Fletcher Challenge Forests Limited
2 August 2002
Mr R.M. Dillon VIA EMAIL & POST
Director/Advocacy
NZ Shareholders Association Inc
Dear Mr Dillon
Thank you for your fax of July 31.
Transfer of Effective Ownership
I must take issue with your comment that “a possible eventual result [of this transaction] could be the transfer of
effective ownership of a major section of New Zealand forestry resource to the Chinese government’s investment arm.”
That is not correct unless you are looking forward to a hypothetical future day when SEAWI makes a successful offer
under the Takeovers Code for a controlling interest in the Company. The Governance Deed that has been entered into is
described on pages 22, 41 and 42 of the Explanatory Memorandum, and it ensures the Company’s independence.
SEAWI will not control the Company based on its 35% maximum permitted shareholding. They will have the right to fair
Board representation, but the Company will remain independent and under the total control of its Board, which will have
a majority of independent directors.
Independent directors will also be a majority on the Audit, Remuneration and Nomination Committees of the Board.
SEAWI will, of course, be free to bid for a controlling interest in the Company at a future date, after the agreed two
year standstill period. Our shareholders would determine whether any bid was successful, or not, and it is they who will
determine whether control ever passes.
I also note that the Governance Deed incorporates certain changes requested by the N.Z. Shareholders Association in
discussions between Mr Sheppard and our Chairman, Sir Dryden Spring. Mr Sheppard expressed himself satisfied with those
changes. Sir Dryden has asked me to record his disappointment that new issues are now being raised by Mr Sheppard in
relation to governance.
Related Parties
This issue will be determined by the High Court on Friday, 9 August 2002 in the proceedings issued by Xylem Investments
earlier this week. Fletcher Challenge Forests will obviously be bound by the decision of the Court in relation to this
matter and it is not appropriate for us to comment further.
ADRs
The ADR programme is administered under the terms of a Deposit Agreement between the Company, Citibank, N.A. (the
Depositary) and the holders of ADRs. By the terms of that agreement, where no voting instructions are received by the
Depositary from an ADR holder, unless Fletcher Challenge Forests requests otherwise the Depositary is deemed to have
been instructed by the relevant ADR holder to give a discretionary proxy to a person designated by the company to vote
in respect of the shares underlying the relevant ADRs. Consistent with previous practice, Fletcher Challenge Forests
intends to designate the Company Secretary to receive the discretionary proxy for the Special Meeting to be held on 13
August.
By virtue of the provisions of Listing Rule 9.3.1, on resolutions 2(a) to (d) no vote can be cast on any shares held by:
any Related Party of Fletcher Challenge Forests who is a party to or beneficiary of the transactions that are the
subject of the resolutions; or
any Associated Person of such persons.
As described in the Notice of Meeting, Fletcher Challenge Forests believes that SEAWI, Rubicon, The National Bank of New
Zealand and their Associated Persons are the Related Parties of the company prevented from voting on resolutions 2(a) to
(d) by virtue of these provisions. Other parties which may be “related parties” of Fletcher Challenge Forests are not
prevented by Listing Rule 9.3.1 from voting if they (or their Associated Persons) are not a party to or beneficiary of
the transactions that are the subject of the resolutions.
The Company Secretary is not a party to or beneficiary of the relevant transactions and is not associated with any body
that is. He is therefore not disqualified from voting under Listing Rule 9.3.1 either personally or as a proxy.
As the Company Secretary is not a person disqualified from voting by virtue of Listing Rule 9.3.1, the provisions of
Listing Rule 9.3.3 and clause 4.9(a) of the constitution of the Company do not apply. Therefore, we decline your request
for confirmation that the undirected proxy relating to the ADRs will not be voted. Fletcher Challenge Forests will
separately record the votes cast pursuant to discretionary proxy, should any party seek to challenge this aspect of the
Special Meeting. We understand that a ruling has been requested from the NZ Stock Exchange which may in part touch upon
this issue.
Yours sincerely
Terry McFadgen
Chief Executive