Courtesy translation
PARMALAT S.P.A.
INFORMATION MEMORANDUM
CONCERNING THE POSSIBLE ACTIVATION OF THE GUARANTEE CLAUSE
CONTAINED IN ARTICLE 5.24.3 OF THE CONTRACT TO PURCHASE
LACTALIS AMERICAN GROUP, INC.
Prepared pursuant to Article 5 of the Regulation adopted by the Consob with Resolution
No. 17221 of March 12, 2010, as amended by Resolution No. 17389 of June 23, 2010.
July 2016
This Information Memorandum has been made available to the public at the registered
office of Parmalat S.p.A. (31 Via Bixio, Milan) and on the Company website
www.parmalat.com and through the authorized storage mechanism “1Info”
(www.1Info.it) on July 29, 2016.
1
CONTENTS
DEFINITIONS ........................................................................................................................ 2
FOREWORD............................................................................................................................ 4
1. NOTICE ............................................................................................................................ 6
1.1. Risks related to potential conflicts of interest deriving from transactions
with related parties ......................................................................................................... 6
2. INFORMATION ABOUT THE TRANSACTION ................................................... 9
2.1. Description of the Transaction’s characteristics, modalities, terms and
conditions ......................................................................................................................... 9
2.2. Identification of the related parties with whom the Transaction was
executed and nature of the relationship..................................................................... 12
2.3. Indication of the Transaction’s economic motivations and benefits for
Parmalat .......................................................................................................................... 13
2.4. Elements upon which the assessment of the Transaction was based ......... 15
2.5. Illustration of the economic and financial effects of the Transaction .......... 17
2.6. Effect of the Transaction on the compensation of the members of the
management bodies of the Company and/or its subsidiaries. ............................... 17
2.7. Members of the management and control bodies, general managers and
executives of the companies potentially involved in the transaction .................... 17
2.8. Indication of the corporate governance bodies or the Directors who
conducted or participated in and/or the developed and/or approved the
Transaction’s essential terms ....................................................................................... 18
3. ANNEXES ...................................................................................................................... 20
2
DEFINITIONS
A list of the main terms used within this Information Memorandum is provided below.
“Acquisition” The purchase of the Equity Interest by Parmalat through
LAG Holdings Inc. and Parmalat Belgium S.A.
“Consob” The Italian National Commission for Corporations and the
Securities Exchange with offices in Rome, 3 Via G.B. Martini.
“Control and Risk
Committee”
Parmalat’s Control and Risk Committee (1), comprised
exclusively of independent Directors.
“Equity Interest” The equity interests representing the entire share capital of
Lactalis American Group, Inc., Lactalis do Brazil ‐ Comercio,
Importacao e Exportacao de Laticinios Ltda and Lactalis
Alimentos Mexico S. DE RL.
“Information
Memorandum”
This information memorandum.
“Issuer,” “Parmalat” or
the “Company”
Parmalat S.p.A., with registered office at 31 Via Bixio, Milan,
Tax ID No. 04030970968, Milan R.E.A. No. 1790186.
“Issuers’ Regulation” The Regulation adopted by the Consob with Resolution No.
11971 of May 14, 1999, as amended and integrated.
“Opinion of the Related
Party Committee” or the
“Opinion”
The Opinion rendered by the Related Party Committee on
the Transaction, pursuant to Article 6.1.3 of the Procedure,
on July 19,2016.
“Related Party
Committee”
The committee with jurisdiction over reviewing Parmalat’s
related party transactions, a function that, pursuant to
Article 5 of the Procedure, is performed by the Control and
Risk Committee.
“Related Party
Procedure” or the
“Procedure”
The Procedure that governs Related Party Transactions
approved by Parmalat’s Board of Directors on November
11, 2010, as amended on March 7,2014, May 7, 2014 and
April 16, 2015.
“Sales Agreement” The sales agreement for the Equity Interests executed on
1 The Control and Risk Committee was established most recently on May 9, 2016; in its previous
configuration, it was called Internal Control, Risk Management and Corporate Governance Committee.
3
May 29, 2012 by Parmalat, in its capacity as purchaser, and
BSA S.A., BSA International S.A. and Groupe Lactalis S.A.,
in their capacity as sellers.
“Transaction” The possible activation of the guarantee clause set forth in
Article 5.24.3 of the Sales Agreement.
“Vendor Due
Diligence”
It identifies the due diligence performed by Ernst & Young
on behalf of the sellers within the context of the Acquisition.
4
FOREWORD
This information memorandum (the “Information Memorandum”) was prepared by
Parmalat S.p.A. (the ”Issuer,” “Parmalat” or the “Company”) pursuant to Article 5 of
the Regulation setting forth provisions concerning related party transactions, adopted by
the Consob with Resolution No. 17221 of March 12, 2010, as amended, and pursuant to
Article 9 of the Procedure Governing Related party Transactions approved by Parmalat’s
Board of Directors, as amended on March 7, 2014, May 7, 2014 and April; 16, 2015 (the
“Related Party Procedure” or the “Procedure”).
The purpose of this Information Memorandum is to provide the shareholders and the
market with exhaustive information about the outcome of the assessment carried out by
the Company to determine whether there was a basis for exercising the rights deriving
from the clause stipulated in Article 5.24.3 of the Sales Agreement (the “Transaction”).
More specifically, in the Sales Agreement, in addition to the guarantees that are
customary in similar transactions, the sellers provided express guarantees regarding the
historical and prospective data provided to Parmalat as part of the due diligence process.
Consistent with this approach, the abovementioned clause of Article 5.24.3 included
among the representations and warranties contained in the section entitled «Accuracy of
Information,» states that: «All the projections and forward‐looking information, which have been
supplied in any form to, or in the interest or for the benefit of, the Purchaser by the Sellers and/or
their directors, officers, managers, Employees, auditors, counsels, advisors and consultants, in
connection with the preparation, negotiation and execution of this Agreement, and/or in
contemplation of the transactions provided for hereunder, are based on reasonable assumptions
and consistent with those assumptions».
Based on this clause, if the prospective data provided by the sellers should be proven not
to have been based on reasonable assumptions and/or not to have been developed
consistent with those assumptions, the buyer would be entitled to be indemnified,
without any limitation, for the full amount of the damage suffered.
The abovementioned guarantee can be activated within five years from the Acquisition’s
closing date (which occurred on July 3, 2012).
For additional information regarding the Acquisition, please consult the information
memorandum concerning the Acquisition and the corresponding addendum, published
by the Issuer on May 29, 2012 and June 27, 2013, respectively, as well as the information
memorandum concerning the implementation of the purchase price adjustment
mechanism published by the Issuer on June 6, 2013, all of which are available on the
Parmalat website (www.parmalat.com).
The activities carried out by Parmalat’s Board of Directors, Control and Risk Committee
and Related Party Committee included retaining the services of independent experts, as
describe more in detail below, which enabled the abovementioned governance bodies to
adopt the necessary resolutions, while also relying on and taking into account the
analyses performed. More specifically, the following opinions were obtained: (i) a legal
opinion rendered by Professor Giorgio De Nova on November 24, 2014; (ii) a legal
opinion rendered by Professor Paolo Montalenti on October 23, 2015, with an addendum
5
of November 5, 2015; (iii) a technical‐corporate issue opinion rendered by Professor
Mario Massari on March 18, 2016; and (iv) a legal opinion rendered jointly by Professors
De Nova and Montalenti on April 7, 2016. All of these opinions are appended to the
Opinion mentioned below, respectively, sub “B”, “C” e “D”, “E” and “F”.
On July 19, 2016, the Related Party Committee rendered, unanimously, its opinion about
the transaction pursuant to Article 6.1.3 of the Procedure (the “Opinion of the Related
Party Committee” or the “Opinion” and, being cognizant of this Opinion, on July 29,
2016, the Board of Directors resolved by a majority vote, with Director Umberto Mosetti
dissenting, not to put forth any compensation or indemnification claim for damages
caused by prospective information that was unreasonable pursuant to and for the
purposes of Article 5.24.3 of the Sales Agreement. The Opinion of the Related Party
Committee, together with its annexes, is appended to this Information Memorandum
sub 1 and is available on the Parmalat website (www.parmalat.com).
The assessments of the Board of Directors, Control and Risk Committee and Related
Party Committee about the Transaction, qualified by the Board of Directors, for the
reasons specified below, as a highly material transaction, are being disclosed to market
through this Information Memorandum, as required by the relevant regulation.
However, it is worth mentioning in this regard that, given the conclusions of the Related
Party Committee and the corresponding resolutions by the Board of Directors, the
Transaction has a “negative” content, consisting of the non‐activation of the guarantee
contained in Article 5.24.3 of the Sales Agreement.
6
1. NOTICE
An overview of the main risks and uncertainties deriving from the Transaction,
with special emphasis on those related to its nature as a related party transaction
and those that could have a material impact on the Issuer’s activities is provided
below.
The content of the Notices must be read in conjunction with the other information
presented in this Information Memorandum.
1.1. Risks related to potential conflicts of interest deriving from transactions with
related parties
The Transaction was configured by Parmalat’s Board of Directors as a highly
material transaction with a related party because:
1. The Transaction represents a phase of the Acquisition, albeit conditional,
since it would occur only in the presence of a possible contractual violation
by the sellers; the handling of the this phase from a procedural standpoint
is, in any case, specifically governed by the Sales Agreement;
2. Pursuant to Article 2, Section 3, of the Procedure, «whenever a transaction
with a related party is carried out or requires multiple steps, the steps shall also be
subject to the Procedure, regardless of their materiality based on individual
thresholds»;
3. The Acquisition’s consideration exceeds the threshold of 100 million euros
set forth in Annex 13.1 of the Procedure for the purpose of qualifying
highly material transactions;
4. Even though the Transaction has an undetermined value, its close link
with the Acquisition made it preferable, in keeping with a conservative
approach, to include the Transaction within the scope of the Acquisition
also with regard to the dimensional profile.
The Acquisition was executed by Parmalat through its subsidiaries LAG Holding
Inc. and Parmalat Belgium S.A., in which the Issuer holds indirectly interests
equal to their entire share capital. Therefore it qualifies as a transaction with a
related party executed through subsidiaries.
More specifically:
(i) the Issuer holds the entire share capital of Parmalat Belgium S.A. (99%
directly and the remaining 1% through its wholly owned subsidiary
Dalmata S.p.A.); and
(ii) Parmalat Belgium S.A. holds the entire share capital of LAG Holding Inc..
The Transaction’s risk profiles related to the existence of potential conflicts of
interest have to do with the possibility that the Transaction could produce
7
outcomes different from those that it might have had, had it involved unrelated
parties.
In this regard, please note that the Control and Risk Committee and the Related
Party Committee were involved in the preparatory phase and performed
activities functional to the adoption of a knowledgeable and well thought out
decision about the Transaction.
