Due Diligence Report - Fonterra

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Appendices to Report to the BoardShareholder information versionAppendix 1 – 100% Farmer Control and Ownership100% farmer control and ownership of the Co-operativeFonterra will be 100% farmer controlled and owned under Trading Among Farmers. 1100% farmer ownershipThis means that the only shareholders of the Co-operative can be: farmers who supply milk to Fonterra; those people who supplied milk to Fonterra but are selling down their shares over three seasons (exiting farmers); and the Fonterra Farmer Custodian, which will be ultimately owned and controlled by farmers who supply milk to Fonterra and holdCo-operative shares.If you look at Fonterra’s share register at the end of a trading day, you will only see as legal owners of Co-operative shares the peopledescribed above.Fonterra will be using a system approved by the Reserve Bank to transfer Co-operative shares between parties who are entitled to holdthem. As part of this approved system, shares may be temporarily held during the course of a day by approved market participants whoare subject to the rules of the Fonterra Shareholders’ Market.There have always been and will continue to be people who have beneficial rights in Co-operative shares – such as the beneficiaries of afamily trust or passive investors in a farm syndicate. This will not change under Trading Among Farmers.Under Trading Among Farmers both the FSF and the RVP will have beneficial rights in Co-operative shares. However, they will not be legalowners of Co-operative shares.100% farmer controlThis means that farmers who supply milk to Fonterra and who hold Co-operative shares are the only people who can: vote on Co-operative matters on the basis of their share-backed production; and appoint and remove Fonterra directors.However if Directors or farmer shareholders try to take an action which will adversely affect the rights of the Fonterra Shareholders’ Fundor the Registered Volume Provider, then those parties may have legal rights to take steps to protect their interests. Under the terms of thedocumentation constituting Trading Among Farmers, those steps would be taken in the name of the Fonterra Farmer Custodian.1 As set out in TAF Blueprint (version 3.9)18
Appendix 2 – Committee Termsof ReferenceFonterra Co-operative Group LimitedCapital Structure – Trading Among Farmers Due DiligenceCommitteeTerms of ReferenceDecember 20111 ConstitutionThe Board of Fonterra Co-operative Group Limited (“Fonterra”)has resolved to establish a Committee to be known as the CapitalStructure – Trading Among Farmers Due Diligence Committee(“the Committee”).2 ObjectivesThe objectives of the Committee will be to:To review proposals, processes, and shareholder communicationsand offer documents relating to the implementation of TradingAmong Farmers (“TAF”) and to assist the Board to ensure that:(a) In light of assurances that have been given by the Board andmanagement to Fonterra shareholders, that Fonterra willcontinue to be 100% owned and controlled by its shareholdersfollowing the implementation of TAF (the “Project”).(b) Directors fulfil their duties in relation to the Project.(c) Appropriate “due diligence” is undertaken at each remainingstage of the Project.(d) The Board has adopted a due diligence process that isappropriate in the circumstances, robust and defendable.(e) The Board’s objectives in proposing the Project and thepre-conditions to commencement of TAF contained in theFonterra Constitution have been addressed in a mannersatisfactory to the Board.(f) The Board can provide appropriate formal assurances to theShareholders’ Council that key issues raised by the Councilhave been addressed and that the Project is consistent with theco-operative principles endorsed by the Shareholders’ Council.(g) All documents sent to shareholders and the offer documentsrelating to Fonterra shares and the units in the FonterraShareholders’ Fund (“Offer Documents”) comply with allrelevant legislation; are, in all material respects, accurate andnot misleading and do not omit any material information; andprovide all information reasonably necessary for shareholdersto form a reasoned judgment on the proposals.(h) The Project is consistent with communications made toFonterra shareholders and other stakeholders including theNew Zealand Government.3 Duration of ReviewThe Committee will operate during the remaining stages of theProject (i.e. up to and including the commencement of the FonterraShareholders’ Market and the issuance of units in the FonterraShareholders’ Fund).4 MembershipThe Committee shall consist of five Directors:(a) Three Directors elected to the Board under clause 12.2of the Constitution (“Elected Directors”);(b) Two Directors appointed to the Board under clause 12.4of the Constitution (“Appointed Directors”);The Chairman of Fonterra will be an ex officio member of theCommittee. The Committee Chair shall be appointed by the Board.5 AuthorityThe Committee is authorised by the Board to undertake anyactivity within its Terms of Reference.The Committee is authorised by the Board to obtain independentprofessional advice and to secure the attendance at meetings ofpersons with relevant experience or expertise if it considersthis necessary.6 ReportingThe Committee will provide the following reports to the Board:(a) An report prior to enactment of the legislative changesto Dairy Industry Restructuring Act (“DIRA”) required toimplement TAF (currently expected to occur in April/May2012);(b) A final report prior to issuance of the Offer Documents(currently planned for November 2012); and(c) Any other report that the Board may request from time to time.All minutes of Committee meetings will be provided to the Board.The Committee will, at the request of the Chairman of the Board,present the Committee’s report to the Shareholders’ Council.19
Page 5: 3.2 Work PlanThe Committee adopted
Page 8: to further strengthen the integrity
Page 13 and 14: Pre-condition 3: The Committee has
Page 15 and 16: principles are subject to change fr
Page 17: 9 ConclusionThe Committee has seen
Page 21 and 22: 8 MeetingsThe Committee shall meet
Page 23: Qualifications and Professional Ass

Due Diligence Report - Fonterra

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