Hanover EM Book Final

Explanatory Memorandum
and Notices of Meeting

F o r H a n ov e r F i n a n c e S e c u r e d D e p o s i to r s ,
U n i t e d F i n a n c e S e c u r e d S t o c k h o ld e r s ,
H a n o v e r F i n a n c e S u b o r d i n at e d N o t e h o ld e r s
a n d H a n o v e r C a p i ta l B o n dh o ld e r s t o c o n s i d e r
E x t r ao r d i n a ry R e s o l u t i o n s to a p p rov e
a p r o p o s a l f r o m All i e d Fa r m e r s L i m i t e d .
The Directors unanimously recommend
that investors VOT E IN FAVOUR
of the Extraordinary Resolutions
Date: Wednesday 16 December 2009
Time: 10.30am (New Zealand time)
Location: Newmarket Room, Ellerslie Event Centre

80 - 100 Ascot Avenue, Greenlane East
Auckland, New Zealand
This is an important document and requires your attention.

You should read the whole document before you decide whether and how to vote on the Extraordinary Resolutions.
november 2009
TABLE OF CONTENTS
Chairman’s letter
The New Zealand Guardian Trust Company Limited letter
Hanover Finance Limited Depositors’ Notice of Meeting
United Finance Limited Stockholders’ Notice of Meeting
Hanover Finance Limited Subordinated Noteholders’ Notice of Meeting
Hanover Capital Limited Bondholders’ Notice of Meeting
Explanatory Memorandum
1. Introduction
2. Overview of the Allied Farmers Proposal
3. Extraordinary Resolutions
4. Outcomes for Investors
5. Taxation
6. Important Information for Overseas Investors
7. Disclosures
8. Glossary of Terms
9. Directory
Grant Samuel independent expert report
Important Dates
Last date for receipt of Proxy Forms for all investors 10.30am on 15 December 2009
Meetings of investors 10.30am on 16 December 2009
Additional Information
To assist all investors in evaluating the Allied Farmers Proposal, the following documents accompany this
Explanatory Memorandum:
• a copy of the Grant Samuel independent expert report prepared for investors on the merits of the
Allied Farmers Proposal (later in this booklet);
• Allied Farmers Simplified Disclosure Prospectus relating to the issue of shares (in a separate
document).
In addition to the information contained in this Explanatory Memorandum, and the accompanying
documents, investors can access additional information, including the companies’ audited financial
statements as at 30 June 2009 and the trust deeds applying to each investment free of charge during
normal business hours at the registered office of Hanover (Level 4, 520 Queen Street, Auckland) or on
Hanover’s website www.hanover.co.nz. Further information about Allied Farmers may be accessed on its
website, www.alliedfarmers.co.nz.
Capitalised terms are either defined within the text or in the Glossary of Terms near the end of this
document.
[Hanover logo]
23 November 2009
ALLIED FARMERS PROPOSAL
Dear Investor
The purpose of this Explanatory Memorandum and accompanying documents is to assist your
review of the proposal put forward by Allied Farmers Limited.
Allied Farmers seeks to acquire the finance assets of Hanover Finance Limited and United
Finance Limited, and to this end wishes to acquire the secured deposits, secured stock,
subordinated notes and capital bonds issued by Hanover, United and Hanover Capital in
exchange for shares in Allied Farmers.
What this means for investors is that they will, if they approve the Allied Farmers Proposal and
it is implemented, exchange their investments in Hanover, United and Hanover Capital,
including their scheduled payment entitlements and support under the Debt Restructure
implemented in December 2008, for ordinary shares in Allied Farmers. This should provide
greater liquidity and an equity return to investors.
Allied Farmers is a rural services and finance group operating throughout New Zealand, with
over 90 years experience providing livestock trading, rural merchandise, finance, and real
estate services. Allied Farmers is listed on the NZSX and currently has approximately 5,200
shareholders. Allied Farmers’ 100% subsidiary Allied Nationwide Finance Limited has been
providing diversified investment and finance solutions to New Zealanders for over 30 years.
The enclosed Grant Samuel independent expert report (see later in this booklet) provides an
independent expert’s views on the merits of the Allied Farmers Proposal. We recommend you
read this independent report. We also suggest you consider the letters written by the
Trustees, The New Zealand Guardian Trust Company Limited and Perpetual Trust Limited. The
NZGT Letter is set out following this letter. Perpetual will send its letter to investors separately.
We’ll be holding a formal meeting in Auckland for you to vote on the proposals. The date of
this meeting will be 16 December 2009.
The directors of Hanover, United and Hanover Capital unanimously recommend

approval of the Allied Farmers Proposal. This recommendation follows a careful review of
the companies’ forward cashflow projections, the content of the Allied Farmers Proposal and
the Grant Samuel independent expert report.
We are of the view that Allied Farmers has the potential to add real value enhancement to the
Hanover and United loan and property assets that is not possible under the Debt Restructure
because of the cash constraints imposed by the repayment schedule. These value
enhancements potentially include:
• An ability to provide ongoing funding support to complete property developments

commenced by borrowers with Hanover/United and senior lender support. There are a
number of impaired loans where the developer cannot finish the property development
through lack of funding.
• An ability to negotiate with prior ranked lenders over borrower’s assets in order to ensure
an orderly realisation over time. There are a number of impaired loans where
Hanover/United are not in a position to control an orderly realisation to obtain best value
due to a prior ranking security holder.
2
• An ability to pay down the first mortgages over the Axis property assets transferred under
the Debt Restructure Shareholder Support Package, which otherwise cause increased
pressure on cash flow and the realisation programme for these assets. 2
• An
We ability
believe to pay
that down
Allied the first
Farmers will mortgages over the
be better placed Axis property
to achieve higher assets transferred
realisation under
values for
the Debt Restructure Shareholder Support Package, which otherwise cause increased
investors over the long term as it will be able to arrange new funding, and use the proceeds
frompressure on cash flow
asset realisations, toand the realisation
support programme
the business instead offor these
using assets.
such proceeds to meet the
short term repayments required under the Debt Restructure.
We believe that Allied Farmers will be better placed to achieve higher realisation values for
investors
We note ourover the long
investor term as
update on it9 will be ablewhere
November to arrange new funding,
we advised andofuse
investors thethe proceeds
directors
from
estimated repayments to investors of 70 cents per dollar for HFL Secured Depositors, 90the
asset realisations, to support the business instead of using such proceeds to meet cents
short term repayments required under the Debt Restructure.
per dollar for UFL Secured Stockholders and no forecast repayment for HFL Subordinated
Noteholders or HCL Bondholders. The conversion values reflected in the Allied Farmers
We note our
Proposal are investor
equal to update
or above onthese
9 November
values. where
There wecanadvised investors that
be no assurance of the directors
shares issued to
estimated
investors under the Allied Farmers Proposal will be able to be sold at the issue price. 90 cents
repayments to investors of 70 cents per dollar for HFL Secured Depositors,
per dollar for UFL Secured Stockholders and no forecast repayment for HFL Subordinated
Noteholders
Acceptance or orrejection
HCL Bondholders. The
of the Allied conversion
Farmers values
Proposal reflected ainmatter
is however the Allied Farmers
for individual
Proposal are equal to or above these values. There can be no assurance that shares
investors based on their own view as to value, future property and share market conditions, issued to
investors under the Allied Farmers Proposal will be able to be sold
risk profile, liquidity preference, taxation position and other factors. at the issue price.
Acceptance
On balanceorthe rejection of the Allied
independent Farmers
directors, Proposal
David Henryis however
and DesaHammond
matter for individual
are of the
investors
view that approval of the Allied Farmers Proposal is likely to be in market
based on their own view as to value, future property and share the best conditions,
interests
risk profile, liquidity preference,
of all classes of investors. taxation position and other factors.
On balance
If you are notthe independent
able to attend thedirectors,
meeting inDavid Henry
person, andcast
you can Desa Hammond
proxy vote, are
and of
wethe
view that approval of the Allied Farmers Proposal is likely to be in the best interests
strongly encourage you to do so. Details of how to do this are included on the enclosed proxy
of all classes of investors.
forms.
If
If you are
you’d not
like able to
further attend theon
information meeting
any of in person,
the above you can cast
matters, a proxy
please vote,
call the and we
contact centre on
strongly encourage you to do so. Details of how to
0800 353 377 or +64 9 357 2600 if calling from overseas. do this are included on the enclosed proxy
forms.
Yours sincerely,
If you’d like further information on any of the above matters, please call the contact centre on
0800 353 377 or +64 9 357 2600 if calling from overseas.
Yours
Davidsincerely,
Henry
Independent Chairman
David Henry
Independent Chairman
Level 4, 520 Queen Street, Private Bag 92-129, Victoria Street West, Auckland 1142, New Zealand | Ph: +64 9 362 7070 | Fax: +64 362 7071 | www.hanover.co.nz
23 November 2009
Dear Deposit Holder
HANOVER FINANCE SECURED DEPOSITS
Hanover Finance Limited (the “Company”) has called a meeting of Secured Depositors to
consider a proposal it has received from Allied Farmers Limited (the “Proposal”) which
comprises of:
a. Cancelling
Cancelling 22
22 cents
cents of
of each
each $1
$1 Secured
Secured Deposit
Deposit owing
owing to
to the
the Deposit
Deposit Holders;
Holders;
b. Immediately following the cancellation, approving the exchange of 72 cents of each $1

Secured Deposit for ordinary shares of Allied Farmers Limited (“Allied”) (note the
remaining 6 cents of each $1 Secured Deposit has already been paid to Secured
Depositors);
c. Approving the sale of substantially all of the assets of the Company to Allied and
directing the Trustee to release its security over those assets; and
d. Instructing the Trustee to release the Company, HFP Investments Limited and its
subsidiaries and the ultimate shareholders of the Company from the security and other
support provided by them in respect of the debt restructuring completed by the Company
in December 2008.
An independent expert’s report considering the merits of the Proposal has been prepared by
Grant Samuel and is part of the package of meeting papers. We strongly encourage you to
read this report.
We note that the directors of the Company have previously estimated the recoverable value of
the Secured Deposits at 70 cents (inclusive of the 6 cents already paid) per $1 Secured
Deposit. There is uncertainty as to the values of the assets of the Company in the current
property market and the Company has several loan exposures which each exceed
approximately 10% of its assets and the performance of these loans will therefore have a
significant impact on future cash availability. Prior to the Allied Proposal and the
announcement of the Company’s audited results, management of the Company had provided
financial projections for the duration of the moratorium which forecast net realisations from
loans (adjusted for the inclusion of shareholder support assets) of 66 cents and an optimistic
case assuming some market recovery of 82 cents. The offer by Allied at 72 cents needs to be
considered with reference to this range of forecasted outcomes.
Auckland
Vero Centre, 48 Shortland Street, Auckland 1010

PO Box 1934, Shortland Street, Auckland 1140, New Zealand
Telephone: (09) 377 7295, Facsimile: (09) 377 7474
Email: bryan_connor@nzgt.co.nz
www.guardiantrust.co.nz
The move from holding Deposits to holding shares represents a significant change for
Depositors and the main features of both types of securities are set out in Section 6.4 of the
Independent Report, with some of the key differences summarised below:
Deposits Shares
Regular payments Depositors are entitled to No requirement for a regular

and returns repayments under a schedule payment but shareholders receive
approved by Depositors of: a payment if the directors of Allied
8 cents in total in 2009, declare a dividend on the shares
10 cents in 2010, or if the shareholders choose to
12 cents in 2011, sell some or all of their shares (see
35 cents in 2012, and below).
35 cents in 2013.
Absent dividends, the ability of
Notwithstanding this, it is generally shareholders to recover their
acknowledged that it is unlikely investment is dependent on the
that the Company will be in a price they can receive in selling
position to meet all repayments as some or all of their shares.
initially scheduled.
Ability to sell There is currently no secondary Shareholders may sell all or a
investment market in which to sell Deposits. proportion of their shares as the
shares are listed on the NZSX.
Shares can move up in value but
can also move down – see Section
6.4 of the Independent Report for
further commentary on market
movements.
Shares can be sold on the share

market via a share broker for the
market value of the day.
Security The Deposits are secured over the Shares rank behind all liabilities of
assets of the Company which must Allied.
comply with the covenants set out
in the trust deed. Any breach of
those covenants enables the
trustee to take enforcement action.
On enforcement against the

Company’s assets, the claims of
Depositors rank ahead of all other
liabilities of the Company (other
than prior charges).
On the whole, after considering all the relevant factors, Grant Samuel have concluded in their
report that the Proposal is superior to the status quo and the outcome from a receivership,
were that to occur. Grant Samuel also note that in their view an alternative superior offer for
the Company’s assets is unlikely.
You should also note that, if the Proposal is approved and you decide to immediately sell your
shares, Grant Samuel consider that it is likely that the shares will sell at a materially lower
price than the price at which they were issued in the short term and that this lower price may
persist for a lengthy period. If this were to occur, this would mean that Secured Depositors
will possibly receive less than 72 cents per $1 Secured Deposit from the sale of their new
shares. Secured Depositors who hold their shares for the long term will participate in any
potential increase in the values of those shares over time.
The directors of the Company consider that the Proposal has potential to add real value
enhancement to the loan and property assets being transferred, as Allied is expected to have a
greater access to cash than is currently available to the Company. This is expected to enable
Allied to take a longer term view in managing those assets and to have a broader range of
options in restructuring those assets to improve recovery values.
Depositors should also note that the Proposal includes part of the original Support Package as
follows:
Shareholder Support Directors PwC Total Attributed by

Assessed Assessed Allied for the
Value – Value – Shareholder Support
December December Package
2008 2008
$10m cash injection $10m $10m $10.5m (includes
interest)
Axis Property Group properties $66m $26m $34m
and subordinated interest free
advance to HFP Investments
Commitments from entities $20m $0 -$20m Is not part of the
associated with the Proposal
Shareholders – uncalled and
not required to be paid in
certain circumstances
TOTAL $96m $36m - $44.5m
$56m
Should the Proposal not be approved then the Company will continue under the current
arrangement and the next quarterly payment of 2 cents per $1 Secured Deposit is due to be
paid on 31 December 2009. The Grant Samuel report states that, should the status quo
remain, there is every likelihood that the Company will end in receivership. Based on the
information we have received and our review of the Company, we consider the Company is
currently complying with the terms of the Debt Restructuring Plan but, based on the latest
audited financial statements, there is little likelihood that Secured Depositors will be repaid in
full and if there is further deterioration in the asset values then receivership is a real
possibility.
In considering this Proposal you will need to consider your own circumstances and in particular
you will need to weigh up the prospect of a regular payment under the current arrangements,
and the opportunity provided by this Proposal for an investment in Allied which may be traded
on the stock market at the prevailing market price.
If you are an overseas holder who is unable to prove by 31 January 2010 that you can legally
hold the shares issued by Allied, you are likely to be disadvantaged by the Proposal as these
shares will be sold on your behalf promptly after 31 January 2010. Grant Samuel considers
that it is likely that the shares will sell at a materially lower price than the price at which they
were issued in the short term.
We believe this is a very important transaction for the Company and for Secured Depositors. It
is important to consider carefully the position of retaining the status quo and the Proposal
offered by Allied and further the consequences of holding secured deposits as against holding
shares. You should also consider carefully the Notice of Meeting, the Explanatory
Memorandum and the Independent Report and we would urge you to take independent advice.
If the Proposal is approved by extraordinary resolution at the meeting and its

conditions are satisfied, you will become a shareholder of Allied and will cease to
have any claim against the Company, its residual assets or rights, or any shareholder
support regardless of whether you voted in favour of the resolution or not.
We would therefore encourage you to attend the meeting on 16 December 2009 but if you are
unable to do so personally, we recommend that you complete the proxy form. You may elect
the Chairman to act as your proxy however if you do not tick the box to record which way you
would like the Chairman to vote, the Chairman will vote in favour of the resolution.
Yours faithfully
B D Connor
General Manager Corporate Trusts
HANOVER FINANCE LIMITED
DEPOSITORS’ NOTICE OF MEETING
NOTICE OF MEETING OF HANOVER FINANCE LIMITED SECURED DEPOSITORS
NOTICE IS GIVEN that a meeting of holders of Secured Deposits (the Depositors) of Hanover Finance
Limited (the Company) issued pursuant to a trust deed (the Trust Deed) dated 18 July 1985 (as
amended) between the Company and The New Zealand Guardian Trust Company Limited (the Trustee),
will be held at Auckland on 16 December 2009, at 10.30am at the Newmarket Room, Ellerslie
Event Centre, 80-100 Ascot Avenue, Greenlane East, Auckland, New Zealand, to consider and, if
thought fit, pass as an Extraordinary Resolution, the resolution set out below.
EXTRAORDINARY RESOLUTION: ALLIED FARMERS PROPOSAL
It is hereby resolved, by way of Extraordinary Resolution (subject to the conditions set out below) to,
among other things: (a) cancel part of the amount owing to the Depositors; (b) immediately
following that cancellation, approve the exchange of their Deposits for ordinary issued shares of
Allied Farmers Limited (Allied Farmers); (c) approve the sale of substantially all of the assets of the
Company to a subsidiary of Allied Farmers and direct the Trustee to release its security over those
assets; and (d) instruct the Trustee to release the Company, HFP Investments Limited and its
subsidiaries and the ultimate shareholders of the Company (Hotchin Investments Limited, Forefront
Investments Limited, Mark Hotchin and Eric Watson) from the security and other support provided
by them in support of the debt restructuring completed by the Company in December 2008.
Specifically, it is resolved by way of Extraordinary Resolution, subject to the conditions set out
below:
1. That the Allied Farmers Proposal (as described in the Explanatory Memorandum dated
23 November 2009 sent to Depositors with the notice of meeting in relation to this Extraordinary
Resolution) be ratified, confirmed and approved.
2. That, without limiting paragraph 1:
a. The Company is released from the payment of 22 cents of each $1.00 of principal amount of
the Deposits outstanding as at 31 December 2008;
b. The Deposits (following the above release) be exchanged for an issue of fully paid ordinary
shares in Allied Farmers Limited (the “Allied Farmers Shares”) at a price per share of the
volume weighted average price of price setting trades through the NZSX market in the five
trading days prior to 16 December 2009 (to be issued pro rata between Depositors by
reference to the outstanding principal amount due to them by the Company on their Secured
Deposits (following the above release) with entitlements to Allied Farmers Shares of more
than 0.25 being rounded up and entitlements to Allied Shares of 0.25 or less being rounded
down) as more particularly described in the Explanatory Memorandum;
c. The Trustee is directed and authorised to consent to the sale (directly or indirectly) by the
Charging Group to a subsidiary of Allied Farmers of substantially all of the Charged Assets in
the manner contemplated by the Allied Farmers Proposal (“Sale Assets”) and in respect of
that sale to:
i. subject to being indemnified to its satisfaction, release the security constituted

by the Trust Deed over the Sale Assets;
ii. accept the endorsement by the Company of a promissory note issued by the
Allied Farmers subsidiary as satisfaction of the Company’s obligations to repay
the Secured Liabilities;
iii. subject to being indemnified to its satisfaction, grant releases of and provide
any instructions necessary to terminate the Support Arrangements (as defined in
clause 8.13 of the Trust Deed) and/or permit the transfer of those assets in the
manner contemplated by the Allied Farmers Proposal,
in each case as contemplated by the Allied Farmers Proposal and as more particularly
described in the Explanatory Memorandum;
1374822.3
2
d. The Trustee is directed and authorised to accept the benefit of a deed poll in relation to
the delivery of the Allied Farmers Shares to Depositors.
3. That, subject to the completion of all transactions contemplated by the Allied Farmers Proposal, the
Trustee is authorised and directed to release the Company from its obligations under the Trust
Deed (save for any obligations thereunder that are, or are expressed to be, continuing in nature).
4. That the Trustee be directed and authorised, and the Company be authorised, to enter into all
documents and take all steps as may be required to give effect to the Allied Farmers Proposal
including, without limitation, the release of the Trustee from any obligations it has under the
Transaction Document (as defined in clause 1.02 of the Trust Deed).
The Extraordinary Resolution set out above is conditional on:
(a) approval by the holders of secured stock issued by United Finance Limited of the Extraordinary
Resolution proposed to them by United Finance Limited as set out in the Explanatory
Memorandum;
(b) approval by the holders of subordinated notes and bonds issued by Hanover Finance Limited and
Hanover Capital Limited respectively, of the Extraordinary Resolutions proposed to them by
Hanover Finance Limited and Hanover Capital Limited as set out in the Explanatory Memorandum;
and
(c) Allied Farmers and the Company providing notice in writing to the Trustee confirming that all
Conditions (as defined in the Agreement for Assignment of Finance Assets in Exchange for
Debenture Obligations dated 17 November 2009 between Allied Farmers and the Company
(amongst others)) have been satisfied or waived in accordance with their terms.
NOTES
If the Extraordinary Resolution is passed and the conditions of the implementation of the Allied Farmers
Proposal are satisfied, all Depositors (whether or not they vote in favour of the Extraordinary Resolutions)
will become shareholders of Allied Farmers Limited and will cease to have any claims on the Company.
Other meetings
The meeting of Depositors is intended be held contemporaneously with meetings of subordinated noteholders of
Hanover Finance Limited, bondholders of Hanover Capital Limited and secured stockholders of United Finance Limited
(in each case subject to requisite quorum requirements).
Resolution
The resolution will be put as an Extraordinary Resolution and, if passed, be binding on all Depositors.
The quorum for the meeting shall be Depositors present in person or by representative holding or representing a
majority in nominal amount of the Deposits. If within half an hour after the time appointed for the meeting a quorum
is not present, the meeting shall be adjourned to such day and time not being less than 14 days thereafter and to such
place as may be appointed by the Chairman. At such adjourned meeting the Depositors present in person or by
representative and entitled to vote, whatever the value of the Deposits held by them, shall be a quorum for the
transaction of business including the passing of Extraordinary Resolutions.
Notice of any such adjourned meeting shall be given in the same manner (except in respect of the period of notice) as
that of an original meeting and such notice shall state that the Depositors present in person or by representative at
the adjourned meeting whatever their number and whatever the amount of Deposits held by them shall form a
quorum.
Voting
Voting at the meeting shall be decided by a poll of Depositors. Each Depositor who is present at the meeting in person
or by proxy, attorney or representative shall have one vote for every $1.00 of nominal amount of Deposits of which
they are the Depositor. For the Extraordinary Resolution to be passed, not less than 75% of the votes given on such a
poll must be voted in favour of the Extraordinary Resolution.
A Depositor who is an individual may vote personally or by his/her representative (being a person appointed by an
instrument by way of proxy or by power of attorney). A Depositor that is a company may vote by its representative
(being a person appointed by an instrument by way of proxy or power of attorney or a person authorised by the
directors of that Depositor company). A representative need not be a Depositor and shall have the right to speak at
the meeting.
3
In the case of joint Depositors, the vote of the senior holder who tenders a vote (whether in person or by
representative) shall be accepted to the exclusion of the votes of the other joint Depositor(s). Seniority shall be
determined by the order in which names stand in the register of Depositors.
A Proxy Appointment Form for use at the meeting is enclosed with this notice of meeting. See the instructions below
and on the Proxy Appointment Form for an explanation of how to use the Proxy Appointment Form. You should bring
the Proxy Appointment Form to the meeting as it also constitutes your voting paper. If the Deposits are held jointly,
all Depositors should sign the Proxy Appointment Form. If Deposits are held by a company, a representative should
bring to the meeting evidence that he or she is authorised to act on behalf of the company.
If you have decided how you will vote on the Extraordinary Resolution and do not intend to attend the meeting, you
should complete and sign the Proxy Appointment Form and deposit it with the Company by:
• posting it to Hanover Finance Limited, Private Bag 92119, Auckland 1142, New Zealand;
• faxing it to +64 9 488 8787; or
• delivering it to Level 2, 159 Hurstmere Road, Takapuna, Auckland (c/- Computershare Investor Services Limited),
in each case so as to be received by the Company by no later than 10.30am on 15 December 2009.
If you direct your proxy how to vote, the person you appoint as proxy will be entitled to attend the meeting to
represent your interests, but will not be issued with voting papers. Your vote will be automatically counted on a poll.
If you appoint your proxy with a discretion on how to vote, your proxy will be issued voting papers and will need to
vote. If your proxy does not attend the meeting your vote will not be counted. You may therefore wish to appoint as
an alternate to your named proxy “The Chairman of the Meeting”.
You may name “The Chairman of the Meeting” as your sole proxy if you wish. If you omit to name a person as proxy
you will be deemed to appoint the Chairman of the Meeting as your proxy. The Chairman of the Meeting intends
to vote Proxies marked “Proxy discretion” (or any proxy form where, in relation to how the proxy is to be
voted, the form is invalid) in favour of all resolutions.
The Trustee may in its absolute discretion at any time accept and elect to treat as valid any instrument of proxy
notwithstanding that it is received or produced at a place other than that specified above or out of time.
Defined terms
Terms defined in the Trust Deed have the same meaning in this notice of meeting and these notes.
UNITED FINANCE LIMITED
STOCKHOLDERS’ NOTICE OF MEETING
NOTICE OF MEETING OF UNITED FINANCE LIMITED SECURED STOCKHOLDERS
NOTICE IS GIVEN that a meeting of holders of Secured Stock (the Stockholders) of United Finance
Limited (the Company) issued pursuant to a trust deed (the Trust Deed) dated 12 March 2002 (as
amended) between the Company and Perpetual Trust Limited (the Trustee), will be held at Auckland on
16 December 2009, at 10.30 am at the Newmarket Room, Ellerslie Event Centre, 80-100 Ascot
Avenue, Greenlane East, Auckland, New Zealand, to consider and, if thought fit, pass as an
Extraordinary Resolution, the resolution set out below.
among other things: (a) cancel part of the amount owing to the Stockholders; (b) immediately following
that cancellation, approve the exchange of their Secured Stock for ordinary issued shares of Allied
Farmers Limited (Allied Farmers); (c) approve the sale of substantially all of the assets of the Company
to a subsidiary of Allied Farmers and direct the Trustee to release its security over those assets; and (d)
instruct the Trustee to release the Company, HFP Investments Limited and its subsidiaries and the
ultimate shareholders of the Company (Hotchin Investments Limited, Forefront Investments Limited,
Mark Hotchin and Eric Watson) from the security and other support provided by them in support of the
debt restructuring completed by the Company in December 2008. Specifically, it is resolved by way of
Extraordinary Resolution, subject to the conditions set out below:
23 November 2009 sent to Stockholders with the notice of meeting in relation to this Extraordinary
a. The Company is released from the payment of 10 cents of each $1.00 of principal amount of
the Secured Stock outstanding as at 31 December 2008;
b. The Secured Stock (following the above release) be exchanged for an issue of fully paid
ordinary shares in Allied Farmers Limited (the “Allied Farmers Shares”) at a price per share
of the volume weighted average price of price setting trades through the NZSX market in the
five trading days prior to 16 December 2009 (to be issued pro rata between Stockholders by
reference to the outstanding principal amount due to them by the Company on their Secured
Stock (following the above release) with entitlements to Allied Farmers Shares of more than
0.25 being rounded up and entitlements to Allied Shares of 0.25 or less being rounded down)
as more particularly described in the Explanatory Memorandum;
c. The Trustee is directed and authorised to consent to the sale (directly or indirectly) by the
Charging Group to a subsidiary of Allied Farmers of substantially all of the Charged Assets in
the manner contemplated by the Allied Farmers Proposal (“Sale Assets”) and in respect of
that sale to:
i. subject to being indemnified to its satisfaction, release the security constituted