Pursuant to Article 5 of the Procedure, the Related Party Committee was
informed of the Transaction’s terms and conditions and, at a meeting held on July
19, 2016, it expressed, unanimously, its reasoned opinion that there was no basis
for considering as “unreasonable” the assumptions used to construct the business
plan underlying the Vendor Due Diligence for the reasons explained in Section
2.3, later in this Information Memorandum.
Please note that some members of the Company’s Board of Directors, in and no
longer in office, and an executive, no longer in office, were served with notices
informing them that they were the subject of investigations concerning the
Acquisition.
Some of the parties being investigated indicated that they were informed that
their case had been closed.
In addition, information carried in the press on February 5, 2016 indicated that
«the Preliminary Investigations Judge of Parma ordered the transmission to Rome of the
file concerning the criminal investigation of the Parmalat‐Lactalis USA transaction […].
The Preliminary Investigations Judge ceded jurisdiction to Rome based on the principle
that jurisdiction belongs to the judge of the most serious crime, in this case hindering the
oversight functions performed by the Consob which is based in Rome. […]» (2).
It was later learned that the file at been forwarded to Milan’s Public Prosecutor on
jurisdictional grounds; information then followed that Milan’s Public Prosecutor,
claiming, in turn, that it lacked jurisdiction, raised a negative jurisdiction conflict
that, pursuant to the applicable code, will be resolved by the Office of the General
Prosecutor at the Court of Cassation. To the best of our knowledge, a decision has
not yet been handed down.
Please also note that Amber Capital UK LLP, acting on March 7, 2016 pursuant to
and for the purposes of Article 2408 of the Italian Civil Code, filed a complaint
regarding facts that it deemed objectionable with regard to the Acquisition under
different profiles (conduct of the Board of Directors; guidance and coordination
activities by BSA S.A. over Parmalat; purposes of the Acquisition transaction;
marketing expenses; LAG’s value and negotiations; valuation of synergies;
commercial agreements) with the Company’s Board of Statutory Auditors, which
submitted an initial report to the Shareholders’ Meeting on April 29, 2016,
reserving the right to conduct further activities.
2 Release by the Reuters press agency of February 5, 2016, 4:41 PM.
8
Lastly, please note that the Directors Michel Peslier, in his capacity as an officer of
companies belonging to the group headed by BSA S.A., Patrice Gassenbach, in his
capacity as a consultant to the group headed by BSA S.A., and the Chief Executive
Officer Yvon Guérin, the latter due to the fact that the abovementioned
investigations are ongoing, at a meeting held by Parmalat’s Board of Directors on
July 29, 2016, disclosed any interest that, directly or on behalf of third parties, they
may have in the Transaction by virtue of the situations mentioned above, thereby
providing the affidavit required pursuant to Article 2391 of the Italian Civil
Called, and abstained from voting.
9
2. INFORMATION ABOUT THE TRANSACTION
2.1. Description of the Transaction’s characteristics, modalities, terms and
conditions
Starting in the second half of 2014, the Company, taking also into account certain
variances between the projections contained in the business plan and the results
achieved, addressed the issue of verifying whether there was a basis for activating
the guarantee clause contained in Article 5.24.3 of the Sales Agreement. To that
effect, the Company requested a legal opinion from Professor De Nova.
Specifically, the following questions was submitted to Professor De Nova:
«(a) What is the interpretation of Clause 5.24.3 of the Contract and which rights does
Clause 5.24.3 of the Contract convey to the Purchaser;
(b) Under which types of factual circumstances can the guarantee contained in Clause
5.24.3 of the Contract be activated by the Purchaser vis‐à‐vis the Sellers and, specifically,
whether the variances between actual data and the prospective data supplied by the Sellers
empowers the Purchaser to activate the guarantee contained in Clause 5.24.3.
(c) Which verifications should be carried out by the Purchaser to ascertain whether the
conditions for enforcing the guarantee are being met, and how frequently and/or within
which deadline this should be done.».
Professor De Nova rendered his opinion on December 4, 2014.
At a Board meeting held on December 4, 2014, the Chairman recommended that
the Board of Directors follow the path suggested by Professor De Nova in his
opinion and, specifically, (i) wait until the beginning of 2015 in order to have
access to actual data for LAG for the 2014 reporting year; and (ii) by a resolution
discussed and deliberated by the Board of Directors, retain the services of an
independent professional to perform the verifications regarding the
reasonableness and adequacy of the prospective data recommended by Professor
De Nova. At the abovementioned meeting, the members of the Control and Risk
Committee indicated a need for performing more in‐depth analyses of a technical,
financial and contractual nature.
The Board of Directors, at the meetings held on April 16 and March 13, 2015,
resolved to submit to Professor Paolo Montalenti, recommended by the Control
and Risk Committee, the following question: «Can Professor Montalenti specify, in
light of the documents referred to below regarding the “Share Purchase Agreement” of
May 29, 2012 concerning LAG/LEA, what are the guarantee and protection tools for
Parmalat S.p.A. with regard to historical and prospective data and the different guarantee
items, based also on an analysis of the technical financial reports that have been supplied
thus far, also in light of the fact that in this case the contract in question is between a
controlling party and a controlled party? Can he also specify under which circumstances
and with which modalities these tools can be activated?»
Professor Montalenti rendered his opinion on October 23, 2015, followed by an
addendum November 5, 2015.
10
The Control and Risk Committee, based on the mandate it received from the
Board of Directors «to perform the necessary in‐depth analyses on the issue in question
[i.e., the contract for the acquisition of LAG and any other available remedies] and
report to the Board, reserving the right, after performing the abovementioned analyses, to
decide whether it should retain the services of outside consultants,» prepared its own
report, called “Report on the LAG acquisition,” a draft of which was approved by
the Control and Risk Committee at its meeting of December 16, 2015, which, inter
alia, contains considerations regarding the assumptions underlying the
projections contained in the Vendor Due Diligence and some simulations and
valuation exercises based on a comparison between key economic results for the
2012‐2014 period for Lactalis American Group Inc. separately and the Vendor
Due Diligence the data. At the same meeting of December 16, 2015, the Control
and Risk Committee also resolved to recommend that the Board of Directors
appoint an expert in corporate issues, identified as Professor Mario Massari, for
assessing the preliminary conclusions reached in the abovementioned draft
Report. On December 22, 2015, Parmalat’s Board of Directors resolved to ask
Professor Massari to provide a technical‐corporate opinion in response to the
following question: «You are being asked to render a technical‐corporate opinion in
support of the analyses performed by the Internal Control, Risk Management and
Corporate Governance Committee regarding the determination of whether or not the
assumptions underlying the prospective data contained in the Vendor Due Diligence
prepared by Ernst & Young are reasonable».
Professor Massari rendered his opinion on March 18, 2016.
At a meeting held on March 30, 2016, the Board of Directors, further to a
discussion regarding whether or not the activation of the contractual guarantee
should qualify as a related party transaction, resolved:
‐ «to qualify the assessment as to whether or not the guarantee clauses contained in the
“Share Purchase Agreement” of May 29, 2012, the subject to which was the LAG
acquisition, as a highly material related party transaction for the effects of the
Regulation adopted by the Consob with Resolution No. 17221 of March 12, 2010, as
amended»;
and, in accordance with the recommendation by the Control and Risk Committee:
‐ «to ask Professors Giorgio De Nova and Paolo Montalenti to prepare a joint opinion
as to whether or not there is a basis for activating the guarantee provided by Clause
5.24.3 of the Share Purchase Agreement, based on the corporate‐issue opinion
rendered by Professor Mario Massari with regard to ascertaining whether or not the
assumptions underlying the prospective data contained in the Vendor Due Diligence
are reasonable».
On April 11, 2016, after receiving this additional opinion on April 7, 2016, the
Control and Risk Committee expressed the «opinion that there is no contractual basis
for activating the clause set forth in Article 5.24.3 of the LAG sales agreement,» therefore
asking the Board of Directors to adopt the necessary resolutions; on the other
11
hand, the Related Party Committee chose not to render an opinion pursuant to
the Related Party Procedure, resolving by majority vote: «to ask Professor Paolo
Montalenti, who is being given nunc pro tunc mandate to contact Professor Giorgio De
Nova to verify his availability to undertake the assignment detailed below together with
Professor Paolo Montalenti, to prepare a report in response to the following question:
«Can the designated expert indicate whether the transaction [not the exercise of the
contractual guarantee] falls within the implementation scope of the Procedure for Related
Party Transactions, considering the remarks put forth in the introduction, and whether
the transaction qualifies as a highly material transaction, in view of the fact that, on the
one hand, the transaction could qualify as a development of a highly material transaction
(the LAG acquisition) and, on the other hand, the valuations provided in Professor Mario
Massari’s report provide evidence of a discrepancy significantly below the reference
threshold for highly material transactions and equal to 100 million euros. If the Procedure
for Related Party Transactions is applicable, what should be the subject and scope of the
analysis that the Committee is required to perform to better identify and substantiate
Parmalat’s corporate interests, as well as: (a) if the decision not to activate the clauses
contained in the LAG sales agreement, specifically with regard to Clause 5.24.3 of the
abovementioned agreement, could be deemed to be in the Company’s interest; (b) if there
are, and what are they, any additional contractual and/or legal remedies that can be
activated to protect the Company’s interest, also in light of any facts potentially relevant
pursuant to regulations governing guidance and coordination activities, as referred to in
Article 2497 and following articles of the Italian Civil Code, and any issues recently
raised in the complaint pursuant to Article 2408 of the Italian Civil Code filed on March
7, 2016 with the Board of Statutory Auditors and forwarded for their information to all
Directors, taking also into account the findings that the Board of Statutory Auditors will
provide.»»
At a subsequent meeting on April 14, 2016, the Board of Directors was informed
of these two resolutions and, noting that an opinion of conformity with the
Related Party Procedure had not be provided, did not adopt any resolution on
this issue, except for approving, by a majority vote, a press release aimed at
supplementing the financial statement disclosure provided about the verifications
carried out regarding the activation of the contractual guarantees provided under
the Sales Agreement.
Following the election of the new Board of Directors by the Shareholders’ Meeting
of April 29, 2016, the Transaction was submitted to the Related Party Committee
in its current composition, which met to review it on June 13, June 27 and July 19,
2016.
At the first of these meetings, the Related Party Committee gathered the relevant
documents and, taking into account (i) the resolution by which the Board of
Directors, on March 30, 2016, qualified the Transaction as a highly material
Transaction with a related party and (ii) the remarks provided on that occasion by
the Board of Statutory Auditors in that regard, resolved to revoke the resolution
of April 11, 2016, for the part in which it requested an opinion on the applicability
12
of the Procedure, and suspend the effectiveness of the remainder of the resolution
and, consequently, the effectiveness of the assignment given in this regard to
Professors Giorgio De Nova and Paolo Montalenti.
