Grant Samuel Independent Valuation on Australasian Operations

INDEPENDENT APPRAISAL REPORT

IN RELATION TO THE PROPOSED SALE OF ARBORGEN ANZ

GRANT SAMUEL & ASSOCIATES LIMITED

NOVEMBER 2021

TABLE OF CONTENTS

1 Overview of the Proposed Transaction _______________________________________________________ 1

1. Background ______________________________________________________________________ 1
2. Details of the Proposed Transaction ___________________________________________________ 1
3. Profile of the Buyer ________________________________________________________________ 2
4. Shareholder Approval ______________________________________________________________ 2

• Scope of the Report______________________________________________________________________ 4
• 1. Purpose of the Report ______________________________________________________________ 4
  2. Basis of Evaluation _________________________________________________________________ 4

• Profile of ArborGen ______________________________________________________________________ 5
• 1. History __________________________________________________________________________ 5
  2. Group Overview ___________________________________________________________________ 6
  3. Overview of Intellectual Property _____________________________________________________ 7
  4. Overview of Products_______________________________________________________________ 7
  5. Overview of Operations by Country __________________________________________________ 10
  6. Group Financial Performance _______________________________________________________ 12
  7. Group Financial Position ___________________________________________________________ 15
  8. Group Cash Flows ________________________________________________________________ 16
  9. Capital Structure and Ownership ____________________________________________________ 17
  10. Share Price Performance and Liquidity ________________________________________________ 17

• Profile of ArborGen ANZ _________________________________________________________________ 20
• 1. Overview of Products______________________________________________________________ 20
  2. Customers ______________________________________________________________________ 20
  3. Operating Locations_______________________________________________________________ 21
  4. Market Information _______________________________________________________________ 22
  5. Financial Performance _____________________________________________________________ 25
  6. Financial Position _________________________________________________________________ 27
  7. CP Production Issues & Forecast _____________________________________________________ 28
  8. Cash Flow Projections _____________________________________________________________ 29

• Valuation of ArborGen ANZ_______________________________________________________________ 30
• 1. Preferred Methodology ____________________________________________________________ 30
  2. Summary _______________________________________________________________________ 31
  3. Discounted Cash Flow Assumptions __________________________________________________ 31
  4. Qualitative Factors________________________________________________________________ 32
  5. Earnings Multiple Analysis __________________________________________________________ 33

• Merits of the Proposed Transaction ________________________________________________________ 39
• 1. Evaluation of the Sale Price and Terms of the Proposed Transaction ________________________ 39
  2. Evaluation of the Impact on ArborGen's Earnings and Financial Position _____________________ 40
  3. Future Opportunities ______________________________________________________________ 40
  4. Board and Management Focus ______________________________________________________ 41

1. Regional Impacts _________________________________________________________________ 41
2. Dividends _______________________________________________________________________ 41
3. Market Value and Liquidity Considerations ____________________________________________ 42
4. Transition _______________________________________________________________________ 42
5. The Likelihood of an Alternative Offer ________________________________________________ 42
6. Alternatives to the Proposed Transaction______________________________________________ 43
7. Rationale, timing and circumstances surrounding the Offer _______________________________ 43
8. Conclusion ______________________________________________________________________ 43

APPENDIX A - Recent Transaction Evidence ______________________________________________________ 44

APPENDIX B - Comparable Listed Companies_____________________________________________________ 46

APPENDIX C - Valuation Methodology Descriptions________________________________________________ 49

APPENDIX D - Interpretation of Multiples _______________________________________________________ 52

APPENDIX E - Qualifications, Declarations and Consents____________________________________________ 54