by the Trust Deed over the Sale Assets;
ii. accept the endorsement by the Company of a promissory note issued by the
Allied Farmers subsidiary as satisfaction of the Company’s obligations to repay
the Stock Indebtedness;
iii. subject to being indemnified to its satisfaction, grant releases of and provide
any instructions necessary to terminate the Support Arrangements (as defined in
clause 16.13 of the Trust Deed) and/or permit the transfer of those assets in the
manner contemplated by the Allied Farmers Proposal,
in each case as contemplated by the Allied Farmers Proposal and as more particularly
described in the Explanatory Memorandum;
Document Number: 13748381374838

2
d. The Trustee is directed and authorised to accept the benefit of a deed poll in relation to the
delivery of the Allied Farmers Shares to Stockholders.
(a) approval by the holders of secured deposits issued by Hanover Finance Limited of the
Extraordinary Resolution proposed to them by Hanover Finance Limited as set out in the
Explanatory Memorandum;
(b) approval by the holders of subordinated notes and bonds issued by Hanover Finance Limited
and Hanover Capital Limited respectively, of the Extraordinary Resolutions proposed to them
by Hanover Finance Limited and Hanover Capital Limited as set out in the Explanatory
Memorandum; and
NOTES
Proposal are satisfied, all Stockholders (whether or not they vote in favour of the Extraordinary
Resolutions) will become shareholders of Allied Farmers Limited and will cease to have any claims on the
Company.
Other meetings
The meeting of Stockholders is intended to be held contemporaneously with meetings of secured depositors and
subordinated noteholders of Hanover Finance Limited, and bondholders of Hanover Capital Limited (in each case
subject to requisite quorum requirements).
Resolution
The resolution will be put as an Extraordinary Resolution and, if passed, be binding on all Stockholders.
The quorum for the meeting shall be Stockholders present in person or by representative holding or representing a
majority in principal amount of the Stock. If within half an hour after the time appointed for the meeting a quorum is
not present, the meeting shall be adjourned to such day and time not being less than 14 days thereafter and to such
place as may be appointed by the Chairman. At such adjourned meeting the Stockholders present in person or by
representative and entitled to vote, whatever the principal amount of the Stock held by them, shall be a quorum for
the transaction of business including the passing of Extraordinary Resolutions.
Notice of any such adjourned meeting shall be given in the same manner (except in respect of the period of notice) as
that of an original meeting and such notice shall state that the Stockholders present in person or by representative at
the adjourned meeting whatever their number and whatever the amount of Stock held by them shall form a quorum.
Voting
Voting at the meeting shall be decided by a poll of Stockholders. Each Stockholder who is present at the meeting in
person or by proxy, attorney or representative shall have one vote for every $1.00 of the principal amount of Stock of
which they are the Stockholder. For the Extraordinary Resolution to be passed, not less than 75% of the votes given
on such a poll must be voted in favour of the Extraordinary Resolution.
A Stockholder who is an individual may vote personally or by his/her representative (being a person appointed by an
instrument by way of proxy or power of attorney). A Stockholder that is a company may vote by its representative
(being a person appointed by an instrument by way of proxy or by power of attorney or a person authorised pursuant
to the Stockholder company’s constitution). A representative need not be a Stockholder and shall have the right to
speak at the meeting.
3
In the case of joint Stockholders, the vote of the senior holder who tenders a vote (whether in person or by
representative) shall be accepted to the exclusion of the votes of the other joint Stockholder(s). Seniority shall be
determined by the order in which names stand in the register of Stockholders.
the Proxy Appointment Form to the meeting as it also constitutes your voting paper. If the Stock is held jointly, all
Stockholders should sign the Proxy Appointment Form. If the Stock is held by a company, a representative should
• posting it to United Finance Limited, Private Bag 92119, Auckland 1142, New Zealand;
• faxing it to +64 9 488 8787; or
Defined terms
HANOVER FINANCE LIMITED
SUBORDINATED NOTEHOLDERS’
NOTICE OF MEETING
NOTICE OF MEETING OF HANOVER FINANCE LIMITED SUBORDINATED NOTEHOLDERS
NOTICE IS GIVEN that a meeting of holders of Subordinated Notes (the Noteholders) of Hanover Finance
Limited (the Company) issued pursuant to a trust deed (the Trust Deed) dated 14 October 2002 (as
amended) between the Company and Perpetual Trust Limited (the Trustee), will be held at Auckland on
16 December 2009, at 10.30am at the Newmarket Room, Ellerslie Event Centre, 80-100 Ascot
Avenue, Greenlane East, Auckland, New Zealand, to consider and, if thought fit, pass as an
Extraordinary Resolution, the resolution set out below.
among other things: (a) cancel part of the amount owing to the Noteholders; (b) immediately following
that cancellation, approve the exchange of their Subordinated Notes for ordinary issued shares of Allied
Farmers Limited (Allied Farmers); and (c) approve the sale of substantially all of the assets of the
Company to a subsidiary of Allied Farmers; and (d) instruct the Trustee to release HFP Investments
Limited and its subsidiaries from the security and other support provided by them in support of the
debt restructuring completed by the Company in December 2008. Specifically, it is resolved by way of
23 November 2009 sent to Noteholders with the notice of meeting in relation to this Extraordinary
a. The Company is released from the payment of:
i. 20 cents of each $1.00 of principal amount of the Subordinated Notes outstanding as

at 31 December 2008; and
ii. the 50 cents of each $1.00 of principal of the Subordinated Notes outstanding as at
31 December 2008 which would otherwise have been cancelled on completion of the
debt restructure proposal implemented pursuant to extraordinary resolutions passed
by the Noteholders on 9 December 2008;
b. The Subordinated Notes (following the above release) be exchanged for an issue of fully paid
ordinary shares in Allied Farmers Limited (the “Allied Farmers Shares”) at a price per share
of the volume weighted average price of price setting trades through the NZSX market in the
five trading days prior to 16 December 2009 (to be issued pro rata between Noteholders by
reference to the outstanding principal amount due to them by the Company on their
Subordinated Notes (following the above release) with entitlements to Allied Farmers Shares
of more than 0.25 being rounded up and entitlements to Allied Shares of 0.25 or less being
rounded down) as more particularly described in the Explanatory Memorandum;
c. The Trustee is directed and authorised to accept the benefit of a deed poll in relation to the
delivery of the Allied Farmers Shares to the Noteholders.
(a) approval by the holders of secured deposits and secured stock issued by Hanover Finance
Limited and United Finance Limited respectively of the Extraordinary Resolutions proposed

2
to them by Hanover Finance Limited and United Finance Limited as set out in the
Explanatory Memorandum;
(b) approval by the holders of bonds issued by Hanover Capital Limited, of the Extraordinary
Resolution proposed to them by Hanover Capital Limited as set out in the Explanatory
Memorandum; and
(c) Allied Farmers and the Company providing notice in writing to the Trustee confirming that
all Conditions (as defined in the Agreement for Assignment of Finance Assets in Exchange
for Debenture Obligations dated 17 November 2009 between Allied Farmers and the
Company (amongst others)) have been satisfied or waived in accordance with their terms.
NOTES
Proposal are satisfied, all Noteholders (whether or not they vote in favour of the Extraordinary
Company.
Other meetings
The meeting of Noteholders is intended to be held contemporaneously with meetings of secured depositors of Hanover
Finance Limited, secured stockholders of United Finance Limited and bondholders of Hanover Capital Limited (in each
case subject to requisite quorum requirements).
Resolution
The resolution will be put as an Extraordinary Resolution and, if passed, be binding on all Noteholders.
The quorum for the meeting shall be two or more Noteholders present in person or by representative holding or
representing a majority in nominal amount of the Notes. If within half an hour after the time appointed for the
meeting a quorum is not present, the meeting shall be adjourned to such day and time not being less than 14 days
thereafter nor more than 42 days thereafter and to such place as may be appointed by the Chairman. At such
adjourned meeting the Noteholders present in person or by representative and entitled to vote, whatever the value of
the Notes held by them, shall be a quorum for the transaction of business including the passing of Extraordinary
Resolutions.
At least seven days’ notice of any such adjourned meeting shall be given in the same manner as that of an original
meeting (except in respect of the period of notice) and such notice shall state that the Noteholders, present in person
or by representative at the adjourned meeting, whatever the number of Notes held by them shall form a quorum.
Voting
Voting at the meeting shall be decided by a poll of Noteholders. Each Noteholder who is present at the meeting and
entitled to vote (whether personally or by representative) shall have one vote for every $1.00 of principal amount of
Notes of which they are the Noteholder. For the Extraordinary Resolution to be passed, not less than 75% of the votes
given on such a poll must be voted in favour of the Extraordinary Resolution.
A Noteholder who is an individual may vote personally or by his/her representative (being a person appointed by an
instrument by way of proxy or power of attorney). A Noteholder which is a company may vote by its representative
(being a person appointed by an instrument by way of proxy or power of attorney or a person authorised pursuant to
the Noteholder company’s constitution or any other empowering provision). A representative need not be a
Noteholder and shall have the right to speak at the meeting.
In the case of joint Noteholders, the vote of the senior holder who tenders a vote (whether in person or by
representative) shall be accepted to the exclusion of the votes of the other joint Noteholder(s). Seniority shall be
determined by the order in which names stand in the register of Noteholders.
the Proxy Appointment Form to the meeting as it also constitutes your voting paper. If the Notes are held jointly, all
Noteholders should sign the Proxy Appointment Form. If the Notes are held by a company, a representative should
• posting it to Hanover Finance Limited, Private Bag 92119, Auckland 1142, New Zealand;
• faxing it to +64 9 488 8787; or

3
Defined terms
HANOVER CAPITAL LIMITED
BONDHOLDERS’ NOTICE OF MEETING
NOTICE OF MEETING OF HANOVER CAPITAL LIMITED BONDHOLDERS
NOTICE IS GIVEN that a meeting of holders of Bonds (the Bondholders) of Hanover Capital Limited (the
Company) issued pursuant to a trust deed (the Trust Deed) dated 4 October 2005 between the Company
and Perpetual Trust Limited (the Trustee), will be held at Auckland on 16 December 2009 at 10.30am
at the Newmarket Room, Ellerslie Event Centre, 80-100 Ascot Avenue, Greenlane East,
Auckland, New Zealand, to consider and, if thought fit, pass as an Extraordinary Resolution, the
resolution set out below.
among other things: (a) cancel part of the amount owing to the Bondholders; (b) immediately following
that cancellation, approve the exchange of their Bonds for ordinary issued shares of Allied Farmers
Limited (Allied Farmers); and (c) instruct the Trustee to release HFP Investments Limited and its
subsidiaries from the security and other support provided by them in support of the debt
restructuring completed by the Company in December 2008. Specifically, it is resolved by way of
23 November 2009 sent to Bondholders with the notice of meeting in relation to this Extraordinary
a. The Company is released from the payment of
i 20 cents of each $1.00 of principal amount of the Bonds outstanding as at

31 December 2008; and
ii The 50 cents of each $1.00 of principal of the Bonds outstanding as at 31 December

2008 which would otherwise have been cancelled on completion of the debt
restructure proposal implemented pursuant to extraordinary resolutions passed by the
Bondholders on 9 December 2008;
b. The Bonds (following the above release) be exchanged for an issue of fully paid ordinary
shares in Allied Farmers Limited (the “Allied Farmers Shares”) at a price per share of the
volume weighted average price of price setting trades through the NZSX market in the five
trading days prior to 16 December 2009 (to be issued pro rata between Bondholders by
reference to the outstanding principal amount due to them by the Company on their Bonds
(following the above release) with entitlements to Allied Farmers Shares of more than 0.25
being rounded up and entitlements to Allied Farmers Shares of 0.25 or less being rounded
down) as more particularly described in the Explanatory Memorandum;
c. The Trustee is directed and authorised to accept the benefit of a deed poll in relation to the
delivery of the Allied Farmers Shares to Bondholders.
(a) approval by the holders of secured deposits and secured stock issued by Hanover Finance
Limited and United Finance Limited respectively, of the Extraordinary Resolutions proposed to

2
them by Hanover Finance Limited and United Finance Limited as set out in the Explanatory
Memorandum;
(b) approval by the holders of subordinated notes issued by Hanover Finance Limited, of the
Extraordinary Resolution proposed to them by Hanover Finance Limited as set out in the
Explanatory Memorandum; and
NOTES
Proposal are satisfied, all Bondholders (whether or not they vote in favour of the Extraordinary
Company.
Other meetings
The meeting of Bondholders is intended to be held contemporaneously with meetings of secured depositors and
subordinated noteholders of Hanover Finance Limited, and secured stockholders of United Finance Limited (in each
case subject to requisite quorum requirements).
Resolution
The resolution will be put as an Extraordinary Resolution and, if passed, be binding on all Bondholders.
The quorum for the meeting shall be five or more Bondholders present in person or by representative holding or
representing more than one half of the principal amount of the Bonds. If within half an hour after the time appointed
for the meeting a quorum is not present, the meeting shall be adjourned to such day and time not being less than 14
days thereafter and to such place as shall be appointed by the Chairman. At such adjourned meeting, the
Bondholders present in person or by representative and entitled to vote, regardless of the number or principal amount
of the Bonds held or represented by them, shall be a quorum for the transaction of business including the passing of
Extraordinary Resolutions.
At least seven days’ notice of any such adjourned meeting shall be given in the same manner as that of an original
meeting (except in respect of the period of notice), and such notice shall state that the Bondholders present in person
or by representative at the adjourned meeting whatever their number and whatever the principal amount of Bonds
held or represented by them shall form a quorum.
Voting
Voting at the meeting shall be decided by a poll of Bondholders. Each Bondholder who is present at the meeting in
person or by representative and who was a Bondholder as at the close of business on 18 November 2009 shall have
one vote for every nominal $1.00 of Bonds of which they are the Bondholder. For the Extraordinary Resolution to be
passed, not less than 75% of the votes given on such a poll must be voted in favour of the Extraordinary Resolution.
A Bondholder who is an individual may vote personally or by his/her representative (being a person appointed by an
instrument by way of proxy or by way of power of attorney). A Bondholder that is a company may vote by its
representative (being a person appointed by an instrument by way of proxy or power of attorney or a person
authorised pursuant to the Bondholder company’s constituent documents or otherwise permitted by law). A
representative need not be a Bondholder and shall have the right to speak at the meeting.
In the case of joint Bondholders, the vote of the senior holder who tenders a vote (whether in person or by
representative) shall be accepted to the exclusion of the votes of the other joint Bondholder(s). Seniority shall be
determined by the order in which names stand in the register of Bondholders.
the Proxy Appointment Form to the meeting as it also constitutes your voting paper. If the Bonds are held jointly, all
Stockholders should sign the Proxy Appointment Form. If the Bonds are held by a company, a representative should
• posting it to Hanover Capital Limited, Private Bag 92119, Auckland 1142, New Zealand;
• faxing it to +64 9 488 8787; or

3
Defined terms
EXPLANATORY MEMORANDUM
EXPLANATORY MEMORANDUM
1. INTRODUCTION
This Explanatory Memorandum is issued by Hanover Finance Limited (“HFL” or “Hanover”), United
Finance Limited (“UFL” or “United”) and Hanover Capital Limited (“HCL” or “Hanover Capital”) (together,
the “companies”).
Accompanying this Explanatory Memorandum are Notices of Meeting which have been prepared for
meetings of the HFL Secured Depositors, UFL Secured Stockholders, HFL Subordinated Noteholders and
HCL Bondholders (together, the “investors”), to be held at the Ellerslie Event Centre, Auckland at
10.30am on 16 December 2009 to seek approval, by way of Extraordinary Resolutions, of the proposal
from Allied Farmers Limited (“Allied” or “Allied Farmers”) described in this document (“Allied Farmers
Proposal”).
The meetings of the HFL Secured Depositors, UFL Secured Stockholders, HFL Subordinated Noteholders
and HCL Bondholders are to be held contemporaneously. This will enable all investors to participate in
discussions about the Allied Farmers Proposal and its implementation. This will allow investors to
consider all matters raised at the meeting for each group of investors, however investors should consider
their own position when deciding how to vote on their Extraordinary Resolutions.
Even if an individual investor does not wish to approve the Allied Farmers Proposal, it is still important to
cast their vote on the applicable Extraordinary Resolutions, as the outcome of the Extraordinary
Resolutions is relevant to whether or not the Allied Farmers Proposal is implemented.
Certain conditions apply to the Allied Farmers Proposal. These are described under the heading
“Conditions” in Section 2 below.
If the Allied Farmers Proposal is approved and implemented, investors will become shareholders of Allied
Farmers whether or not they vote in favour of their Extraordinary Resolutions.
The risks associated with holding shares are different from the risks associated with holding the
investments. Information on the risks in respect of the Allied Farmers’ shares is set out in the Allied
Farmers Simplified Disclosure Prospectus and the Grant Samuel independent expert report.
The disclosures in this document are important and should be read carefully. It is important
that you either attend the meeting personally or complete and lodge a Proxy Appointment
Form. If you do not understand the contents of this document or are in any doubt about the
action to be taken, you should consult your financial, legal or other adviser immediately.
2. OVERVIEW OF THE ALLIED FARMERS PROPOSAL
Background
In December 2008, the investors agreed to restructure their investments in the companies, including
extending the time for repayment of those investments over the period through to December 2013.
Since that time:
• the companies have been operating under a new governance regime approved by investors under the
Debt Restructure;
• David Henry has been appointed independent Chairman, and Des Hammond has been appointed as
an additional independent director, to the Hanover, United and Hanover Capital boards; and
• the companies have repaid an aggregate of $31.7 million (or 6 cents per dollar outstanding) to the
holders of HFL Secured Deposits and UFL Secured Stock.
When the Debt Restructure was entered into, it was anticipated that the property market would stabilise
and potentially show signs of recovery in late 2009 or early 2010. However, as indicated in the
September 2009 Investor Update, market indicators have continued to move in a more negative direction
and trading conditions in general, and the property market in particular, continue to be challenging.
2
Against this background, the companies have recently updated investors on the impact of the subsequent
significant deterioration in the property development sector, which has resulted in a large number of
borrowers being unable to repay or refinance their loans as they fall due.
In the investor update, the directors advised that the current forecasts indicate that the companies are
no longer likely to achieve full repayment to all investors under the Debt Restructure. Directors have
estimated that:
• the return to HFL Secured Depositors is likely to be approximately 70 cents per dollar payable under
the Debt Restructure (inclusive of the 4 cents per $1.00 paid to 30 June 2009)
• the return to UFL Secured Stockholders is likely to be approximately 90 cents per dollar payable
under the Debt Restructure (inclusive of the 4 cents per $1.00 paid to 30 June 2009)
• they are unable to forecast any repayment for HFL Subordinated Noteholders or HCL Bondholders.
The Allied Farmers Proposal

