed on payments made to us or our subsidiaries in The Netherlands during 2008 and 2009, if we remain domiciled in The Netherlands, the amount of withholding tax that could be in dispute with the US IRS is estimated to be approximately US$30 million for 2010 and is expected to increase thereafter.

 

2.3.1.  Our Business

 

Through our network of subsidiaries, we manufacture building materials in the US, Australia, New Zealand and the Philippines. In our financial year ending March 31, 2009, we generated net sales in excess of US$1.4 billion. The majority of our building materials manufacturing capacity (86%) was located in the US and the US market also accounted for almost 80% of net sales to customers. As of February 28, 2010, we employed 2,398 people worldwide, the majority of whom (1,580) were located in the US.

Our business in the US has been adversely affected by the decline in the US housing market and the turmoil within financial and mortgage lending institutions. These challenges make it even more difficult to maintain significant management presence in The Netherlands, away from our major operations, while continuing to comply with the “substantial presence” test under the amended US/Netherlands Treaty.

 

2.3.2.  Our Residency Requirements

 

To satisfy the requirements of the amended US/Netherlands Treaty, we moved our Chief Executive Officer, Chief Financial Officer and General Counsel as well as our head office to The Netherlands. In addition:

 

 

Even if increasing our management presence in The Netherlands were a viable practical and commercial option, the continued uncertainty surrounding the annual application of the amended US/Netherlands Treaty presents an unacceptable risk for us as the US IRS could, notwithstanding its concession that we and our subsidiaries qualified for benefits during 2006 and 2007, take the position at any time that the primary place of management and control requirements are not met in subsequent tax years. Failure to meet the requirements in the amended US/Netherlands Treaty would have serious ramifications for our shareholders given the large amounts of withholding tax, plus interest and penalties, in respect of future payments of interest, royalties and dividends out of the US that would be incurred.

 

Resolution of any disputes through litigation could take several years, would involve distraction of our management and may not be resolved in our favour. Your directors consider that the ongoing US IRS risk outweighs the potential risks and disadvantages associated with the Proposal.

 

In any event, given the current economic environment, your directors do not believe that continuing to base key senior management with global responsibilities in The Netherlands, away from most of our operations and markets, is in the best interests of James Hardie and its shareholders.

 

At present, Dutch company law offers limited flexibility and requires a higher threshold for shareholder acceptance in order to complete a number of transactions that would require a lower threshold for shareholder acceptance in other jurisdictions. This makes reorganising James Hardie, and undertaking transactions that your directors might consider in the future, difficult to implement.

 

By way of example, Dutch company law:

 

 

The two step implementation of the Proposal, by which we transformed to Dutch SE in Stage 1 and intend to transform to Irish SE in Stage 2, is a way to achieve this reorganisation within the limits of Dutch company law. Upon the implementation of Stage 2, we will cease to be subject to Dutch company law and instead (as Irish SE) will become subject to Irish law in addition to the SE Regulation. A summary of the key differences between Dutch and Irish law is described under the heading “Summary of Key Corporate Law Differences Between JHI SE and Irish SE” in Section 4.4.

 

By way of contrast, Irish company law offers greater flexibility and provides for more achievable shareholder acceptance thresholds for certain key types of transactions. As a result, future reorganisations of Irish SE and other types of transactions that the Irish SE board may wish to undertake would be greatly simplified.

 

By way of example, Irish company law:

 

 

The Proposal provides the following key benefits:

 

 

Firstly, the amended US/Netherlands Treaty’s primary place of management and control test requires key senior management with global responsibilities to spend considerable time in The Netherlands beyond a level required to effectively manage James Hardie’s global operations as described under the heading “Our Business and Residency Requirements” in Section 2.3. The Proposal to move our corporate domicile to Ireland would permit our key senior management with global responsibilities to be free to spend more time with our operations and in our markets.

 

Secondly, the Proposal addresses the issues previously raised by the US IRS as to whether we qualify for treaty benefits under the amended US/Netherlands Treaty, because the US/Ireland Treaty does not contain the same primary place of management and control test. As a result, the requirements for treaty benefits under the US/Ireland Treaty are less subjective, clearer and more settled. Those requirements include that Irish SE be a tax resident of Ireland and that the principal class of its shares satisfies certain minimum trading requirements on one or more recognised stock exchanges (which include both the ASX and the NYSE). In light of the ruling we received from the Irish Revenue authorities relating to Irish SE qualifying as a tax resident of Ireland (see “Irish Ruling Requests” in Section 5.2) and our assessment that we believe we will be able to operate in the manner set out in the rulings to qualify as an Irish tax resident and that Irish SE securities will continue to be quoted for trading, and, we expect, will continue to meet the trading requirements on both the ASX and the NYSE, we believe that Irish SE will satisfy the requirements for treaty benefits. We also believe that the objective nature of such requirements reduces the likelihood of successful challenge to Irish SE’s qualifications under the current US/Ireland Treaty.

 

Thirdly, Irish company law will permit Irish SE to pursue a range of possible future strategic options not available under existing Dutch company law. Among other things, Irish law requires the acquisition of 80% of the issued share capital of Irish SE in order to effect a compulsory acquisition where an offer has been made to acquire the entire issued share capital of Irish SE and provides for the concept of a court-approved scheme of arrangement. The ability under Irish law to effect a compulsory acquisition (at a lower threshold) and implement a court-approved scheme of arrangement could be used to complete a reorganisation or other transaction that the board of Irish SE may wish to consider in the future. Dutch law requires the acquisition of 95% of all of our issued share capital to effect a compulsory acquisition and does not provide for schemes of arrangement. The range of possible future strategic options available as an Irish SE, as compared to those existing under Dutch company law, should allow James Hardie increased flexibility, even in the event the US/Ireland Treaty were to be changed in the future.

 

Fourthly, the Proposal will allow us to simplify our existing governance structure by permitting Irish SE to adopt a single board.

 

Finally, dividends paid by Irish SE to most shareholders (who are resident in Australia or the US) will be eligible to be free from dividend withholding tax if certain exemptions apply and the shareholder has provided the

necessary documentation. (See “Irish SE Shareholders Taxation” in Section 8.4.2.) This compares favourably to the current situation under Dutch law where dividends paid to:

 

 

However, other shareholders who reside in an EU member country other than Ireland or in a country with which Ireland has a double tax treaty and who do not reside in Ireland will be subject to Irish dividend withholding tax at a rate of 20% unless such shareholder completes and sends to Irish SE a non-resident declaration form in order to avoid such tax (see “Irish Tax Consequences of the Proposal — Irish SE Shareholders Taxation” in Section 8.4.2). Depending on the laws of their place of residence, such shareholders might be able to obtain a tax credit for that tax.

 

With these key benefits in mind and the continued uncertainty regarding the application of the US/Netherlands Treaty, your directors previously explored a range of alternative options, and continue to be of the view that the best course of action at this time for James Hardie and its shareholders is to implement Stage 2 of the Proposal, thereby moving our corporate domicile from The Netherlands to Ireland.

 

3.2.1.  AFFA

 

The AFFA was entered into by us, the Asbestos Injuries Compensation Fund Limited (as trustee for the AICF), the New South Wales Government and James Hardie 117 Pty Limited on November 21, 2006 to provide long-term funding to the AICF. This is a special purpose fund established to provide compensation for Australian asbestos-related personal injury and death claims for which certain of our former companies, including Amaca Pty Ltd and Amaba Pty Ltd, are found liable. A copy of the AFFA is available on our website at www.jameshardie.com.

 

On November 7, 2009, the Australian Government announced that it will provide a loan facility of up to A$160 million to the New South Wales Government that will go towards a standby loan facility of up to A$320 million to be made available by the New South Wales Government to the AICF to meet any short-term funding shortfalls. The standby loan facility will be entered into by the New South Wales Government, the AICF and certain of our former companies, Amaca Pty Ltd, Amaba Pty Ltd and ABN 60 Pty Limited.

 

In order to authorise the AICF to enter into the standby loan facility, the New South Wales Government has passed the James Hardie Former Subsidiaries (Winding-Up and Administration) Amendment Act 2009 (assented on December 14, 2009), which authorises and approves the loan facility agreement, associated guarantees and security, and ensures that the AICF has the authority to repay the loan.

 

The provision of the standby loan facility to the AICF will be available for drawing for a period of ten years and does not reduce James Hardie’s obligations under the AFFA. Drawdowns on the facility will be made once per year or more frequently if needed and the former James Hardie companies will provide security over insurance proceeds in favour of the New South Wales Government.

 

The AFFA will continue to operate in accordance with the terms negotiated by all parties and the obligation to pay claimants remains with the AICF, and its primary source of funding is expected to continue to be contributions from James Hardie.