At the second meeting, the Related Party Committee agreed that the documents
concerning the Transaction were complete and exhaustive.
On July 19, 2016, the Related Party Committee, having concluded (i) from a
formal standpoint, that a review of the complaint pursuant to Article 2408 of the
Italian Civil Code was outside the scope of the activities related to the issuance of
the Opinion and (ii) from a substantial standpoint, that it could concur with the
recommendation made at the meeting of the Board of Directors of March 30, 2016
by the Board of Statutory Auditors to the directors to “suspend for the time being.
the in‐depth analyses of the abovementioned more general issue [i.e., the content of
Amber Capital’s complaint pursuant to Article 2408 of the Italian Civil Code],
while the Board of Statutory Auditors completes its verifications,” revoked also the
remaining part of the resolution adopted on April 11, 2016 regarding the request
for an additional legal opinion and unanimously approved the Opinion.
On July 29, 2016, the Board of Directors convened for a meeting and, having been
informed of the Opinion of the Related Party Committee, resolved by a majority
vote, with Director Umberto Mosetti dissenting, not to put forth any
compensation or indemnification claim for damages caused by prospective
information that was unreasonable pursuant to and for the purposes of Article
5.24.3 of the Sales Agreement.
2.2. Identification of the related parties with whom the Transaction was executed
and nature of the relationship
The Transaction was configured by Parmalat’s Board of Directors as a highly
material transaction with a related party because:
1. The Transaction represents a phase of the Acquisition, albeit conditional,
since it would occur only in the presence of a possible contractual violation
by the sellers; the handling of the this phase from a procedural standpoint
is, in any case, specifically governed by the Sales Agreement;
2. Pursuant to Article 2, Section 3, of the Procedure, «whenever a transaction
with a related party is carried out or requires multiple steps, the steps shall also be
subject to the Procedure, regardless of their materiality based on individual
thresholds»;
3. The Acquisition’s consideration exceeds the threshold of 100 million euros
set forth in Annex 13.1 of the Procedure for the purpose of qualifying
highly material transactions;
4. Even though the Transaction has an undetermined value, its close link
with the Acquisition made it preferable, in keeping with a conservative
13
approach, to include the Transaction within the scope of the Acquisition
also with regard to the dimensional profile.
The Acquisition was executed by Parmalat through its subsidiaries LAG Holding
Inc. and Parmalat Belgium S.A., in which the Issuer holds indirectly interests
equal to their entire share capital. Therefore it qualifies as a transaction with the
related party executed through subsidiaries.
More specifically:
(i) the Issuer holds the entire share capital of Parmalat Belgium S.A. (99%
directly and the remaining 1% through its wholly owned subsidiary
Dalmata S.p.A.); and
(ii) Parmalat Belgium S.A. holds the entire share capital of LAG Holding Inc..
The Transaction’s risk profiles related to the existence of potential conflicts of
interest have to do with the possibility that the Transaction could produce
outcomes different from those that it might have had, had it not involved
unrelated parties.
In this regard, please note that the Control and Risk Committee and the Related
Party Committee were involved in the preparatory phase and performed
activities functional to the adoption of a knowledgeable and well thought out
decision about the Transaction.
Pursuant to Article 5 of the Procedure, the Related Party Committee was
informed of the Transaction’s terms and conditions and, at a meeting held on July
19, 2016, it expressed, unanimously, its reasoned opinion that there was no basis
for pursuing a compensation or indemnification claim for damages caused by a
prospective information that was unreasonable pursuant to and for the purposes
of Article 5.24.3 of the Sales Agreements, for the reasons explained in Section 2.3
of this Information Memorandum.
Lastly, please note that the Directors Michel Peslier, in his capacity as an officer of
companies belonging to the group headed by BSA S.A., Patrice Gassenbach, in his
capacity as a consultant to the group headed by BSA S.A., and the Chief Executive
Officer Yvon Guérin, the latter due to the fact that the abovementioned
investigations are ongoing, at a meeting held by Parmalat’s Board of Directors on
July 29, 2016, disclosed any interest that, directly or on behalf of third parties, they
may have in the Transaction by virtue of the situations mentioned above, thereby
providing the affidavit required pursuant to Article 2391 of the Italian Civil
Called, and abstained from voting.
2.3. Indication of the Transaction’s economic motivations and benefits for Parmalat
The Board of Directors, in evaluating the Transaction, concurred with the remarks
put forth by the Related Party Committee to the effect that there was no basis for
14
considering “unreasonable” the assumptions used to construct the business plan
underlying the Vendor Due Diligence and, consequently to lodge a claim for
compensation pursuant to and for the purposes of Article 5.24.3 of the Sales
Agreement.
In its Opinion about the Transaction, the Related Party Committee pointed out,
inter alia, that: «the analyses performed by Professors De Nova, Montalenti and Massari
appear to be reasonable from a factual, technical and argumentative standpoint and the
conclusions that they reached completely acceptable: (also) by the unanimous opinion of
this Committee there appears to be no basis for exercising the rights deriving from the
clause stipulated in Article 5.24.3 of the Share Purchase Agreement of March 29, 2012
[…]; and, consequently, there is no basis for pursuing a compensation or indemnification
claim for damages caused by a prospective information that was unreasonable pursuant to
and for the purposes of the abovementioned clause, in addition to what was already the
subject of a settlement through the Price Adjustment Agreement of May 30, 2013.»
Furthermore, the Related Party Committee specified that the “negative”
assessment stated in the Opinion was not due to lack of conformity of the
“transaction – activation (or not) of a contractual guarantee close” with the criteria
of the Company’s interest in the transaction and the positive effects of its terms, as
well as its substantive and procedural correctness, but rather the belief of its lack
of merit from a technical judicial standpoint, which could result in the denial of
any judicial claim, resulting in having to defray costs (also in terms of aggravated
liability, considering the awareness resulting from the extensive and in‐depth
preparatory analysis carried out) and, therefore, an absence of interest and
convenience in executing it.
On July 29, 2016, the Board of Directors convened for a meeting and, taking into
account the Opinion of the Related Party Committee, resolved by a majority vote,
with Director Umberto Mosetti dissenting, not to put forth any compensation or
indemnification claim for damages caused by prospective information that was
unreasonable pursuant to and for the purposes of Article 5.24.3 of the Sales
Agreement.
Director Mosetti voted against the motion “both on the merit, for reasons regarding the
numerous and detailed criticisms of the content of the opinion of the Committee for Related
Party Transactions (and of the partial and misleading reconstruction of the entire LAG affair
provided in that document), and with regard to the method adopted by the Committee,
because, as the Director himself stated on multiple occasions, at meetings both of the Board of
Directors and the Committee, the opinion rendered by the Committee for Related Party
Transactions should not have been limited to analyzing a specific contractual clause, but
should have taken into account the entire transaction and the context within which the LAG
transaction was executed.”
In the opinion of Director Mosetti “the fact that an analysis limited to a single contractual
clause would not have produced a result different from the conclusion that the option of an
action against the seller was not available was obvious from the start: as stated repeatedly in
the past, the LAG sales agreement was written by the seller, with a framework of
15
“negotiations” that—as the Court of Parma verified—were characterized by extremely serious
irregularities, and, consequently, it was obvious that abovementioned agreement would not
contain any clause providing effective protection for Parmalat.”
Director Mosetti then pointed out that “the fact that the Board of Directors, after several
years have elapsed, has not yet assessed the availability of contractual or extra‐contractual
remedies (in addition to the specific clause subject of analysis) that could be enforced against the
seller, which exercised guidance and coordination activity over the company, constitutes
negligent inertia on the part of the Board of Directors, which hopefully the Board of Statutory
Auditors will remedy, further to a complaint pursuant to Article 2408 of the Italian Civil Code.
“Lastly, Director Mosetti cannot help pointing out that the opinion of the Committee for
Related Party Transactions is, in many parts, sketchy and partial and, consequently, runs the
risk of providing the market with incomplete and misleading information.”
The Board of Directors, being cognizant of the position taken by Director Mosetti,
pointed out that (i) the Opinion of the Related Party Committee is based and is
supported by the unambiguous conclusions of the opinions rendered by several
prestigious independent experts, who concluded that there was no justification
for pursuing against the seller a valid and legitimate compensation claim based
on Article 5.24.3 of the Sales Agreement; (ii) the abovementioned lack of
justification renders devoid of merit from a technical and legal standpoint the
pursuit of an action for damages that, consequently, would not produce concrete
economic benefits for the Company: and (iii) at this point, Parmalat does not
appear to have suffered any damage because of the Acquisition.
2.4. Elements upon which the assessment of the Transaction was based
The Related Party Committee, in order to render its reasoned Opinion about the
Transaction, reviewed and took into account the documents produced by the
Company, the preparatory activity carried out in 2015 and the first half of 2016
also by the Internal Control Committee, as well as the finding set forth in the
abovementioned opinions rendered by Professor De Nova on November 24, 2014,
Professor Montalenti on October 23, 2015, with an addendum following on
November 5, 2015, Professor Massari on March 18, 2016 and jointly by Professors
De Nova and Montalenti on April 7, 2016.
The experts attested that they met the independence requirements and did not
have any economic and financial relationship with the Issuer, the controlling
parties, the subsidiaries and the companies under the joint control, nor with the
Directors of the abovementioned parties.
According to Professor De Nova’s opinion:
(i) if there should occur a negative variance for each of the 2012, 2013 and 2014
reporting years between the aggregate EBITDA set forth in the business
plan contained in the Vendor Due Diligence and actual EBITDA, this
would enable Parmalat to obtain from his counterparty an indemnification
16
corresponding to the abovementioned variance, provided certain
conditions can be met;
(ii) the first and fundamental condition is that the business plan was based on
unreasonable assumptions and that the prospective data that arise from it
are not adequate with respect the assumptions;
(iii) secondly, there must be a negative variance with respect the
abovementioned EBITDA data for one or more of the 2012, 2013 and 2014
reporting years;
(iv) thirdly, if there is such a variance, the existence of a nexus of immediate
and direct causation between the ascertained unreasonableness of the
prospective data and the negative variance in EBITDA in the sense
specified above must be verified.
According to Professor Montalenti’s opinion:
(i) the concept of the reasonableness of the prospective data must be
understood as the probability and the normalcy of verification of future
events within a logically consequential argument in contraposition with
the exceptionality of unreasonable events, as the verification concerns
prospective and not historical data, with regard to which an opinion of
conformity with the truth cannot be rendered;
(ii) the discrepancies between the projected data for 2013 and 2014 and the
actual results appear, on the face of it, not insignificant but require more
in‐depth technical analyses, which makes it appropriate to obtain a
technical‐corporate opinion;
(iii) even if the abovementioned in‐depth technical analyses were to lead to the
conclusion that a claim for compensation could be pursuable due to (aa)
unreasonableness of the projections, (bb) quantifiability of the damage and
(cc) existence of a causation nexus, there would still remain a margin of
discretion and, consequently, uncertainty, almost physiological.