In August 2009, HFL and UFL were confidentially approached by Allied Farmers to discuss a proposal by
which Allied Farmers would acquire substantially all of the Finance Assets of HFL and UFL. Under the
proposal, Allied Farmers will acquire the debentures issued by the companies in exchange for shares in
Allied Farmers (as detailed further below). The debentures would then be redeemed by Allied Farmers,
with the proceeds off-set against the consideration payable for the Finance Assets.
The Allied Farmers Proposal effectively results in the exchange of the debt securities held by investors for
a tradable equity shareholding in a publicly listed entity. There is currently no effective market for the
debentures issued by the companies, so the Allied Farmers Proposal is expected to provide greater
liquidity and the potential of an equity return (i.e. rather than receiving a fixed return, investors return
will be any distributions declared by the board of directors of Allied Farmers, and any change in market
value of their shares). Note that no assurance can be given as to whether or at what level distributions
will be declared by Allied Farmers, or of the price at which shares in Allied Farmers may be sold (see the
Grant Samuel independent expert report, and the section of this Explanatory Memorandum headed
“Grant Samuel independent expert report”, for further details). The Allied Farmers Proposal is also
expected to provide the potential for investors to realise all or part of their remaining investments when
they choose.
Allied Farmers Limited is listed on the NZSX securities market operated by NZX Limited (“NZX”). Allied
Farmers is a rural services’ and finance group operating throughout New Zealand and currently has
approximately 5,200 listed shareholders. Allied Farmers has over 90 years experience providing livestock
trading, rural merchandise, finance, and real estate services.
Allied Farmers’ 100% subsidiary, Allied Nationwide Finance Limited has been providing diversified
investment and finance solutions to New Zealanders for over 30 years.
Further information on Allied Farmers can be found in the Simplified Disclosure Prospectus prepared by
Allied Farmers, which accompanies this document and on Allied Farmers’ website at
www.alliedfarmers.co.nz.
Conditions
Implementation of the Allied Farmers Proposal is conditional upon the investors approving the Allied
Farmers Proposal by Extraordinary Resolutions in accordance with the Trust Deeds.
The Allied Farmers Proposal is also conditional on Allied Farmers shareholders approval, the consent from
certain lenders to the Axis Companies, and other usual conditions. Allied Farmers has convened a
meeting of its shareholders to be held before the investors’ meetings to approve it proceeding with the
Allied Farmers Proposal. If the Allied Farmers shareholders do not approve the Allied Farmers Proposal
the investor meetings described in this Explanatory Memorandum will be cancelled.
If approved, completion of the Allied Farmers Proposal is expected to occur immediately following the
investor meetings. Completion is required to occur on or prior to 30 December 2009 (unless extended by
agreement between Allied Farmers and Hanover).
Grant Samuel independent expert report

Grant Samuel has provided an independent expert’s report for investors which gives an independent view
on the merits of the Allied Farmers Proposal.
3
The Grant Samuel independent expert report concludes that the Allied Farmers Proposal is superior to the
status quo and to receivership and that an alternative superior offer is unlikely. The report also states
that the consideration being offered by Allied Farmers is considered fair and that, to the extent there is
any transfer of value between the investors and Allied Farmers shareholders, it will be insignificant
particularly given that the investors will own approximately 97% of an enlarged Allied Farmers following
completion of the Allied Farmers Proposal.
Grant Samuel has also identified a number of differences for investors between holding debt securities in
the companies and equity securities in Allied Farmers. Investors should review the analysis in the Grant
Samuel independent expert report in its entirety (particularly section 6 entitled “Merits”), however in
their summary they note:
“The ownership of shares is a very different investment from holding either Secured Deposits, Secured Stock,
Subordinated Notes or Capital Bonds. While there is generally more liquidity associated with equity instruments,
there is no entitlement to regular payments with holders’ returns coming from dividends and changes in share
price. Holders of equity have the lowest priority over available funds in a company. Grant Samuel note that this
is essentially the current position of Investors under the current ownership of Hanover, given that there is no
tangible value left within Hanover for the Shareholders, (Messrs Hotchin and Watson) whether the Proposal is
implemented or not.”
The report also notes:
“There is potential for Allied Farmers to benefit from improved liquidity and share price with the increase in its
market capitalisation under the Proposal. However, it is likely that in the short term the shares in Allied Farmers
will trade at a lower price than the original transfer value, particularly if there are large numbers of sellers of
these securities.”
Exchange of Debentures
If the Allied Farmers Proposal is approved, investors of each class of debentures that approves the Allied
Farmers Proposal will assign their investments in the companies to Allied Farmers in exchange for
ordinary shares in Allied Farmers. Prior to being assigned, the investors will agree to cancel part of the
amount owing to them under their investments to recognise a reduction in the underlying value of the
companies’ assets being acquired by Allied Farmers. The exact amounts being cancelled are as follows:
• In respect of HFL Secured Deposits, 22 cents of each $1.00 of principal amount of the HFL Secured
Deposits outstanding as at 31 December 2008 (which, taking into account the 6 cents per $1.00
already paid, will leave 72 cents per $1.00 outstanding);
• In respect of UFL Secured Stock, 10 cents of each $1.00 of principal amount of the UFL Secured
Stock outstanding as at 31 December 2008 (which, taking into account the 6 cents per $1.00 already
paid, will leave 84 cents per $1.00 outstanding);
• In respect of HFL Subordinated Notes: (i) 20 cents of each $1.00 of principal amount of the HFL
Subordinated Notes outstanding as at 31 December 2008; and (ii) the 50 cents of each $1.00 of
principal of the HFL Subordinated Notes outstanding as at 31 December 2008 which would otherwise
have been cancelled on completion of the Debt Restructure in December 2013 (which will leave 30
cents per $1.00 outstanding); and
• In respect of HCL Bonds: (i) 20 cents of each of $1.00 of principal amount of the Bonds outstanding
as at 31 December 2008; and (ii) the 50 cents of each $1.00 of principal of the HCL Bonds
outstanding as at 31 December 2008 which would otherwise have been cancelled on completion of
the Debt Restructure in December 2013 (which will leave 30 cents per $1.00 outstanding).
The reduction in the amount owed to investors results in remission income, tax on which Hanover, United
and Hanover Capital rather than Allied Farmers or the investors, will be responsible for.
Allied Farmers Shares

As consideration for the transfer of the HFL Secured Deposits, UFL Secured Stock, HFL Subordinated
Notes, and HCL Bonds (following the above debt reduction), Allied Farmers will issue shares in itself to
the investors.
In aggregate, Allied Farmers has agreed to issue shares to investors for a total issue price of $396.2m.
Each investor will be entitled to receive shares having a total issue price equal to the outstanding
principal amount of the debentures held by that investor (following the reductions referred to above).
Details on the outcomes for investors are set out in more detail under the heading “Outcomes for
Investors” below.
4
The number of the Allied Farmers shares to be issued by Allied Farmers to investors will be calculated by
reference to the market value of Allied Farmers shares on the NZSX over the five business days prior to
the meeting of Hanover investors. The market value will be determined by calculating the volume
weighted average price of price setting trades through the NZSX over that five business day period. In
calculating the number of Allied Farmers shares to be issued to each investor, any fractional entitlement
which is in excess of 0.25 Allied Farmers shares will be rounded up to the next whole number (with any
fractional entitlement of 0.25 Allied Farmers shares or less being ignored). Subject to the Allied Farmers
Proposal becoming unconditional, the shares are expected to be issued on 17 December 2009.
As at the date of this Explanatory Memorandum, it is estimated that if the Extraordinary Resolutions are
passed and the Allied Farmers Proposal is implemented, the investors will hold over 96% of Allied
Farmers’ total issued shares. The following table sets out the range of outcomes which would result from
the newly issued shares being priced within the 30 to 40 cents range.
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
Capitalisation 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
Market
Capitalisation* 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%

*Market Capitalisation is not a proxy for equity.
Further information on these shares to be issued by Allied Farmers, and risk factors applying to Allied
Farmers, is available in Allied Farmers Simplified Disclosure Prospectus which accompanies this
Explanatory Memorandum.
Bonus Shares
To provide protection for its existing shareholders should the realisable value of the assets to be acquired
from the companies be less than $396.2m, Allied Farmers will issue bonus shares to its existing
shareholders prior to implementing the Allied Farmers Proposal. A shortfall in the value of the acquired
assets will be deemed to exist if, during the period up to 30 June 2011, the total amount realised by
Allied Farmers from the Finance Assets it acquires as a result of the Allied Farmers Proposal, together
with the residual value of all Finance and Operating Assets it still holds at that date, is less than the
assessed value of $396.2 million. For the purposes of this calculation, the valuation of the Finance and
Operating Assets is to be undertaken using the same methodology as used by Allied Farmers in
calculating its offer price, as explained in more detail in the Appendix. This calculation will be made as
part of the audit of Allied Farmers’ financial results for the period ending 30 June 2011 and is expected to
be announced at the time its audited financial statements are released.
If there is any such shortfall in value at 30 June 2011, the bonus shares will convert into a number of
new ordinary shares in Allied Farmers to reflect the shareholding that Allied Farmers existing
shareholders would have had if the shortfall had been reflected in values used in agreeing the number of
Allied Farmers shares to be issued to investors under the Allied Farmers Proposal.
Bonus shares will be issued to each current Allied Farmers shareholder (prior to the share issue pursuant
to the Allied Farmers Proposal), at the ratio of 1 bonus share per 10 Allied Farmers shares. Allied
Farmers shareholders’ bonus share entitlements will be determined as at 5pm on the date of the meeting
of Hanover investors, 16 December 2009. On issue, these bonus shares will have no voting rights (except
on a resolution to vary the terms of such shares), no rights to distributions, and no rights to surplus
assets on liquidation. Any change to the terms of these bonus shares will be deemed to be an action
affecting the ordinary shareholders, and will require the approval by way of a special resolution of the
holders of the bonus shares (meaning 75% approval) and a special resolution of the ordinary
5
shareholders of Allied Farmers (including the investors who are issued shares under the Allied Farmers
Proposal).
If there is a shortfall as at 30 June 2011, the terms of the bonus shares will be reset to be the same as
ordinary shares in Allied and the bonus shares will be divided or consolidated at an agreed ratio, and
thereafter those shares will carry the same rights as fully paid ordinary shares in Allied Farmers. If there
is no shortfall, Allied Farmers will redeem all such bonus shares for nil consideration payable to the
holders.
Note that there are no reciprocal rights if Allied Farmers achieves recoveries in excess of the assessed
value. As investors are expected to hold over 96% of the shares on issue in Allied Farmers following
completion of the Allied Farmers Proposal, almost all that excess value will be to their benefit in this
event.
Allied Farmers Simplified Disclosure Prospectus and the Grant Samuel independent expert report provide
further information in respect of these bonus shares.
Acquisition of Finance Assets and Operating Assets

Under the Allied Farmers Proposal, Allied Farmers will acquire the finance assets of HFL and UFL
consisting of:
• All loans and advances of HFL (being the relevant loan/facility agreement or document creating an
indebtedness, and any security held in respect of that loan (except where such security is granted by
an entity that is controlled directly or indirectly by Hanover, UFL or any of the Shareholders)) but
excluding an intercompany loan between HFL and HFP Investments Limited;
• All loans and advances of UFL (being the relevant loan/facility agreement or document creating an
indebtedness, and any security held in respect of that loan (except where such security is granted by
an entity that is controlled directly or indirectly by Hanover, UFL or any of the Shareholders);
• All investment assets of HFL and UFL, other than the shares in HFP Investments Limited (which
currently holds all of the shares in the Axis Companies, which will be transferred to Allied Farmers
under the Allied Farmers Proposal, but also has other residual obligations) and all charging
subsidiaries; and
• Certain assets provided under the Debt Restructure Shareholder Support Package, consisting of
approximately $10.5m cash which is currently in a solicitor’s trust account in escrow to support the
scheduled payments required under the Debt Restructure, all issued shares in the Axis Companies,
the mortgage over the Matarangi Beach Estates property currently held by HFP Investments Limited
and certain intercompany debts owed by the Axis Companies to HFP Investments Limited,
(together, the “Finance Assets”).
In addition to the Finance Assets, the following assets will also be transferred to Allied:
• Computer software and hardware dedicated to the support of the business of the companies (to the
extent they can be practically severed); and
• Furniture and fittings, including workstations, chairs, mobile units and screens,
(together, the “Operating Assets”), and Allied Farmers will also assume the rights and obligations of
certain contracts, such as the head office lease, and equipment leases (the “Assumed Contracts”).
The Finance Assets and the Operating Assets will be assigned to Allied Farmers in consideration of: (i)
Allied Farmers off-setting the proceeds it is entitled to on redemption of the debentures it receives from
investors against its obligation to pay a purchase price of $396.2 million for those assets ; (ii) Allied
Farmers taking over the Assumed Contracts; (iii) Allied Farmers making the contribution towards the
companies’ residual obligations (see the section headed “residual obligations” below); and (iv) any GST.
The consideration to be paid reflects Allied Farmers’ assessment of the recoveries available of the Finance
Assets. The consideration has been attributed by Allied Farmers as follows:
• $301.8 million for HFL’s assets

6
• $49.9 million for UFL’s assets
• $44.5 million for the assets held under the shareholder support provided as part of the Debt
Restructure
The companies will remain responsible for all transaction costs, whether or not the Allied Farmers
Proposal proceeds, which include the professional costs of financial, legal, accounting and taxation
advisers, the costs of the Trustees and their advisers, the costs of printing and distributing this
Explanatory Memorandum and the associated notices of meeting and the costs of holding the meetings of
investors. If the Allied Farmers Proposal proceeds, Allied Farmers will contribute $5m to HFL and UFL to
fund these costs (since cash comprises part of the Finance Assets being acquired by Allied Farmers). If
the Allied Farmers Proposal does not proceed, each party will bear its own costs and accordingly this will
reduce investor recoveries.
Residual Obligations
Allied Farmers is not assuming the residual liabilities and obligations of the companies as part of the
acquisition, which will remain the sole responsibility of the companies. To fund these obligations, Allied
Farmers has agreed to contribute a sum of $5m to the companies’ holding company, Hanover Group
Holdings Limited. The residual obligations include the costs of winding up the affairs of the companies,
employee entitlements, taxation on the partial remission of the debt securities, the costs of preparing
audited financial statements, arranging to discharge the trust deeds and ongoing litigation to which the
companies are subject. If the Allied Farmers Proposal is completed, the investors and the Trustees will
have no further claim against the companies, their residual assets or any shareholder support.
3. EXTRAORDINARY RESOLUTIONS
The Extraordinary Resolutions propose that the Allied Farmers Proposal be ratified, confirmed and
approved. If these Extraordinary Resolutions are approved by the investors, the companies will be
permitted, and the Trustees will be directed, to enter into all documents, and take all steps necessary or
desirable, to give effect to the Allied Farmers Proposal.
In approving the Allied Farmers Proposal, investors are approving:
• the release of the companies from:
o HFL Secured Deposits: 22 cents of each $1.00 of principal amount of the HFL Secured Deposits
outstanding as at 31 December 2008;
o UFL Secured Stock: 10 cents of each $1.00 of principal amount of the UFL Secured Stock
outstanding as at 31 December 2008;
o HFL Subordinated Notes: (i) 20 cents of each $1.00 of principal amount of the HFL Subordinated
Notes outstanding as at 31 December 2008; and (ii) the 50 cents of each $1.00 of principal of the
HFL Subordinated Notes outstanding as at 31 December 2008 which would otherwise have been
cancelled on completion of the Debt Restructure; and
o HCL Bonds: (i) 20 cents of each $1.00 of principal amount of the HCL Bonds outstanding as at
31 December 2008; and (ii) the 50 cents of each $1.00 of principal of the HCL Bonds outstanding
as at 31 December 2008 which would otherwise have been cancelled on completion of the Debt
Restructure
• the transfer of the remaining investments to Allied Farmers in exchange for shares in Allied Farmers
on the terms set out in this Explanatory Memorandum
• the sale of the Finance Assets and Operating Assets by HFL, UFL and HFP Investments to Allied
Farmers on the terms set out in this Explanatory Memorandum
• the discharge and release of the Trust Deeds
• the release of the support arrangements previously provided for the debt restructure proposals. As a
consequence of the HFL Secured Deposits and UFL Secured Stock being repaid and cancelled, the top
up obligations of Forefront Investments Limited and Hotchin Investments Limited (which are
guaranteed by Eric Watson and Mark Hotchin) of up to $20m under the Cash Injection Deed entered
into as part of the Debt Restructure will no longer apply.
7
If the necessary Extraordinary Resolutions are not passed or the Allied Farmers Proposal fails to become
unconditional, none of the proposed transactions contemplated by the Allied Farmers Proposal will occur
and the Debt Restructure will continue in force as originally contemplated.
The Directors unanimously recommend that investors vote in favour of the Extraordinary
Resolutions for the reasons set out in the independent Chairman’s letter at the front of this Explanatory
Memorandum.
It is intended that KPMG will be appointed as scrutineer for the votes in respect of the Extraordinary
Resolutions.
4. OUTCOMES FOR INVESTORS
Taking into account the payments which have been made under the Debt Restructure, which commenced
in December 2008, it is estimated that, at completion of the Allied Farmers Proposal (and based on the
shares being valued at their issue price), the investors will have received the following consideration (in a
combination of cash repayments to date and the shares in Allied Farmers issued under the proposal):
• For each $1.00 of HFL Secured Deposits at the time of the Debt Restructure = 78 cents
• For each $1.00 of UFL Secured Stock at the time of the Debt Restructure = 90 cents
• For each $1.00 of HFL Subordinated Notes at the time of the Debt Restructure = 30 cents
• For each $1.00 of HCL Capital Notes at the time of the Debt Restructure = 30 cents
A break down of how each dollar of principal outstanding under the debentures as at 31 December 2008
will be satisfied under the Allied Farmers Proposal is set out below:
HFL Secured HFL Subordinated

UFL Secured Stock HCL Bonds
Deposits Notes
Aggregate amount to be
78 cents 90 cents 30 cents 30 cents
received, comprising:
Repayments to date $0.06 $0.06 - -
Amount to be received under Allied
Farmers Proposal (by way of the $0.72 $0.84 $0.30 $0.30
issue of Allied Farmers shares*)
Aggregate amount to be
22 cents 10 cents 70 cents 70 cents
released, comprising:
Amount already agreed to be
released on completion of Debt - - $0.50 $0.50
Restructure
Additional amount to be released
$0.22 $0.10 $0.20 $0.20
under Allied Farmers Proposal
Total $1.00 $1.00 $1.00 $1.00
* Note that the price at which the shares in Allied Farmers will trade may be lower than the price at which
those shares are issued.
Given that the Allied Farmers shares will be issued immediately, and taking into account the current
financial position of the companies as reflected in the audited financial statements for the period to 30
June 2009, the directors believe that this compares favourably against both the current estimated returns
to investors (based on the forecasts available to the companies as at 9 November 2009) of:
• 70 cents per $1.00 payable under the Debt Restructure to HFL Secured Depositors (inclusive of the 4
cents per $1.00 paid to 30 June 2009)
• 90 cents per $1.00 payable under the Debt Restructure to UFL Secured Stockholders (inclusive of the
4 cents per $1.00 paid to 30 June 2009)
• with the directors being unable to forecast any repayment for HFL Subordinated Noteholders or HCL
Bondholders
and the returns originally envisaged under the Debt Restructure of:
8
(cents repaid for every dollar of principal invested)

Period Hanover Finance Ltd United Finance Ltd Hanover Finance Ltd Hanover Capital Ltd
ending secured deposits secured stock subordinated notes bonds
Annual Quarterly Annual Quarterly Annual Quarterly Annual Quarterly