	GLOSSARY
TERM	DEFINITION
ArborGen Australia	The Australian operations and assets of ArborGen
ArborGen or the Company	ArborGen Holdings Limited
ArborGen NZ or ArborGen New Zealand	The New Zealand operations and assets of ArborGen
ArborGen ANZ	Combined operations and assets of ArborGen NZ and ArborGen Australia
CellFor	CellFor Inc.
Consideration	The total purchase price for ArborGen ANZ of NZ$22.25m on a cash and debt free basis
The Consortium	Investment consortium led by Mr. Hugh Fletcher
CP	Control Pollinated
EBIT	Earnings before interest and tax
EBITDA	Earnings before interest, tax, depreciation and amortisation
FY20XX	The financial year ended 31 March 20XX
FIRB	Foreign Investment Review Board
Grant Samuel	Grant Samuel & Associates Limited
IP	Intellectual Property
MCP	Mass Control Pollinated
NZX	New Zealand Stock Exchange
OIO	Overseas Investment Office
OP	Open Pollinated
Proposed Transaction	The proposed sale of the business and assets of ArborGen ANZ
RPBC	Radiata Pine Breeding Company
RSUs	The Restricted Share Units under the 2021 LTI plan
Sub-Committee	The Sub-Committee of Independent Directors of ArborGen Holdings
TCLP	Tenon Clearwood Limited Partnership

• Overview of the Proposed Transaction

1.1 Background

On 30 June 2021 ArborGen Holdings Limited (ArborGen or the Company) announced it had received a confidential, non-binding, indicative, incomplete and highly conditional proposal to acquire all the shares in, or assets of, ArborGen by way of a scheme of arrangement or other alternative acquisition structure. At the same time the Directors of ArborGen also announced a strategic review to consider all options to unlock value for the benefit of all ArborGen shareholders. The options considered included:

• a potential sale of ArborGen shares;
• divestment of some of the assets of ArborGen; and
• a US listing.

The parties expressing interest in acquiring the shares in ArborGen would all require approval from the Overseas Investment Office (OIO) in New Zealand to acquire the New Zealand assets and may require the approval of the Foreign Investment Review Board (FIRB) in Australia to acquire the Australian assets. This would be a long process and creates uncertainty for a potential transaction that involved the sale of ArborGen to an overseas purchaser. As part of the Strategic Review, the Directors sought expressions of interest from different parties in acquiring the Australian and New Zealand assets of ArborGen (ArborGen ANZ).

On 1 November 2021, ArborGen announced that it entered into a binding agreement to sell ArborGen ANZ to a consortium of investors and charitable trusts led by Mr Hugh Fletcher (the Consortium), (the Proposed Transaction). Mr Fletcher was a Director of Rubicon Limited (Rubicon)(now known as ArborGen Holdings Limited) until September 2019.

1.2 Details of the Proposed Transaction

The total purchase price for ArborGen ANZ is NZ$22.25 million on a debt free and cash free basis (the Consideration) which will be paid in cash (less a NZ$450,000 working capital adjustment on completion that reflects the seasonality in the business). The Consortium has agreed to acquire the business of ArborGen ANZ which comprises the assets (including goodwill) of ArborGen New Zealand Unlimited and ArborGen Australia Pty Limited. The assets include premises, plant and equipment, vehicles, rights under leases, inventory, biological assets (mother plants and orchard trees), the benefit of business agreements, business records, IT systems, the shareholding in Radiata Pine Breeding Company (RPBC), Intellectual Property (IP), trade debtors, supplier deposits, prepayments, goodwill, cash in the business bank accounts but does not include (among other matters) cash in hand at the bank in the business bank accounts immediately prior to 1 October 2021 and any intragroup debt.

As part of the purchase price the Consortium has agreed to be responsible for assumed liabilities which comprise the obligations of the ArborGen New Zealand Unlimited and ArborGen Australia Pty Limited in respect of trade creditors, accrued employee entitlements, inventory or services to be delivered in respect of customer deposits, customer deposits, accrued expenses, any liability in respect of product warranty claims arising after completion, any liabilities or obligations under the business agreements and any other obligations or liabilities incurred by ArborGen ANZ in the ordinary course of business.

The Proposed Transaction is subject to the satisfaction of the following two conditions:

• at least 75% of ArborGen ANZ permanent employees accepting new offers of employment of which such terms must be no less favourable than what they had prior to the Proposed Transaction; and
• ArborGen's RPBC shareholding and membership transferring to the purchasing entity on completion of the Proposed Transaction.

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