According to Professor Massari’s opinion:
(i) the assumptions underlying the business plan of the Vendor Due Diligence
seem reasonable, there appearing to be no objective elements to claim that
the plan projections contained in the Vendor Due Diligence are
unreasonable;
(ii) however, the business plan presents two problems with regard to (aa)
unfavorable fluctuations in the price of milk which could require
implementing actions with regard to prices, costs and investments that
could jeopardize the marketing and innovation strategy taken into account
in the projections of the Vendor Due Diligence; and (bb) the correlation that
exists between the maintenance of the margins and the implementation of
the strategy upon which the business plan is founded, which do not render
unreasonable the assumptions underlying the projections contained in the
17
Vendor Due Diligence but rather represent known critical issues that are
typical of the industry in question.
Lastly, in accordance with the joint opinion of Professors De Nova and
Montalenti, «it being understood that the scope of the […] opinion does not include
questions concerning potential abuses of the guidance and coordination activity, in light
of the opinion rendered by Professor Massari, there appears to be no unreasonableness of
the assumptions and therefore there is no basis for a compensation or indemnification
claim for damages caused by unreasonable prospective information (see Clause 5.24.3)
beyond what was already settled with the Price Adjustment Agreement.»
2.5. Illustration of the economic and financial effects of the Transaction
The Company prepared this Information Memorandum pursuant to Article 5 of
the Regulation setting forth provisions concerning related party transactions,
adopted by the Consob with Resolution No. 17221 of March 12, 2010 and Article 9
of the Procedure, which set forth the obligation to publish an information
memorandum whenever a highly material transaction is executed.
Considering the conclusions of the Opinion rendered by the Related Party
Committee, to the effect that there is no basis for considering “unreasonable” the
assumptions used to construct the business plan underlying the Vendor Due
Diligence, and the resulting decision of the Board of Directors not to activate any
claim for compensation based on the projections of the Sales Agreement, the
Transaction will have no economic of financial effect on the Company.
2.6. Effect of the Transaction on the compensation of the members of the
management bodies of the Company and/or its subsidiaries.
The Transaction does not have any impact on the compensation of the members
of the management bodies of by market and/or its subsidiaries.
2.7. Members of the management and control bodies, general managers and
executives of the companies potentially involved in the transaction
Except as stated below, no members of the Issuer’s Board of Directors, Board of
Statutory Auditors or of any subsidiary of the Issuer are involved in the
Transaction in the capacity as the related parties.
Please note that (i) Director Michel Peslier is an officer of companies belonging to
the group headed by BSA S.A. and (ii) the Director Patrice Gassenbach served as a
consultant to the group headed by BSA S.A. Consequently, at the meeting of
Parmalat’s Board of Directors on July 29, 2016, before adopting a resolution about
the Transaction, the abovementioned Directors, (together with the Chief
Executive Officer Yvon Guérin for reasons of correctness in view of the
investigations currently ongoing, as stated in section 1.1 above) disclosed any
18
interest that they may have in the Transaction, directly or on behalf of other
parties, by virtue of their abovementioned positions, specifying the nature, terms,
origin and scope of said interest, thereby providing the affidavit required
pursuant to Article 2391 of the Italian Civil Code and abstained from voting.
On the date of this Information Memorandum, none of the abovementioned
Directors of Parmalat declared that he/she owned Parmalat common shares.
For additional information about incentive plans based on financial instruments
destined for Parmalat Directors, please see the information memorandum
concerning the “2016 – 2018 Three‐year Cash Incentive Plan Also Based on Financial
Instruments of the Parmalat Group” prepared pursuant to Article 84‐bis of the
Issuers’ Regulation, approved by the Issuer’s Shareholders’ Meeting on April 29,
2016, which is available on Parmalat’s website (www.parmalat.com).
2.8. Indication of the corporate governance bodies or the Directors who negotiated
or participated in and/or developed and/or approved the Transaction’s essential
terms
the Transaction was qualified as a highly material transaction executed with
related parties and, consequently, Parmalat adopted all of the measures and
safeguards required by the Procedure. In this regard, please see the description of
the transaction provided in this Section 2.1 above.
The Related Party Committee, at the meeting held on July 19, 2016 expressed,
unanimously, its reasoned opinion that there was no basis for activating a
compensation or indemnification claim for damages caused by unreasonable
prospective information, pursuant to and for the purposes of Clause 5.24.3 of the
Sales Agreement.
In the process of preparing its Opinion, the Related Party Committee relied on the
opinions rendered by Professor De Nova on November 24, 2014, Professor
Montalenti on October 23, 2015, with an addendum following on November 5,
2015, Professor Massari on March 18, 2016 and professors De Nova and
Montalenti jointly on April 7, 2016.
Parmalat’s Board of Directors, at a meeting held on July 29, 2016, having been
informed of the Opinion of the Related Party Committee, consequently resolved
by a majority vote, with Director Umberto Mosetti dissenting, not to put forth any
compensation or indemnification claim for damages caused by prospective
information that was unreasonable pursuant to and for the purposes of Article
5.24.3 of the Sales Agreement.
The Directors Michel Peslier, in his capacity as an officer of companies belonging
to the group headed by BSA S.A., and Patrice Gassenbach, in his capacity as a
consultant to the group headed by BSA S.A., and the Chief Executive Officer
Yvon Guérin, for reasons of correctness in view of the fact that an investigation is
still ongoing, abstained from voting.
19
Consequently, the resolution of the Board of Directors was adopted with the
favorable vote of the Directors Gabriella Chersicla (Chairperson), Pier Giuseppe
Biandrino, Nicolò Dubini, Angela Gamba and Elena Vasco.
Director Mosetti voted against the motion “both on the merit, for reasons regarding the
numerous and detailed criticisms of the content of the opinion of the Committee for Related
Party Transactions (and of the partial and misleading reconstruction of the entire LAG affair
provided in that document), and with regard to the method adopted by the Committee,
because, as the Director himself stated on multiple occasions, at meetings both of the Board of
Directors and the Committee, the opinion rendered by the Committee for Related Party
Transactions should not have been limited to analyzing a specific contractual clause, but
should have taken into account the entire transaction and the context within which the LAG
transaction was executed.”
In the opinion of Director Mosetti “the fact that an analysis limited to a single contractual
clause would not have produced a result different from the conclusion that the option of an
action against the seller was not available was obvious from the start: as stated repeatedly in
the past, the LAG sales agreement was written by the seller, with a framework of
“negotiations” that—as the Court of Parma verified—were characterized by extremely serious
irregularities, and, consequently, it was obvious that abovementioned agreement would not
contain any clause providing effective protection for Parmalat.”
Director Mosetti then pointed out that “the fact that the Board of Directors, after several
years have elapsed, has not yet assessed the availability of contractual or extra‐contractual
remedies (in addition to the specific clause subject of analysis) that could be enforced against the
seller, which exercised guidance and coordination activity over the company, constitutes
negligent inertia on the part of the Board of Directors, which hopefully the Board of Statutory
Auditors will remedy, further to a complaint pursuant to Article 2408 of the Italian Civil Code.
“Lastly, Director Mosetti cannot help pointing out that the opinion of the Committee for
Related Party Transactions is, in many parts, sketchy and partial and, consequently, runs the
risk of providing the market with incomplete and misleading information.”
The Board of Directors, being cognizant of the position taken by Director Mosetti,
pointed out that (i) the Opinion of the Related Party Committee is based and is
supported by the unambiguous conclusions of the opinions rendered by several
prestigious independent experts, who concluded that there was no justification
for pursuing against the seller a valid and legitimate compensation claim based
on Article 5.24.3 of the Sales Agreement; (ii) the abovementioned lack of
justification renders devoid of merit from a technical and legal standpoint the
pursuit of an action for damages that, consequently, would not produce concrete
economic benefits for the Company: and (iii) at this point, Parmalat does not
appear to have suffered any damage because of the Acquisition.
20
3. ANNEXES
1. Opinion rendered by the Related Party Committee on July 19, 2016 with the
following annexes:
sub A list of relevant documents;
sub B opinion rendered by Professor De Nova on November 24, 2014;
sub C and D opinion rendered by Professor Montalenti on October 23, 2015,
with the subsequent addendum on November 5, 2015;
sub E opinion rendered by Professor Massari on March 18, 2016;
sub F opinion rendered jointly by Professors De Nova and Montalenti on April
7, 2016.
1
Committee for Related Party Transactions
Opinion of the Board of Directors on the exercise (or non-exercise) of the rights arising from
the clause stipulated in Section 5.24.3 of the Share Purchase Agreement of May 29, 2012
between B.S.A. S.A., Groupe Lactalis S.A. and B.S.A. International S.A., on the one hand, and
Parmalat s.p.a., on the other hand, the subject of which is the transfer of the entire share
capital of Lactalis American Group Inc. (in turn, owner of the entire share capital of: Sorrento
Lactalis Inc., Lactalis USA Inc., Lactalis Deli Inc., Mozzarella Fresca Incorporated, Lactalis
Retail Dairy Inc., S.C.C. Properties Inc. and Lactalis Export Americas SAS), Lactalis do Brasil
– Comercio, Importação e Exportação de Laticinios Ltda and Lactalis Alimentos Mexico
S.deRL.
1. Foreword
The Company’s Board of Directors, at a meeting held on March 30, 2016, resolved «to qualify the
assessment as to whether or not the guarantee clauses contained in the Share Purchase Agreement of May 29 2012, the
subject of which was the LAG acquisition, as a highly material related party transaction for the effects of the Regulation
adopted by the Consob with Resolution No. 17221 of March 12, 2010, as amended» with specific reference to the
stipulation set forth in Clause 5.24.3 of the abovementioned agreement. For the purposes of and
pursuant to the abovementioned Regulation and the Procedure governing related party transactions
adopted by the Company, this Committee carried out an assessment, which included an analysis, study
and an evaluation of relevant documents — truly unusual for their number and scope — made
available by the Company and included in the list annexed to this document under letter “A,” arriving
at the formulation of this opinion.
2. Remarks about the qualification as a related party transaction of the exercise of the
rights stipulated in clauses of agreements between related parties
Given the singularity of the question about the qualification as a highly material related party
transaction of the exercise (or non-exercise) of the rights arising from the clause stipulated in Section
5.24.3 of the Share Purchase Agreement of May 29 2012 (hereinafter, also “SPA”), the subject of which
was the transfer of the entire share capital of LAG (this acronym being, hereinafter, understood to
mean in short all of the companies listed in the introduction), some preliminary remarks seem in order.
