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Allied Farmers provides additional information on consideration to be provided


under its proposal to Hanover and United investors

Full details of the proposal which Allied Farmers Limited has agreed with Hanover Finance
Limited and United Finance Limited and which is conditional on shareholder and investor votes
are to be contained in the Notice of Meeting that Allied expects to send to its shareholders early
next week.

However, in advance of that, Allied provides the following matters of detail.

A. Consideration to be received by Hanover and United Investors (per $ of original


investment)

• Hanover and United investors holding secured deposits or secured stock have already
(under the DRP) received 6 cents per $1.

• Under the Allied Proposal the remaining amount owed to them by Hanover/United will be
reduced so that it matches the amount set out in the column 3 below (highlighted)

• Allied will pay that consideration in the form of new Allied shares. The number of shares
will vary depending on the issue price. The issue price will be set at 5 day VWAP1 over
the 5 trading days prior to the Hanover meeting which therefore means the price will
reflect the trading price on NZSX over that period.

Investors Amount Amount to Total value No. of new ALF


already be received received shares issued to
received per $ in investors (assuming
under DRP Allied issue price of 35 cents
Shares per share*)
Hanover 6c 72 c 78 c 2.06
Secured
depositors
United secured 6c 84 c 90 c 2.40
stockholders
Hanover Nil 30 c 30 c 0.87
subordinated
noteholders
Hanover Capital Nil 30 c 30 c 0.87
Bondholders
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1
VWAP = Volume Weighted Average Price

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B. Potential scenarios for initial shareholdings

The relative initial shareholdings of existing shareholders and investors will depend on the issue
price of the new shares (set as described above). However, Allied has calculated the following
examples based on various possible2 outcomes:

Number of new shares issued and resulting capital structure

Issue Price per Share


(cents) 0.40 0.38 0.36 0.34 0.32 0.30
Existing Market Capital of
Allied Farmers 15,078,682 14,324,748 13,570,814 12,816,880 12,062,946 11,309,012
Value of assets acquired 396,177,220 396,177,220 396,177,220 396,177,220 396,177,220 396,177,220
Total Combined Market
Capital 411,255,902 410,501,967 409,748,033 408,994,099 408,240,165 407,486,231

Number of Shares
Existing Allied Farmers
shareholders 37,696,705 37,696,705 37,696,705 37,696,705 37,696,705 37,696,705
Number of Shares issued to
Holders 990,443,049 1,042,571,630 1,100,492,276 1,116,227,116 1,238,053,811 1,320,590,732
Total of shares on issue after
Completion 1,028,139,754 1,080,268,335 1,138,188,981 1,202,923,821 1,275,750,516 1,358,287,437

% Ownership
Existing Allied Farmers
Shareholders 3.7% 3.5% 3.3% 3.1% 3.0% 2.8%
New shareholders 96.3% 96.5% 96.7% 96.9% 97% 97.2%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
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C. Explanation of the adjustment mechanism

As announced, the existing Allied shareholders will be issued “Bonus Securities” for no
consideration which will ensure fair treatment of the existing and new shareholders.

The adjustment works simply but the formula is complicated.

An example of the calculation that would occur if the Shortfall was NZ$20 million is set out
below but (using the same numbers) you can describe the position as follows:

• at Completion, existing shareholder will hold 13m/(13m + 396m) percent of the company,
where 13m is the then market cap of ALF and 396m is the value of the finance assets

• if the assets end up being worth $376m then you need to end up in the position where
the existing shareholders own 13/(13 + 376)

• to achieve this the existing shareholders have to end up with more shares (which they
do not have to pay for)

• every new share increases the number of shares on issue and therefore getting the
percentage right is a bit of maths (but it works)

• the key is that the proportions are set by the value each group (existing shareholders
and investors) bring to the deal

2
Allied cannot predict whether the applicable calculations reflect the actual position that will apply as that is
dependent on future events.
• when the calculation is done, the variables (market price of ALF shares and discount
rate applied to Hanover/United assets) is kept constant so that the calculation only
reflects reduced cash in (from what was expected) or a reduced value of assets still held
in 2011.

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