 

3.2.2.  AFFA Deed of Confirmation

 

While we did not consider that notice, consent or approval of the Proposal was required under the AFFA, we advised the New South Wales Government and Asbestos Injuries Compensation Fund Limited on a courtesy basis of the details of the Proposal. We and James Hardie 117 Pty Limited also have entered into the AFFA Deed of Confirmation confirming that the AFFA and the Related Agreements (as defined in the AFFA) to which JHI NV was a party continue in effect now that we are an SE with certain agreed changes to those agreements to reflect the fact that, upon implementation of Stage 2, we will become subject to Irish law.

3.2.3.  Funding Obligations

 

Implementation of the Proposal will not change the overall commitment of James Hardie to make contributions to the AICF under the AFFA.

 

Under the terms of the AFFA, James Hardie 117 Pty Limited has the primary obligation to make the funding contributions to Asbestos Injuries Compensation Fund Limited (as trustee for the AICF) and we have provided the New South Wales Government and Asbestos Injuries Compensation Fund Limited with an unconditional and irrevocable guarantee that the funding contributions will be made in accordance with the terms of the AFFA.

 

Under the AFFA, the AICF is required to be funded on an annual or quarterly basis subject to the application of various provisions under the AFFA, including a cap on annual contributions of up to 35% of our free cash flow in the financial year immediately preceding the payment (which we refer to as the annual free cash flow cap). Free cash flow is defined for this purpose as net cash provided by operating activities calculated in accordance with US GAAP as in force on December 21, 2004. The amount of the contribution required is dependent upon several factors, including actuarial estimations, actual claims paid by and operating expenses of the AICF, and the application of the annual free cash flow cap.

 

The initial funding contribution of A$184.3 million was made to the AICF in February 2007. No contribution was required to be made under the AFFA in our financial year ending March 31, 2008. Further contributions were made on a quarterly basis in July and October 2008 and in January and March 2009, totaling A$118.0 million (inclusive of interest). No contribution was required to be made under the AFFA in our financial year ending March 31, 2010. Based on our results to date in the financial year ending March 31, 2010, we anticipate that a contribution will be made in calendar year 2010.

 

Transaction and implementation costs in connection with the Proposal and the transfer of our intellectual property and treasury and finance operations currently are calculated to be approximately US$63 million. This includes approximately US$20 million in advisory fees and other expenses incurred in connection with the implementation of Stage 1, and approximately US$41 million in Dutch taxes as a result of a capital gain on the transfer of our intellectual property and treasury and finance operations out of the Financial Risk Reserve regime in The Netherlands and the termination of that regime. The remaining estimated costs of approximately US$2 million consist primarily of advisory fees and other expenses expected to be incurred in connection with the implementation of Stage 2, including costs related to the establishment of a new head office in Ireland. Approximately US$10 million of these costs incurred in connection with Stage 1 were paid in the financial year ending March 31, 2009 and had no effect on the amount of the contribution required to be made to the AICF in July 2009 due to our negative free cash flow in the financial year ending March 31, 2009. Approximately US$21 million of these costs incurred in connection with the Proposal are expected to be paid in the financial year ending March 31, 2010 and will reduce our free cash flow for that year, and therefore will reduce the amount of contributions to the AICF in the following year (i.e., the contribution due in July 2010). Any reduction will be a maximum of 35% of the costs paid in the financial year ending March 31, 2010. Based on our current estimate of the aggregate costs, those costs will have a maximum impact on contributions to the AICF of US$7.35 million and may have a lesser impact depending on the level of our free cash flow for the financial year ending March 31, 2010, which will not be known until after the finalisation of our results for the year ending March 31, 2010. Furthermore, if a contribution is due to the AICF during our financial year ending March 31, 2012, which is not yet known, it will be reduced by an amount of up to 35% of the costs associated with the Proposal incurred in our financial year ending March 31, 2011.

 

3.2.4.  Restrictions on Specified Dealing

 

The AFFA provides that we will refrain from undertaking certain transactions (known as Specified Dealings as defined in the AFFA) without obtaining the prior consent of the New South Wales Government. However, a broad range of transactions are exempt from this restriction. Capitalised terms used in this Section 3.2.4 and “Other Matters” in Section 3.2.5 have the same meaning given to them in the AFFA unless defined otherwise in this Explanatory Memorandum. A copy of the AFFA has been filed with the US Securities and Exchange Commission as an exhibit to the registration statement of which this Explanatory Memorandum forms a part. A copy of the AFFA is also available under the Investor Relations area of our website (www.jameshardie.com, select “James Hardie

Investor Relations”) and copies may be obtained on request. See “Where You Can Find Additional Information” in Section 12.

 

The restriction on Specified Dealings has been designed to prevent transactions that would result in us or James Hardie 117 Pty Limited ceasing to be likely to satisfy the funding obligations which would have arisen under the AFFA had the Specified Dealing not occurred.

 

In order for the restriction to apply, the Specified Dealing must:

 

 

such that, in each case, we and James Hardie 117 Pty Limited would, by reason of the relevant Specified Dealing, cease to be likely (assessed on a reasonable basis and having regard to all relevant circumstances) to be able to satisfy the funding and guarantee obligations which would have arisen under the AFFA had the Specified Dealing not occurred.

 

Those restrictions apply to certain dividends and other distributions, reorganisations of, or dealings in, share capital which create or vest rights in such capital in third parties, or non-arm’s length transactions. The AFFA contains certain exemptions from such restrictions and also requires that if we undertake a Specified Dealing that is not exempt, we must provide notice of that dealing to the New South Wales Government within 14 days of the earlier of announcing and undertaking the transaction.

 

We do not consider that the Proposal will constitute a Specified Dealing that is restricted by the AFFA and accordingly the AFFA does not have any impact on the company implementing the Proposal.

 

3.2.5.  Other Matters

 

Under the terms of the AFFA, the funding obligations of James Hardie 117 Pty Limited and our guarantee of James Hardie 117 Pty Limited’s obligations under that agreement are owed only to Asbestos Injuries Compensation Fund Limited as trustee for the AICF, with the New South Wales Government having certain direct enforcement rights.

 

Provided that James Hardie 117 Pty Limited meets its payment obligations under the AFFA and there is no Insolvency Event, Wind-Up Event or Reconstruction Event, neither we nor our subsidiaries will have any additional liability under the AFFA to contribute funding. We have satisfied ourselves that nothing in the Proposal involves the occurrence of an Insolvency Event, Wind-Up Event or Reconstruction Event. The New South Wales Government and the Asbestos Injuries Compensation Fund Limited also have confirmed this in the AFFA Deed of Confirmation.

 

3.2.6.  Australian Taxation Office Rulings on Contributions under the AFFA

 

A number of rulings relating to the Australian tax treatment of contributions under the AFFA and other related matters previously were obtained from the Australian Taxation Office (the “Rulings”). As contemplated by the AFFA Deed of Confirmation, the relevant James Hardie companies and the AICF received new rulings from the Australian Taxation Office to replace the tax rulings previously issued by the Australian Taxation Office in connection with the AFFA and received confirmation that the Accepted Tax Conditions (as defined in the AFFA) remain unchanged in all material respects as a result of Stage 2 of the Proposal.

 

As outlined in Section 3.2.1, the New South Wales Government is to make a loan facility available to the AICF. New Rulings will be applied for to take into account these arrangements.

 

The Proposal will not affect the on-going dispute with the Australian Taxation Office in respect of RCI Pty Ltd.

 

As announced on March 22, 2006, RCI Pty Ltd, one of our wholly-owned subsidiaries, received an amended assessment from the Australian Taxation Office in respect of RCI Pty Ltd’s income tax return for the year ended

March 31, 1999. The amended assessment relates to the amount of net capital gains arising from an internal corporate restructure carried out in 1998 and has been issued pursuant to the discretion granted to the Commissioner of Taxation under Australia’s general anti-avoidance laws (Part IVA of the Income Tax Assessment Act 1936). The original amended assessment issued to RCI Pty Ltd was for a total of A$412.0 million. However, after subsequent remissions of general interest charges by the Australian Taxation Office, the total was changed to A$368.0 million, comprising A$172.0 million of primary tax after allowable credits, A$43.0 million of penalties (representing 25% of primary tax) and A$153.0 million of general interest charges.

 

RCI Pty Ltd has appealed the amended assessment. On July 5, 2006, pursuant to an agreement negotiated with the Australian Taxation Office, we made a payment of A$189.0 million. We also agreed to guarantee the payment of the remaining 50% of the amended assessment should this appeal not be successful and to pay general interest charges accruing on the unpaid balance of the amended assessment in arrears on a quarterly basis. We believe RCI Pty Ltd’s view of its tax position will be upheld on appeal, and as such no reserve or provision has been established in respect of this claim.