2
The resolution of the Board of Directors mentioned in the Foreword, in itself decisive for
providing an answer to the abovementioned question, was adopted after an lengthy, detailed and in-
depth discussion — the report of which runs from page 61 to page 82 of the recorded minutes of the
meeting — from which it is possible to deduce the reasons for the resolution, which, inter alia, make
reference to the last sentence of Article 2 of the Company’s Procedure governing related party
transactions currently in effect, which reads as follows: ««whenever a transaction with a related party is
carried out in or requires multiple steps, the steps shall also be subject to the Procedure, regardless of
their materiality based on individual thresholds […].»
In general, it is worth mentioning that guarantee clauses contained in agreements for the sale of
controlling equity interests — but similar remarks could be made for other agreements as well — entail
the fact that the relationship does not end with the implementation of the principal transmittive task, but
continues over time with the performance of ancillary tasks that require additional activities by the
parties: these clauses usually require that, upon the occurrence of a presumed event set forth in them,
their enforcement follows the manifestation of intent of the empowered party within a specified
deadline. In other words, the enforcement of a contractual guarantee clause is an autonomous act of
determination — intended as a definitive statement of transactional intent — by a party versus the
other party; determination that, while based on a previous stipulation, is separate and unilateral and
merely optional and, therefore, occurring eventually with respect to the one originally adopted to
execute the corresponding agreement. This decision entails the exercise of a right/power that
establishes between the parties a separate legal relationship, intended to produce additional economic
effects with respect to those already established with agreement; or, in a negative case, does not permit
the establishment of the abovementioned new relationship and, consequently, the production of the
corresponding effects. If the agreement to which the guarantee clause belongs is an agreement between
related parties, the enforcement (or non-enforcement) of the clause appears to be part of the broader
notion of “transaction” adopted by the Consob Regulation, acquiring the characteristics — in accordance
with the most recent and learned interpretations by the commentators(1) — of a juridically relevant fact
that has an impact on the respective financial spheres of the parties, irrespective of its conformation
and juridical qualification, and, consequently, by the corresponding statute: on the other hand, it is
obvious at the practical level that the correlation between the parties could “pollute” the autonomy of
decision of the party empowered to enforce the guarantee clause, becoming (particularly in the case of
non-enforcement), from an economic standpoint, a type of palindromic (i.e., moving the opposite
direction than usual) tunneling, in which, instead of obtaining private benefits from control, adverse
effects are avoided. (1) G. Liace, Le operazioni con parti correlate, Milan, 2016, pages 5 and following.
3
Consequently, the rendering by this Committee of an opinion to the Board of Directors appears
to be juridically justified, in light of the Consob Regulation and the Procedure adopted by the
Company, mentioned above, even though the peculiarities of the specific “transaction” in question have
an impact on its content and conclusions.
3. Description and significance of the transaction; nature of the relationship
As stated above, the “transaction” being reviewed consists of whether the exercise (or lack
thereof) of the rights arising from the clause stipulated in Section 5.24.3 of the Share Purchase
Agreement of May 29, 2012 between B.S.A. S.A., Groupe Lactalis S.A. and B.S.A. International S.A.,
on the one hand, and Parmalat s.p.a., on the other hand, the subject of which is the transfer of the
entire share capital of Lactalis American Group Inc. (in turn, owner of the entire share capital of:
Sorrento Lactalis Inc., Lactalis USA Inc., Lactalis Deli Inc., Mozzarella Fresca Incorporated, Lactalis
Retail Dairy Inc., S.C.C. Properties Inc. and Lactalis Export Americas SAS), Lactalis do Brasil –
Comercio, Importação e Exportação de Laticinios Ltda and Lactalis Alimentos Mexico S.deRL.
As to whether this transaction qualifies as highly material or less material, this Committee, with
regard to and in compliance with the provisions and instructions of the Consob Regulation and the
Procedure adopted by the Company, was informed of the resolution adopted by the Board of Directors
on March 30, 2016 and, consequently, conducted its activities in accordance with Article 6.1.3 of the
abovementioned Procedure, entitled «Handling of highly material transactions.» However, as stated in the
remarks that will be provided in the conclusions section of this opinion, the materiality classification
does not have special effects (the provisions of Article 5 of the Consob Regulation and Articles 6.1.2
and 9 of the Company’s Procedure notwithstanding with regard to the preparation and publication of
an Information Memorandum).
Lastly, with regard to the nature of the correlation, it arises from the statutory control
(embodied in the exercise of the guidance and coordination activity) by B.S.A. S.A. over Parmalat s.p.a.
4. Remarks about the transaction
4.1. General considerations
The clause set forth in Section 5.24.3 of the Share Purchase Agreement of May 29, 2012, which
is structured in accordance with the Anglo-American contract model, calls for the following
4
representations and warranties: «All the projections and forward-looking information, which have been supplied in
any form to, or in the interest of, or for the benefit of, the Purchaser by the Sellers and /or their directors, officers,
managers, Employees, auditors, counsels advisors and consultants, in connection with the preparation, negotiation and
execution of this Agreement, and/or in contemplation of the transactions provided for hereunder, are based on reasonable
assumptions and consistent with those assumptions.»
Pursuant to Clause 7.3.1, Letter (b), of the Share Purchase Agreement, the enforceability of the
guarantee clauses has a validity of five years from the closing date, i.e., it expires on July 3, 2017.
However, the abovementioned contracts is the epicenter of an extremely complex event
involving the sale of LAG by Lactalis to Parmalat, after the latter had become a related party of the
former, which held a controlling interest of 83.3%(2); an event that developed over the years, involving
different periods and levels, summarized below:
- the negotiations phase and the conclusion of the agreement;
- the Price Adjustment phase in accordance with the provisions set forth in Clause 2.3 of the
Share Purchase Agreement, which resulted in a price reduction of US$ 130 million, down
from US$ 904 million to US$ 774 million;
- the phase of the proceedings pursuant to Article 2409, Section 7, of the Italian Civil Code,
activated by the public prosecutor further to a brief filed by Amber Capital UK LLP
(hereinafter also “Amber Capital”), before the lower court and at the appellate level;
- lastly, the phase of the complaint filed with the Board Statutory Auditors again by Amber
Capital.
In general and, so to speak, immanent terms, the Consob carried out an intense and detailed
oversight activity over the entire transaction.
Overall, through the different phases, the parties developed a truly enormous number of
consulting documents of a technical, economic, corporate, financial and legal type, the scope of which
make makes it exceedingly difficult gaining control over them and summarizing their conclusions.
Nevertheless, it seems appropriate and, perhaps, necessary to preface any specific remark about
the stipulations that embody the “transaction” subject of this opinion with an overview of the salient
facts and documents of the various phases — except for the last phase, i.e., the one of the complaint
filed pursuant to Article 2408 of the Italian Civil Code with the Board Statutory Auditors by Amber
(2) Stock ownership interest held by B.S.A. S.A. on the transaction's closing date.
5
Capital, which fall outside the scope and limits of this opinion — while trying not to lose focus and
effectiveness.
As explained in greater detail later in this document, the Company’s Board of Directors, the
Internal Control, Risk Management and Corporate Governance Committee and the Company’s
Committee for Related Party Transactions devoted extensive attention and performed in-depth
analyses with regard to the specific issue of Clause 5.24.3 of the Share Purchase Agreement of May 29,
2012; more specifically, this Committee was particularly surprised by the magnitude of the effort
applied in terms of time, thought and other resources, including financial ones, to fully research, with
extreme concern for scrupulously applying the relevant rules — perhaps, it may be said, beyond the
limits of what appeared to be necessary — the subject matter, complex that it may have been; and, on
the other hand, by the fact that all this was not sufficient to placate an extremely sharp internal debate
within the corporate entities and organizations, perhaps not immune to the aim of pursuing individual
interests and personal animus. More specifically, with regard to the issue of the representations and
warranties referred to in Clause 5.24.3, its interpretation and the rights deriving from it, the
circumstances upon the occurrence of which this clause may be enforced and the verifications that
must be carried out to ascertain the existence of the conditions for its enforcement, the Company:
- asked Professor Giorgio De Nova to render an independent impartial opinion, which he did
on November 24, 2014 and is annexed to this document under Letter “B”;
- subsequently, asked Professor Paolo Montalenti to provide another independent impartial
opinion — in response to a similar question but with a broader scope, concerning in general
the guarantee and protection tools available to the Company under the Share Purchase
Agreement of May 29, 2012, which was provided on October 23, 2015 followed by an
addendum on November 5, 2015, annexed to this document under Letters “C” and “D”;
on the basis of a recommendation contained in both of these opinions, albeit with a
different emphasis;
- then asked Professor Mario Massari to provide a technical-corporate opinion, delivered on
March 18, 2016 and annexed to this document under Letter “E,” indicating whether or not
the assumptions underlying the prospective data contained in the Vendor Due Diligence
Report originally prepared by Ernst & Young (“VDD”), which are referenced in the
abovementioned clause; lastly, based on the content of Professor Massari’s opinion;
- asked Professors De Nova and Montalenti to render an independent impartial opinion,
provided on April 7, 2016 and annexed to this document under Letter “F,” indicating if
there was a basis for enforcing the guarantee provided under Clause 5.24.3 of the Share
Purchase Agreement of May 29, 2012.
6
Obviously, special attention will be paid to the content of these opinions.
The documents collected and organized to construct the merit framework of this opinion, a
review of which will be summarized below, together with the opinions mentioned above, constitute a
complete and exhaustive supporting framework — and, perhaps, even excessive — for the assessment
that the Committee is required to perform: consequently — considering that a large part of these
documents were provided or it is reasonable to assume that they were provided, based on their content,
for the purpose of the truth and specifically that the opinions of Professors De Nova, Montalenti and
Massari were accompanied by declarations of independence — it was not thought necessary to require
the support of new independent experts or ask for new opinions.
4.2. Overview of the negotiations and contract signing phase and the price
adjustment phase – The proceedings pursuant to Article 2409 of the Italian Civil
Code
As mentioned earlier in this document, the LAG acquisition was the subject of proceedings
pursuant to Article 2409 of the Italian Civil Code activated by the office of the Public Prosecutor at the
Court of Parma on July 31, 2012, further to a brief filed by Amber Capital, carried out initially before
the Court of Parma and subsequently before the Bologna Court of Appeals, where the proceedings
came to a conclusion on May 9, 20104. In this regard, based on the information that can be gleaned
from the corresponding documents, it is reasonable to believe that the transaction was examined in
each one of its aspects, from the phase of its inception, through the negotiations phase, the execution
of the agreement, the Price Adjustment phase and subsequent phases.