31 Dec 2009 8c 2c 8c 2c
31 Dec 2010 10c 2.5c 10c 2.5c
31 Dec 2011 12c 3c 12c 3c
31 Dec 2012 35c 8.75c 35c 8.75c
31 Dec 2013 35c 8.75c 35c 8.75c 50c 50c
Total 100c 100c 50c 50c
5. TAXATION
The following comments are intended to be only a general summary of the New Zealand taxation
consequences of the Allied Farmers Proposal for resident taxpayers who are not in the business of holding
or dealing in financial arrangements of a type like the investments. Investors should in all cases obtain
their own taxation and financial advice based on their own personal circumstances. This advice is based
on current law and interpretations thereof on the date of this Explanatory Memorandum. No assurance
can be given that applicable tax law and interpretations thereof will not be changed in the future.
An investor will not be entitled to claim a tax deduction for:
• the principal amount of their investment that is released under the terms set out in this Explanatory
Memorandum; and
• any remaining loss realised on the assignment of their investment to Allied Farmers under the terms
set out in this Explanatory Memorandum.
Dividends on the ordinary shares will be subject to New Zealand income tax at the income tax rate
applicable to the investor. NZ resident investors who are subject to tax on the dividends will be entitled
to a credit for any imputation credits attached to the dividends. Dividends will be subject to resident
withholding tax, except for investors who have provided a certificate of exemption.
New Zealand resident investors selling the ordinary shares will be taxable on the proceeds of sale where
the investor:
• acquires the ordinary shares with a dominant purpose of resale;
• is a dealer in investments such as the ordinary shares;
• carries on a business an ordinary incident of which is the sale of investments such as the ordinary
shares; or
• sells the shares in the course of carrying on an undertaking or scheme entered into for the purpose of
making a profit.
Investors who are taxable on the proceeds of a sale of the ordinary shares should be entitled to a
deduction for the cost of their ordinary shares.
6. IMPORTANT INFORMATION FOR OVERSEAS INVESTORS
Allied Farmers is making its offer of shares as part of the Allied Farmers Proposal to investors in New
Zealand, Australia (under the trans-Tasman mutual recognition scheme) and other jurisdictions where
and to the extent that it is lawful to do so. For investors in jurisdictions where Allied Farmers is not
making such offer, the following process will apply:
• Allied Farmers will first issue all shares to which Overseas Persons may be entitled, to a company
nominated by Allied Farmers (the “Nominee Company”) who will hold it on trust in anticipation of
making transfers and/or sale as contemplated by the steps outlined below.
9
• Any Overseas Person wishing to accept the Allied Farmers Proposal will ensure that the offer of Allied
Farmers shares under the Allied Farmers Proposal constitutes a legal offer made to them in
accordance with the applicable securities laws of their relevant jurisdiction(s) (including any
governmental consents or formalities which may be so required).
• Those Overseas Persons wishing to accept the Allied Farmers Proposal will notify Allied Farmers of
their intentions to accept (no later than 31 January 2010), together with sufficient legal evidence that
the offer may legally be made to them under their relevant jurisdiction(s). Upon receipt of this, and
being satisfied of the legal evidence provided, Allied Farmers will then arrange for the transfer of that
Overseas Person’s entitlement of the Allied Farmers shares from the Nominee Company to that
Overseas Person.
• Promptly after 31 January 2010, the Nominee Company, in consultation with Allied Farmers, will sell,
or procure the sale of, any remaining shares it holds (being those shares which were not transferred
to Overseas Persons), on the NZSX. The sale of these remaining shares will be at such price and on
such other terms as the Nominee Company determines in good faith. The proceeds of the sale (after
deduction of any applicable costs, stamp duty, taxes and charges) will be remitted to the Overseas
Persons. Neither Allied Farmers nor the Nominee Company are able to give any assurance as to the
price that will be achieved for the sale of these shares, and Allied Farmers will not be liable for a
failure to sell any of these shares, or the failure to sell these at a particular price.
• The net proceeds of the sale will be distributed in New Zealand dollars to the applicable investors in
proportion to their respective entitlements under the Allied Farmers Proposal. Any such distribution of
the proceeds of sale will be remitted in New Zealand dollars to the Overseas Person. Allied Farmers
estimates that the costs involved in any such sale of shares by the Nominee Company will be a
minimum of $30 per Overseas Person. Where the gross proceeds of the sale are less than the actual
costs, no distributions will be made.
Those investors who hold securities on behalf of Overseas Persons are each responsible for ensuring that
participating in the Allied Farmers Proposal does not breach the applicable laws of the relevant overseas
jurisdiction(s).
All Overseas Persons are encouraged to consult their qualified financial and/or legal advisors before
accepting the Allied Farmers Proposal, and to find out other requirements which must be observed and/or
obtained to enable them to participate in the Allied Farmers Proposal.
The above arrangements are described in more detail in Allied Farmers Simplified Disclosure Prospectus
relating to the issue of shares.
Please note that investors can update their address details by contacting the companies on 0800 353 377
or +64 9 357 2600 if calling from overseas.
7. DISCLOSURES
• None of the directors of any of the companies or their associated persons directly or indirectly hold
shares in, hold directorships in, or otherwise have an interest in, Allied Farmers. None of the
directors or their associated persons currently hold any debentures in any of the companies.
• As a consequence of the HFL Secured Deposits and UFL Secured Stock being repaid and cancelled,
the top up obligations of Forefront Investments Limited and Hotchin Investments Limited (which are
guaranteed by Eric Watson and Mark Hotchin) of up to $20m under the Cash Injection Deed entered
into as part of the Debt Restructure will no longer apply.
• The shareholders will retain ownership of the companies and their subsidiaries (except for the Axis
Companies which form part of the “Finance Assets” being acquired by Allied Farmers), and are
required to pay the transaction costs associated with the Allied Farmers Proposal and manage the
residual obligations and costs of the companies, including staff costs, taxation on the remission of
debt securities, costs of preparing audited financial statements, arranging to discharge the trust
deeds, and ongoing litigation. The funding arrangements for these amounts are described under the
headings “Acquisition of Finance Assets and Operating Assets” and “Residual Obligations” above.
• Both Trustees have confirmed that they have no association with Allied Farmers, except that The New
Zealand Guardian Trust Company Limited is also the trustee for Allied Nationwide Finance Limited.
As a condition of providing releases of the support arrangements provided for the Debt Restructure
the Trustees have required the companies to indemnify them. The Trustees will charge additional
10
fees to the companies, and seek recovery of their reasonable costs (including of engaging their own
advisers), to review the notices of meeting, this Explanatory Memorandum the Allied Farmers
Simplified Disclosure Prospectus, and the Grant Samuel independent expert report, relating to the
Allied Farmers Proposal. The Trustees and their advisers’ fees are not contingent on the outcome of
the Allied Farmers Proposal at the meetings of the investors.
• Grant Samuel, who have produced the independent expert’s report for investors, will be paid a fee for
their work preparing the report. This fee is not contingent on the outcome of the Allied Farmers
Proposal at the meetings of the investors.
• The companies have also sought financial advice, legal advice, and tax advice to assist them in the
review of the Allied Farmers Proposal, the finalisation of the commercial terms, and the preparation
of materials for investor consideration. These firms will be paid fees for their professional services on
commercial terms.
11
8. GLOSSARY OF TERMS
Allied or Allied Farmers means Allied Farmers Limited and, where the context requires, includes its
subsidiaries and associate companies.
Allied Farmers Proposal means the proposal described in this Explanatory Memorandum which in
summary involves (i) the partial release of investors’ debentures (ii) the exchange of investors’
debentures for shares in Allied Farmers and (iii) the sale of the companies finance assets and operating
assets in exchange for the redemption and cancellation of the debentures.
Allied Farmers Simplified Disclosure Prospectus means the Simplified Disclosure Prospectus dated on or
about 23 November 2009 prepared by Allied Farmers which accompanies this Explanatory Memorandum.
Axis Companies means Lifestyles of New Zealand Queenstown Limited, LONZ 2008 Limited, LONZ 2008
Holdings Limited, Matarangi Beach Estates Limited, QWF Holdings Limited, Clearwater Avenue Holdings
Limited, HPL Rhode Island (2008) Limited, and every subsidiary of such entities.
companies means HFL, UFL and HCL.
Debt Restructure means the debt restructuring plan implemented pursuant to extraordinary resolutions
approved by the investors on 9 December 2008.
Debt Restructure Shareholder Support Package means the financial support arrangements provided by
the shareholders (being Eric Watson and Mark Hotchin as the ultimate shareholders of the companies).
Extraordinary Resolutions means the resolutions set out in the Notices of Meeting.
Finance Assets means the loan assets and investments being acquired by Allied Farmers under the Allied
Farmers Proposal.
HCL or Hanover Capital means Hanover Capital Limited.
HCL Bonds means the bonds issued by HCL under the HCL Trust Deed.
HCL Bondholders means the holders of the HCL Bonds.
HCL Trust Deed means the Trust Deed between HCL and Perpetual Trust Limited dated 4 October 2005.
HFL or Hanover means Hanover Finance Limited.
HFL Secured Deposits mean the secured deposits issued by HFL under the HFL Secured Deposits Trust
Deed.
HFL Secured Depositors means the holders of the HFL Secured Deposits.
HFL Secured Deposits Trust Deed means the Trust Deed between HFL and The New Zealand Guardian
Trust Company Limited dated 18 July 1985, as amended from time to time.
HFL Subordinated Notes means the subordinated notes issued by HFL under the HFL Subordinated Notes
Trust Deed.
HFL Subordinated Noteholders means the holders of the HFL Subordinated Notes.
HFL Subordinated Notes Trust Deed means the HFL Trust Deed Relating to the Issue of NZ$20,000,000
Fixed Rate Subordinated Notes between HFL and Perpetual Trust Limited dated 14 October 2002, as
amended from time to time.
investments or debentures means the HFL Secured Deposits, UFL Secured Stock, HFL Subordinated Notes
and HCL Bonds.
Notices of Meeting means the notices of meeting in respect of the meetings to be held on 16 December
2009 (or at any adjourned meeting) for each group of investors to consider the Allied Farmers Proposal.
12
Operating Assets means the operating assets being acquired by Allied Farmers under the Allied Farmers
Proposal.
Overseas Persons means investors who are subject to the laws of a country other than New Zealand or
Australia, and who are able to establish that under all relevant jurisdictions to which they are subject, the
offer of securities under the Allied Farmers Proposal constitutes a lawful offer.
Trustees means the trustee of each investment being:
• The New Zealand Guardian Trust Company Limited in respect of the HFL Secured Deposits;
• Perpetual Trust Limited in respect of the UFL Secured Stock;
• Perpetual Trust Limited in respect of the HFL Subordinated Notes;
• Perpetual Trust Limited in respect of the HCL Bonds.
UFL or United means United Finance Limited.
UFL Secured Stock means the secured stock issued by UFL under the UFL Trust Deed.
UFL Secured Stockholders means the holders of the UFL Secured Stock.
UFL Trust Deed means the Trust Deed Relating to the Issue of Secured Stock and Unsecured Deposits
between United Finance Limited and Perpetual Trust Limited dated 12 March 2002, as amended from
time to time.
13
9. DIRECTORY
Companies & Securities Registrar

Hanover Finance Limited, United Finance Limited and Hanover Capital Limited
Level 4
520 Queen Street
Auckland
Investor Free Phone: 0800 353 377 or +64 9 357 2600 if calling from overseas
Directors of the Companies

Desmond Ronald Hammond
David Brian Henry
Mark Stephen Hotchin
Auditor for the Companies

KPMG
18 Viaduct Harbour Avenue
Auckland
Solicitors for the Companies

Chapman Tripp
Level 35
23-29 Albert Street
Auckland
Trustee of the HFL Secured Deposits

The New Zealand Guardian Trust Company Limited
PO Box 1934
Auckland
Free Phone: 0800 801 135
Trustee of the UFL Secured Stock, HFL Subordinated Notes and HCL Bonds
Perpetual Trust Limited
PO Box 112
Christchurch
Free Phone: 0800 737 738

14
APPENDIX: CALCULATION OF SHORTFALL

The bonus shares to be issued by Allied Farmers to its existing shareholders will convert in the manner
described under the heading “Bonus Shares” above (and as more particularly described in Allied Farmers
Simplified Disclosure Prospectus) if there is a shortfall below Allied Farmers’ valuation of the assets of
$396.177m. A shortfall will occur if, in respect of the period up to 30 June 2011, the total of the
following is less than $396.177m:
1. Cash acquired on completion; plus
2. The amount received from the sale of any assets since completion (or prior to completion where
such sale was approved by Allied Farmers); plus
3. The amount received from the repayment or any other means of realisation of any assets since 17
November 2009; plus
4. The value of any assets held by Allied Farmers (as recorded in their audited accounts for the period
ended 30 June 2011, but calculated on the basis of the discount rate used by Allied Farmers when
determining its assessed value and will exclude any IFRS or other adjustments which discount the
value of such assets to a greater extent than the policies used by Allied Farmers in determining its
assessed value, including, for example, the adjustment required by clause 63 of the Financial
Instruments: Recognition and Measurement (NZIAS 39); less
5. The Deferred Tax Amount (as described further below) and the amount of any tax arising to Allied
Farmers under section CC3 and subpart EW of the Income Tax Act 2007 by virtue of the transactions
contemplated by the exchange of debentures for Allied Farmers shares under the Allied Farmers
Proposal, less
6. The interest costs paid in the period by any Axis Company to a third party; less
7. The amount of any damages suffered by Allied Farmers for any breach of a warranty (less any
amount subsequently recovered from any third party in connection with such warranty claim), but
not any warranty claim that has already been reflected in the values referred to above.
In calculating the above amounts:
(a) The amount received from the sale of any assets will be calculated as the net cash proceeds from
the realisation of the relevant asset (whether by way of sale, refinance by a third party, or
enforcement of securities, as the case may be) less all direct holding costs incurred over the period
the asset is held by Allied Farmers (including in the case of property investment assets, debt
servicing amounts paid to prior ranking third party funders), less non-recoverable legal and
professional costs incurred in relation to realisation of the asset, and less all direct realisation costs.
(b) The value of any assets held by Allied Farmers (as recorded in their audited accounts for the period
ended 30 June 2011) will be determined in accordance with generally accepted accounting
principles and, in the case of any loan asset or property investment with a value in excess of $2
million, will include the obtaining of an independent registered valuation.
(c) Any property asset which is held in a subsidiary, special purpose or single asset company will be
valued itself (net of debt related to that asset due to any person other than Allied Farmers or any
person related to or associated with Allied Farmers) rather than the value of the shares held in that
company.
(d) Deferred Tax Amount means 30% multiplied by the greater of: (i) zero; or (ii) the difference
between the aggregate net income (as defined in Income Tax Act 2007) that would have arisen to
Allied Farmers and the Acquired Entities if a Deemed Disposal and Liquidation had occurred
immediately following completion and the aggregate tax losses (as defined in Income Tax Act
2007) that would have arisen to Allied Farmers and the Acquired Entities if a Deemed Disposal and
Liquidation had occurred immediately following completion, where:
i. Acquired Assets means all assets acquired by Allied Farmers and all assets held by the
Acquired Entities on completion, other than shares in Acquired Entities.
ii. Acquired Entities means the Purchased Entities and all entities whose shares or ownership
interests are held directly or indirectly by the Purchased Entities on completion.
15
iii. Deemed Disposal and Liquidation means: (A) the disposal by Allied Farmers of its
Acquired Assets to a third party for market value; and (B) the disposal by each Acquired
Entity of its Acquired Assets to a third party for market value, the application of the
proceeds of such disposal by each Acquired Entity towards repayment of its liabilities, the
remittance of any liabilities of the Acquired Entities that remain unpaid, followed by the
liquidation or wind-up of the Acquired Entities.
iv. Purchased Entities means all entities whose shares are acquired by Allied Farmers under
the Allied Farmers Proposal.
(e) The calculations will not take account of general operating costs incurred during the relevant
period.
(f) Allied Farmers is required to separately account for any assets so as to enable the assessment to
be effected in the manner required and will procure that not less than two of its independent
directors and its auditor each provide a certificate for the benefit of investors confirming that the
calculation has been effected in the manner required and that each component of the calculation is
materially accurate.
GRANT SAMUEL
INDEPENDENT EXPERT REPORT
Hanover Finance Limited,
United Finance Limited &
Hanover Capital Limited
Independent Report
On the merits of the Allied Farmers’ Proposal
November 2009
Table of Contents
Glossary ......................................................................................................................................................................................... 3 
1.  Introduction........................................................................................................................................................................... 5 
1.1  Background ................................................................................................................................................................. 5 
1.2  Recent History ............................................................................................................................................................. 5 
1.3  Summary Terms of the Proposal .................................................................................................................................. 7 
1.4  Purpose of the Report.................................................................................................................................................. 8 
1.5  Basis of Evaluation ....................................................................................................................................................... 8 
2.  Summary of Merits ............................................................................................................................................................... 9 
2.1  Conclusions ................................................................................................................................................................. 9 
3.  The Proposal in Further Detail .......................................................................................................................................... 12 
3.1  Structure of the Allied Farmers’ Proposal ................................................................................................................... 12 
3.2  Profile of Allied Farmers.............................................................................................................................................. 15 
4.  Profile of HFL ...................................................................................................................................................................... 19 
4.1  Background ............................................................................................................................................................... 19 
4.2  Current Operations..................................................................................................................................................... 19 
4.3  Financial Performance ................................................................................................................................................ 20 
4.4  Financial Position ....................................................................................................................................................... 21 
4.5  Cash Flow.................................................................................................................................................................. 23 
5.  Profile of United .................................................................................................................................................................. 24 
5.1  Background ............................................................................................................................................................... 24 
5.2  Current Operations..................................................................................................................................................... 24 
5.3  Financial Performance ................................................................................................................................................ 24 
5.4  Financial Position ....................................................................................................................................................... 26 
5.5  Cash Flow.................................................................................................................................................................. 27 
6.  Merits................................................................................................................................................................................... 28 
6.1  Catalyst and Rationale for the Allied Farmers’ Initiating the Proposal .......................................................................... 28 
6.2  The Value of the Allied Farmers’ Proposal .................................................................................................................. 28 
6.3  Implications of the Allied Farmers’ Proposal ............................................................................................................... 31 
6.4  Holding equity compared to holding debt securities ................................................................................................... 33 
6.5  Alternatives to the Allied Farmers’ Proposal................................................................................................................ 35 
6.6  Other advantages and disadvantages of the Allied Farmers’ Proposal ........................................................................ 37 
6.7  Acceptance or Rejection of the Allied Farmers’ Proposal............................................................................................ 39 
7.  Qualifications, Declarations & Consents.......................................................................................................................... 40 
7.1  Qualifications.............................................................................................................................................................. 40 
7.2  Limitations and Reliance on Information ..................................................................................................................... 40 
7.3  Disclaimers ................................................................................................................................................................ 41 
7.4  Independence ............................................................................................................................................................ 41 
7.5  Information................................................................................................................................................................. 41 
7.6  Declarations ............................................................................................................................................................... 41 
7.7  Consents ................................................................................................................................................................... 42 
Appendix A – Overview of Finance Industry
2
Glossary
Glossary
Term Definition
$20 million Pledge The up to $20 million subordinated pledge, personally guaranteed by the Shareholders,
available as part of the Support Package in certain circumstances in the event of a shortfall of
funds to meet repayment obligations to the Secured Depositors and Secured Stockholders
AFI Allied Farmers Investments Limited
Allied Farmers Allied Farmers Limited
Axis Companies The subsidiaries of HFP, being Clearwater Avenue Holdings Limited, HPL Rhode Island (2008)
Limited, Lifestyles of New Zealand Queenstown Limited, LONZ 2008 Limited, LONZ 2008
Holdings Limited, Matarangi Beach Estates Limited, and QWF Holdings Limited and their
respective subsidiaries
Capital Bondholders Holders of Capital Bonds issued by HCL
Capital Bonds Bonds issued by HCL under the HCL Capital Bonds Trust Deed
Debt Restructure The debt restructures in respect of debt securities issued by HFL, United and HCL approved
by extraordinary resolutions of Investors on 9 December 2008
Guardian Trust The New Zealand Guardian Trust Company Limited
Hanover HFL, HCL and United
Hanover Secured Deposits Trust Trust Deed between HFL and The New Zealand Guardian Trust Company Limited dated 18
Deed July 1985 in respect of the Secured Deposits, as amended
Hanover Subordinated Notes HFL Trust Deed Relating to the Issue of NZ$20 million Fixed Rate Subordinated Notes between
Trust Deed HFL and Perpetual Trust Limited dated 14 October 2002, as amended
HCL Hanover Capital Limited
HFL Hanover Finance Limited
HCL Capital Bonds Trust Deed Trust Deed between HCL and Perpetual Trust Limited dated 4 October 2005
HFP HFP Investments Limited
Investors The Secured Depositors, Secured Stockholders, Subordinated Noteholders and Capital
Bondholders
Listing Rules The listing rules applying to the NZSX securities market operated by NZX
Matarangi Beach Estates Loan The $26 million second mortgage loan to Matarangi Beach Estates acquired by HFP as part of
the Debt Restructure
NBDTs Non-bank deposit takers
NZ IFRS New Zealand International Financial Reporting Standards
NZX NZX Limited
Perpetual Trust Perpetual Trust Limited
The Proposal The proposal by Allied Farmers to acquire the loan assets and the Support Package assets of
HFL and United in exchange for the extinguishment of HFL, HCL and United’s liability to their
respective Investors by way of payment in Allied Farmers shares
Secured Depositors Holders of the Secured Deposits issued by HFL
Secured Deposits Secured deposits issued by HFL under the HFL Secured Deposits Trust Deed
Secured Stock Secured Stock issued by United under the United Secured Stock Trust Deed
Secured Stockholders Holders of the Secured Stock issued by United
Shareholders Mr Mark Hotchin and Mr Eric Watson
Subordinated Noteholders Holders of the Subordinated Notes issued by HFL
Subordinated Notes Subordinated notes issued by HFL under the HFL Subordinated Notes Trust Deed
3
Support Package The Shareholder Support Package
Trust Deeds The HFL Secured Deposits Trust Deed, the HFL Subordinated Notes Trust Deed, the HCL
Capital Bonds Trust Deed and the United Secured Stock Trust Deed
United United Finance Limited
United Secured Stock Trust Trust Deed Relating to the Issue of Secured Stock and Unsecured Deposits between United
Deed Finance Limited and Perpetual Trust Limited dated 12 March 2002, as amended
4
1. Introduction
1.1 Background
On 18 November 2009 Hanover Finance Limited (HFL), United Finance Limited (United) and Hanover
Capital Limited (HCL) (collectively Hanover) announced that it had entered into a transaction to sell the
entire business to Allied Farmers Limited (Allied Farmers), a company listed on the New Zealand Stock
Exchange (NZX) (the Proposal). The Proposal involves Allied Farmers acquiring the assets of Hanover in
exchange for shares in Allied Farmers being issued to the holders of:
 Hanover Secured Deposits (the Secured Depositors);
 United Secured Stock (the Secured Stockholders);
 Hanover Finance Subordinated Notes (the Subordinated Noteholders); and
 Hanover Capital Bonds (the Capital Bondholders), collectively the Investors.
In essence the Proposal involves a conversion of all outstanding debt instruments in Hanover for equity in
Allied Farmers. If the Proposal is implemented the Investors will collectively own approximately 97% of
Allied Farmers at completion. For all intents and purposes the Proposal is therefore a back door listing of
Hanover.
For it to proceed, the Proposal requires a 75% majority of each class of Hanover Investor to vote in favour
of the Proposal under the provisions of the various Hanover trust deeds. Investors will be asked to vote
on the Proposal at a special meeting of Investors to be held on 16 December 2009.
The Proposal is also a major transaction under the NZSX Listing Rules (Listing Rules) and therefore
requires the approval of a simple majority (50%) of shares voted by Allied Farmers shareholders eligible to
vote and in attendance at a special meeting. At that meeting, scheduled for 8 December 2009, Allied
Farmers shareholders will be asked to vote on the proposed acquisition of the Hanover assets and on the
issue of Allied Farmers shares to the Investors.
1.2 Recent History
In December 2008 the Investors approved amendments to the Hanover Secured Deposits Trust Deed
dated 18 July 1985, the United Secured Stock Trust Deed dated 12 March 2002, the Hanover
Subordinated Notes Trust Deed dated 14 October 2002, and the HCL Capital Bonds Trust Deed dated 4
October 2005 (together the Trust Deeds), to allow a debt restructuring (Debt Restructure) of Hanover.
The schedule of repayments to the Secured Depositors and Secured Stockholders agreed under the
Debt Restructure is summarised as follows:
Secured Deposit and Secured Stock Repayments Agreed under Debt Restructure
Period ending Annual Quarterly
31 December 2009 8c 2c
31 December 2010 10c 2.5c
31 December 2011 12c 3c
31 December 2012 35c 8.75c
31 December 2013 35c 8.75c
Total 100c
5
In addition, under the terms of the Debt Restructure:
 HFL Subordinated Noteholders agreed to receive 50% of their principal repayments, following
payment in full of the HFL Secured Depositor obligations, with the payment to be made on 31
December 2013, at which time the remaining 50% of their principal was to be cancelled; and
 HCL Capital Bondholders agreed to receive 50% of their principal repayments, following payment in
full of the HFL Secured Deposit and HFL Subordinated Note obligations, with payment being made
on 31 December 2013, at which time the remaining 50% of their principal was to be cancelled.
At the time of the Debt Restructure, PricewaterhouseCoopers (PwC) was commissioned to opine on the
Debt Restructure for The New Zealand Guardian Trust Company Limited (Guardian Trust), as trustee for
the Secured Depositors, and by Perpetual Trust Limited (Perpetual Trust) as trustee for the Secured
Stockholders. Similarly, Korda Mentha were engaged by Perpetual Trust as trustee for the Subordinated
Noteholders and Capital Bondholders. In its report PwC stated it believed that Hanover’s view of the
expected loan recoveries was optimistic and instead estimated that the HFL Secured Depositors would
receive between 60 cents and 83 cents in the dollar (rather than the full dollar as indicated by Hanover
management) and United Secured Stockholders would receive between 56c and 100c in the dollar.
At the commencement of the Debt Restructure the following amounts were outstanding to each class of
Investor:
Debt Restructure – Amounts owing to security holders ($ million)