 

At the end of May 2007, the Australian Taxation Office disallowed our objection to RCI Pty Ltd’s notice of amended assessment for the year ended March 31, 1999. In July 2007, RCI Pty Ltd appealed to the Federal Court of Australia against the Australian Taxation Office’s objection decision. This matter was heard before the Federal Court of Australia in September 2009 and judgment was reserved. We now await handing down of that judgment.

 

Our intellectual property and treasury functions are now administered from companies that are tax resident in Ireland. If Stage 2 does not proceed, our parent company will remain registered and a tax resident in The Netherlands. If this occurs, we will have incurred substantially all of the currently estimated project costs of US$63 million consisting of advisory fees and expenses and other transaction costs, including US$41 million of Dutch tax as a result of a capital gain on the transfer of our intellectual property from The Netherlands without receiving the expected benefits from the Proposal. However, the costs associated with the move of our head office functions will not be incurred and we would not have to pay to maintain a head office in Ireland. As previously set forth, the fair market value of our intellectual property is currently under review by the Dutch Tax Authorities and, if determined to be greater than the amount determined by us, could result in additional Dutch tax whether or not the Proposal is implemented.

 

Generally, interest, royalty and future dividend payments from our subsidiaries in the US to our subsidiaries in Ireland will only qualify for no withholding tax if we meet both the requirements of the US/Ireland Treaty and the amended US/Netherlands Treaty. To meet these requirements, our key senior managers with global responsibilities will have to continue to spend a significant amount of time in The Netherlands away from our markets and operations.

 

Further, notwithstanding the concession by the US IRS that we and our subsidiaries qualified for benefits during 2006 and 2007, the year-by-year assessment by the US IRS to challenge whether the requirements for benefits under the amended US/Netherlands Treaty are satisfied exposes us to the continuing risk that the US IRS determines we do not qualify for treaty benefits in subsequent years. This means that interest, royalty and dividend payments from our subsidiaries in the US to us and our subsidiaries in Ireland could be subject to 30% US withholding tax if the US IRS were successful in such challenge. In the event Stage 2 of the Proposal does not proceed, we might consider other actions to mitigate this risk.

 

In addition, if we remain in The Netherlands, we will continue to be subject to Dutch company law and a less flexible legal regime. This could affect our ability to complete future transactions that we may wish to pursue for the benefit of James Hardie and its shareholders.

 

Following our transformation to Irish SE, James Hardie’s securities will continue to be quoted on the ASX in the form of CUFS (with CHESS Depositary Nominees Pty Limited being the registered holder of the underlying shares and each CUFS representing one underlying share) and the NYSE in the form of ADSs (with The Bank of

New York Mellon as the registered owner of CUFS and each ADS representing 5 CUFS/underlying shares). We intend to continue to maintain listings under the symbol “JHX” on both stock exchanges.

 

Shareholders will continue to hold the same number of CUFS or ADSs in Irish SE (if Stage 2 of the Proposal is approved and implemented) as they held beforehand. The current certificates and holding statements evidencing CUFS or ADSs will continue to evidence the same number and kind of securities following implementation of each stage of the Proposal.

 

A ruling has been obtained from the Irish Revenue authorities confirming that on-market transactions in CUFS and ADSs through the CHESS and the NYSE trading systems, respectively, will be treated as exempt from stamp duty in Ireland. However, off-market transactions in CUFS or underlying shares, as well as conversions into and out of CUFS or ADSs may be subject to Irish stamp duty at a rate of 1% of market value or consideration paid (whichever is greater). Please refer to “Irish Stamp Duty on Future Transfers of Irish SE Shares” in Section 8.4.2.5 for further details.

 

We obtained confirmation from our current lending banks that the Proposal does not require any consent or approval, or result in any rights of termination, under our existing external finance facilities, and reached agreement with our current lending banks for the rearrangement of those facilities, which enabled JHIF Limited to become a borrower and assume the obligations of JHIF BV under the external finance facilities at the time our financing and treasury operations were transferred from JHIF BV to JHIF Limited. This is recorded in deeds of confirmation entered into with individual lenders. Please refer to “Lender Deeds of Confirmation” in Section 4.2.3 for further details.

 

Following implementation of Stage 2 of the Proposal, all of Irish SE’s shareholders will prima facie be subject to Irish dividend withholding tax (See “Irish Tax Consequences of the Proposal — Irish SE Shareholders Taxation” in Section 8.4.2).

 

In order to have no Irish dividend withholding tax, shareholders who reside in an EU member country other than Ireland or in a country with which Ireland has a double tax treaty must complete and send to Irish SE a non-resident declaration form. If the appropriate declaration is not made, these shareholders will be liable for Irish dividend withholding tax of 20% on dividends paid by Irish SE and may not be entitled to offset this tax. In this case, it would be necessary for shareholders to apply for a refund of the withholding tax directly from the Irish Revenue authorities.

 

We therefore recommend that the appropriate declaration is made by all shareholders who do not reside in Ireland. The appropriate declaration forms are available from our website, www.jameshardie.com, select James Hardie Investor Relations.

 

In connection with the implementation of Stage 1, we and certain of our subsidiaries were required to negotiate the terms of future employee involvement in James Hardie with SNBs representing employees from EEA member states in which James Hardie operates. On February 10, 2010, we and certain of our subsidiaries entered into an agreement with the SNBs on the involvement of employees pursuant to which we will provide information to and consult with our employees in EEA member states and other countries in which we operate. The agreement on the involvement of employees is filed as an exhibit to our registration statement of which this Explanatory Memorandum forms a part and is incorporated herein by reference.

The material provisions of the agreement are as follows:

 

 

The agreement on involvement of employees provides that employees participating in the negotiation of the agreement and in the processes contemplated thereby are indemnified by the company in respect of such participation. The agreement may be renegotiated either upon a resolution of the board or, if an employee representative body is established, at the time of its establishment or after the fourth anniversary of its establishment, or by an SNB if requested to be formed by either 10% of the employees representing at least two member states or a resolution from our board. If, in the event of any such renegotiation an agreement is not reached within the negotiating period set forth in the Council Directive, the Standard Rules provided by the Council Directive will therefore apply.

 

As contemplated by the agreement, we provided notice to our European employees regarding the proposed migration of our corporate seat from The Netherlands to Ireland. We will provide communication and information to employees located in EEA member states regarding the migration of our corporate seat and will meet with those employees who have expressed an interest in receiving such communication to discuss any questions and issues they may have with the proposed migration.

 

This section sets out the following:

 

 

4.2.1.  Tax Residence in Ireland

 

Irish SE will need to be tax resident in Ireland in order to qualify for benefits under the US/Ireland Treaty. We have, in connection with the Proposal, requested and received revenue rulings from Irish and Dutch Revenue authorities. The rulings confirm that so long as Irish SE is centrally managed and controlled in Ireland, Irish SE will be a tax resident of Ireland and not be a tax resident of The Netherlands for the purposes of The Netherlands/Ireland Treaty and so will not be taxed on its income in The Netherlands (except for any Dutch source income) nor be required to withhold Dutch dividend withholding tax and will be a tax resident of Ireland once Stage 2 of the Proposal is implemented.

 

The issue as to whether a company is centrally managed and controlled in Ireland is a question of fact and this concept is directed at the highest level of control of a company’s business, as distinct from day-to-day control to carry out normal business operations. It is intended that Irish SE will satisfy the requirement to be centrally managed and controlled in Ireland by, among other things, holding a majority of its board meetings in any one year in Ireland at which a majority of the directors would be physically present in Ireland with the board making major strategic business decisions relating to James Hardie as a whole, such as decisions relating to significant investments, capital expenditures, equity and debt raising and dividend payments in Ireland and most business decisions relating to Irish SE as a distinct entity and having a head office function located in Ireland.

 

4.2.2.  Head Office

 

Our head office will move to Ireland if Stage 2 of the Proposal is approved and implemented. The head office will employ the requisite personnel to run Irish SE’s head office and corporate office.

 

4.2.3.  Lender Deeds of Confirmation

 

In connection with Stage 1, we entered into a deed of confirmation with each of our current lending banks confirming that implementation of the Proposal does not require any consent or approval, or result in any rights of termination, under our existing external finance facilities. JHIF Limited, our Irish finance subsidiary, has become a borrower and assumed the obligations of JHIF BV under these facilities as a result of the transfer of our financing and treasury operations from JHIF BV to JHIF Limited. Our existing lenders also have confirmed that they do not object to the contemplated changes to the AFFA and related documents.