More specifically, the Court carried out a detailed review of these events in its interim decision
of March 29, 2013, in which it pointed out some irregularities concerning the negotiations phase and
asked the Board of Directors to carry out all necessary verifications to enforce the contractual
guarantees (in addition to the abovementioned Clause 5.24.3 of the Share Purchase Agreement of May
29, 2012 about the reasonableness of the prospective data contained in the VDD, Clause 5.24.2 about
the veracity of the historical data supplied by the sellers) and, specifically, to «make the utmost and most
timely efforts to verify any indicators signaling the lack of veracity of the historical data supplied and/or reasonableness of
the prospective data utilized within the framework of the Vendor Due Diligence prepared by Ernst & Young pursuant to
Clauses 5.24.2 and 5.24.3 of the agreement called Share Purchase Agreement.» In addition, the Court appointed
and ad Acta Commissioner responsible for verifying the independence of any professionals appointed by
the Company to perform analyses concerning the Price Adjustment (Professors Mario Cattaneo, Marco
Ziliotti and Paolo Andrei, in turn supported by PricewaterhouseCoopers, about whose independence
the Court did not express any doubts) and support the Board of Directors in this phase.
7
Upon the completion of this activity — which, as mentioned before, resulted in the definition
of a final price that was US$ 130 million less than the provisional price initially paid — the Court of
Parma handed down its final decision (on November 11, 2013) in which, while basically confirming its
earlier findings, stated that «the acquisition of LAG, Lactalis Brazil and Lactalis Mexico produced undeniably
positive effects for Parmalat S.p.A also from a financial standpoint, specifically with regard to the income contributed by
the abovementioned companies» and that «as the record the proceedings shows, Parmalat S.p.A. will value the acquired
companies in its financial statements for amount equal to US$ 1,320 million, further to the result of an impairment test
performed by Professor Buttignon, with a remarkable increase well above the maximum estimated by Mediobanca,»
therefore concluding in this sense that no damage appeared to have been caused by the transaction
«considering that, because the abovementioned amount is significantly higher than the consideration paid [...] it is
presumably sufficient to neutralize any potential damage that the companies could incur due to the described reduction in
marketing expenses» (pages 25 and 26 of the Decree of November 11, 2013).
The Court also recognized the full independence of the abovementioned professionals
Professors Cattaneo, Ziliotti and Andrei, to whom the Company had entrusted, by a resolution of the
Board of Directors of June 24, 2013, the task of producing a report on the negotiating activity carried
out originally by the Related Party Committee and it’s advisor Mediobanca and a critical analysis of the
methods use in the various opinions generated in connection with the proceedings pursuant to Article
2409 of the Italian Civil Code. This document, issued on September 20, 2013, contains conclusions that
differ in some respects from those of the Court, in the sense that it found no irregularities in how the
negotiations were conducted nor in the conduct of the corporate governance bodies and failed to find
profiles showing lack of independence on the part of Mediobanca, concluding in this case as well that
no damage had occurred.
As for the verifications concerning contractual guarantees, the Court confirmed, also in its final
decision of November 11, 2013, that the Board of Directors «made extensive and timely efforts to identify the
presence of any indicators pointing to a lack of veracity of the historical data supplied» (page 13 of the Court
Decree). And yet, with regard to the reasonableness of the prospective data, in light of some
considerations provided by the ad Acta Commissioner, discussed in the next paragraph, the Court did not
reach the same conclusion, finding that: «In any event, as noted by the members of the Committee for Related
Party Transactions, the activities carried out thus far cannot be deemed to be in any way preclusive for Parmalat S.p.A. of
the enforcement of the guarantees provided by Clauses 5.24.3 and 5.24.4 of the Sales Agreement within the stipulated
five-year deadline, which, under present circumstances, excludes that such a situation, while potentially a source of damage,
does exist.» (page 13 of the abovementioned decree).
8
The Bologna Court of Appeals then amended, by Decree of May 9/26, 2014, the decisions of
the Court of Parma, declaring the cessation of the disputed issues concerning the revocation of some
Directors who were no longer in office, denying the Public Prosecutor’s request to revoke reelected
Directors and fully compensating expenses. In these proceedings as well, the Court recognized «the
clearly positive effect for Parmalat» of the Price Adjustment process and expressed reservations regarding
damages as follows: «It is also important to note that the damage alleged by the Public Prosecutor […] cannot be
deemed to have been “ascertain” given the non-adversarial nature of the proceedings pursuant to Article 2409 of the
Italian Civil Code» (pages 5 and 6 of the Decree of May 9, 2014). The Court of Appeals ruling with
regard to expenses, mentioned the conclusions of the lower court about the fact that Parmalat’s Board
of Directors made «the utmost and most timely efforts to verify any indicators signaling the lack of veracity of the
historical data supplied» (page 6 of the abovementioned Decree).
The Committee was informed that some members of the Company’s Board of Directors, in
office and no longer in office, and an executive, no longer at the Company, were served with notices
informing them that they were the subject of investigations concerning the LAG Acquisition.
Some of the parties being investigated indicated that they were informed that their cases had
been closed.
In addition, information carried in the press on February 5, 2016 indicated that «the Preliminary
Investigations Judge of Parma ordered the transmission to Rome of the file concerning the criminal investigation of the
Parmalat-Lactalis USA transaction […]. The Preliminary Investigations Judge ceded jurisdiction to Rome based on the
principle that jurisdiction belongs to the judge of the most serious crime, in this case hindering the oversight functions
performed by the Consob which is based in Rome. […]»(3)
It was later learned that the file had been forwarded to Milan’s Public Prosecutor on
jurisdictional grounds; information then followed that Milan’s Public Prosecutor, claiming, in turn, that
he lacked jurisdiction, raised a negative jurisdiction conflict that, pursuant to the applicable code, will be
resolved by the Office of the General Prosecutor at the Court of Cassation. To the best of our
knowledge, a decision has not yet been handed down.
4.3. Remarks about the activities carried out by the Company subsequently to the
proceedings pursuant to Article 2409 of the Italian Civil Called – Opinions by
professors De Nova, Montalenti and Massari.
(3) News release by the Reuters press agency of February 5, 2016, 4:41 PM.
9
4.3.1 In light of the considerations provided above, the Company’s Board of
Directors agreed not to carry out any further reviews of the overall transaction — which, incidentally, is
still the subject of the abovementioned complaint pursuant to Article 2408 of the Italian Civil Code,
filed by Amber Capital with the Board of Statutory Auditors — nor with regard to the enforcement of
contractual Clause 5.24.2 regarding the veracity of the historical data supplied by the sellers, with regard
to which, as shown above, the activities carried out thus far were found to be fully satisfactory by the
judicial authorities.
The Board of Directors instead focused on Clause 5.24.3 concerning the reasonableness of the
assumptions underlying the prospective data contained in the VDD. The activities carried out in this
regard in the course of the proceedings pursuant to Article 2409 of the Italian Civil Code, at the Court’s
request, differently to from those for the verification of the veracity of historical data, were not found
to be fully satisfactory.
Specifically, the Board of Directors awarded to Deloitte Financial Advisory s.r.l. (hereinafter
also “Deloitte”) an assignment involving verification of the presence of any indicators suggesting that
the prospective data might have been unreasonable and Deloitte reached the following conclusion:
«Based on the evidence supporting the assumptions and the elements used to develop the Prospective Data for the 2012-
2014 period and taking into account the information provided in Paragraph 4, we have not become cognizant of facts that
could induce us to believe, at this point, that the abovementioned assumptions and elements did not provide a reasonable
basis for the preparation of the Prospective Data, assuming that the hypothetical assumptions concerning future events and
the actions of the Company’s management bodies, summarized in Paragraph 4 above, do in fact materialize. However, it
is important to keep in mind that due to the uncertainty about the occurrence of any future event, regarding both the actual
occurrence of the events and the scope and timing of their occurrence, the variances between the actual data and the amounts
projected in the Prospective Data could be significant, even if the events projected in the hypothetical assumptions
summarized in Paragraph 4 above were to materialize.» In this regard, Deloitte specifically referenced the
International Standard on Assurance Engagements (ISAE) 3400 entitled The examination of Prospective Financial
Information, published by the IFAC – International Federation of Accountants.
Consequently, the Board of Directors, meeting on June 24, 2013, resolved to confirm that,
based on the reviews performed, no indicators suggesting that the prospective data used within the
framework of the abovementioned VDD were unreasonable were identified.
However, the ad Acta Commissioner, Professor Angelo Manaresi, in his report filed on June 14,
2013, criticized the results of the work performed by Deloitte, claiming that, in his opinion, Deloitte did
not perform an econometric valuation of the possible overstatement of prospective results due to the
reduction in marketing investments. Deloitte responded to this criticism with a letter dated June 20,
10
2013 in which it pointed out that such valuations were beyond the scope of its assignment and that,
anyhow, such valuations would not have been possible give the lack of any knowledge about the
marketing investments of the competitors, would not have been possible given the absence of any
information about the marketing investments carried out by LAG. In the abovementioned letter,
Deloitte also referred to another analysis performed by the Boston Consulting Group at the request of
Professors Angelo Provasoli Pietro Mazzola, whose services were retained by some directors for the
purpose of performing an assessment of LAG concerning the reasonableness and feasibility of the
industrial plan contained in the VDD, which reached conclusions in line with those of Deloitte. This
opinion has been published on the Company website.
With regard to this issue, as mentioned above, the Court of Parma concurred with the remarks
put forth by the ad Acta Commissioner to the effect that the work performed by Deloitte (and by the
Boston Consulting Group) was not sufficiently thorough but thought that this issue was irrelevant, as
Parmalat had the option of enforcing the corresponding guarantee within a deadline of five years.
From this, specifically, derives the right to implement additional verifications regarding
exclusively the possible enforcement of Clause 5.24.3 regarding the prospective data.
This Committee, in turn, charged with rendering an opinion specifically regarding the
abovementioned enforcement and on this issue alone, will not address again other issues, regarding
which there is by the way ample information available in Company documents and, specifically, in the
abovementioned court decisions (currently published on the Company website), and in the
abovementioned Report of September 20, 2013 by the independent experts Professors Cattaneo, Zilotti
and Andrei (also available on the Company website), which, as mentioned above, discusses in detail the
origin of the transaction, the negotiation phase, the conduct of the corporate governance bodies and
their advisors, the content of the Share Purchase Agreement of May 29, 2012 and the content of the
numerous opinions and numerous valuations provided regarding LAG.
4.3.2 The activities carried out by the Board of Directors regarding the specific issue,
aside from a series of initiatives not directly related to the issue in question, but still relevant to a certain
extent (such as an analysis of LAG’s industrial plants, their verification by the independent advisor
Blain & Co., the analysis by this advisor of the reasons underlying the 2014 variances, the approval of
the annual impairment tests), included as the first step, at the Chairperson’s request, the rendering of a
legal opinion by Professor Giorgio De Nova regarding the interpretation of the Clause 5.24.3 of the
Share Purchase Agreement.
Specifically, Professor De Nova was asked the following questions:
11
«(a) What is the interpretation of Clause 5.24.3 of the Agreement and which rights does Clause 5.24.3 of the
Agreement convey to the Purchaser?