Security Type Gross value at time of Less write off under Value at beginning of
Debt Restructure Debt Restructure Debt Restructure
HFL Secured Deposits 463.8 - 463.8
United Secured Stock 64.7 - 64.7
HFL Subordinated Notes 2.1 (1.0) 1.1
HCL Capital Bonds 24.2 (12.1) 12.1
Total 554.8 (13.1) 541.7
Shareholder Support Package
The Debt Restructure incorporated a Shareholder Support Package (the Support Package) provided by
Hanover’s ultimate shareholders. United is wholly owned by HFL, which is 50% owned by interests
associated with Mark Hotchin and 50% by interests associated with Eric Watson (together, the
Shareholders). The Support Package consisted of:
 $10 million in cash, held for the Investors in the event that amounts payable under the Debt
Restructure are not paid;
 various property owning subsidiaries (the Axis Companies) held by HFP Investments Limited (HFP),
a company owned by HFL (87.77%) and United (12.23%). At the time of the Debt Restructure HFL
and United both had several loans to the Axis Companies. It was intended that where possible the
Axis Companies would provide guarantees and security to support the Debt Restructure. The Axis
Companies were acquired by HFP for $40 million, funded by way of a subordinated, interest-free
loan, which could only be repaid once all amounts under the Debt Restructure had been paid;
 a second ranking mortgage over the Matarangi Beach Estate held by HFP for the benefit of HFL and
United with a face value of $26 million; and
 a commitment from entities associated with the Shareholders to provide two tranches of $10 million
personally guaranteed by the Shareholders (the $20 million Pledge), available in the event of a
shortfall of cash to meet principal repayment obligations to HFL Secured Depositors and United
Secured Stockholders. The first tranche becomes payable to the extent that the $10 million in cash
has been used to meet a shortfall arising for the 12 months to 31 December 2009 and there is a
further shortfall for the 12 months to 31 December 2010. Similarly the second tranche becomes
payable to the extent there is a shortfall for the period from 1 January 2011 to 31 December 2013,
6
and the $10 million in cash and the first tranche have been utilised. The commitment to fund up to
$20 million by the Shareholders ceases if either of HFL or United are placed into receivership,
liquidation or any equivalent regime (except where such action is caused by breach of the
shareholder support arrangements).
The Support Package was only available to Investors if the Debt Restructure was supported by a 75%
majority of each class of Investor (i.e.: had the Debt Restructure not been approved the Support Package
would not have been provided). Although the Debt Restructure framework assessed that the Support
Package would have been self funding, in fact the estimated costs of maintaining the Support Package
assets are between $5 million and $6 million annually. These costs comprise the interest and other costs
payable to the primary lenders as well as the costs associated with maintaining and operating the various
property assets.
Events since implementation of Debt Restructure
Since the implementation of the Debt Restructure, property and finance markets have deteriorated further
and on 10 November 2009 Hanover confirmed that it was unlikely that the underlying assets of the
companies would be sufficient to meet all their obligations under the Debt Restructure. The Directors of
HFL and United now estimate that the return to Secured Depositors is likely to be approximately 70 cents
per dollar of principal with United Secured Stockholders likely to receive approximately 90 cents per dollar
of principal. HFL has written down its loan book by a further $274 million since June 2008, and despite
its intention under the Debt Restructure to continue its lending activities, very limited new lending has in
fact taken place. United has also written down its loan book by $29 million since June 2008. The Axis
Companies and the Matarangi Beach Estates Loan have been written down from $66 million to $34
million.
1.3 Summary Terms of the Proposal
The Proposal involves Allied Farmers acquiring the finance assets of HFL and United as well the Support
Package assets, in exchange for shares in Allied Farmers being issued to the Investors. The Proposal will
be undertaken by a wholly owned Allied Farmers subsidiary, Allied Farmers Investments Limited (AFI). To
avoid unnecessary complexity Grant Samuel has used the term “Allied Farmers” to describe AFI in this
report. Implementation of the Proposal involves the following steps:
 the Support Package assets (less the $20 million Pledge) being transferred from HFP to HFL and
United in their respective shares (87.77% to HFL and 12.23% to United);
 the Investors releasing HFL and United from an aggregate of approximately $114 million of the
amount owing on their respective securities under the terms of the Debt Restructure, being the
excess amount over the consideration offered by Allied Farmers;
 the Investors assigning the revised net value ($396.2 million) of their Secured Deposits, Secured
Stock, Subordinated Notes and Capital Bonds to Allied Farmers in exchange for shares in Allied
Farmers of an equivalent ascribed value;
 Allied Farmers assigning the Secured Deposits, Secured Stock, Subordinated Notes and Capital
Bonds to HFL and United in exchange for the finance assets and Support Package assets of each
company; and
 an amount of $5 million in cash will be retained by Hanover to fund costs associated with the
Proposal including financial, tax, legal, accounting and other fees payable to advisers, amounts
payable to the trustees and their advisers, the cost of the independent report and all printing,
publicity and meeting costs. An additional $5 million in cash will be paid to Hanover for the costs of
exiting the business including tax and contingent liabilities arising from pending litigation.
7
1.4 Purpose of the Report
The Directors of the Hanover companies have engaged Grant Samuel & Associates Limited (Grant
Samuel) to prepare an independent assessment of the Proposal. There is no requirement to obtain an
independent report on the Proposal under the Trust Deeds or under legislation. Nevertheless, the
Directors of HFL and United have agreed with the trustees to obtain an independent report on the merits
of the Proposal to assist the Investors in making an informed decision.
1.5 Basis of Evaluation
Grant Samuel has evaluated the Proposal by reviewing the following factors:
 the estimated value of the assets being acquired by Allied Farmers and the estimated value of the
Allied Farmers shares issuable under the Proposal when compared to that estimated value;
 the likelihood of an alternative offer and alternative transactions that could realise fair value for the
Investors;
 the likely market price and liquidity of Allied Farmers shares following completion of the Proposal;
 any advantages or disadvantages for the Investors of accepting or rejecting the Proposal;
 the timing and circumstances surrounding the Proposal;
 an assessment of the alternatives available to the Directors of HFL, United and HCL including
maintenance of the status quo and the potential of receivership;
 an assessment of the likely future strategic direction of Allied Farmers following the completion of the
Proposal; and
 the key differences between Investors holding debentures and notes, and holding shares.
Whether the Proposal is in the best interests of the Investors is a broad test that encompasses
an assessment of the benefits, disadvantages and risks of the Proposal. Any opinion as to
whether the Proposal is in the best interests of Investors will be subjective. Individual
Investors having considered the information set out in this report may therefore form different
opinions based on their own views of market conditions, the economic outlook and risk
preferences. A transaction can be considered to be in the best interests of Investors if they are
likely to be better off if the transaction proceeds than they would be if the status quo prevailed.
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2. Summary of Merits
2.1 Conclusions
It is Grant Samuel’s opinion that the Proposal is superior to the status quo (and the prospect of potential
receivership) and that an alternative superior offer is unlikely.
Allied Farmers’ Proposal
The Proposal has been developed with the intention of providing Allied Farmers with a significant capital
injection to expand and develop its business whilst providing the Investors with marketable equity in a
listed entity in exchange for their illiquid debt securities.
It is effectively a back door listing of Hanover and is a form of finance industry consolidation. The transfer
of the performing loans to Allied Nationwide Finance Limited (Allied Nationwide) will serve to significantly
increase its equity and assist it in obtaining a satisfactory credit rating.
The consideration being offered by Allied Farmers is considered fair. To the extent there is any transfer of
value between the Investors and Allied Farmers shareholders it will be insignificant particularly given that
the Investors will own approximately 97% of an enlarged Allied Farmers (at completion) if the Proposal is
implemented.
There is potential for Allied Farmers to benefit from improved liquidity and share price with the increase in
its market capitalisation under the Proposal. However, it is likely that in the short term the shares in Allied
Farmers will trade at a lower price than the original transfer value, particularly if there are large numbers of
sellers of these securities. Some Investors may elect to retain their Allied Farmers shares and participate
in any value upside that may eventually be realised from the progressive realisation of the Hanover assets
under the control of Allied Farmers.
The ownership of shares is a very different investment from holding either Secured Deposits, Secured
Stock, Subordinated Notes or Capital Bonds. While there is generally more liquidity associated with
equity instruments, there is no entitlement to regular payments with holders’ returns coming from
dividends and changes in share price. Holders of equity have the lowest priority over available funds in a
company. Grant Samuel note that this is essentially the current position of Investors under the current
ownership of Hanover, given that there is no tangible value left within Hanover for the Shareholders,
(Messrs Hotchin and Watson) whether the Proposal is implemented or not.
At the date of the Debt Restructure proposal, PwC produced three scenarios for the estimated
distributions available to HFL Secured Depositors. Based on these scenarios, PwC considered that the
likely level of loan recoveries and asset realisations during the restructuring period may have been
somewhere between 60c and 83c in the dollar. In addition PwC estimated the HFL Secured Depositors
would be worse off under a receivership.
9
The chart below illustrates how the three PwC scenarios compare to the current Proposal for HFL
Secured Depositors:
PwC also produced two scenarios for the estimated distributions available to United Secured
Stockholders. Based on this analysis PwC estimated that the likely level of loan recoveries and asset
realisations within United during the restructuring period may have been somewhere between 56c and
100c in the dollar. Again, PwC estimated that the United Secured Stockholders would be worse off
under a receivership. The chart compares the two PwC Scenarios and the Proposal:
10
When reviewing the charts above, it is important to acknowledge that since the Debt Restructure was
entered into in December 2008, the property development, construction and finance sectors have
deteriorated further.
Status Quo and potential Receivership
Under the status quo, the Investors have no flexibility regarding early repayment of their investment.
Repayments are effectively reliant on the management of Hanover being able to realise sufficient cash
from the underlying portfolio of assets. The rapid realisation of assets is difficult and undertaking new
lending is essentially impossible under current market conditions.
The Directors of HFL, United and HCL have now announced that it is likely that those companies will not
be able to meet all their repayment obligations under the Debt Restructure. Subordinated Noteholders
and Capital Bondholders are now unlikely to receive any payments and Secured Depositors and Secured
Stockholders are unlikely to receive all their scheduled payments. In the event that those repayment
obligations cannot be met, the trustees for those companies are, in Grant Samuel’s opinion, likely to
place them into receivership. The prospect of receivership is not good for the ongoing day-to-day
management of Hanover or for the likely realisable value of the remaining securities. Receivers will
typically tend to seek to maximise a sale of assets over a short period of time, which will therefore impact
on the prices those assets can be sold for and accordingly, the proceeds that Investors may ultimately
receive. If the Proposal is implemented, Allied Farmers will have the ability to take a longer term and more
proactive approach to the Hanover asset portfolio. This may include, on a case-by-case basis, buying
out first ranking securities to take full control of a development and/or investing further funds to ensure
completion (and thereby enhancing sale prospects). In Grant Samuel’s opinion a proactive approach to
maximising value should result in a superior outcome than a sale in today’s market. For this reason,
electing to enter a Debt Restructure in December 2008 was arguably a better choice than receivership.
Alternative Offer
Given that the Debt Restructure has been operating for a year, and has been the subject of much media
and investor scrutiny, there has been ample opportunity for an alternative offer to be made for the
Hanover assets or business. We understand that no such offer has been received.
Entire Report
This report should be read in its entirety as Grant Samuel’s opinion is to be considered as a whole.
Selecting portions of the analyses or factors considered by it, without considering all the factors and
analyses together, could create a misleading view of the process underlying the opinion. The preparation
of an opinion is a complex process and is not necessarily susceptible to partial analysis or summary.
11
3. The Proposal in Further Detail
3.1 Structure of the Allied Farmers’ Proposal
The Proposal involves Allied Farmers acquiring the finance assets of HFL and United as well as the
Support Package assets, in exchange for shares in Allied Farmers. Implementation of the Proposal would
involve the following steps:
 the Support Package assets being transferred from HFP to HFL and United in their respective
shares (87.77% to HFL and 12.23% to United);
 the Investors releasing HFL, United and HCL from an aggregate of approximately $114 million of the
amount owing on their respective securities under the terms of the Debt Restructure, being the
excess amount over the consideration offered by Allied Farmers;
 the Investors assigning the net value ($396.2 million) of their Secured Deposits, Secured Stock,
Subordinated Notes and Capital Bonds to Allied Farmers in exchange for shares in Allied Farmers of
an equivalent ascribed value;
 Allied Farmers assigning the Secured Deposits, Secured Stock, Subordinated Notes and Capital
Bonds to HFL and United in exchange for the finance assets and Support Package assets of each
company; and
 an amount of $5 million in cash will be retained by Hanover to fund costs associated with the
Proposal including financial, tax, legal, accounting and other fees payable to advisers, amounts
payable to the trustees and their advisers, the cost of the independent report and all printing,
publicity and meeting costs. An additional $5 million in cash will be paid to Hanover for the costs of
exiting the business including tax and contingent liabilities arising from pending litigation.
The following diagram outlines the above steps:
Release Secured Deposits, Secured Stock,

Subordinated Notes and Capital Bonds
HFL, United and HCL

Step 3
Allied Farmers (including Support
Package)
Transfer finance and Support Package
assets
Assign net value of Investors release

Secured Deposits, HFL, United and
Secured Stock, Issue shares in Allied HCL from part of
Subordinated Notes Farmers to Investors their obligations
Step 1
and Capital Bonds under the Debt
Restructure
Step 2
Investors
12
If the Proposal is implemented then Allied Farmers will assume the lease for Hanover’s premises and
certain operating leases necessary for the conduct of the business. In addition it will take over the
computer system software, office furniture and fittings, and may employ a number of Hanover staff.
Consideration under the Allied Farmers’ Proposal
Various discounts have been applied by Allied Farmers to each category of Investor class. The discount
assessed by Allied Farmers and the consequent consideration payable to each class of Investor is
summarised as follows:
Consideration under the Allied Farmers’ Proposal ($ million)

Security type Value at start of Amount attributed Total attributed by Total value to be
Debt Restructure by Allied Farmers Allied Farmers for paid in Allied
for Loan and Support Package Farmers shares
Property Assets
HFL Secured Deposits 463.8 301.8 32.2 334.0
United Secured Stock 64.7 49.9 4.4 54.3
HFL Subordinated Notes 1.1 - 0.6 0.6
HCL Capital Bonds 12.1 - 7.3 7.3
Total 541.7 351.7 44.5 396.2
In addition to the $396.2 million to be paid by way of Allied Farmers shares, Allied Farmers is paying $10
million in cash to Hanover to cover transaction costs and residual obligations, effectively increasing the
price being paid to $406.2 million.
The price at which the Allied Farmers shares will be issued will be determined by the volume weighted
average price of price setting trades (VWAP) in the 5 trading days prior to the meeting of the Investors.
Based on the net value ascribed to the loan and property assets and the Support Package and using an
estimated VWAP of $0.35 for analysis purposes, the Investors will own approximately 97% (at
completion) of Allied Farmers if the Proposal is implemented. The value of shares to be issued to the
Investors under the Proposal compared to the payments received to date under the Debt Restructure are
outlined in the table below:
Payments received under the Allied Farmers’ Proposal and Debt Restructure
(per $1 of principal outstanding at 31 December 2008)
Type of Payment Cash Allied Farmers’ Allied Farmers’ Cash and Shares
Shares Shares
Amount received Amount to be Amount to be Total to be received
under Debt received from received from following completion
Restructure to Loan and Shareholder of the Allied Farmers’
date Property Assets Support Proposal
HFL Secured Deposits $0.06 $0.65 $0.07 $0.78
United Secured Stock $0.06 $0.77 $0.07 $0.90
HFL Subordinated Notes* - - $0.30 $0.30
HCL Capital Bonds* - - $0.30 $0.30
* the Subordinated Noteholders and Capital Bondholders each agreed to reduce their entitlement to $0.50 in the $1 under the Debt
Restructure. Accordingly, $0.30 represents 60% of that reduced entitlement
13
Assets being acquired under the Allied Farmers’ Proposal
The assets being acquired under the Proposal comprise the HFL and United loan and property assets
and various Support Package assets. The table below outlines the 30 June 2009 book values of the
assets being acquired:
Assets being acquired under the Allied Farmers’ Proposal ($000s)

Gross Provisions Net Value Add-back NZ Loans since Net value
1
Value IFRS Provisions realised being acquired
HFL Loans 434,178 (162,894) 271,284 57,781 (20,150) 308,915
United Loans 53,149 (23,378) 29,771 12,394 - 42,165
United Investments 36,869 (24,308) 12,561 1,893 - 14,454
365,534
Support Package assets (Axis Companies including Matarangi Mortgage) 34,000
Support Package cash 10,500
Net assets being acquired 410,034
It is worth noting that the provisions in the above table are made up of two components. The first is the
reduction in the gross value of loans for specific bad debts. The second (added back in the table as NZ
IFRS Provisions) is required under NZIFRS, which necessitate a discounting of the expected cash flows
over the term of the loan to the present value, using the interest rate originally applicable to the loan. This
provision reverses over time as interest income in the income statement. Accordingly, the Directors of
Hanover are of the view that it should be wholly or partially disregarded in assessing the value of the loan
books. Grant Samuel agrees with this assessment.
The Shareholders’ obligation to provide the $20 million Pledge, included as part of the original Support
Package, will cease if the Proposal is implemented or in the event of receivership of Hanover (unless
receivership is a result of default on the part of the Shareholders). All other components of the Support
Package will survive.
As part of the Proposal, Allied Farmers has agreed to pay $5 million to Hanover to meet transaction
costs. A further $5 million is to be paid to Hanover Group Holdings Limited, a company owned by the
Shareholders, to meet the costs of exiting the business including tax and various contingent liabilities
associated with ongoing and pending litigation.
Bonus Share Issue
If the Proposal is approved Allied Farmers will issue its existing shareholders with bonus shares
immediately prior to implementation of the Proposal. For every 10 Allied Farmers shares held, existing
shareholders will receive 1 bonus share. The bonus shares will be convertible into ordinary shares in
Allied Farmers if the audited financial results for the financial year to 30 June 2011 show that Allied
Farmers has made a loss (realised or unrealised) on the assets transferred under the Proposal (i.e. the
value of any of the Hanover assets realised together with the residual value of any of the Hanover assets
still held is less than $396.2 million). The conversion ratio for bonus shares to ordinary shares will be
calculated such that Allied Farmers’ shareholders aggregate shareholding in the company is increased to
what it would have been immediately after the Proposal if the Hanover assets had been transferred at the
value ascribed as of 30 June 2011. The value at June 2011 will be determined in accordance with NZ
GAAP but not applying any additional discount that may be required under IFRS financial statement
disclosure rules (i.e. a methodology consistent with the valuation of the assets for the purpose of the
original Allied Farmers offer under the Proposal) and any loan asset or property investment with a value in
excess of $2 million will require an independent registered valuation. The value will be certified by two
independent directors of Allied Farmers and the company’s auditor.
1
New Zealand International Financial Reporting Standards
14
Approvals required
The Proposal is a major transaction under the NZX listing rules applying to the NZSX securities market
operated by NZX and therefore requires the approval of a simple majority (50%) of shares voted by Allied
Farmers shareholders eligible to vote and in attendance at the special meeting to be held on 8 December
2009. Allied Farmers will be asked to vote on the acquisition of the HFL and United assets and on the
issue of shares to Investors.
The Proposal also requires a 75% majority of each class of Hanover Investor who vote, to vote in favour
of the Proposal under the provisions of the Trust Deeds. A quorum of 50% of the voting rights of each
class of Investor is required in order to conduct a vote on the relevant resolutions. If a quorum is not
reached a second meeting will be held at which no minimum quorum will be required. Investors will be
asked to consider the Proposal at a special meeting of Investors to be held on 16 December 2009. If the
Proposal is approved, Investors will be endorsing (among other things):
 the release of HFL,HCL and United from the following amounts (being in excess of the consideration
offered by Allied Farmers):
− Secured Depositors: 22 cents of each $1 of principal amount outstanding at 31 December

2008 (which, taking into account the 6 cents already paid, will leave 72 cents per dollar
outstanding);
− Secured Stockholders: 10 cents of each $1 of principal amount outstanding at 31

December 2008 (which, taking into account the 6 cents already paid, will leave 84 cents
per dollar outstanding);
− Subordinated Noteholders: 20 cents of each $1 of principal amount outstanding at 31

December 2008 and 50 cents of each $1 of principal outstanding at 31 December 2008
which would otherwise have been cancelled on completion of the Debt Restructure (which
will leave 30 cents per dollar outstanding); and
− Capital Bondholders: 20 cents of each $1 of principal amount outstanding at 31 December

2008 and 50 cents of each $1 of principal outstanding at 31 December 2008 which would
otherwise have been cancelled on completion of the Debt Restructure (which will leave 30
cents per dollar outstanding);
 the transfer by each Investor of the remaining investments to Allied Farmers in exchange for shares
in Allied Farmers;
 the sale of the finance assets and Support Package assets to Allied Farmers in exchange for the
investments; and
 the release of the trustees, HFL, HCL, United and the Shareholders from the security and other
support provided by the Shareholders in support of the Debt Restructure.
The Proposal is conditional upon all classes of Investors approving the Proposal.
3.2 Profile of Allied Farmers
Allied Farmers is a NZX listed company providing rural and financial services including livestock trading,
rural merchandise, finance and real estate services. The company currently has 37.7 million shares held
across approximately 5,150 shareholders. The company was founded in Taranaki in 1913 and listed on
the NZX in 2002.
Livestock services are provided through approximately 50 livestock agents at saleyards in the company’s
core operating regions including Taranaki, King Country, Waikato, Manawatu, Mid and South Canterbury.
Allied Farmers also acts as agent for both buyers and sellers in paddock sales (private treaty sales) and
via its online trading platform MyLiveStock.co.nz. There are 14 rural merchandise stores operated under
15
the trading names Taranaki Farmers and King Country Farmers. In addition, Allied Farmers First National
is the leading provider of rural and lifestyle real estate services in the Taranaki area.
Allied Farmers’ financial services are provided through it’s 100% wholly owned subsidiary Allied
Nationwide which offers diversified investment and financing solutions to rural, property, commercial and
business customers across New Zealand. On 30 September 2008 Allied Nationwide amalgamated with
Speirs Finance, a finance company specialising in finance for commercial vehicles and capital equipment.
As at 30 June 2009 Allied Nationwide’s loan book had a net value of $271 million comprising net loans
and advances of $142 million and net finance leases of $129 million.
A brief financial profile of Allied Farmers is outlined below:
Allied Farmers Financial Profile (NZ$000s)

Year end 30 June 2006 2007 2008 2009
Revenue 85,173 107,430 110,368 109,530
EBITDA 7,203 15,251 29,750 2,098
EBIT 4,940 13,153 27,325 (299)
Net operating profit after tax 1,334 (2,771) 2,369 (35,017)
Operating Cash Flow 2,988 6,911 84,555 62,070
Net Cash Flow 10,722 28,491 (20,143) 20,285

Total Assets 204,054 341,583 238,256 392,355
Total Liabilities 180,502 316,121 210,950 382,348

Equity 23,552 25,462 27,306 10,007
Source: Allied Farmers Financial Reports.
Allied Farmers’ financial performance over the past 4 years has been varied. Despite year on year
revenue growth (and broadly flat revenue in 2009) the company has had inconsistent earnings culminating
in a $35 million loss in the year to 30 June 2009. This result included a $19.5 million impairment in the
goodwill associated with Allied Nationwide, a $10 million increase in interest and finance costs due to the
issue of $103 million of commercial paper during the year (matched by a corresponding increase in
interest income), and an increase in provision for impaired assets. Allied Farmers announced on 22
October 2009 that it had obtained a waiver from Westpac to its banking covenants which would have
otherwise been breached on 30 September 2009 and advised that Westpac had agreed to continue to
provide banking support under the terms and conditions agreed in August 2009.
Allied Farmers’ current level of equity is unsustainable and needs to be addressed with urgency. If
implemented, the Proposal will result in Allied Farmers receiving a substantial increase in equity. In
addition as the finance assets and shareholder support assets are converted to cash it will strengthen the
liquidity position of Allied Farmers and improve the quality of the capital for rating purposes.
16
The share price performance of Allied Farmers over the last four years is outlined in the chart below:
Allied Farmers shares are very thinly traded and its operating performance over recent years has been
driven by a downturn in both sectors of the markets in which it operates - rural servicing and finance. The
rights issue undertaken by the company in May and the sale of 8.69% of Allied Farmers’ shares by Speirs
Group accounts for the significant uplift in traded volumes in the stock creating an ‘overhang’ putting the
thinly traded stock price under further pressure.
As of 16 October 2009 Allied Farmers had 37.7 million shares on issue held by approximately 5,150
shareholders. The Company’s top 10 shareholders as at 16 October 2009 are shown in the table below:
Allied Farmers – Top 10 Shareholders as at 16 October 2009