 

4.2.4.  Taxation Impact on Irish SE

 

As Irish SE’s head office, corporate office and treasury, finance and intellectual property functions will be located in Ireland, the income from those activities will be subject to tax in Ireland. The current company tax rate for trading companies, such as JHT and JHIF Limited, is 12.5%. We obtained rulings from the Irish Revenue authorities confirming that JHT and JHIF Limited will be eligible for the company tax rate for trading companies for the treasury, finance and intellectual property functions carried out in Ireland.

 

We also obtained a ruling confirming that, assuming Irish SE is centrally managed and controlled in Ireland, Irish SE will become Irish tax resident after the implementation of Stage 2. As a result, so long as Irish SE is listed

on one or more recognised stock exchanges (which include both the ASX and the NYSE) and continues to meet the trading tests under the US/Ireland Treaty, Irish SE will qualify for treaty benefits under the US/Ireland Treaty after Stage 2 is implemented. Under current law, interest and royalties paid from Irish SE’s subsidiaries in the US to Irish SE or its subsidiaries that are tax resident in Ireland are free of US withholding tax and dividends paid from those US subsidiaries to James Hardie entities in Ireland are subject to 5% US dividend withholding tax, which will be creditable in Ireland.

 

In addition, the Dutch Revenue authorities have confirmed that no Dutch corporate income tax will be imposed (except on Dutch-source income) and no Dutch dividend withholding tax will be imposed as long as Irish SE continues to be tax resident in Ireland under The Netherlands/Ireland Treaty.

 

4.2.5.  Impact on the Agreement on the Involvement of Employees

 

Our agreement on the involvement of employees described in “Agreement on the Involvement of Employees” in Section 3.9 is governed by the laws of the EU member state in which our statutory seat is located. Therefore, our obligations under that agreement to provide information to and consult with employees will be determined by the Standard Rules concerning such topics as prescribed by the law implementing the SE Regulation in Ireland.

 

Our corporate governance framework will change if Stage 2 of the Proposal is approved and implemented to reflect the change in our corporate domicile from The Netherlands to Ireland. This is discussed in more detail below.

 

4.3.1.  Corporate Governance Framework Following Transformation to Irish SE

 

We currently operate under the regulatory requirements on corporate governance of numerous jurisdictions and organisations, including the ASX, Australian Securities & Investments Commission, NYSE, the US Securities and Exchange Commission, the European Commission and various other rule-making bodies. The Investor Relations area of our website (www.jameshardie.com, select “James Hardie Investor Relations”) contains information about the ways in which we currently comply with the ASX Corporate Governance Council Principles and Recommendations, NYSE corporate governance standards for listed companies that are foreign private issuers and the Dutch Corporate Governance Code.

 

Upon transformation to Irish SE, the Dutch Corporate Governance Code will no longer apply. We will become subject to the regulatory requirements of the Irish Takeover Panel, which will generally only be relevant where a third party has made a takeover offer for Irish SE or an approach which may lead to a takeover offer. The Combined Code on Corporate Governance as published by the Financial Reporting Council in the UK will not apply to Irish SE unless its shares become quoted on the Irish Stock Exchange or the London Stock Exchange.

 

Irish SE will continue to comply with the ASX Corporate Governance Council Principles and Recommendations as its general policy and continue to explain any departures from those Principles and Recommendations in its annual report. Irish SE also will continue to follow the NYSE corporate governance standards for listed companies that are foreign private issuers (which will include Irish SE). We also will be subject to Irish law in addition to the SE Regulation.

 

4.3.2.  Board Structure

 

If Stage 2 of the Proposal is approved by shareholders and implemented, our Supervisory and Managing Boards will be replaced by a single unitary board of non-executive and executive directors, which, over time, is expected to consist of eight non-executive directors and one executive director. All of your seven directors currently serving on the Supervisory Board will continue as non-executive directors of Irish SE, with one new director expected to be added to the board of Irish SE over time. The two Managing Board directors who will not continue as directors of Irish SE will resign from the board on implementation of the Proposal. The Managing Board and Supervisory Board will cease to exist and the company will be governed by the single board of directors of Irish SE.

4.3.3.  Board and Shareholder Meetings

 

Irish SE’s board is expected to make most of the key strategic decisions at meetings convened in Ireland. There may be occasions where board meetings would be held outside Ireland or by telephone, but the majority of meetings in any one year are expected to be held in Ireland.

 

The annual general meeting of shareholders of Irish SE will no longer be held in The Netherlands. It is expected that Australian and US resident shareholders will be able to participate in the annual general meeting and ask questions through a webcast of proceedings on Irish SE’s website and at a location in Australia after Stage 2 of the Proposal is undertaken. While Irish SE will no longer hold annual information meetings, Irish SE intends to conduct shareholder briefings in Australia.

 

4.3.4.  Board Composition and Structure; Board Committees

 

Louis Gries, Michael Hammes, Brian Anderson, Donald McGauchie, David Harrison, James Osborne, Rudy van der Meer and David Dilger will be directors of Irish SE on implementation of Stage 2 of the Proposal. Michael Hammes will continue as Chairman, Donald McGauchie will continue as Deputy Chairman and Brian Anderson, David Harrison and Donald McGauchie will continue as chairmen of the audit, remuneration, and nominating and governance committees, respectively.

 

It is expected that another non-executive director will be appointed to the Irish SE board in due course.

 

The articles of association of Irish SE provide flexibility in relation to the 2010, 2011 and 2012 annual general meetings for the directors to determine among themselves who will retire or stand for re-election, or where the directors fail to make such determination, for the Chairman to so determine at each of such meetings. The directors have not yet made a determination as to which directors will stand for re-election at each of these annual meetings although David Dilger will stand for election at the 2010 annual general meeting. From the 2013 annual general meeting and thereafter, the identity of the directors to retire and offer themselves for re-election at each annual general meeting will be those directors, except for a director who holds the office of chief executive officer, who have been longest in office since their last appointment. A director who is the chief executive officer of Irish SE shall only have to retire and (if he or she so chooses) present himself or herself for re-election as a director once every six years following their initial appointment. See “Summary of Key Corporate Law Differences Between JHI SE and Irish SE” in Section 4.4 under the subheading “Term of Directors’ Appointment.”

 

Our audit, remuneration and nominating and governance committees will become committees of Irish SE’s single tier board if Stage 2 of the Proposal is approved and implemented. There will not be any material changes to the charters of these committees.

 

4.3.5.  Independence of Chairman and Non-Executive Directors

 

The chairman of the board and of each of the committees, as well as a majority of directors of Irish SE and its board committees, will be independent unless a greater number is required to be independent under the ASX Corporate Governance Council Principles and Recommendations, the rules and regulations of the ASX, the NYSE or any other regulatory body.

 

4.3.6.  Delegation of Powers

 

Irish SE’s board will be responsible for the management and operation of Irish SE, and will have the power to delegate any of their powers to the chief executive officer, any director, any person or persons employed by Irish SE or any of its subsidiaries or to any committee established by the board. In each case, the delegatee will have the power to sub-delegate to another person, a committee or a sub-committee, as the case may be. The board will be free to exercise all of the powers of Irish SE in furtherance of Irish SE’s objects, except for any powers that are expressly reserved for shareholders by the constituent documents or Irish company law.

Irish SE’s board also will have the power to execute powers of attorney in order to appoint attorneys to act on Irish SE’s behalf from time to time.

 

In addition, Irish SE’s board also may establish (and appoint members to) any committees, local boards or agencies for managing any of the affairs of Irish SE, either in Ireland or elsewhere.

 

4.3.7.  Indemnification

 

Irish SE’s articles of association will provide for indemnification of any person who is or was a director, company secretary, employee or such other person who may be deemed by Irish SE’s board to be an agent of Irish SE, who suffers any cost, loss, or expense as a result of any action in connection with the entry into any contract or discharge of their duties to Irish SE, provided he or she acted in good faith in carrying out their duties and in a manner they reasonably believed to be in Irish SE’s interest. This indemnification will generally not be available if the person seeking indemnification acted in a manner that could be characterised as negligent, default, breach of duty or breach of trust in performing such person’s duties to Irish SE. In addition, under Irish company law, this indemnity only binds Irish SE to indemnify a current or former director or company secretary where judgment is given in any civil or criminal action in favour of such director or company secretary, or where a court grants relief because the director or company secretary acted honestly and reasonably and ought fairly to be excused. The articles of association of Irish SE apply the same limitations to other indemnitees referred to above who are not current or former directors or the company secretary of Irish SE.