(b) Under which type of factual circumstances can the guarantee contained in Clause 5.24.3 of the Agreement be
enforced by the Purchaser versus the Sellers and, specifically, whether the variance in the actual data versus the
prospective data supplied by the Sellers empowers the Purchaser to enforce the guarantee contained in Clause
5.24.3 ;
(c) which verifications should be carried out by the Purchaser to ascertain the existence of the conditions for enforcing
the guarantee and how frequently and/or within which deadline.».
As indicated by Professor De Nova at a meeting of the Board of Directors held on December
4, 2014, his opinion, annexed to this document sub “B,” shows that, should there be a negative
variance for each of the 2012, 2013 and 2014 reporting years between the aggregate EBITDA
presented in the business plan contained in the VDD and the EBITDA actually reported, this would
enable Parmalat to obtain from his counterparty any indemnity corresponding to the abovementioned
variance, provided certain conditions can be met.
According to Professor De Nova, (i) the first and fundamental condition is that the business
plan was based on unreasonable assumptions and that the prospective data that arise from it are not
consistent with the assumptions; (ii) secondly, there must be a negative variance with respect the
abovementioned EBITDA data for one or more of the 2012, 2013 and 2014 reporting years; and (iii)
thirdly, if there is such a variance, the existence of a nexus of immediate and direct causation between
the ascertained unreasonableness of the prospective data and the negative variance in EBITDA in the
sense specified above must be verified.
That said, Professor De Nova discussed the meaning of the English expression «Reasonable
Assumption» adopted in the clause in question. In this regard, he pointed out that this expression is
intentionally generic and that, to avoid tautological explanations, reference must be made to cases in the
law in which a verification of the reasonableness of prospective data is required, as is the case of
mergers following a leveraged buyout (Article 2501-bis, Section 4, of the Italian Civil Code), which states
that «The experts’ report pursuant to Article 2501-sexies, provides an attestation of the reasonableness of the indications
contained in the merger proposal pursuant to Section Two above.» Specifically, Professor De Nova concluded that
this reasonableness assessment must be carried out consistent with company rules and corporate
practices, which brings to the fore principle ISAE 3400, which deals with The examination of Prospective
Financial Information (4).
(4) As mentioned above, these are the same criteria as those that Deloitte used.
12
Beyond a control of the reasonableness of the assumptions, in the opinion of Professor De
Nova, there must also be consistency, also quantitatively, of the projections made based on these
assumptions. To that effect one must verify that, based on reasonable assumptions, the prospective data
derived reflect a proportionality relationship with the assumptions and that, consequently, are not
excessive, exaggerated or to optimistic.
Another problematic profile of this clause addressed by Professor De Nova consists of the fact
that the issue is about a representation and warranty, for which it should derive that, by virtue of the
generic “bring down” clause set forth in section 5.1 of the SPA, the data guaranteed by the seller should
be truthful not only on the signing date but also on the closing date. As a result, the reasonableness of
the prospective data should exist not only on the date of preparation of the Sellers Business Plan, (March
8, 2012), but also on the closing date (July 3, 2012). In the opposite sense, points out Professor De
Nova, one could argue that it is a representation and warranty the subject of which are the «projections or
forward-looking information» referred to the date of preparation of the Sellers Business Plan, as a result of
which it is excluded by its very nature from the bringing down. In Professor De Nova’s opinion, this is
a debatable point in the sense that both approaches can be justified, one based on the letter of the
contract and the other one based on reasonableness considerations.
Moreover, also in Professor De Nova’s opinion, the clause in question is not a profitability
clause in the strict sense, as it is not directed to guarantee the fact that companies will achieve the
prospective data contained in the Sellers Business Plan but only the reasonableness of the prospective
data contained in it. Specifically, for the purpose of enforcing the buyer’s right to receive
indemnification, it is not sufficient that there exists the abovementioned negative variance in the
EBITDA data, but the two abovementioned conditions of (i) unreasonableness of the assumptions or
inconsistency of the projections made based on the assumptions and (ii) existence of a causality nexus
between the negative variance in question and the unreasonableness of the assumption or inconsistency
of the deduction must also be met.
Lastly, after discussing the definition of the damage (in his opinion equal to the EBITDA
variances reported compared with the plan’s EBITDA), Professor De Nova recommended that an
expert be asked to verify the reasonableness of the assumptions and/or the consistency of the
projections.
4.3.3 At the same Board meeting of December 4, 2014, the Chairperson
recommended that the Board of Directors follow the process suggested by Professor De Nova in his
opinion and, specifically, (i) wait until the beginning of 2015 in order to have access to actual data for
LAG for the 2014 reporting year; and (ii) by a resolution discussed and deliberated by the Board of
13
Directors, retain the services of an independent professional (different from Deloitte) to perform the
verifications regarding the reasonableness and consistency of the prospective data recommended by
Professor De Nova.
The Chairman then in charge of the Internal Control, Risk Management and Corporate
Governance Committee, which also serves in the capacity as Committee for Related Party Transactions
(hereinafter also the “Committee”), indicated the need that this issue be discussed in depth at a
Committee meeting. In turn, another Committee member specified that on that occasion he did not
intend to adopt «any resolution regarding the issue in question since a meeting of the Internal Control, Risk
Management and Corporate Governance Committee, which also serves in the capacity as Committee for Related Party
Transactions, will be held in the immediate future. Since the transaction in question is a transaction with a related party,
that venue appears to be more appropriate for conducting the proceedings regarding the issue at hand. In that venue, in the
opinion of Professor Mosetti, it will be appropriate to conduct more in-depth analyses both of a financial and contractual
nature. Based on the findings developed with the abovementioned analyses, the Committee will determine which
recommendations should be submitted to the Board of Directors regarding which procedure should be followed» (page 168
of the corresponding minutes).
4.3.4 The Committee, in its previous configuration, met as often as 19 times(5) to
carry out the analyses requested by is Chairman. In turn, the Board of Directors devoted 11 meetings(6)
to this issue, a number that, however, does not include meetings in which LAG was discussed, as
meetings in which the results and/or plans of the US subsidiary were presented or issues concerning it
were discussed should be added to the main meetings listed in the footnotes.
The abovementioned analyses went through an initial phase, during which the Committee
reviewed the documents and discussed various issues related to the topic in question (7).
In this context, the Committee and the Board of Directors were provided with a presentation
the production of which had been assigned to Bain & Co, entitled “LAG – 2014 & 2015-18 plan
assessment” the subject of which was an analysis of LAG’s performance in 2014 and verification of its
2015-2018 business plan. The abovementioned document, for the part relevant in this context,
(5) These are the meetings of: December 11, 2014, January 19, 2015, February 26, 2015, March 13, 2015, April 13,
2015, May 11, 2015, July 16, 2015, July 28, 2015, October 8, 2015, October 29, 2015, November 6, 2015, November 10, 2015, November 19, 2015, December 11, 2015, December 16, 2015, March 1, 2016, March 14, 2016, March 22, 2016 and April 11, 2016.
(6) These are the meetings of: December 4, 2014, February 27, 2015, April 16, 2015, May 13, 2015, July 30, 2015, October 8, 2015, November 10, 2015, December 22, 2015, March 21, 2016, March 30, 2016, and April 14, 2016.
(7) These are the meetings of: (i) December 11, 2014 and January 19, 2015, at which the Committee was provided with the various documents already available on the Company website and other documents, as well as the pre-closing data for 2014 of LAG, with comparisons with the business plan; and (ii) February 26, 2015, during which a presentation prepared by Bain & Co containing an analysis of the results for 2014 and the reasons for their variance compared with the business plan and a glorification of the 2015-2018 plan.
14
provided explanations of the reasons for the variance of the 2014 LAG results compared with the
business plan contained in the VDD, reasons that are primarily identified in the fact that in that year
the price of milk increased by an extraordinary 24%, compared with the 6% increase projected in the
budget (in the VDD, the price was projected to remain constant since it was not possible to foresee,
over the time span being considered, the prices of a commodity that follows a fairly volatile trend).
This phase ended with a decision to submit to the Board of Directors a recommendation to
obtain and other legal opinion(8).
The Board of Directors, at the meeting held on April 16, 2015, resolved to retain the services of
Professor Paolo Montalenti, recommended by the Committee, and tasked the Committee with
preparing the text of the query. At the next meeting of May 13, 2015, the Board resolved to submit to
Professor Montalenti the following suggested question: «Can Professor Montalenti specify, in light of the
documents referred to below regarding the “Share Purchase Agreement” of May 29, 2012 concerning LAG/LEA, what
are the guarantee and protection tools for Parmalat S.p.A. with regard to historical and prospective data and the different
guarantee items, based also on an analysis of the technical financial reports that have been supplied thus far, also in light
of the fact that in this case the contract in question is between a parent company and a subsidiary? Can he also specify
under which circumstances and with which modalities these tools can be activated?»( 9)
4.3.5 Professor Montalenti provided the Committee with a preliminary opinion at the
meeting of July 16, 2015. He then delivered to the Committee and the Board of Directors a draft of his
opinion on October 3, 2015. This opinion was reviewed, with him in attendance, first at a Committee
meeting and then at a meeting of the Board of Directors, both held on October 8, 2015.
The abovementioned opinion is also annexed to this document (under Letter “C”). The content
of this opinion, as presented by Professor Montalenti at the Committee meeting of October 8, 2015 is
described below: «Professor Montalenti specified that in his opinion he analyzed legal issues without discussing those of a
(8) This was discussed for the first time, at the request of Chairman Perotta, at the meeting of March 13, 2015. The
proposal for the Board of Directors and the text of the query were approved on April 13, 2015 and May 11, 2015, respectively. (9) St the meeting the following documents was selected for submission to Professor Montalenti:
- Share Purchase Agreement of May 29, 2012 with annexes; - Information Memorandum of May 29, 2012 on the acquisition; - Consob’s requests and an addendum to the Information Memorandum of June 27, 2012; - Vendor Due Diligence; - Comparative financial statements and schedules; - Deloitte e PwC reports on the verification of the prospective and historical data, respectively, contained in the
VDD; - Bain Report submitted to the Board of Directors on February 27, 2015; - Reports of the ad Acta Commissioner Angelo Manaresi of May 16, June 14 anf September 9, 2013; - Decisions by the Court of Parma and the Bologna Court of Appeals regarding the proceedings pursuant to Article
2409 of the Italian Civil Code; - Independent impartial opinion by Professor G. De Nova of November 24, 2014.