Shareholder Shares (000s) %
Allied Capital Limited 5,443.0 14.4
John Revell Hynds 4,841.2 12.9
Hubbard Churcher Trust Management Limited 1,592.5 4.2
Nessock Custodians Limited (053 a/c) 1,541.9 4.1
MK Wellington Trustee Company Limited 1,268.0 3.4
New Zealand Central Depository Limited 1,267.0 3.4
Integra Investments Limited 1,016.7 2.7
RotoruaTrust Perpetual Capital Fund Limited 763.3 2.0
James Ian Urquhart 500.0 1.3
Robert Andrew Geary 390.0 1.0
Top 10 Shareholders 18,623.6 49.4
Other Shareholders 19,073.1 50.6
Total 37,696.7 100.0
Allied Capital Limited is 80% owned by interests associated with Robert Alloway, a Director of Allied
Farmers and 10% each by Paul Macfie, CEO, and William Giesbers, the Company Secretary of Allied
Farmers. As can be seen from the above table the top 10 Allied Farmers shareholders control almost
50% of the company.
17
Allied Farmers also has 15.8 million listed options on issue with an exercise price of $0.60. These options
last traded at $0.02 on 11 November 2009.
Allied Farmers also has $12.6 million of capital notes on issue which will mature on 15 November 2011, at
which time Allied Farmers will decide whether to redeem all or some of the capital notes for cash or offer
to renew the capital notes on new terms and conditions. Any capital notes which Allied Farmers does not
redeem for cash, or which are not renewed (at the election of the holder) will be automatically converted
into shares in Allied Farmers at a 5% discount to the weighted average sale price of the shares over the
20 business day trading period prior to the maturity date.
18
4. Profile of HFL
4.1 Background
HFL evolved out of Elders Finance in September 2005 as a specialist property financier with lending
exposures predominately in New Zealand and Australia. HFL is 50% owned by the Shareholders.
Until July 2008 HFL was funded primarily by publicly issued debentures. Following significant turmoil in
the domestic finance and property markets, HFL ceased accepting new debenture investments and, on
23 July 2008 suspended principal and interest payments to investors. As at 30 June 2008, HFL had total
assets of $592 million represented by approximately 110 individual loans with a net book value of $500
million. At 30 June 2008 HFL also had $485 million of debenture stock on issue across 13,800 investors.
A significant proportion of HFL’s loan book (approximately 45%) consists of loans to property
developments located in Queenstown. As at 30 June 2008:
 HFL’s top 10 loans accounted for 55% of its total portfolio;
 the top 20 loans accounted for 76% of the portfolio;
 approximately 31% of the company’s total loan book was in default; and
 a further 11% would have been in default had the loan maturity dates not been extended.
By 30 June 2009 approximately 73% of HFL’s loan book was impaired.
HFL’s primary exit strategy for the majority of its significant mezzanine debt positions was to refinance the
loan positions through conventional debt provided by mainstream banks. Unfortunately with the
deterioration in both the property and finance markets in New Zealand, sources of refinance are limited, if
not non-existent. As at 30 June 2009 approximately 74% of HFL’s loan book was either secured by
second mortgages or unsecured and almost all of HFL’s loans were capitalising interest loans, leaving the
total of principal and interest outstanding until maturity. By any measure, the security position and debt
servicing ability of most of the HFL loan portfolio was poor.
In December 2008, with little alternative other than receivership, HFL put forward the Debt Restructure,
which was approved by a 93% majority of HFL Secured Depositors, a 76% majority of HFL Subordinated
Noteholders and a 93% majority of HCL Capital Bondholders. As at 30 June 2009 HFL has written down
a further $309 million of assets, predominantly its loan assets ($274 million) and investment in United ($32
million). HFL’s net asset position has moved from $65 million at 30 June 2008 to a net liability position of
$38 million, rendering HFL technically insolvent but for the Debt Restructure.
4.2 Current Operations
HFL is operating under the terms of its Debt Restructure, and is neither taking any new deposits nor
making any new loans (except in certain circumstances) in accordance with the Debt Restructure.
Effectively HFL is undertaking a managed wind down of its loan book in order to meet its repayment
obligations under the Debt Restructure. Given the latest significant write down in the value of its assets it
appears unlikely that HFL will have sufficient funds to meet all of its obligations under the Debt
Restructure.
19
4.3 Financial Performance
The financial performance of HFL for the years ended 30 June 2008 and 2009 is shown in the table
below:
HFL Financial Performance (NZ$000s)

Year end 30 June 2008 2009
Interest income 128,329 89,528
Interest expense (65,900) (47,890)
Net interest income 62,429 41,638
Other income 11,544 2,426
Net operating income 73,973 44,064
Operating expenses (17,809) (18,450)
Impairment expenses (39,831) (308,862)
Profit before income tax 16,333 (283,248)
Fair value adjustment on debt restructure - 169,939
Interest expense cancelled on Debt Restructure - 21,875
Principal cancelled on debt restructure - 1,037
Tax expense (6,157) (11,639)
Profit (loss) after tax 10,176 (102,036)
The following points should be taken into consideration when reviewing the table above:
 interest income has declined as the number of non-performing loans in the HFL portfolio has
increased;
 interest is no longer accruing on the Secured Deposits or Subordinated Notes contributing to a

decline in interest expense;
 operating expenses consist of auditor’s fees, depreciation and amortisation, personnel expenses
and various other administrative costs. In the 2009 financial year significant increases occurred in
auditors fees, legal and consulting fees as part of the loan recovery process and debt restructure
costs with decreases in personnel costs, other legal and consulting fees, marketing and
management fees offsetting these increases;
 HFL experienced a significant impairment of its loan book in the year to 30 June 2009. The $309
million impairment expense consists of increases in the provision for credit impairment of $137
million, a further write off of bad debts of $137 million and a $35 million impairment in the value of
HFL’s subsidiary investments including $32 million impairment of its investment in United and a $3
million impairment of its investment in FAI Finance Limited (FAI);
 under NZ IFRS HFL is required to apply fair value accounting principles, which have created several
anomalies in the accounts. Approximately $62.7 million of the total $309 million impairment expense
represents the difference between the sum of the estimated future cash flows from the HFL loan
book and the net present value of those same cash flows discounted using the original effective
interest rate applicable to the loans (in this case approximately 19%). The $62.7 million will be
progressively written back to the income statement as revenue over the life of the loans (assuming
no change in the timing and amount of the estimated future cash flows). Of this amount $5.0 million
has been written back in the 30 June 2009 income statement leaving $57.7 million to be brought to
account in future years;
 the second anomaly caused by fair value accounting principles under IFRS is the “fair value
adjustment on debt restructure” which represents a one-off gain of $169.9 million in the income
20
statement of HFL arising as a result of the restructure of the Secured Deposits, Subordinated Notes
and Capital Bonds. The fair value gain on Debt Restructure will progressively reverse over the term
of the Debt Restructure as follows:
Debt Restructure Reserve – Amortisation (NZ$000s)

Year end 30 June $
2009 20,701
2010 41,798
2011 41,319
2012 38,552
2013 23,379
2014 4,190
Total Reserve 169,969
The reversal of the Debt Restructure reserve flows through the income statement of HFL at the
interest expense line. The $20.7 million reversal for the year ended 30 June 2009 plus the $21.9
million future interest cancelled under the Debt Restructure forms the majority of the $47.9 million
total interest expense. Excluding the one-off $169.9 million fair value adjustment on the debentures
net of the $57.7 million discounting on the loans and advances HFL’s net loss after tax would have
been $193.5 million.
4.4 Financial Position
The financial position of HFL as at 30 June 2008 and 2009 is outlined in the table below:
HFL – Balance Sheet (NZ$000s)

Year ended 30 June 2008 2009
Cash and cash equivalents 36,860 1,947

Receivables and prepayments 3,284 8,658
Net loans and advances 499,919 271,284
Investments 43,796 155
Intangible assets 376 315
Other assets 7,682 3,810
Total Assets 591,917 286,169
Trade and other payables 8,444 6,884
Provisions 2,049 865
Secured deposits 485,077 296,760
Capital bonds 2,243 348
Loan sharing arrangement 29,247 19,400
Total liabilities 527,060 324,257
Net assets 64,857 (38,088)
Share capital 71,650 71,651
Retained earnings (9,624) (260,903)
Reserves 2,831 151,164
Total equity 64,857 (38,088)
The following points are relevant when considering the above table:
 HFL’s cash reserves have been significantly depleted with the company paying out $27.8 million to
Secured Depositors under the terms of the Debt Restructure;
 as at 30 June 2009 HFL’s net loans and advances were comprised as follows:
21
HFL Net Loans and Advances – 30 June 2009
$000s %
Gross loans and advances 434,178 100.0
Provisions for individually impaired assets (162,894) (37.5)
Net loans and advances 271,284 62.5
Neither past due nor impaired 52,490 19.3
Past due but not impaired 21,280 7.8
Individually impaired assets (Gross amount $360,407 less impairment provision $162,894) 197,513 72.9
271,284 100.0
 the value of investments declined significantly between 2008 and 2009 due to a $35 million
impairment - $32 million in relation to United and $3 million in relation to FAI;
 other assets include deferred tax as at 30 June 2008 and non current assets held for sale (FAI) as at
30 June 2009;
 the value of the Secured Deposits declined by the NZ IFRS “fair value” adjustment ($149.2 million
being the full adjustment of $169.9 million less the $20.7 million reversal of the debt restructure
reserve) and by the amount of repayments made to 30 June 2009; and
 excluding the two NZ IFRS fair value adjustments of $149.2 million (favourable adjustment) on the
face value of the Secured Deposits (net of the $20.7 million reversal) and the negative impairment of
$57.7 million on the face value of the loans – a net favourable adjustment of $91.5 million, HFL’s
equity is negative $129.5 million. Whether adopting the stated equity of negative $38 million as at
30 June 2009 or the negative $129.5 million if the two IFRS adjustments are reversed – HFL would
be insolvent were it not for the Debt Restructure.
22
4.5 Cash Flow
The cash flows for HFL for the years ended 30 June 2008 and 2009 are shown in the table below:
HFL – Statement of Cash Flows (NZ$000s)

Year end 2008 2009
Interest and fee income 117,745 38,767
Dividend income 12,801 1

Sundry income (3,769) 5,875
Interest and fees paid (74,003) (9,352)

Payments to suppliers and employees (18,838) (20,350)
Income tax paid (11,011) (841)

Net decrease in loans and advances 230,878 (1,878)
Net decrease in secured deposits (329,281) (20,794)

Principal payments under debt restructure plan - (18,554)
Net decrease in capital bonds (7,191) (169)

Net increase in loan sharing arrangement 24,810 (11,937)
Net cash flow from operations (57,859) (39,232)

Purchase of investments (375) 4,900
Purchase of property, plant and equipment (13) (321)

Purchase of intangible assets (154) (260)
Net cash flow from investing activities (542) 4,319

Dividends paid (45,500) -
Issue of redeemable preference shares 800 -

Redemption of redeemable preference shares (9,733) -
Net cash flow from financing activities (54,433) -

Net cashflow (112,834) (34,913)
23
5. Profile of United
5.1 Background
United is a wholly owned subsidiary of HFL which was established in 2002 as a specialist and primarily
second-mortgage, lender to the commercial and residential property sectors in New Zealand and
selected offshore markets. Until July 2008 United was funded primarily by publicly issued debentures.
Following significant turmoil in the domestic finance and property markets, United ceased accepting new
debenture investments and, on 23 July 2008, suspended principal and interest payments to investors.
As at 30 June 2008 United had total assets of approximately $100 million including a loan portfolio of
approximately 20 individual loans with a net book value of $73.8 million. At 30 June 2008 United also
had $67.5 million of debenture stock on issue across 2,575 investors.
A significant proportion of United’s loan book comprises loans on property developments located in
Queenstown (approximately 40% as at 30 June 2009) and Australia (approximately 28% as at 30 June
2009). Almost 90% of United’s loan book is either unsecured or secured by second mortgage. As at 30
June 2009 approximately 44% of United’s loan book was impaired.
In December 2008 United put forward a Debt Restructure in conjunction with HFL, which was approved
by a 94% majority of United Secured Stockholders. As at 30 June 2009 United has written down a further
$29 million of its loan book. United’s net asset position has moved from $25 million at 30 June 2008 to
almost nil.
5.2 Current Operations
United is operating under the terms of its Debt Restructure and is neither taking any new deposits nor
making any new loans (except in limited circumstances in accordance with the Debt Restructure).
Effectively United is undertaking a managed wind down of its loan book in order to meet its repayment
obligations under the Debt Restructure. Given the latest significant write down in the value of its assets it
appears unlikely that United will have sufficient funds to meet all of its obligations under the Debt
Restructure. The Proposal has arisen as a result of these circumstances.
5.3 Financial Performance
The financial performance of United for the years ended 30 June 2008 and 2009 is shown in the table
below:
United Group Financial Performance (NZ$000s)

Interest income 27,828 14,658
Interest expense (10,609) (6,121)
Net interest income 17,219 8,537
Other income (7,447) (22,128)
Net operating income 9,772 (13,591)
Operating expenses (3,174) (4,788)
Impairment expenses (8,395) (29,011)
Profit before income tax (1,797) (47,390)
Fair value adjustment on debt restructure - 23,595
Interest Cancelled on Debt Restructure - 3,147
Tax expense (1,407) (3,725)
Profit after tax (3,204) (24,373)
24
The following points should be taken into consideration when reviewing the table above:
 interest income has declined as the number of performing loans in the United portfolio has reduced.
Interest expense declined as interest is no longer accruing on the Secured Stock;
 operating expenses are broadly flat other than costs associated with the debt restructure and loan
recovery;
 United experienced a significant impairment of its loan book in the year to 30 June 2009 of
approximately $29 million;
 under NZ IFRS United is required to apply fair value accounting principles, which have created
several anomalies in the accounts. Approximately $12.4 million of the total $29 million impairment
expense represents the difference between the sum of the estimated future cash flows from the
United loan book and the net present value of those same cash flows discounted using the original
effective interest rate applicable to the loans. The $12.4 million will be progressively written back to
the income statement as revenue over the life of the loans (assuming no change in the timing and
amount of the estimated future cash flows);
 the second anomaly caused by fair value accounting principles under NZ IFRS is the “fair value
adjustment on debt restructure” which represents a one-off gain of $23.6 million in the income
statement of United arising as a result of the restructure of the Secured Stock. The fair value gain on
debt restructure will progressively reverse over the term of the debt restructure as follows:
Debt Restructure Reserve – Amortisation

Year end 30 June $000s
2009 2,881
2010 5,815
2011 5,745
2012 5,354
2013 3,232
2014 568
Total Reserve 23,595
The reversal of the debt restructure reserve flows through the income statement of United at the
interest expense line. The $2.9 million reversal for the year ended 30 June 2009 forms the majority
of the total interest expense. Excluding the one-off $23.6 million fair value adjustment United’s net
loss after tax would have been $33.7 million.
25
5.4 Financial Position
The financial position of United as at 30 June 2008 and 2009 is outlined in the table below:
United Group Balance Sheet (NZ$000s)

Year ended 30 June 2008 2009
Cash and cash equivalents 3,812 176

Receivables and prepayments 1,261 1,551
Net loans and advances 51,588 29,771
Investments 35,919 12,561
Intangible assets 85 11
Other assets 2,605 -
Total Assets 95,270 44,070
Trade and other payables 3,095 2,528
Provisions 33 -
Secured deposits 67,491 41,381
Total liabilities 70,619 43,909
Net assets 24,651 161
Share capital 31,886 31,887
Retained earnings (7,428) (52,515)
Reserves 193 20,789
Total equity 24,651 161
The following points are relevant when considering the above table:
 United’s cash reserves have been significantly depleted with the company paying out $3.9 million to
Secured Stockholders under the terms of the Debt Restructure;
 as at 30 June 2009 United’s net loans and advances were comprised as follows:
United Net Loans and Advances – 30 June 2009

$000s %
Gross loans and advances 53,149 100.0
Provisions for individually impaired assets (23,378) (44.0)
Net loans and advances 29,771 56.0
Reconciliation
Neither past due nor impaired 3,774 25.1
Past due but not impaired 2,327 4.4
Individually impaired assets (Gross amount $47,048 less impairment provision $23,378) 23,670 70.5
29,771 100.0
 the investments principally relate to a property development in Australia. The value of this
development declined significantly in the year to 30 June 2009;
 other assets comprise deferred tax assets at 30 June 2008;
 the value of the Secured Stock declined by the NZ IFRS “fair value” adjustment ($20.7 million being
the full adjustment of $23.6 million less the $2.9 million reversal of the debt restructure reserve) and
by the amount of repayments made to 30 June 2009; and
 excluding the two NZ IFRS fair value adjustments of $20.7 million favourable adjustment on the face
value of the Secured Stock (net of the $2.9 million reversal) and the negative impairment of $14.3
million on the face value of the loans and investments – a net favourable adjustment of $6.4 million,
United’s equity is negative $6.3 million, rendering United insolvent were it not for the Debt
Restructure.
26
5.5 Cash Flow
The cash flows for United for the years ended 30 June 2008 and 2009 are shown in the table below:
United Group Statement of Cash Flows (NZ$000s)

Interest and fee income 7,394 1,505

Sundry income 621 756
Interest and fees paid (7,384) (466)

Payments to suppliers and employees (3,590) (5,708)
Income tax paid (5,243) (62)

Net decrease in loans and advances 77,817 6,659
Net decrease in secured deposits (93,618) (2,809)

Principal payments under debt restructure plan - (2,587)
Net cash flow from operations (24,003) (2,712)

Purchase of investments (9,807) (920)
Purchase of property, plant and equipment (46) (4)

Net cash flow from investing activities (9,853) (924)
Dividends paid (12,800) -

Net cash flow from financing activities (12,800) -
Net cashflow (46,656) (3,636)
27
6. Merits
6.1 Catalyst and Rationale for the Allied Farmers’ Initiating the Proposal
The Proposal has eventuated due to a combination of factors:
 in December 2008 investors in HFL, United and HCL approved a Debt Restructure that involved a
suspension of interest and principal payments and no new deposits or loans being accepted or
made (except under limited circumstances). The Directors of HFL and United have recently
announced that it is highly unlikely that HFL and United will be able to meet all its repayment
obligations under the Debt Restructure;
 in mid to late 2008, several other New Zealand finance companies had already either entered into
receivership or agreed similar moratoria with their debt security holders. The various moratoria
arrangements and the collapse of numerous other finance companies led to speculation that
consolidation of the industry would occur (Appendix A contains an overview of the New Zealand
Finance Industry). A further catalyst for consolidation has been the announcement by the
Government of measures regulating finance companies, designed to reduce the possibility of future
finance company collapses by ensuring appropriate levels of capital. The regulations require finance
companies with liabilities greater than $20 million to obtain a credit rating to receive the benefit of the
extended Crown retail deposit guarantee. Allied Farmers also has been severely impacted by the
global financial crisis. Allied Farmers’ shares have languished on the NZX for years, in part due to
the limited liquidity in the stock, but also because of the inconsistent earnings of the business. The
Proposal has been developed with the intention of providing Allied Farmers with a significant capital
injection to expand and develop both its Allied Farmers and Allied Nationwide businesses;
 the Proposal is effectively a ‘back-door’ listing of the Hanover businesses, with Investors exchanging
their investments for shares in the underlying assets of Hanover. In effect the current Shareholders
are acknowledging the true position of the Investors who effectively own the underlying assets of the
business upon which they are dependent to obtain repayment of their principal investment;
 it is arguable that part of the Shareholders’ motivation for advocating the Proposal is to avoid their
obligation to provide the up to $20 million Pledge (supported by a personal guarantee from each of
the Shareholders of up to $10 million each), which was available under the Support Package in the
event there was a shortfall of funds to meet repayment obligations to the Secured Depositors or
Secured Stockholders. The guarantees fall away if the Proposal is implemented. However, it is
important to note that the personal guarantees also fall away in the event of receivership which is an
increasingly likely scenario (unless the receivership is caused by the shareholders defaulting on the
guarantees). The guarantees will be reduced by $10 million on 31 December 2009 if the quarterly
repayment ,then due, under the Debt Restructure is made (which is expected in the event the
Proposal does not proceed). In Grant Samuel’s opinion the Proposal has little impact on the $20
million Pledge, as it is considered to have little value under the Proposal or the likely alternative, a
receivership; and
 the Debt Restructure approved by Investors in December 2008 is foundering. The Proposal is a
major transaction for Allied Farmers and could provide the impetus to transform the highly geared
Allied Farmers business. In addition, the combination of performing HFL, United and Allied
Nationwide loans may assist Allied Nationwide in obtaining a satisfactory credit rating, which will be
required if Allied Nationwide is to be covered by the Government deposit guarantee scheme. Such
cover should beneficially impact reinvestment rates.
6.2 The Value of the Allied Farmers’ Proposal
 The Investors are now effectively the owners of the assets of Hanover. As at 30 June 2009 HFL has
a substantial deficit of shareholders funds totalling $129.5 million (when the NZ IFRS fair value
adjustments to the loan assets and debentures are reversed). Similarly, United has a deficit of
28
shareholders funds of $6.3 million as at 30 June 2009 (when the NZ IFRS fair value adjustments are
reversed). There is nothing left for the Shareholders, Messrs Hotchin and Watson, either now, or
after the Proposal. The equity for debt swap merely recognises the current situation that the assets
of HFL and United are wholly owned by the Investors;
 Grant Samuel has compared the value of the net assets of HFL and United as recorded in the 30
June 2009 accounts with the price being offered by Allied Farmers under the Proposal. The price
being offered is $396.2 million compared to a carrying value of $410.0 million. To arrive at the
$410.0 million, NZ IFRS fair value adjustments of $72.1 million have been added back. These
adjustments were made to reflect the fact that even if the full written down book value of the loans
outstanding were received it would take a number of years for full realisation to eventuate. Given the
similarity between the offer consideration and the assessed carrying value Grant Samuel believes the
consideration being offered by Allied Farmers is fair, particularly when the Investors will own
approximately 97% of the enlarged Allied Farmers (at completion);
 the price being paid by Allied Farmers of $396.2 million is only marginally less than the $410.0 million
of “value” being transferred to Allied Farmers. Based on its current balance sheet Allied Farmers
could not raise any debt to purchase the loan book. Allied Farmers would not, even if it had the
financial capability, pay $396.2 million cash for the assets being transferred to it as there still exists
significant uncertainty as to the amount and timing of the repayment of the approximately the 40
loans outstanding across the HFL and United loan portfolios;
 the consideration being offered is shares in Allied Farmers. Investors are receiving shares in
proportion to the assessed value of the underlying assets being transferred to Allied Farmers. In
other words following the issue of the new shares the Investors will own almost exactly the same
proportionate share of the recapitalised Allied Farmers as they currently own of Hanover (prior to the
impact, if any, of the bonus share mechanism). The issue price of the shares is arguably more
important to the existing shareholders of Allied Farmers who are being severely diluted, albeit that
they do have benefit of the bonus share adjustment mechanism;
 the number of shares to be issued to Investors will not be determined until immediately before the
meetings being called to consider the Proposal. The timing of the setting of the price could allow the
Allied Farmers share price to be manipulated. The Allied Farmers shares are infrequently traded and
in relatively small volumes. The price could, in Grant Samuel’s opinion, be relatively easily moved
upwards. It would be unfortunate for the Investors if the Allied Farmers share price increased in the
days leading up to the meetings and then, if the Proposal was approved, the price fell back to, or
below, its current level. Grant Samuel would expect the price to be volatile for a period after the new
shares are issued as some former Investors will seek to immediately sell their new shares as this will
present the first realisation event for these Investors since the company went into a moratorium.
Investors should take advice from a sharebroker before deciding to sell;
 the Investors are being asked to release Hanover from a portion of their repayment obligations under
the Debt Restructure. The amount to be forgiven for each class of security is outlined in the table
below:
29
Obligations to be forgiven by Class of Security ($ million)
Secured Secured Capital Sub Notes Total
Deposits Stock Bonds
Total principal outstanding under the Debt 463.8 64.7 12.1 1.1 541.7
Restructure
Principal repayments to date (27.8) (3.9) - - (31.7)
Net amount outstanding 436.0 60.8 12.1 1.1 510.0
Agreed value of finance assets (301.8) (49.9) (351.7)