 

We currently provide Indemnity Deeds governed by Dutch law to our directors and senior employees and James Hardie Building Products Inc. provides Indemnity Agreements to the company’s and James Hardie Building Products Inc.’s directors, officers and employees, each of which will continue in effect following implementation of Stage 2 with the terms described in “Indemnification” in Section 4.3.7. In addition to these existing indemnities, upon implementation of Stage 2, Irish SE will provide an indemnity generally consistent with the existing Indemnity Deeds, but which will be governed by Irish law, to its directors, the company secretary and to certain senior employees. These Irish law-governed Indemnity Deeds will require Irish SE, to the maximum extent permitted by Irish law, to unconditionally and irrevocably indemnify a person in relation to the person serving or having so served as a director, company secretary or senior employee of Irish SE or one of its subsidiaries or another entity at Irish SE’s request, or the request of one of Irish SE’s subsidiaries. In addition, the Irish law-governed Indemnity Deeds will provide for advances to allow indemnitees to fund their defense costs. However, the indemnified party will be required to repay the amounts paid to them if it is ultimately determined that he or she is not entitled to indemnification for such amounts, if any such amounts exceed what Irish SE is permitted to pay under the Irish law-governed Indemnity Deeds or if he or she receives payment under an insurance contract in respect of those liabilities. To the extent that an indemnitee also receives payment under an indemnity from one of our subsidiaries, such indemnitee is not entitled to claim under the Irish law-governed Indemnity Deeds.

 

Irish law renders void any provision in an Irish company’s articles of association or other contract that would exempt from liability or provide any director or the company secretary with an indemnity for negligence, default, breach of duty or breach of trust. This limitation is broader than is currently permitted under our Indemnity Deeds.

 

Irish SE also intends to maintain directors’ and officers’ liability insurance.

 

4.3.8.  Share Plans

 

Following implementation of Stage 2, we intend for our 2001 Equity Incentive Plan, 2005 Managing Board Transitional Stock Option Plan, Long Term Incentive Plan 2006, and Supervisory Board Plan to cease to be governed by Dutch law and to become governed by Irish law. The plans also will be amended to reflect the fact that Irish SE will have a single board of directors, including changing the names of the plans as appropriate to reflect the single board of directors.

4.3.9.  Certain shareholder approvals

 

In connection with the approval of Stage 2, shareholders are being asked to approve the articles of association of Irish SE. By approving the articles of association shareholders also will approve:

 

 

In addition, the terms of the LTIP as well as the share grants under the LTIP and Supervisory Board Share Plan, as approved by the shareholders at previous annual general meetings, will continue to apply to the board of Irish SE after completion of Stage 2.

 

In connection with the Stage 1 extraordinary general meeting, we received comments on the proposed articles of association for Irish SE. Based on that feedback, we committed to solicit comments on the proposed articles of association for Irish SE prior to presenting them to shareholders for approval in connection with Stage 2.

 

Since then, we have reviewed the comments we received in connection with Stage 1 and have met with and received comments from a number of investor advisory groups. The Due Diligence Committee and Supervisory Board reviewed these comments. In reviewing these comments, the Due Diligence Committee and Supervisory Board also considered advice from external counsel that some of the comments, including relating to modifying the Irish law change of control provisions would not be valid under Irish law or permitted under the ASX Listing Rules. Following their review, your directors made a number of changes to the proposed articles of association for Irish SE.

 

The most significant changes to the proposed articles of association for Irish SE from the articles previously proposed in connection with Stage 1 of the Proposal are:

 

 

A number of additional comments related to matters that the Supervisory Board and Due Diligence Committee considered were not necessary to be incorporated in the articles of association for Irish SE. The most significant of these comments not incorporated into the articles of association related to:

 

 

As part of the implementation of Stage 2 and the change of corporate domicile to Ireland, our existing constituent documents will no longer apply and will instead be replaced with a memorandum and articles of association consistent with the company law regime applicable in Ireland as supplemented by the provisions of the SE Regulation.

 

The key differences between JHI SE and Irish SE arise as a result of the fact that we currently are subject to Dutch company law whereas Irish SE will be subject to Irish company law.

 

The table below, together with Section 4.7, summarises the material differences between JHI SE and Irish SE and the rights of shareholders in the event Stage 2 of the Proposal is approved and implemented. The summary is not an exhaustive list of all the differences or a complete description of the differences described and reference is made to the articles of association of JHI SE and Irish SE which were previously filed as an exhibit with the SEC to our registration statement relating to Stage 1 and to the revised articles of association of Irish SE filed as an exhibit to our registration statement of which this Explanatory Memorandum forms a part and are incorporated herein by reference. The information in the table below under Irish SE/Irish Law reflects the changes made to the articles of association of Irish SE after our review of the input and comments we received following the publication of the articles of association of Irish SE in connection with Stage 1 of the Proposal. The articles of association are also available under the Investor Relations area of our website (www.jameshardie.com, select “James Hardie Investor Relations”) and copies may be obtained on request. See “Where You Can Find Additional Information” in Section 12.

 

It should be noted that the authorised share capital of Irish SE will be identical to that of JHI SE (€1,180,000,000 divided into 2,000,000,000 shares of €0.59 each).

 

Following is a summary highlighting selected information from the articles of association of Irish SE and does not contain all of the information that may be important to you. We recommend that you read carefully the articles of association of Irish SE for the complete description of your rights as a shareholder and other important information. The summary below reflects the changes made to the articles of association of Irish SE after our review of the shareholder input and comments following the publication of the articles of association of Irish SE in connection with Stage 1 of the Proposal. The articles of association of Irish SE are filed as an exhibit to our registration statement with the US Securities and Exchange Commission and are incorporated by reference. These articles of association are also available under the Investor Relations area of our website (www.jameshardie.com,

select “James Hardie Investor Relations”) and copies may be obtained on request. See “Where You Can Find Additional Information” in Section 12.

 

4.6.1.  Register and Entry Number/SE’s Objects and Purposes

 

Irish SE will be registered with the Companies Registration Office in Ireland. It will be assigned a registered number once it has filed the required documents at the conclusion of Stage 2.

 

Irish SE’s main object will be to:

 

“carry on the businesses of manufacturer, distributor, wholesaler, retailer, service provider, investor, designer, trader and any other business (except the issuing of policies of insurance) which may seem to the SE’s board of directors capable of being conveniently carried on in connection with these objects or calculated directly or indirectly to enhance the value of or render more profitable any of the SE’s property.”

 

Irish SE also will have the power to carry on the business of a holding company and co-ordinate the administration, finances and activities of any subsidiary companies or associated companies.

 

The usual powers of an Irish public limited company also will be granted to Irish SE. These include the power to borrow, to charge Irish SE’s assets, to grant guarantees and indemnities, to incorporate new companies and to acquire existing companies.

 

4.6.2.  Powers and Requirements of Directors

 

The directors will be granted the general power to manage Irish SE by its articles of association. The directors will have the power to exercise all of the powers of Irish SE that have not been otherwise expressly reserved to the shareholders of Irish SE by Irish company law or Irish SE’s articles of association. In addition, the directors also will be granted certain specific powers by Irish SE’s articles of association, including:

 

 

Irish SE’s articles of association will expressly list some, but not all, of the duties of directors.

 

With respect to remuneration of directors, further information is set out under the heading “Summary of Key Corporate Law Differences between JHI SE and Irish SE” in Section 4.5 under the subheading “Remuneration of Directors.”

 

Irish SE’s articles of association do not include any provisions regarding the mandatory retirement age of a director.

 

Under Irish law, directors have a common law fiduciary duty to act in the best interest of Irish SE and to exercise good faith and due care and skill. Directors also have statutory duties that mainly relate to administrative obligations. Further information is included under the heading “Key Corporate Law Differences Between JHI SE and Irish SE” in Section 4.5 under the subheading “Duties of Directors”.

 

No director will require a share qualification in order to act as a director.

4.6.3.  Rights, Preferences and Restrictions Attaching to Shares

 

Irish SE initially will be registered with one class of shares, however the articles of association will allow for any share to be issued with such rights or restrictions as the shareholders of Irish SE may by ordinary resolution determine.

 

Shareholders may authorise Irish SE (acting through its directors) by special resolution to issue shares in whatever manner on the basis that they can be subsequently redeemed. Once issued, Irish SE may cancel redeemed shares or alternatively hold them as treasury shares (which subsequently can be reissued or cancelled).

 

4.6.3.1.  Dividend rights

 

A description of Irish SE’s director’s power to declare dividends and distributions is set out under the heading “Summary of Key Corporate Law Differences Between JHI SE and Irish SE” in Section 4.5. under the subheading “Dividends and Distributions.”

