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Hanover directors recommend Allied Farmer Proposal

Monday 30 November 2009

Hanover directors recommend investors approve Allied Farmers Proposal

The Chairman of Hanover Finance, Hanover Capital and United Finance, David Henry, today confirmed directors have unanimously recommended that all classes of investor vote in favour of the Allied Farmers Proposal.

Mr Henry said this followed careful review of Hanover, United and Hanover Capital’s forward cash flow projections, the content of the Allied Farmers Proposal and the Grant Samuel independent expert report.

“Directors have unanimously recommended approval of the Allied Farmers Proposal by investors at the meeting scheduled for 16 December 2009.

“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 Plan (DRP) currently in place.

Mr Henry noted the Grant Samuel independent expert report stated the Allied Farmers Proposal is superior for Hanover and United investors than the status quo under the DRP, or other likely options.

“The Proposal means Allied Farmers can take a longer term view in managing the assets and has a broader range of options to improve asset values. These potentially include:

* an ability to provide ongoing funding support to complete property developments

* an ability to negotiate with prior ranked lenders over borrower’s assets in order to ensure an orderly realisation over time

“We also believe Allied Farmers will be able to arrange new funding and use the proceeds from asset realisations to support the business, instead of using such proceeds to meet the short term repayments required under the DRP.

“When the DRP was entered into, it was anticipated at that time by management and directors that the property market would stabilise and potentially show signs of recovery in late 2009 or early 2010. However, as the current directors indicated in a letter to investors in November 2009, market indicators have continued to move in a more negative direction and trading conditions in general, and the property market in particular, continues to be challenging.

“This significant deterioration has meant Hanover’s current estimates indicate we are no longer likely to achieve full repayment to investors under the DRP.”

Mr Henry said directors believed the Proposal is likely to be in the best interests of all classes of investors. He noted the Grant Samuel report commented that an alternative superior offer is unlikely and that the consideration being offered by Allied Farmers was fair.

“Under the Allied Proposal, Hanover Secured Depositors will receive a total 78 cents of value, an improvement on the current estimate, and United Secured Stockholders 90 cents. This includes 6 cents already paid up to September 2009 under the DRP.

“Subordinated Noteholders and Capital Bondholders will each receive, under the Allied Proposal, 30 cents of value. Hanover directors have previously advised that they were unable to forecast any repayment for these investors under the DRP.

A comparison between the current directors’ estimate of recoveries, under the DRP, and the Allied Farmers Proposal is:

Investors - Current Hanover directors’ estimate (November 2009) - Total value to be received under Allied Farmers Proposal

HFL Secured Depositors - Approximately 70 cents per dollar payable under the Debt Restructure (inclusive of the 6 cents per $1.00 paid to 30 September 2009) - 78 cents (inclusive of the 6 cents paid to 30 September 2009)
(equivalent to 2.06 Allied shares – assuming an issue price of 35 cents per share)*

UFL Secured Stockholders - Approximately 90 cents per dollar payable under the Debt Restructure (inclusive of the 6 cents per $1.00 paid to 30 September 2009) - 90 cents (inclusive of the 6 cents paid to 30 September 2009)
(equivalent to 2.40 Allied shares – assuming an issue price of 35 cents per share)*

Hanover Subordinated Noteholders - Nil per $1.00 - 30 cents
(equivalent to 0.87 Allied shares – assuming an issue price of 35 cents per share)*

Hanover Capital Bondholders - Nil per $1.00 - 30 cents
(equivalent to 0.87 Allied shares – assuming an issue price of 35 cents per share)*

* Note that, under the terms of the Allied Farmers Proposal, the Allied Farmers shares will be issued at the volume weighted average price of price setting trades of Allied Farmers shares through the NZSX market operated by NZX Limited in the five trading days prior to 16 December 2009. In the table above, 35 cents has been used by way of example. Once calculated (at the end of the day on 15 December 2009), the actual issue price will be advised on www.hanover.co.nz and at the meeting of investors on 16 December 2009.

Investors have been mailed an Explanatory Memorandum booklet with full details of the Allied Farmers Proposal including:

• a letter from Hanover and United’s directors
• an assessment of the Allied Farmers Proposal completed by independent expert Grant Samuel
• a letter from New Zealand Guardian Trust
• a copy of the Allied Farmers Simplified Disclosure Prospectus
• information about the investor meeting and proxy forms

Perpetual Trust will be separately sending a letter directly to investors in United Finance, subordinated note holders in Hanover Finance, and bondholders in Hanover Capital.

Mr Henry said investors need to carefully consider the information provided before they vote, and consultation meetings with investors would begin around the country this week involving Hanover, United and Allied Farmers representatives to assist with this. These investor meetings will begin this Thursday 3 December in Hawkes Bay. A full schedule of meetings follows.

The meeting for investors to vote on the Extraordinary Resolutions required to approve the Allied Farmers Proposal will be held on 16 December in Auckland. Investors who cannot attend may vote by appointing a proxy to vote on their behalf.

Further information is available at www.hanover.co.nz

ENDS

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