Agreed value of Support Package assets (32.2) (4.4) (7.3) (0.6) (44.5)
Net amount to be written off 102.0 6.5 4.8 0.5 113.8
% of principal under the Debt Restructure 22.0% 10.0% 40.0%* 40.0%*
Return – cents per $1 invested 78c 90c 60c* 60c*
* at the commencement of the Debt Restructure the Capital Bondholders and Subordinated Noteholders agreed to receive only
50% of their initial investment. Based on the original face value each investor in Capital Bonds and Subordinated Notes will
receive only 30 cents in the dollar of their original investment
 it may ultimately be possible for Investors to recoup their full investment. This outcome would
require a major revaluation of the underlying loan portfolio, which Grant Samuel considers is unlikely.
Assuming an issue price of $0.35 for the Allied Farmers’ shares (for analysis purposes) the table
below shows the price at which each class of Investor would need to sell their Allied Farmers shares
in order to receive a return of 100c in the dollar of their principal investment at the time of the Debt
Restructure. The analysis below ignores the time value of money and brokerage costs that would
be payable upon the sale of shares:
Share price at which Investors receive 100c in the $1

Class of Investor Amount to be received Number of Shares Issued Allied Farmers
per $1 in Allied Farmers at 35 cents per share share price
shares required to recoup
$1
Secured Depositors $0.72 2.06 $0.49
Secured Stockholders $0.84 2.40 $0.42
Subordinated Noteholders $0.30 0.87 $1.15
Capital Bondholders $0.30 0.87 $1.15
 Under the Debt Restructure holders of the Subordinated Notes and Capital Bonds are now unlikely
to receive any payments. Under the Proposal they will be allocated $600,000 and $7.3 million of
value in shares in Allied Farmers (based on assumed issue price of $0.35). Together these amounts
represent 2% of the total value attributed by Allied Farmers to the loans and assets of Hanover. At
the time of the Debt Restructure the gross value attributed to the Subordinated Notes and Capital
Bonds represented 4.7% of the total gross value. It is arguable that under the Proposal the holders
of Subordinated Notes and Capital Bonds are being treated favourably. The impact on the Secured
Depositors and the Secured Stockholders of Allied Farmers attributing some value to the
Subordinated Notes and Capital Bonds is minimal and is a function of the offer being made by Allied
Farmers and not a decision of Hanover. The Subordinated Note and Capital Bonds holders have
suffered a much greater proportionate loss in value reflecting the relative status of their securities. In
Grant Samuel’s opinion the total of $7.9 million being attributed to the Subordinated Notes and
Capital Bonds is reasonable and does not unfairly prejudice or favour any one group of security
holders.
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6.3 Implications of the Allied Farmers’ Proposal
If the Proposal is successful then Allied Farmers will remain a listed company but will essentially transition
from being a rural services company to being predominantly a finance and investment company, at least
in the short-term. In these circumstances:
 control of Allied Farmers will pass to HFL and United Investors. Allied Farmers currently has 37.7
million shares on issue. Based on a share issue price of $0.35, the estimated number of shares
required to be issued to Investors is approximately 1.1 billion. As a result the Investors will control
approximately 97% of Allied Farmers at completion. A series of potential outcomes using a range of
potential issue prices is outlined in the table below and illustrates that regardless of the Allied
Farmers share issue price, there is only a minor impact on the percentage Investors will own:
Range of outcomes using different issue prices ($m unless otherwise specified)
Issue price (per share) $0.30 $0.40 $0.50 $0.60
Market cap of existing business 11.3 15.1 18.8 22.6
Value of assets acquired 396.2 396.2 396.2 396.2
Combined market capitalisation 407.5 411.3 415.0 418.8
Current Allied Farmers shareholders 37.7 37.7 37.7 37.7

Shares to be issued to Investors 1,320.6 990.4 792.4 660.3
Total shares on issue at completion 1,358.3 1,028.1 830.1 698.0
Ownership by existing shareholders 2.8% 3.7% 4.5% 5.4%

Ownership by Investors (at completion) 97.2% 96.3% 95.5% 94.6%
Although they will unquestionably have control over Allied Farmers, individual Investors will have only
minor influence in a shareholder vote, as Investors are not likely to act jointly or in concert;
 the price at which Investors will be issued Allied Farmers shares will be determined with reference to
the VWAP of the 5 trading days prior to the meeting of Investors intended to be held on 16
December 2009. If subsequently the trading price of Allied Farmers exceeds $0.60 there is a
likelihood that the 15.8 million Allied Farmers options currently listed on the NZX will be exercised. If
every Allied Farmers option were exercised the current shareholders and option holders of Allied
Farmers would control an increased percentage of the company. Assuming a VWAP of $0.60, and
assuming all options were exercised, the current Allied Farmers shareholders would hold 7.5% of the
post-transaction company compared with 5.4% if no options were exercised. This is considered
highly unlikely given the current share price of $0.31 as at 20 November 2009;
 Allied Farmers’ market capitalisation will increase significantly if the Proposal is implemented. Allied
Farmers’ current market capitalisation is approximately $13 million and it had net assets as at 30
June 2009 of approximately $10 million. The acquisition of $396.2 million of assets from HFL and
United will increase the net assets of Allied Farmers at the outset to approximately $406 million. The
eventual market capitalisation is a function of the share price, but with a substantially greater market
capitalisation, Allied Farmers will undoubtedly have a greater market presence. The increased profile
may result in improved analyst coverage of the company and thereby engender greater interest in
the shares, which may ultimately be reflected in improved liquidity and price of the shares;
 Allied Farmers propose to realise a significant sum of cash, over time, from the HFL and United
assets. The cash will be used to grow its existing rural services businesses through acquisition and
to support the Allied Nationwide finance business, pursuing acquisition opportunities in the finance
sector as they arise;
 it is possible that the share price of Allied Farmers will decline materially in the short term. If
successful, the Proposal is likely to result in a significant number of Investors looking to monetise or
“cash up” what they can of their original investment in Hanover by disposing of their Allied Farmers
shares as soon as practicable. It is conceivable that the pool of buyers for Allied Farmers shares in
31
the early stages of implementation of the Proposal will be limited, with potential buyers waiting to
observe how the stock trades following the Proposal and for the new Allied Farmers business to
establish a track record before investing. This will have a significant negative impact on the Allied
Farmers share price at least in the short term but possibly for a lengthy period;
 there is a possibility that the cashing up process may exhibit a lag as the Investors who are
unfamiliar with owning and selling shares determine how to exit their investment in Allied Farmers.
Any discount would also have an impact on the amount per dollar Investors would be able to realise
from their initial investment. That is, the greater the discount at which Allied Farmers’ shares trade
following the Proposal, the smaller the amount Investors will receive of their original investment if
they choose to sell their shares. Over time the trading price of Allied Farmers will be dependent on
the underlying performance of the business, the degree and value to which it realises the assets
acquired from HFL and United, and its dividend yield;
 Allied Farmers will be well positioned for further industry consolidation both in the rural services and
finance sectors. Allied Farmers will have a very strong post transaction balance sheet provided the
management of the entity can adequately oversee the collection of non-performing loans;
 Grant Samuel understands that the performing loans in the HFL and United portfolios will be
transferred from Allied Farmers to its subsidiary Allied Nationwide. These loans will serve to increase
the robustness of the underperforming Allied Nationwide portfolio and assist it in obtaining a
satisfactory credit rating. Approximately 20% of the overall HFL and United loan portfolio is
considered to be performing. The remaining non-performing or impaired loans will remain with Allied
Farmers to collect and administer. The effect of this transfer is to separate the good loans from the
bad loans;
 there is no provision under the terms of the Proposal for Investors to gain automatic representation
on the Allied Farmers Board of Directors. However, as the Investors will control approximately 97%
of Allied Farmers at completion, they will ultimately determine the composition of the board. It is
understood that Allied Farmers may make offers of employment to a number of HFL and United
employees following completion of the Proposal. The employment of current HFL and United
employees may provide a degree of continuity in terms of knowledge of the HFL and United loan
books and the interface with borrowers;
 the five largest loans at fair value in both HFL and United which comprised over 50% of the gross
value loans of all are listed below:
Hanover Five Largest Exposures (30 June 2009)

Description Location Gross Loan Value
2
Five Mile Mixed Use Property Development Queenstown $72.4 m
Kawerau Falls Hotel Development Queenstown $88.7 m
Jacks Point Residential Development Queenstown $44.9 m
Kinloch Golf Course Golf & Residential Development Taupo $24.0 m
Silverdale Industrial Land Development Silverdale $23.1 m
Total $253.1 m
Each of these developments will take a number of years before there will be significant realisations or
an outright sale. Given the stage of development and in some cases complexities surrounding other
securities mean that under a forced sale there would be a significant loss. The ability to take a more
proactive management approach to the developments (than is available under the Debt Restructure
or potential receivership) should result in a superior outcome. Hanover is severely cash constrained
and accordingly is unable to restructure lower or buy-out higher ranking securities to get control of a
development or actively pursue recovery of the loans. Equally receivers are typically very reluctant to
2
On 20 November 2009 HFL settled the sale of stage 1 of Five Mile to a third party with most of the cash realised being
applied to the reduction of the loan owing to the first mortgagee (not HFL). The balance of the purchase price was left in as vendor
finance on commercial terms.
32
incur further liabilities and prefer to get the best price at the time. The Proposal will result in there
being no pressure to make repayments to Investors and potentially the ability to borrow to enhance
the value of the underlying securities which should result in a superior outcome for the Investors;
 if the Proposal is not approved by either the HFL and United Investors (acting separately) or Allied
Farmers shareholders, the status quo will remain, however, there remains a high likelihood that the
companies will not be able to meet all their obligations under the Debt Restructure. In this event the
trustees are likely to either place the companies into receivership or propose a new Debt Restructure
to Investors. The threat of receivership is not good for the day-to-day management of Hanover or
for the likely realisable value of the remaining securities, as potential purchasers of the assets are
more likely to hold off and wait for a fire sale. In Grant Samuel’s opinion the Proposal is superior to
the status quo and high risk of receivership; and
 if Allied Nationwide wish to participate in the extended Crown retail deposit guarantee scheme
(which extends the Crown guarantee on deposits from October 2010 when the current scheme
expires to 31 December 2011) it must obtain a credit rating of BB or better from either Standard and
Poors, Moody’s or Fitch. The transfer of a proportion of the performing loans from HFL and United
into Allied Nationwide will strengthen the balance sheet of Allied Nationwide and assist, but not
necessarily assure Allied Nationwide of obtaining the requisite credit rating. Participation in the
extension of the Crown Guarantee is likely to be critical to ensuring Allied Nationwide is able to
continue to attract and retain its retail deposit base.
If the Proposal is implemented Allied Farmers will be controlled by the Investors and move
from being a diversified rural services company to a large listed finance company. In effect the
Proposal is a “back door” listing of the combined HFL and United loan assets. It is likely that
in the short term some Investors will look to exit part or all of their investment in Allied Farmers
in order to liquidate, to the extent possible, their original investment in Hanover. This is likely
to materially depress the Allied Farmers share price and impact the extent and timeframe to
which the Investors are able to recover their original investment. It is unclear whether Allied
Farmers currently has sufficient in-house management capability to actually manage and
collect the acquired assets, although it is understood that it may make offers to some Hanover
employees to assist with expertise on the loan books being acquired. If the Proposal is
implemented, Allied Nationwide will be better placed to obtain a BB or better credit rating to
enable it to participate in the extended Crown retail deposit guarantee scheme which expires
on 31 December 2011.
6.4 Holding equity compared to holding debt securities
The ownership of shares is a very different investment from holding either Secured Deposits, Secured
Stock, Subordinated Notes or Capital Bonds. An overview of the key aspects of each existing Hanover
security type is outlined below:
 when issued the HFL Secured Deposits were secured, first ranking deposits upon which interest
was paid monthly or quarterly, on a compounding quarterly basis or at maturity. The HFL Secured
Deposits were secured against the assets and undertakings of the HFL charging group (consisting
of HFL and HFL Australia Pty Limited) and, in general had fixed terms ranging from 3 months to 5
years;
 the United Secured Stock when issued was secured by a charge over all of the present and future
undertakings of United, UFL Overseas (UK) Limited and UFL Australia Pty Limited. Interest on the
Secured Stock was paid either monthly, quarterly, six monthly, annually, on a compounding
quarterly basis or at maturity;
 the HFL Subordinated Notes when issued were both unsecured and subordinated to the HFL
Secured Deposits, any other secured creditors of HFL and any unsecured unsubordinated creditors
of HFL. Only the shareholders ranked behind the HFL Subordinated Notes in the distribution of
33
assets on the liquidation of HFL. At the time of issue the HFL Subordinated Notes attracted interest
payments quarterly;
 when issued, the HCL Capital Bonds were secured first ranking debt securities on which interest
was paid either quarterly, six-monthly or annually, on a compounding basis or at maturity. The
preferred bonds were used to subscribe for redeemable preference shares in HFL, ranking behind all
secured and unsecured creditors of HFL but ahead of the shareholders. Interest and principal
repayments were solely dependent on the payment of dividends by HFL to HCL. The HCL Capital
Bonds were secured by a security interest in favour of the Perpetual Trust over all of the assets and
undertakings of HCL;
 the HFL Secured Deposits, United Secured Stock, HFL Subordinated Notes and HCL Capital Bonds
are governed by the Trust Deeds regarding the timing of principal repayments and the permitted
activities the company is able to undertake. The Trust Deeds contain covenants which restrict the
business of the company and are administered by independent trustees who are required to
exercise reasonable diligence to ascertain whether or not the company or charging subsidiaries have
breached any provisions of the Trust Deed.
The Debt Restructure altered the terms of issue of each of the above instruments. The maturity date of
the HFL Secured Deposits, United Secured Stock, HFL Subordinated Notes and HCL Capital Bonds is
31 December 2013 or such later date agreed by the Investors and interest no longer accrues on any of
the securities. Repayments are currently being made in accordance with the repayment plan outlined
under the Debt Restructure. The Investors have no flexibility regarding early repayment of their
investment and repayments are effectively reliant on the management of Hanover being able to realise
sufficient cash from the underlying portfolio of assets, which is now unlikely to meet the expectations
outlined to Investors at the time of the Debt Restructure.
Shares in listed entities exhibit very different characteristics to any of the above instruments:
 a holder of shares is not entitled to regular income or principal payments of any kind. In general,
listed entities endeavour to generate sufficient net cash flows to pay shareholders semi-annual
dividends, however, such payments may be more or less frequent and the company is under no
obligation to pay dividends. Decisions regarding the future direction and management of the
business, including the payment of any dividends, are made by the Board of Directors of the listed
entity. Grant Samuel understands that Allied Farmers intends to pay dividends out of its retained
earnings. That is, no dividends will be paid from the capital realised from the HFL and United assets,
but rather, Investors will be reliant on the underlying earnings of Allied Farmers for the receipt of
dividends. Over the longer term the significant injection of capital should improve both earnings and
the price at which Allied Farmers’ shares trade. It is important that Investors consider the dividend
yield and the potential capital value change (i.e. increase/decrease in the share price) of the shares
together rather than either aspect in isolation;
 a share in a listed entity represents a minority interest in the equity of the underlying business. As
such, shares in listed entities normally trade at a discount (attributable to the lack of control each
parcel of shares has over the company as a whole) of 15% - 25% to the full underlying value of the
company as a whole, but the extent of the discount (if any) depends on the specific circumstances
of each company;
 the price at which shares trade is dictated by market forces and significantly influenced by the
underlying performance of the business and expectations of future performance as well as demand
and supply dynamics. There is no certainty regarding the price at which Allied Farmers shares will
trade and it is possible (and in the short term very likely) that the shares will exhibit a material
discount to the price at which Allied Farmers shares are transferred to Investors;
 in the event of a liquidation holders of equity have the lowest priority over available funds from which
to recoup their initial investment. Equity is the highest risk instrument an entity can issue and is
therefore expected to realise the greatest reward in the long-term in terms of the potential dividend
34
stream, in the event significant profits are generated. Shareholders also participate in any increase in
the value of the underlying business, which is generally reflected in an uplift in the share price of the
entity. Allied Farmers will be predominantly owned by HFL and United Investors and accordingly the
Investors will bear almost all of the risks and receive almost all of the benefits associated with the
underlying business;
 listed companies are regulated by the rules of the exchange on which they trade. Shares in Allied
Farmers are regulated by the Listing Rules. Although listed entities do not have the oversight of a
trustee, in Grant Samuel’s opinion this is unlikely to have any noticeable impact on either the
operation or the security of the underlying business. In terms of financial information the disclosure
requirements under the Trust Deeds will be similar to those required under the Listing Rules.
However, under the Listing Rules any information of a material nature will be required to be disclosed
to the market as soon as practicable, providing shareholders with an additional level of transparency
regarding their investment; and
 shares in listed entities are significantly more liquid than any of the existing securities held by the
Investors. In theory, providing there is sufficient market depth (i.e.: an adequate number of buyers
and sellers for the stock), a shareholder in a listed entity may buy and sell their shares as and when
they please, during the trading hours of the relevant exchange. There are costs associated with
buying and selling shares through share brokers (share broking costs). These costs will apply to the
acquisition and sale of Allied Farmers shares (excluding the initial acquisition by the Investors) and
are usually in the order of 0.5% to 1.0%.
The Investors currently hold fixed term, illiquid securities of uncertain value. The moratorium
has a fixed repayment schedule that is now considered unlikely to be met. It is evident that
there is insufficient asset value remaining in HFL and United from which to service all the
repayment obligations to Investors under the Debt Restructure. That is, it is likely that Secured
Depositors and Secured Stockholders will receive less than the planned 100 cents in every $1
invested and that both HFL Subordinated Noteholders and HCL Capital Bondholders will
receive less than 50 cents in every $1 invested. If the Proposal is completed Investors will
exchange their ownership of Secured Deposits, Secured Stock, Subordinated Notes and
Capital Bonds for shares in Allied Farmers. The ownership of shares in Allied Farmers will
represent a minority interest in a publicly listed company traded on the NZX. The Investors will
be able to dispose of their Allied Farmers shares at any time provided there are sufficient
buyers in the market. However, there is no certainty regarding the price at which Allied
Farmers shares will trade and it is possible that Investors may experience a significant decline
in the value of their Allied Farmers shares, at least initially, as large volumes of shares are
placed on the market by Investors wishing to liquidate their investment and realise cash albeit
at a discount.
6.5 Alternatives to the Allied Farmers’ Proposal
There are essentially three alternatives to the Proposal – finding an alternate buyer for the HFL and United
assets, maintaining the status quo and liquidation or receivership. The merits of each of these alternatives
are outlined below:
Alternative offer for the HFL and United assets
 the HFL and United Debt Restructure have been in place for almost 12 months. There is a
widespread expectation that consolidation of the New Zealand finance sector will occur in the short
term with assets subject to moratoria or formal restructure arrangements the most likely acquisition
targets by special purpose vehicles established to acquire distressed debt at attractive prices. The
Debt Restructure has been a relatively public processes, and it is reasonable to assume that in the
current market, if another party was willing to offer a superior price to acquire the Hanover assets,
that party would have emerged;
35
 the HFL and United assets have not been the subject of a competitive sale process and it is
possible, although somewhat unlikely, that another acquirer may offer more for the assets subject to
the Proposal. It is the responsibility of the Boards of Directors of the Hanover companies to
determine whether a higher and better offer could be extracted by running a competitive sale
process, however, it is by no means certain that a competitive sale process would yield any offers;
and
 an alternative cash offer is a remote possibility but in Grant Samuel’s opinion if it were to eventuate
from another party it would be at a substantial discount to the current book value. The exchange of
equity for debt under the Proposal means that the Investors are exposed to both the risk that the
loan assets will realise less than the transfer value and the possibility (albeit remote) that the assets
will realise more over time. A cash offer (if there was one), would be likely to yield a lower result than
that available through a swap of debt for equity in Allied Farmers as the buyer will be looking for a
high return commensurate with the high risk being assumed.
Continuation of the Debt Restructure
 the repayment plan outlined under the Debt Restructure is unlikely to be realised given the continued
decline in asset prices and the recent further impairment of the underlying assets of Hanover. On 10
November 2009 the Directors stated that they believe the return for Secured Depositors will be
approximately 70c in the dollar with the return for Secured Stockholders estimated at approximately
90c in the dollar. Subordinated Noteholders and Capital Bondholders may not receive any return of
principal invested. The ultimate result of failing to meet its obligations under the Debt Restructure
(an event of default) would be receivership;
 it is uncertain how much will be realised from the underlying assets of Hanover and if or to what
extent the Secured Depositors or Secured Stockholders would be reliant on calling on the personal
guarantees provided by the Shareholders. If the Shareholders were unable to honour their
obligations under the guarantees, bankruptcy proceedings would likely be initiated, an event of
default under the Secured Deposit Trust Deed and the Secured Stock Trust Deed would occur and
the trustee may elect to appoint a receiver; and
 liquidity in the New Zealand debt market has declined significantly since late 2008 and it is very
uncertain when a recovery in the finance and property market will occur. As such there is no
guarantee that the underlying assets of HFL and United will not deteriorate further. Conversely, it is
possible that a recovery in these markets could result in a write back of impairment provisions
accrued to date. In Grant Samuel’s opinion this is a remote possibility in the short to medium term.
Liquidation / Receivership
 if the Proposal is not approved and the company fails to pay all or any part of any two consecutive
instalments of principal within 10 business days of the due date for payment (or any other event of
default occurs) it is possible that the trustees will elect to place HFL and United into receivership;
 it is now clear that management’s original estimate of loan recoveries was optimistic. A significant
further write-down of both the HFL and United loan books has been recorded in the year to 30 June
2009. However, it is unlikely that had a receiver been appointed at the time of the Debt Restructure,
any of the lost value would have been recovered by way of a sale of the HFL / United loan book at
that time. Indeed a sale of the HFL and United loan books would been very difficult to effect at that
time. In Grant Samuel’s opinion Investors have not lost any additional value by choosing to not
appoint a receiver and enter into the Debt Restructure;
 a significant portion of the benefits of approving the Debt Restructure in favour of receivership
related to the availability of the Support Package and the continuation of new lending. At the time of
the Debt Restructure the Support Package was valued by the Shareholders at $96 million. The
Support Package assets being the cash, the Axis Companies and the Matarangi Beach Estates
Loan are now valued for the purposes of the transaction at $44.5 million (excluding the $20 million
Pledge);
36
 a consequence of approving the Debt Restructure in favour of receivership (in December 2008) was
the implementation of the Support Package;;
 the value gap between a continuation of the Debt Restructure and receivership has narrowed and is
now represented only by the $20 million Pledge, which would fall away under receivership (except
where receivership is caused by default of the Shareholders), and the costs of the receiver. In
practical terms, the $20 million Pledge reduces to $10 million provided the final 2009 payment is
made in full on 31 December 2009. When the net present value of payments likely to be received
under the Debt Restructure is compared with the timing of payments under potential receivership,
the gap narrows further. The key differences between a continuation of the Debt Restructure and
receivership are the likely timing of cash flows and the costs associated with a receiver. In Grant
Samuel’s opinion the difference between the two scenarios is minimal;
 the appointment of a receiver will have the following consequences:
− a receiver could seek to repay amounts owing to the Investors through proceeds from the
orderly realisation of assets;
− a receiver will charge fees based on the hours involved in managing the orderly realisation.
These fees will be substantial given the length of time involved and the relatively illiquid
nature of the assets. PwC estimated such fees to total approximately $2 million in the year
to 31 December 2010, $1.5 million in the year to 31 December 2011 and $1 million per
annum thereafter;
− Grant Samuel believe that a managed realisation of the loan assets by Allied Farmers has
the potential to produce greater value to Investors than under a receivership where the
receiver will look to maximise price over a shorter term; and
− no interest would accrue to Investors. By approving the Debt Restructure Secured