 

If directors so resolve, any dividend that has remained unclaimed for twelve years from the date of its declaration shall be forfeited and cease to remain owing by Irish SE. The payment by directors of any unclaimed dividend or other moneys payable in respect of a share into a separate account shall not constitute Irish SE a trustee in respect thereof.

 

4.6.3.2.  Voting rights

 

All shares issued will have the right to one vote for each share held on every matter submitted to a vote of the shareholders. CUFS holders will be entitled to attend and to speak at Irish SE’s shareholder meetings and can vote at Irish SE’s shareholder meetings in the manner described in Section 10.2. ADR holders will not be entitled to attend Irish SE’s general meetings of shareholders, but can vote in the manner described in Section 11.7.

 

A description of Irish SE’s shareholder’s rights with respect to voting on directors and the terms of directors’ appointment is set out under the heading “Summary of Key Corporate Law Differences Between JHI SE and Irish SE” in Section 4.5 under the subheadings “Number and Nomination of Directors” and “Term of Director’s Appointment.”

 

Irish law and Irish SE’s articles of association currently do not impose any limitations on the rights of persons who are not residents of Ireland to hold or vote shares, solely as a result of such non-resident status.

 

Unless otherwise required by Irish SE’s articles of association or Irish law, no business other than the appointment of a chairman may be transacted at any general meeting unless at least 5% of Irish SE’s issued share capital is present or represented.

 

4.6.3.3.  Rights upon liquidation

 

In the event of Irish SE liquidation, and after Irish SE has paid all debts and liquidation expenses, the excess of any assets shall be distributed among Irish SE shareholders in proportion to the capital at the commencement of the winding up paid up or credited as paid up on such shares held by Irish SE shareholders. As a holding company, Irish SE’s sole material assets will be the capital stock of its subsidiaries.

 

4.6.3.4.  Acquisition of own shares

 

A description of Irish SE’s power to repurchase or redeem shares of Irish SE is set out under the heading “Summary of Key Corporate Law Differences Between JHI SE and Irish SE” in Section 4.4. under the subheading “Buy-Back of Shares and Share Redemptions.”

 

4.6.4.  Necessary Action to Change the Rights of Holders of the Shares

 

Irish SE’s share capital may be divided into different classes of shares and the rights attached to any class may be varied with the consent in writing of 75% in nominal value of the issued shares of that class or with the consent of 75% of that share class by value of those voting at a separate general meeting of the shareholders of such class.

4.6.5.  Meetings’ Conditions and Procedures

 

4.6.5.1.  Directors’ meetings

 

The directors shall meet at least once every three months to discuss the progress and foreseeable development of Irish SE’s business. A meeting of the directors may be called by the chairman of the board or any three directors. Notice must be given to each director personally, orally or in writing. Unless the directors arrange otherwise, the quorum for the conduct of business at a directors meeting will be three directors. Each director shall have one vote, and in addition to his or her own vote, shall be entitled to one vote in respect of each other director not present at the meeting who shall have authorised him or her in respect of such meeting to vote for such other director in his or her absence. Decisions at meetings of the directors will be decided by a majority of votes. Where there is equality of votes, the chairman of the board will have the deciding vote. Irish SE’s articles of association provide for directors to participate in meetings of the board or committees of the board telephonically.

 

Subject to the provisions of Irish company law, provided that a director discloses the nature and extent of a material interest, such director may, subject to a number of stated exceptions, be party to an arrangement or transaction with Irish SE or its subsidiaries, but may not vote on a resolution concerning a matter in which such director has, directly or indirectly, an interest which is material or a duty which conflicts or may conflict with the interests of Irish SE. Such director shall not be counted in the quorum present at a meeting in relation to any such resolution on which the director is not entitled to vote.

 

4.6.5.2.  General meetings

 

The first annual general meeting of Irish SE following its registration in Ireland does not need to be held in Ireland but must be held within 18 months of its registration. Subsequent annual general meetings of Irish SE are also not required to be held in Ireland so long as there is an ordinary resolution of shareholders providing that it be held elsewhere. There is no requirement that extraordinary general meetings be held in Ireland. Following the first annual general meeting, Irish SE must hold an annual general meeting in each calendar year and within six months after the financial year end and shall announce the date such annual general meetings no less than 35 business days before such meeting is due to be held. All business that is transacted at an annual general meeting shall be deemed to be special business, except: (1) the declaration of a dividend; (2) the consideration of the accounts, balance sheets and reports of the directors and auditors; (3) the election of directors in the place of those retiring (whether by rotation or otherwise); (4) the fixing of the remuneration of the directors; (5) the re-appointment of the retiring auditors; and (6) the fixing of the remuneration of the auditors.

 

Irish SE shall announce the date of an extraordinary general meeting no less than 35 business days before such meeting is due to be held save in exceptional circumstances where the board resolves otherwise. An extraordinary general meeting can be convened by (1) the directors or (2) pursuant to Irish company law, by one or more persons who alone or together hold 10% of Irish SE’s issued share capital. An extraordinary general meeting must be convened within 21 clear days after a request from a shareholder (who holds 10% of the issued share capital of Irish SE) has been given to Irish SE, and held no later than two months after such a request.

 

One or more persons who alone or together hold at least 10% of the issued share capital of Irish SE can request that the board call an extraordinary general meeting. In addition, such holders can also request that the board place a matter on the agenda of any general meeting so long as any such request shall be received by Irish SE at least 30 business days before the general meeting to which it relates, at such postal or e-mail address as specified by Irish SE for that purpose in the announcement of the general meeting. Such request must be accompanied by stated grounds justifying its inclusion, or a draft resolution, together not to exceed 1,000 words. Such a request will be declined by Irish SE’s board where: (i) the request is contrary to the memorandum or articles of association, Irish law or the ASX Listing Rules, or (ii) the time limits specified in the articles of association have not been complied with.

 

The quorum for general meetings and for meetings of a separate class of shareholders in Irish SE will be one or more persons who alone or jointly hold at least 5% of Irish SE’s issued share capital or, in the case of a separate class meeting, 5% of the issued share capital of that class. These same quorum requirements also will apply to all adjourned meetings.

A description of Irish SE’s notice requirements and rights conferred on Irish SE’s shareholders is set forth under the heading “Summary of Key Corporate Law Differences Between JHI SE and Irish SE” in Section 4.5 under the subheadings “Notice of Meetings,” “Annual General Meetings” and “Extraordinary General Meetings.”

 

All voting at general meetings will be decided by a poll, votes may be given in person, by proxy or by a duly authorised representative, in each case in the manner prescribed by Irish SE’s articles of association. Where there is an equality of votes the chairman of the meeting will have a second, or casting, vote.

 

4.6.6.  Right to Own Shares

 

Irish SE’s memorandum of association will provide it with the power to own shares in its subsidiaries or any non-group companies for that matter.

 

Irish SE’s articles of association provide that Irish SE may acquire its own shares by way of redemption. Once such shares have been redeemed, they may be cancelled or held as treasury shares, however, under Irish company law, the nominal value of treasury shares held by Irish SE may not, at any one time, exceed 10% of the nominal value of the issued share capital of Irish SE. If the shares are held as treasury shares, Irish SE is not allowed to exercise the votes, if any, attaching to those shares. A more detailed description is set out under the heading “Summary of Key Corporate Law Differences Between JHI SE and Irish SE” in Section 4.5 under the subheading “Buy-back of Shares and Share Redemptions”.

 

4.6.7.  Thresholds for Which Shareholder Ownership Must be Disclosed

 

Under Irish law, a person must notify Irish SE in writing within five business days of an acquisition or disposition of shares in Irish SE where:

 

 

In addition, under Irish law, Irish SE can, if it has reasonable cause to believe that a person or company has an interest in Irish SE’s shares, require such person or company to confirm that belief (or as the case may be) to indicate whether or not it is the case and to provide certain information in relation to such holdings, including details of his or her interest in any shares in the SE and the interests (if any) of all persons having a beneficial interest in the shares. To the extent any such information is made available to Irish SE, Irish law requires that Irish SE make such information available to any person upon such person’s request.

 

4.6.8.  Consequences of Non-Disclosure of Shareholder Ownership

 

Failure of a shareholder to disclose its interests in Irish SE’s shares as described above in “Thresholds for which Shareholder Ownership Must be Disclosed” in Section 4.6.7 will result in no right or interest of any kind in respect of that person’s shares being enforceable, whether directly or indirectly by action or legal proceeding. If a person fails to respond to Irish SE when it makes a request for information in the manner described above, Irish SE may apply to the High Court of Ireland for an order stating that: (a) any transfer of such shares will be void; (b) such shares will have no voting rights; (c) no further shares will be issued in right of those shares or pursuant to any offer made to the holder thereof; and (d) such shares will not be entitled to any payment from Irish SE. Such restrictions, whether imposed for a failure to disclose a notifiable interest or for a failure to respond to a request for information, may only be lifted by an order of the High Court of Ireland.

