Due Diligence Report - Fonterra

7 Responsibilitiesof the CommitteeThe Committee shall address the following issues in its final reportto the Board and in earlier reports to the extent relevant:(a) The objectives of the Board set out below are addressed inthe Project:i. Maintaining Fonterra as a sustainable co-operative withvoting rights linked to milk supplied to Fonterra.ii. Removing Fonterra’s obligation to redeem shares. Thisprovides permanent share capital on which the businesscan operate and invest.iii. Ensuring Fonterra has sufficient permanent share capitalto give the Co-operative the funding needed to continueto have the ability to drive the highest sustainablereturns to farmers.iv. Ensuring that the arrangements give farmers confidencethat they will be able to buy and sell shares when theywish at prices that reflect a well informed and liquidmarket.v. Ensuring the arrangements produce a stable outcomein the sense that they will meet the above objectives forthe foreseeable future.These objectives are underpinned by the ongoing need to giveshareholders and other stakeholders confidence around thedetermination of the Milk Price.(b) The Project is being properly and reasonably managed in thecontext of the Board’s timetable and objectives.(c) Appropriate expert advice has been taken on key aspectsof the Project and that key areas for advice have not beenomitted.(d) Management and advisors have:i. Considered all material risks in connection with theProject (including any new risks that have been identifiedby management and advisors since their prior reports inconnection with Capital Structure Stage 3 were deliveredto the Board) and have developed and provided a full riskanalysis and appropriate risk mitigation plans;(e) All changes necessary to be made to the FonterraConstitution to implement the Project have been madeand no additional changes are required to the FonterraConstitution to successfully implement the Project in amanner consistent with the objectives of the Board.(f) All documents provided to shareholders in connection withthe Project and all Offer Documents:i. On the basis of legal advice received, comply with allrelevant legislation;ii. Are, in material respects, accurate and not misleadingand do not omit any material information;iii. Provide all information reasonably necessary forshareholders to form a reasoned judgment.(g) Adequate consideration has been given to alternativesavailable to Fonterra, and planning has been undertaken, inthe event that circumstances arise which:(a) Prevent the Project being implemented after it is approved; or(b) Put the Fonterra balance sheet at risk prior to the Projectbeing implemented.(h) That all necessary amendments to Dairy IndustryRestructuring Act (DIRA) and other legislative changes havebeen proposed/enacted to enable Fonterra to complete, andno changes to legislation will prevent the completion of, theProject in a manner consistent with the objectives of theBoard (if such amendments or changes have been proposed/enacted at the time of the relevant report).(i) Verification and other procedures have been established andimplemented to ensure additional documentation sent toshareholders and the Offer Documents comply with paragraph7(f) above.Due diligence material is appropriately filed and all statementscontained in additional documents provided to shareholders andthe Offer Documents are cross referenced to appropriate duediligence material.ii. Undertaken appropriate scenario planning and stresstesting in connection with the key areas of the Projectincluding the rules, structure and processes underlyingthe Fonterra Shareholders’ Market and the FonterraShareholders’ Fund.20