Depositors and Secured Stockholders waived their right to receive interest payments or
accrue interest unless certain performance criteria are met (these performance criteria are
very unlikely to be triggered). HFL Subordinated Noteholders and HCL Capital
Bondholders have entirely waived their right to interest payments. Accordingly, the
Investors are not entitled to have interest accrue on their investments under a receivership
scenario.
In Grant Samuel’s opinion, barring a significant recovery of the finance and property sectors in
New Zealand, continuation of the Debt Restructure is more likely than not to ultimately end in
receivership for Hanover as there are insufficient assets remaining in HFL and United to meet
all its obligations under the Debt Restructure (even if the $20 million Pledge was called). The
Support Package assets have declined in value, having been affected by the same market
factors as HFL and United’s loan books and is now estimated to be worth only $44.5 million
(excluding the $20 million Pledge). The Support Package assets, other than the $20 million
Pledge (which falls away under either the Proposal or receivership in certain circumstances),
will be available regardless of which course of action is pursued. The values likely to be
received under either a continuation of the Debt Restructure or potential receivership are
similar with the major differences arising as a result of fees payable to a receiver. The
Proposal has the advantage of providing immediate liquidity, however, the value at which the
Investors will be able to realise this liquidity is uncertain both initially and over time. In Grant
Samuel’s opinion an alternative, superior offer for the HFL and United assets is unlikely to be
forthcoming.
6.6 Other advantages and disadvantages of the Allied Farmers’ Proposal
In assessing the other merits of the Proposal Grant Samuel considered the following factors:
 as with any investment there are risks associated with the market in which the company operates.
The risks and opportunities associated with an investment in Allied Farmers are similar to the risks
37
and opportunities associated with continuing with the HFL and United Debt Restructure. They
include:
Opportunities
− the vast majority of the loans being acquired by Allied Farmers are either distressed or
impaired, with performing loans comprising only approximately 20% of the total package.
There is an opportunity with active loan management to realise significant cash flow from
this portfolio. Allied Farmers shareholders, including the Investors, will benefit from any
return that Allied Farmers manages to earn on this loan portfolio; and
− the Proposal will provide a platform from which to grow Allied Nationwide’s finance book in
a market where competition is materially less than that experienced between 2005 and
2008. The transfer of parts of the HFL / United loan book will significantly increase the size
of Allied Nationwide’s portfolio and equity and should assist its ability to obtain a
satisfactory credit rating and enhance its appeal to investors.
Risks
− Allied Nationwide’s ability to obtain a satisfactory credit rating is by no means certain. The
loan assets being transferred are significantly exposed to the property market, and it is
possible that these assets will not enhance the overall diversity of the Allied Nationwide
portfolio;
− the quality of the loan assets being acquired by Allied Farmers is questionable and it is
unclear to what extent Allied Farmers will be able to recover amounts owing on the
distressed and impaired loans. Investors will be cautious until Allied Farmers can
demonstrate effective recovery of these loans; and
− it is uncertain whether the Proposal will return more to Investors than would ultimately be
realised from a continuation of the Debt Restructure primarily because there is no certainty
regarding the future value of Allied Farmers shares or how much cash Investors would be
able to realise by selling their Allied Farmers shares.
 HFL and United are operating under the terms of the Debt Restructure and are scheduled to make
quarterly repayments to the HFL Secured Depositors and United Secured Stockholders over the
next 4 years, and a lump sum payment to HFL Subordinated Noteholders and HCL Capital
Bondholders in December 2013. These payments are dependent on Hanover realising sufficient
cash from its existing loan book and investment assets to meet these obligations. It is almost certain
that the assets of Hanover will be insufficient to meet the Debt Restructure obligations in full. The
key issue confronting the Investors is whether the Proposal will produce a superior outcome as to
other alternatives, including continuing with the Debt Restructure;
 the HFL Secured Depositors and United Secured Stockholders were entitled to some potential
upside return on their investment in the event the Debt Restructure went as planned. The Proposal
contains no such provision. Rather, all Investors will participate to the same extent in any value uplift
or decline of the Allied Farmers share price. However, given the material deterioration in the
underlying assets of Hanover it is considered unlikely that the necessary thresholds for upside
payments to Secured Depositors and Secured Stockholders would be triggered in the event the
Debt Restructure were to continue;
 financial projections for the duration of the Debt Restructure have been provided for HFL and United.
The cash flow forecasts for net realisations range from a low of $305.2 million to a high of $378.9
million for HFL and a low of $54.2 million to a high of $58.8 million for United. If the higher sums are
realised Investors can expect to benefit from an increase in the Allied Farmers share price;
 if the Proposal is approved Allied Farmers will issue its existing shareholders with bonus shares
immediately prior to implementation of the Proposal. For every 10 Allied Farmers shares held,
existing shareholders will receive 1 bonus share. The bonus shares will be convertible into ordinary
shares in Allied Farmers if the audited financial results for the financial year to 30 June 2011 show
38
that Allied Farmers has made a loss (realised or unrealised) on the assets transferred under the
Proposal (i.e. the value of any of the Hanover assets realised together with the residual value of any
of the Hanover assets still held is less than $396.2 million). The conversion ratio for bonus shares to
ordinary shares will be calculated such that Allied Farmers’ shareholders aggregate shareholding in
the company is increased to what it would have been immediately after the Proposal if the Hanover
assets had been transferred at the value ascribed as of 30 June 2011. The bonus share mechanism
seeks to protect existing Allied Farmers’ shareholders and conversely ensure that the Investors
collective shareholding in Allied Farmers can be adjusted down if the value of the assets is less the
currently ascribed value. There will be no adjustment if the future value of the Hanover assets is
greater than $396.2 million i.e. the Investors will share any up side with the existing Allied Farmers’
shareholders. The spectrum of outcomes in terms of the percentage of shares in Allied Farmers that
will be held by the Investors following the adjustment in June 2011 is wide. This mechanism
essentially means Investors current direct exposure to downward adjustments in the value of the
Hanover assets continues even if the Proposal is implemented; and
 Grant Samuel is satisfied that the estimates of the transaction costs and residual liabilities of $10
million in total are fair to Investors and reflect a reasonable estimate of actual and potential claims
against Hanover in respect of the Proposal and ongoing legal and winding up costs.
6.7 Acceptance or Rejection of the Allied Farmers’ Proposal
Acceptance or rejection of the Proposal is a matter for individual HFL Secured Depositors, United
Secured Stockholders, HFL Subordinated Noteholders and HCL Capital Bondholders based on their own
view as to value and future market conditions, risk profile, liquidity preference, portfolio strategy, tax
position and other factors. In particular, taxation consequences will vary widely across Investors.
Investors will need to consider these consequences and should consult their own professional adviser(s).
39
7. Qualifications, Declarations & Consents
7.1 Qualifications
The Grant Samuel group of companies provides corporate advisory services (in relation to mergers and
acquisitions, capital raisings, corporate restructuring and financial matters generally), property advisory
services and manages private equity and property development funds. One of the primary activities of
Grant Samuel is the preparation of corporate and business valuations and the provision of independent
advice and expert’s reports in connection with mergers and acquisitions, takeovers and capital
reconstructions. Since inception in 1988, Grant Samuel and its related companies have prepared more
than 400 public expert and appraisal reports.
The persons responsible for preparing this report on behalf of Grant Samuel are Michael Lorimer, BCA,
Simon Cotter, BCom, MAppFin, F Fin, Rachael Boswell , BSc, and Alexa Michau, BBus, CA. Each has a
significant number of years of experience in relevant corporate advisory matters.
7.2 Limitations and Reliance on Information
Grant Samuel’s opinion is based on economic, market and other conditions prevailing at the date of this
report. Such conditions can change significantly over relatively short periods of time. The report is based
upon financial and other information provided by the directors, management and advisers of HFL and
United. Grant Samuel has considered and relied upon this information. Grant Samuel believes that the
information provided was reliable, complete and not misleading and has no reason to believe that any
material facts have been withheld.
The information provided has been evaluated through analysis, enquiry, and review for the purposes of
forming an opinion as to the value of the HFL and United assets. However in such assignments time is
limited and Grant Samuel does not warrant that these inquiries have identified or verified all of the matters
which an audit, extensive examination or “due diligence” investigation might disclose.
An analysis of the merits of the Proposal is in the nature of an overall opinion rather than an audit or
detailed investigation. Grant Samuel has not undertaken a due diligence investigation of HFL or United.
In addition, preparation of this report does not imply that Grant Samuel has audited in any way the
management accounts or other records of HFL and United. It is understood that, where appropriate, the
accounting information provided to Grant Samuel was prepared in accordance with generally accepted
accounting practice and in a manner consistent with methods of accounting used in previous years.
An important part of the information base used in forming an opinion of the kind expressed in this report
is the opinions and judgement of the management of the relevant enterprise. That information was also
evaluated through analysis, enquiry and review to the extent practicable. However, it must be recognised
that such information is not always capable of external verification or validation.
However, Grant Samuel in no way guarantees or otherwise warrants the achievability of the projections of
future profits and cashflows for HFL and United. Projections are inherently uncertain. Projections are
predictions of future events that cannot be assured and are necessarily based on assumptions, many of
which are beyond the control of management. The actual future results may be significantly more or less
favourable.
To the extent that there are legal issues relating to assets, properties, or business interests or issues
relating to compliance with applicable laws, regulations, and policies, Grant Samuel assumes no
responsibility and offers no legal opinion or interpretation on any issue. In forming its opinion, Grant
Samuel has assumed, except as specifically advised to it, that:
40
 the title to all such assets, properties, or business interests purportedly owned by HFL and United is
good and marketable in all material respects, and there are no material adverse interests,
encumbrances, engineering, environmental, zoning, planning or related issues associated with these
interests, and that the subject assets, properties, or business interests are free and clear of any and
all material liens, encumbrances or encroachments;
 there is compliance in all material respects with all applicable national and local regulations and laws,
as well as the policies of all applicable regulators other than as publicly disclosed, and that all
required licences, rights, consents, or legislative or administrative authorities from any government,
private entity, regulatory agency or organisation have been or can be obtained or renewed for the
operation of the business of HFL and United, other than as publicly disclosed;
 various contracts in place and their respective contractual terms will continue and will not be
materially and adversely influenced by potential changes in control; and
 there are no material legal proceedings regarding the business, assets or affairs of HFL and United,
other than as publicly disclosed.
7.3 Disclaimers
It is not intended that this report should be used or relied upon for any purpose other than as an
expression of Grant Samuel’s opinion as to the merits of the Proposal. Grant Samuel expressly disclaims
any liability to any HFL or United Investor who relies or purports to rely on the report for any other purpose
and to any other party who relies or purports to rely on the report for any purpose whatsoever.
This report has been prepared by Grant Samuel with care and diligence and the statements and opinions
given by Grant Samuel in this report are given in good faith and in the belief on reasonable grounds that
such statements and opinions are correct and not misleading. However, no responsibility is accepted by
Grant Samuel or any of its officers or employees for errors or omissions however arising in the preparation
of this report, provided that this shall not absolve Grant Samuel from liability arising from an opinion
expressed recklessly or in bad faith.
Grant Samuel has had no involvement in the preparation of the notices of meeting issued by HFL and
United and has not verified or approved any of the contents of the notices of meeting. Grant Samuel
does not accept any responsibility for the contents of the notices of meeting (except for this report).
7.4 Independence
Grant Samuel and its related entities do not have any shareholding in or other relationship or conflict of
interest with HFL or United that could affect its ability to provide an unbiased opinion in relation to the
Proposal. Grant Samuel had no part in the formulation of the Proposal. Its only role has been the
preparation of this report. Grant Samuel will receive a fixed fee for the preparation of this report. This fee
is not contingent on the outcome of the Proposal. Grant Samuel will receive no other benefit for the
preparation of this report. In 2009 Grant Samuel prepared an independent valuation of FAI for the
Directors of HFL. FAI is a company owned by Messrs Watson and Hotchin. Grant Samuel considers
itself to be independent for the purposes of preparing this report.
7.5 Information
Grant Samuel has obtained all the information that it believes is desirable for the purposes of preparing
this report, including all relevant information which is or should have been known to any Director of HFL
and United and made available to the Directors.
7.6 Declarations
HFL and United have agreed that they will indemnify Grant Samuel and its employees and officers in
respect of any liability suffered or incurred as a result of or in connection with the preparation of the
report. This indemnity will not apply in respect of the proportion of any liability found by a Court to be
41
primarily caused by any conduct involving gross negligence or wilful misconduct by Grant Samuel. HFL
and United have also agreed to indemnify Grant Samuel and its employees and officers for time spent
and reasonable legal costs and expenses incurred in relation to any inquiry or proceeding initiated by any
person. Where Grant Samuel or its employees and officers are found to have been grossly negligent or
engaged in wilful misconduct Grant Samuel shall bear the proportion of such costs caused by its action.
Any claims by HFL and United are limited to an amount equal to the fees paid to Grant Samuel.
Advance drafts of this report were provided to the directors and executive management of HFL and
United and the Trustees. Certain changes were made to the drafting of the report as a result of the
circulation of the draft report. There was no alteration to the methodology, evaluation or conclusions as a
result of issuing the drafts.
7.7 Consents
Grant Samuel consents to the issuing of this report in the form and context in which it is to be included in
the notices of meeting to be sent to security holders of Hanover. Neither the whole nor any part of this
report nor any reference thereto may be included in any other document without the prior written consent
of Grant Samuel as to the form and context in which it appears.
GRANT SAMUEL & ASSOCIATES LIMITED

November 2009
42
Appendix A – Overview of the Finance Industry
Background
In the period from 2000 to 2006 the non-bank finance sector in New Zealand grew rapidly reaching an
estimated $17.3 billion in total assets (Source: KPMG FIP survey 2008). Finance companies
predominantly sourced funds from the public, issuing higher yielding debenture stock, with a
disproportionately large proportion of this funding then lent into property development transactions.
In 2006 market conditions changed dramatically. National Finance and Provincial Finance were placed in
receivership and since then more than 48 finance companies have either failed or suspended interest
payments and security redemptions pending a capital restructure. Finance company failures have put at
risk over $6 billion in deposits:
Financial Institution Failure – Deposits at risk (NZ$ millions)

2006 2007 2008 2009 Total
Closed - - 918 - 918
Liquidation - 21 335 - 356
Moratorium - 162 1,441 - 1,603
Receivership 370 932 387 83 1,772
Suspended - - 1,263 33 1,296
Other - 170 - 1 171
Total 370 1,285 4,344 117 6,116
Source: interest.co.nz
The initial company failures could, in many cases, be attributed to company specific factors including
poor lending practices. However, investor confidence in the non-bank finance sector declined rapidly in
the second half of 2007 and finance companies began to experience markedly reduced reinvestment
rates. This was compounded by continuing increases in the official cash rate to 8.25% enhancing returns
on more traditional products such as bank term deposits, and investors becoming more sensitive to the
underlying risks associated with investing in second tier, unrated debt instruments.
The events in the second half of 2007 with respect to the global financial crisis and weakening
Australasian financial markets have been well documented. By 2008, debenture reinvestment rates for
most finance companies had dropped below 30%. As the New Zealand economy slowed and the
property market softened many finance companies were rapidly facing unsustainable pressure to liquidate
loan portfolios to meet cash demands from investors redeeming maturing debentures.
A number of finance companies including HFL, United, Strategic Finance, St Laurence and Dorchester
Finance all suspended security redemptions and interest payments with each company pursuing a capital
restructuring plan in preference to receivership, while others such as MFS Pacific Finance and Dominion
Finance went into receivership. The key contributing factors to finance company failures have been:
 a heavy weighting to property development finance. Market conditions for the property development
finance sector have deteriorated to such an extent that the failure of property developments has
become self-fulfilling due to lack of refinancing options. The sub-prime mortgage crisis offshore,
leading to a tightening of capital markets generally and the availability of credit, has seen a swift
deterioration of conditions in the domestic commercial property and development land market.
Softening asset prices have led to a slowdown in property sales with a consequent negative impact
on those finance companies lending into the property development sector. For the incumbent
lender the general outlook is that it will be very difficult to realise cash over the near term from the
underlying property assets that provide security for these development loans;
43
 the funding model for New Zealand finance companies was based extensively on public borrowing
through the issuance of debenture stock and unsecured notes. By its nature this is a “borrowing
short, lending long” model that relied on high reinvestment rates by debenture investors and
relatively stable market conditions for continuity;
 the failure of poorly managed finance companies has negatively impacted on levels of debenture
reinvestment in otherwise stronger finance companies, leading to liquidity stress on the majority of
the remaining participants. A snowball effect progressively led to lower and lower reinvestment rates
across the sector with even the most robust finance companies not being immune; and
 in many instances the finance companies had large related party loan positions where the company
had lent to developments being undertaken by the owners or directors of the finance company, or
their associates. This not only created conflict but also accentuated the collapse of a number of
finance companies.
The finance companies that have to date survived the current economic climate have been those finance
companies with no or low levels of exposure to development property and related party loans, and
funding sources other than public issued debentures (e.g. MARAC, supported by PGC).
Today, the non-bank sector continues to face pressures due to global financial market uncertainty and a
weak New Zealand economy. The New Zealand Government guarantee, which was introduced in
October 2008, has mitigated some of the liquidity issues for a number of finance companies by providing
a platform to stem the outward flow of retail deposits. Despite reduced liquidity pressures, a number of
finance companies are continuing to face financial troubles due to asset quality deterioration, particularly
in relation to property development and the impact of uncompleted projects and declining collateral
values.
Regulation
In October 2008, in an attempt to provide financial stability and to provide New Zealand depositors
assurance, the Crown introduced a depositor guarantee for a period of two-year period. The guarantee
covers all retail deposits of participating New Zealand-registered banks and retail deposits by New
Zealand residents in Non-Bank Deposit Taking institutions (NBDTs), effectively providing a government
guarantee AAA credit rating for participating entities’ retail deposits. The guarantee has been extended
until 31 December 2011, but will only be available to NBDTs with a rating of BB or higher. This is
expected to exclude approximately 30 of the 70 companies within the scheme.
In November 2008, the Reserve Bank introduced a new prudential regime for NBDTs in order to reduce
the likelihood of future finance company collapses by ensuring adequate capital adequacy. The new
regime will have a considerable influence on shaping the industry over the next two to three years. The
key objectives of the regime are to promote sound governance, risk management and to increase
investor confidence by providing a clear basis for investors to determine the level of risk associated with
the entity. The key elements of the new regime include:
 the implementation of related party and governance requirements. This includes a limit on aggregate
credit exposures of the deposit taker or the borrowing group to all related parties. The level of
exposure must be specified in the trust deed and fixed by agreement between the deposit taker and
the trustee and may not exceed 15% of tier one capital. The governance regulations include the
obligation to have at least two non-executive directors and a non-executive chairperson;
 the implementation of capital adequacy requirements based on the Basel II regime, with only Tier 1
capital being included in the regulatory capital calculations (Note: these capital requirements are
likely to be 12 months from the implementation of the regulation). NBDTs will be required to have a
minimum capital ratio of 8% if they hold a credit rating and 10% if they do not;
 the requirement for NBDTs with liabilities greater than $20m to hold a credit rating, from 1 March
2010; and
44
 liquidity regulations to ensure that NBDTs maintain sufficient liquidity to withstand a plausible range
of liquidity shocks.
The Government guarantee has reduced the focus on finance company credit ratings in the short term,
but as the guarantee reaches its expiry date, a strong credit rating is considered to be essential to raise
capital from the retail sector. The credit ratings of the NBDTs that have been rated are summarised in the
table below:
Non bank deposit taker credit ratings – 1 May 2009

Company Rating Rating Issuer
Equitable Mortgages Limited BB Standard & Poor’s
HFL Finance Limited D Fitch Rating
Hastings Building Society BB Fitch Rating
Geneva Finance Limited CC Standard & Poor’s
MARAC Finance Limited BBB- Standard & Poor’s
Medical Securities Limited A- Standard & Poor’s
Nelson Building Society BB Fitch Rating
PSIS Limited BB+ Standard & Poor’s
South Canterbury Finance BBB- Standard & Poor’s
UDC Finance Limited AA Standard & Poor’s
Wairarapa Building Society BB+ Standard & Poor’s
Source: Reserve Bank of New Zealand
On 13 August 2009, S&P lowered MARAC’s long term rating to a BB+ “negative outlook”. South
Canterbury Finance was downgraded to BB+ from BBB- “negative outlook” after announcing a $37
million full-year loss and $58 million of property loan provision.
45

Hanover EM Book Final

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Explanatory Memorandum

and Notices of Meeting

The Directors unanimously recommend

that investors VOT E IN FAVOUR

of the Extraordinary Resolutions

Date: Wednesday 16 December 2009

Time: 10.30am (New Zealand time)

Location: Newmarket Room, Ellerslie Event Centre

This is an important document and requires your attention.

Meetings of investors 10.30am on 16 December 2009

ALLIED FARMERS PROPOSAL

The directors of Hanover, United and Hanover Capital unanimously recommend

• An ability to provide ongoing funding support to complete property developments

Dear Deposit Holder

HANOVER FINANCE SECURED DEPOSITS

b. Immediately following the cancellation, approving the exchange of 72 cents of each $1

Vero Centre, 48 Shortland Street, Auckland 1010

Regular payments Depositors are entitled to No requirement for a regular

Shares can be sold on the share

On enforcement against the

Shareholder Support Directors PwC Total Attributed by

If the Proposal is approved by extraordinary resolution at the meeting and its

EXTRAORDINARY RESOLUTION: ALLIED FARMERS PROPOSAL

2. That, without limiting paragraph 1:

i. subject to being indemnified to its satisfaction, release the security constituted

The Extraordinary Resolution set out above is conditional on:

• faxing it to +64 9 488 8787; or

EXTRAORDINARY RESOLUTION: ALLIED FARMERS PROPOSAL

2. That, without limiting paragraph 1:

i. subject to being indemnified to its satisfaction, release the security constituted

Document Number: 13748381374838

The Extraordinary Resolution set out above is conditional on:

• faxing it to +64 9 488 8787; or

EXTRAORDINARY RESOLUTION: ALLIED FARMERS PROPOSAL

2. That, without limiting paragraph 1:

a. The Company is released from the payment of:

i. 20 cents of each $1.00 of principal amount of the Subordinated Notes outstanding as

The Extraordinary Resolution set out above is conditional on:

Document Number: 13748201374820

• faxing it to +64 9 488 8787; or

EXTRAORDINARY RESOLUTION: ALLIED FARMERS PROPOSAL

2. That, without limiting paragraph 1:

a. The Company is released from the payment of

i 20 cents of each $1.00 of principal amount of the Bonds outstanding as at

ii The 50 cents of each $1.00 of principal of the Bonds outstanding as at 31 December

The Extraordinary Resolution set out above is conditional on:

Document Number: 13748401374840

• faxing it to +64 9 488 8787; or

2. OVERVIEW OF THE ALLIED FARMERS PROPOSAL

Since that time:

The Allied Farmers Proposal

Grant Samuel independent expert report

The report also notes:

Allied Farmers Shares

Number of new shares issued and resulting capital structure

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Acquisition of Finance Assets and Operating Assets

(together, the “Finance Assets”).

• $301.8 million for HFL’s assets

• $49.9 million for UFL’s assets

In approving the Allied Farmers Proposal, investors are approving:

• the release of the companies from:

• the discharge and release of the Trust Deeds

Location: Newmarket Room, Ellerslie Event Centre