 

Irish SE also will be subject to the Irish Takeover Rules and the rules governing substantial acquisition of shares. A more detailed description is set out in “Principal Differences Between the Takeover Regime under the Articles of Association of JHI SE and the Irish Takeover Rules” in Section 4.7.

Where shares have not been fully paid up, Irish SE’s directors may exercise Irish SE’s first and paramount lien on such shares, meaning they can either sell or transfer them.

 

 

The articles of association of Irish SE, which shareholders will be asked to approve in connection with Stage 2, will provide that, for five years from the date of the adoption of Irish SE’s articles of association, directors will have the right to allot shares without further action on the part of shareholders up to the maximum authorised share capital of Irish SE. Five years is the maximum period allowed by Irish law before such authorisation has to be renewed by an ordinary resolution of the shareholders. This right is subject to the listing rules of the ASX and NYSE in relation to the issue of new equity securities, which require:

 

 

The articles of association also will provide that directors have the right to issue authorised share capital without regard to the statutory pre-emptive rights granted to shareholders in relation to issues of shares for cash under Irish company law. The right to issue shares for cash without regard to statutory pre-emptive rights is subject to the same five-year limit as the directors’ authority to issue shares, subject to renewal by a special resolution of shareholders.

 

 

4.7.1.  Overview

 

As a result of our transformation in Stage 2 of the Proposal to Irish SE, the present takeover regime under article 49 of our articles of association will no longer apply. Article 49 is modelled on the takeover regime that applies in Australia and was introduced in 2001 because there are no takeover rules applicable to us under Dutch law. As Irish SE will have a listing of equity securities on the NYSE, it will be subject to the Irish Takeover Panel Act 1997 (as amended) and the Irish Takeover Panel Act 1997 Takeover Panel Rules and Substantial Acquisition Rules 2007 (as amended) as applied to non-Directive Relevant Companies (we refer to these laws as the Irish Takeover Rules).

 

The Irish Takeover Rules regulate takeover and merger transactions, however effected, by which control of a target incorporated in Ireland (and having a listing of equity securities on an EU regulated stock exchange or on the NYSE or NASDAQ) may be obtained or consolidated. Control means a holding or aggregate holding of shares carrying 30% or more of the voting rights of a company, irrespective of whether the holding or holdings give de facto control.

 

The Irish Takeover Rules are statute based. The Irish Takeover Panel is the body that regulates all transactions subject to the Irish Takeover Rules.

 

The Irish Takeover Rules are built on the following general principles that apply to any transaction regulated by these rules:

 

 

 

4.7.2.  Takeover Thresholds

 

Rule 9 of the Irish Takeover Rules states that, except with the consent of the Irish Takeover Panel, when:

 

 

such person must extend offers to the holders of any class of equity securities (whether voting or non-voting) and to holders of any class of transferable voting capital in respect of all such equity securities and transferable voting capital.

 

A single holder (that is, a holder excluding any parties acting in concert with the holder) holding more than 50% of the voting rights of a company is not subject to Rule 9.

 

The Irish Takeover Rules also contain rules called “Substantial Acquisition Rules” which restrict the speed with which a person may increase their holding of shares and rights over shares to an aggregate of between 15% and 30% of the voting rights of a company. These rules also require accelerated disclosure of acquisitions of shares or rights over shares relating to such holdings.

4.7.3.  Key Differences Between Article 49 and the Irish Takeover Rules

 

The key differences between the Irish Takeover Rules (taken together with provisions of Irish company law relating to disclosure of interests in shares) and the current takeover regime as applicable to us under Article 49 of our articles of association are described in the following table:

 

 

4.7.4.  ASX Listing Rule Takeover Provisions

 

Under ASX Listing Rule 15.15, a listed company incorporated outside Australia may not include provisions in its constitutional documents relating to takeovers or substantial shareholdings (subject to certain exceptions for provisions required under the New Zealand Stock Exchange listing rules for companies listed in New Zealand). JHI SE currently has a waiver from this prohibition that enables the current Article 49 to be included in its articles on the basis that there are no takeover rules applicable to it in The Netherlands. This waiver will cease to apply to JHI SE if Stage 2 is approved and implemented as the Irish Takeover Rules then will apply. The general practice of the ASX is only to grant this waiver where no other takeover or substantial shareholder notification provisions are applicable.

 

Based on requests for rulings submitted by us, the Dutch and Irish Revenue authorities have confirmed certain tax aspects of the Proposal and related matters. The rulings issued in response to our requests are based on specific circumstances applicable to us that we expect will exist in the future, including the manner in which Irish SE and certain of its subsidiaries will operate. Below is a summary of our ruling requests and the rulings issued in response.

 

A ruling request was submitted to the Dutch Revenue authorities to confirm, among other things, that, if the Proposal is implemented, for so long as Irish SE remains a tax resident of Ireland under The Netherlands/Ireland Treaty, we will no longer be subject to Dutch corporate income tax as a resident (except on Dutch source income that The Netherlands is permitted to tax under The Netherlands/Ireland Treaty), and that dividends paid by Irish SE will not be subject to Dutch withholding tax so long as Irish SE remains an Irish tax resident for the purposes of The Netherlands/Ireland Treaty.

 

The ruling request explained that we plan to transfer the management and control of our business from The Netherlands to Ireland and detailed those activities proposed to be undertaken to effect that transfer.

 

The request indicated that we will cease to perform activities in The Netherlands and we will undertake the activities of a holding company managed and controlled by the board of directors of Irish SE. The request stated that the board would hold meetings at least every three months, the majority of which in any one year would be held in Ireland, and at which a majority of the directors would be physically present in Ireland. No board meetings will be held in The Netherlands and no executive director of the Irish SE board will reside in The Netherlands. The request also stated that major strategic business decisions relating to James Hardie, as a whole, and most business decisions that relate to Irish SE, as a distinct entity, would be reserved for its board.

 

Based on these facts, the ruling request sought confirmation from the Dutch Revenue authorities that because Irish SE would be centrally managed and controlled in Ireland, it would not be a tax resident of The Netherlands for purposes of The Netherlands/Ireland Treaty. Therefore, Irish SE would not be liable for income tax in The Netherlands except to the extent the company earns Dutch source income that The Netherlands is permitted to tax under The Netherlands/Ireland Treaty. Further, dividends paid by Irish SE would not be subject to Dutch withholding tax.

 

Based on the facts set forth in the ruling request, the Dutch authorities have confirmed their view that, after the Proposal is implemented, among other things, Irish SE will not be considered a tax resident of The Netherlands for purposes of The Netherlands/Ireland Treaty from the date the Irish Revenue authorities treat Irish SE as an Irish tax resident under the treaty and for so long as the Irish Revenue authorities maintain that view. The ruling confirmed that after the Proposal is implemented, Irish SE will not be subject to corporate income tax in The Netherlands, except to the extent that it earns Dutch source income that The Netherlands is permitted to tax under The Netherlands/Ireland Treaty. The ruling also confirmed that dividends paid by Irish SE will not be subject to Dutch withholding tax during this same period.

 

5.2.1.  Irish SE is a tax resident of Ireland and an Investment Company

 

A ruling request was submitted to the Irish Revenue authorities seeking confirmation, among other things, that if the Proposal is implemented and Irish SE operates in the manner set forth in the ruling, Irish SE would be an Irish tax resident and an investment company for Irish tax law purposes.

 

Although Irish SE will have its registered office in Ireland, it will be considered a tax resident in Ireland only if it is centrally managed and controlled in Ireland. Under Irish tax law, it is generally understood that a company will be centrally managed and controlled where its board of directors makes the key strategic decisions of the company in Ireland. A company is considered an investment company under Irish law if its business consists wholly or mainly of the making of investments and the principal part of the company’s income is derived from the making of investments.

The ruling request submitted to the Irish authorities described the manner in which Irish SE would operate in order to be regarded as centrally managed and controlled in Ireland. The request stated that the board would hold meetings at least every three months, the majority of which in any one year would be held in Ireland, and at which a majority of the directors would be physically present in Ireland. The request also stated that major strategic business decisions relating to James Hardie, as a whole, and most business decisions that relate to Irish SE, as a distinct entity, would be reserved for the board. Based on these facts, the ruling request sought confirmation from the Irish authorities that Irish SE would be centrally managed and controlled in Ireland and, therefore, an Irish tax resident.

 

The ruling request also provided support for treating Irish SE as an investment company under Irish tax law. The request stated that Irish SE will act as the holding company for James Hardie, as a whole, and the board of directors of Irish SE will be involved in reviewing and making key investment decisions, including decisions relating to future acquisitions and dispositions of subsidiaries, dividend policy, and financing arrangements. The ruling request also stated that all of the income earned by Irish SE would be in the form of dividends or interest. Based on these points, the ruling request sought confirmation from the Irish authorities that because Irish SE’s business would consist wholly or mainly of the making of investments, and the company’s income would be principally derived from the making of investments, Irish SE would be regarded as an investment company under Irish tax law.

 

Based on the facts set forth in the ruling request, the Irish Revenue authorities have confirmed that Irish SE will be a tax resident in Ireland on the basis that it will be centrally managed and controlled in Ireland. The ruling also confirms that, based on the facts provided in the ruling request, Irish SE will be treated as an investment company under Irish tax law, which would enable Irish SE to deduct for Irish corporation tax purposes certain expenses related to, among other things, remuneration of directors and certain administrative expenses.

 

5.2.1.1.  JHIF Limited is an Irish tax resident and a trading company for Irish tax purposes

 

A ruling request was submitted to the Irish Revenue authorities seeking confirmation that if the transfer of the treasury and finance operation are implemented, JHIF Limited would be regarded as carrying on a trade of treasury operations in Ireland by reason of its intra-group financing and treasury activities in Ireland and would be considered a tax resident in Ireland because it will be centrally managed and controlled there.

 

A company that is considered to carry on a trade in Ireland is subject to tax in Ireland at the trading rate (currently 12.5%). The determination of whether a company is involved in a “trade” in Ireland is a fact specific inquiry that generally looks to whether the company’s activities are of the same kind and carried on in the same way as those ordinarily carried out in the line of business. Several factors may be considered in this analysis, including whether the activities are carried on with a view to making a profit, the frequency of such transactions, whether the company is actively managed and strategic decisions are made in Ireland, and whether the persons carrying on the activities have the requisite skill to carry out the activities. The determination of where a company is centrally managed and controlled is generally based on where the board of directors makes the key strategic decisions of the company.

 

The ruling request submitted to the Irish Revenue authorities explained that JHIF Limited would be formed as a new limited liability company under Irish law for the purpose of carrying out James Hardie’s finance and treasury operations and would acquire the entire loan portfolio of the Dutch subsidiary (i.e., JHIF BV) that carried on such functions. The ruling stated that JHIF Limited’s board of directors would exercise central management and control over the company and would hold the majority of its meetings in Ireland at which policy decisions affecting the company would be made. The ruling request also provided that the day-to-day activities of JHIF Limited would be conducted in Ireland by an Irish resident treasury manager and up to eight other experienced persons. The request stated that JHIF Limited would enter into a substantial number of transactions to manage the treasury function for James Hardie, including borrowing from third parties and lending to group companies as necessary to fund capital expenditures, managing James Hardie’s foreign exchange exposure, maximising rates of return on excess cash deposits, operating a cash pooling arrangement to enable surplus funds to be pooled at JHIF Limited, negotiating new debt facilities and inter-company loan agreements, and providing back-office services to other entities in James Hardie.

The ruling request sought confirmation that JHIF Limited will carry on a “trade” in Ireland based on the fact that JHIF Limited would (i) engage in a significant number of financing, treasury and back office services, (ii) negotiate and enter into new transactions, (iii) enter into all treasury transactions with group companies on an arm’s length basis, (iv) assume all risks and rewards in relation to its financing activities, (v) be managed and controlled by its board of directors and the majority of its meetings would be held in Ireland, and (vi) the board of directors would have the relevant expertise and related skills to manage and operate an intra-group financing and treasury business.

 

Based on the facts set forth in the ruling request, the Irish Revenue authorities have confirmed that the company “would be regarded as carrying on a trade of a treasury operations” in Ireland, so that the profits arising thereon will be subject to tax in Ireland at the trading rate (currently 12.5%). The ruling also confirmed that JHIF Limited will be regarded as tax resident in Ireland because it will be centrally managed and controlled in Ireland.

 

5.2.1.2.  JHT is an Irish tax resident and a trading company for Irish tax purposes

 

A ruling request was submitted to the Irish Revenue authorities requesting confirmation that if the intellectual property is transferred, JHT would be regarded as carrying on a trade of brand management operations (through its management of our intellectual property operations) in Ireland, and that the company would be a tax resident in Ireland because the company will be centrally managed and controlled in Ireland.

 

The determination of whether JHT will carry on a “trade” in Ireland is generally based on the nature and frequency of the specific activities carried on by the company. Similarly, the determination of where JHT is centrally managed and controlled is generally based on where the board of directors of JHT will make the key strategic decisions of the company.

 

The ruling request explained that JHT would be formed as a new Bermuda-incorporated company for the purpose of managing all of James Hardie’s intellectual property, a function that was carried on by JHIF BV. The request explained that JHT would directly and indirectly acquire legal title to all of James Hardie’s intellectual property, and would conduct all of the management functions with respect to James Hardie’s intellectual property. Further, the request stated that the day-to-day activities of JHT will be conducted by a new global intellectual property manager for James Hardie, who will be resident in Ireland, an employee of JHT, and will possess the requisite skills to manage James Hardie’s intellectual property and who will be supported by an appropriate number of employees with appropriate skills. The global intellectual property manager would be actively involved in negotiating renewed and new license agreements, monitoring that licensees are not in breach of license agreements, providing direction on all intellectual property filings worldwide, and providing oversight to the future intellectual property strategy of James Hardie. Based on these facts, the ruling request sought confirmation from the Irish authorities that JHT would be engaged in a “trade” in Ireland.

 

The ruling request stated that JHT’s board would exercise the central management and control of the company from Ireland. The board will have at least one Irish resident director, but all directors will have expertise regarding intellectual property. Board meetings would be held at least every three months, the majority of the meetings will be held in Ireland, and the board will make key strategic decisions affecting JHT at those meetings. Based on these facts, the ruling request sought confirmation from the Irish Revenue authorities that because it is centrally managed and controlled in Ireland, JHT is a tax resident of Ireland.

 

Based on the facts described in the ruling request, the Irish Revenue authorities have confirmed that JHT would be regarded as carrying on a trade of intellectual property management in Ireland and, as a result, the profits arising thereon will be subject to tax in Ireland at the trading rate (currently 12.5%). The ruling also confirmed that JHT will be regarded as a tax resident in Ireland because it will be centrally managed and controlled in Ireland.

 

 

A ruling request was submitted to the Irish Revenue authorities requesting confirmation that if the Proposal is implemented, electronic transfers of Irish SE shares through the CHESS system (i.e., transfers of CUFS) and the ADR system would not be subject to Irish stamp duty. The ruling request explained that prior to implementation of

the Proposal, our shares were traded electronically in Australia through the CHESS system and in the US through the ADR system, and that the Proposal would replicate this share structure in Irish SE. Therefore, after the Proposal is implemented, Irish SE shares would continue to be electronically transferred through the CHESS system and the ADR system.

 

The ruling request specifically sought confirmation from the Irish authorities that transfers of Irish SE shares through the ADR system would come within a specific exemption from stamp duty on transfers of ADSs contained in Ireland’s stamp duty legislation. The ruling request also reasons that Irish stamp duty is only imposed on the electronic transfer of securities if the electronic transfer takes place within a “relevant system.” The ruling request reasoned that, based on the wording of the stamp duty legislation and the relevant Irish company legislation, the only system that currently can be regarded as a “relevant system” is the CREST clearing system and electronic transfers through other clearing systems would not be within the charge to Irish stamp duty. As a result, the ruling request sought confirmation that electronic transfers of Irish SE shares through the CHESS system and the ADR system would not be subject to Irish stamp duty.

 

Although the Irish Revenue authorities did agree that the specific exemption for transfers of ADSs will apply they did not agree that CREST is the only system that can be regarded as a “relevant system.”

 

Nevertheless, in response to the ruling request, the Irish Revenue authorities have confirmed that electronic transfers of shares of Irish SE through the CHESS and ADR systems will be treated as exempt from stamp duty in Ireland.

 

Under US GAAP, Stage 2 of the Proposal will have no impact on our consolidated financial statements.

 

The following table sets forth, for each of the periods indicated, the high and low trading prices of (i) our CUFS as reported by ASX and (ii) our ADSs as reported by the NYSE. Our financial year ends on March 31.