15
technical and financial nature underlying the business documents that he was provided with. He also commented the general
profiles of contractual clauses relevant for the purposes of the opinion and noted that the definition of “liabilities” provided in
Clause 1.2.54 of the LAG acquisition agreement (hereinafter in brief the “Agreement”) is extremely broad and aimed at
including any negative amount, of any nature, liquid or illiquid, certified or not certified. The inclusion in this category of
responsibilities and obligations, including those merely determinable and, most importantly, not affected by a validity
timeframe and/or predetermined incurrence modalities is particularly significant. He pointed out that the liability extension
clause is particularly significant with regard to the planned, prospective and projected information and financial data
governed by the Agreement. He specified that the interpretation of the Agreement is governed by Italian law and,
consequently, the provisions of Article 1362 and subsequent articles of the Italian Civil Code are applicable. He
emphasized that the Agreement contains an integrative provision particularly significant for interpretation purposes because
it is designed to specify the level of professional knowledge – and, hence, of reliability – of the information supplied. Clause
1.3.2 of the Agreement clearly establishes the required level of knowledge and expressly specifies its importance in relation to
the representations and warranties provided by the Sellers to the Purchaser. The required level of knowledge is higher than
the average standard, including that of professionals — «in addition to actual knowledge» — and should be equivalent to
the highest standard of a qualified manager «chief executive officer, chief operating officer, chief financial officer or general
counsel.» In addition, the diligence standard is also specified because it is correlated with the exercise of a specific activity,
i.e., the «due diligence» and «professional enquiry» activity. It is thus that this more burdensome valuation gauge must be
applied to determine whether or not professional diligence was exercised in the disclosure of accounting, economic and
financial information of the acquired companies. Professor Montalenti specified that the “general interpretation clause” –
establishing the “maximum” standard of professional diligence for knowledge (and, consequently, representation) of data and
information — has its general effect on the section of the agreement concerning the «representations and warranties of the
sellers.» The standard is specifically applicable to the contractual provisions regarding the Accuracy of Information, i.e., the
general veracity rule (Article 5.24.1) the information about historical data (Article 5.24.2) and prospective data (Article
5.24.3). Similar conclusions also apply with regard to the interpretation of the contractual rules governing indemnification
(Article 7.1 and subsequent articles of the Agreement). Consequently, the accuracy, completeness and veracity of information
must be verified in accordance with an assessment criterion based on a standard of the utmost professional diligence.
Professor Montalenti added that the Agreement’s purchase price should be considered as having been definitively set
pursuant to an agreement reached by the parties within the framework of the “Price Adjustment” procedure. In Professor
Montalenti’s view, this agreement, which was reached in May/June 2013, must be viewed as a settlement because, on that
occasion, the parties avoided possible litigation without using an arbitrator and by means of mutual concessions. Professor
Montalenti pointed out that the “Prize Adjustment” contractual clause is independent of the other clauses concerning the
reasonableness of prospective data. He then discussed the clause that governs marketing expenses. This clause requires that
the parties must not only be cognizant but must also agree that marketing expenses will be carried out, i.e., incurred, in
accordance with (i) guidelines and (ii) precisely determined parameters. Specifically, these expenses must first of all be in
accordance with the projections of the business plan and, second of all, incurred in accordance with the additional criterion of
16
(i) the ordinary course of business and (ii) best management practices. He also emphasized that prospective information
regarding marketing expenses has an impact within the scope of this clause on the accuracy of information. The issue is then,
concretely, how to determine whether or not the marketing expenses and other key economic indicators regarding prospective
data presented by the Sellers are “truthful” pursuant to and for the purposes of the contractual provisions. He noted that the
reliability of projections necessarily entails a degree of tolerance in view of the fact that prospective data by their very nature
present characteristics of uncertainty. However, the relevant degree of approximation cannot be that of the common man, as
it must fall within limits that are even narrower than the normal standards of professional diligence for the reasons presented
above. If there is a material variance between prospective and actual data, it will be necessary to determine:
(i) whether the decrease in growth prospects, to be defined and quantified, was caused by a negligent lack of reliability
in the prospective data;
or
(ii) whether it was caused by a restrictive management decision imposed by the parent company over the subsidiary.
In both cases, the variance, if material, is relevant, subject to verification of the causality nexus.
The variance, if material, will not be relevant for indemnification purposes if it is:
(i) caused by unforeseeable market reasons;
or
(ii) fruit of an independent (and not externally imposed) choice on the part of the Company.
Professor Montalenti specified that in corporate or contract law there are no direct references to this issue. However,
a reference point in the legislation that has strong affinity with the issue in question can be found, in his opinion, in the
leveraged buyout provisions of Article 2501-bis and subsequent articles of the Italian Civil Code. Article 2501-sexies of
the Italian Civil Code requires that reports by experts contain an attestation of the «reasonableness» of the data contained
in the merger proposal. This new legislation is characterized by a twofold profile. The regulation of transactions involving a
company’s own shares is no longer based on the absolute prohibition of financial assistance but rather on its permissibility
conditional on the fulfillment of disclosure obligations. The leveraged buyout is expressly allowed conditional on precise
obligations of (a) transparency and (b) rationale. Professor Montalenti emphasized that, in his opinion, the expert’s
«attestation» required by the new law consists of a sort of certification/verification of the plan prepared by the Directors the
subject of which is the «reasonableness of the information provided in the merger proposal» and thus entails a judgment no
longer regarding the veracity of the accounting data, but rather a “valuation of the feasibility, reliability, likeness, and
absence of irrationality, illogicalness and arbitrariness of the prognosticated projections.” A valuations strictly on the merit of
the transaction is thus excluded. The commentators who analyzed this specific issue more in-depth have taken the approach
of viewing the concept of reasonableness as a synonym of “likelihood and normality of verification of future events, within the
framework of a logically consequential argument in contraposition with the exceptionality of unreasonable events, as the
verification concerns prospective data rather than historical data, with regard to which a judgment of conformity with the
truth cannot be given.” Professor Montalenti then underscored that it is crucial to assess whether the circumstance of the
variance between prospective data and results can constitute an element of unreasonableness. He then stated that if between
17
prospective data and “actual” data, regarding the economic and financial position of the acquired company and subsequently
realized, there is a difference that, in light of the judicial parameters presented above and technical-financial parameters, can
be deemed to be greater than the reasonableness standard, the conclusion will have to be that there occurred any inaccuracy of
information. With regard to the damage, Professor Montalenti pointed out that any claim for compensation must be based
on an economic damage suffered and must be proven. In principle, in the case of unreasonable prospective information, the
damage would consist of the failure to achieve the desired actual result compared with the result presented in the prospective
data. (...)
It then appears to be necessary or at least appropriate:
1) to request a technical-corporate-financial opinion that answers the question as to whether, in light of the criterion
of reasonableness as specified based on legal and technical criteria, the discrepancy between prospective data and
actual data can be deemed to be unreasonable;
2) to request a technical-financial opinion that answers the question as to whether the difference between the
prospective 2013 – 2014 EBITDA, computed taking all of the components into account, and the EBITDA
computed at the end of the reporting period gives rise to a damage suffered by the Purchaser
3) to verify whether an unreasonable variance compared with the prospective data is the result of decisions
independently made by the Purchaser and not decisions imposed by the parent company.
Professor Montalenti pointed out that, after the abovementioned technical-corporate verifications are completed, any action
must be filed by July 3, 2017, which is the expiration deadline for legal actions provided in the Clause 7.3.1, Letter (b),
of the Agreement. He then concluded noting that if the technical-financial opinions were to lead to the conclusion that a
claim for compensation could be configured because the projections were unreasonable, the damage could be quantified and
there was a causality nexus, there would still be a margin for discussion and thus for an almost physiological uncertainty
regarding this issue. Considering this uncertainty, even if the conditions for litigation were to exist, a settlement would be
preferable to and arbitration or judicial dispute.» (pages 94 to 100 of the corresponding minutes).
Professor Montalenti thus reached conclusions that are not different from those of Professor
De Nova, except with regard to the determination of the damage. Specifically, both consider the
unreasonableness of the assumptions upon which the prospective data contained in the VDD are
based, in the sense specified by both, and the existence of the causality nexus between said
unreasonableness and the lesser performance by the acquired company compared with the one
presented in the business plan as an essential prerequisite to enforce the contractual guarantee.
However, with regard to the damage incurred, Professor De Nova defines it, as stated above, as the
variance between “prospective” EBITDA and “actual” EBITDA, while Professor Montalenti
introduces the possibility that the multiplier of 9.5 times mentioned in the contract could be applied to
the variance, but emphasizing that this is a question of a merely technical nature. It is worth mentioning
that Professor Montalenti felt that the year 2012 should be excluded from the scope of potential
18
applicability of Clause 5.24.3, as the variances for that year have already been the subject of a settlement
by the parties through the Price Adjustment.
4.3.6 The presentation of Professor Montalenti’s opinion was followed by a
discussion among committee members as to whether it would’ve been appropriate to entrust to a third
independent experts the technical-corporate analyses that both legal experts found necessary. At the
same meeting of October 8, 2015, a Committee member stated that he had «reservations about the
appointment of another expert, considering all of the documents already obtained and emphasized that the Directors
possess adequate know-how for the necessary assessments, for which they are legally responsible.». In turn, the
Committee Chairman took the floor «also to express reservations about the appointment of the umpteenth expert.»
(page 99 of the corresponding minutes).
Besides, Professor Montalenti, in his opinion officially rendered on October 23, 2015, had
mentioned the use of an independent expert only as a possibility («possibly», «if appropriate»). By a letter
dated November 5, 2015 (annexed sub “D”), he then specified that in his opinion it would have been
«advisable, if not necessary, to request a technical-corporate opinion from an independent expert about the different profiles
specified in our opinions [i.e.: his own and that of Professor De Nova]».
At the meetings held on October 29, 2015 and November 6, 2015, the Committee then decided
not to use an expert in this phase.(10)
In this context, upon a request by Committee member, the Company’s management prepared a
document called “Focus LAG,” which contains, inter alia, a comparison of key economic results for the
2012-2014 period of Lactalis American Group Inc., separately, with the data of the VDD, for valuation
purposes. This document, a draft of which was given to Professor Montalenti and cited in his opinion,
was reviewed by the Board of Directors initially at the meeting of October 8, 2015 and, subsequently, at
the meeting November 10, 2015, during which, the Board of Directors, having been informed of the
Committee’s decision not to use, in that phase, a third independent expert and of the discussion that
arose about this issue, confirming the assignment «to carry out the necessary in-depth analyses of the issue in
question [i.e., the LAG acquisition agreement and any possibly available remedies], and report any findings to
the Board of Directors, reserving the right to determine, based on those findings, whether relying on the support of external
consultants was appropriate.» (page 119 of the corresponding minutes).
(10) October 29, 2015: «The Committee unanimously concurred with the position not to use, at the present time, the support of an
expert for the investigative activities discussed in the course of the meeting»; November 6, 2015: «The Committee unanimously confirmed the decision not to proceed, at the present time, with the appointment of an expert for the investigative activities regarding the LAG acquisition, in line with the decision made at the meeting of October 29, 2015».
19
The “Focus LAG” document was further analyzed at Committee meetings on November 19,
2015 and December 11, 2015, as amended by the Company’s management, further to discussions with
the Committee, and later used to prepare a report, a draft of which was approved at a meeting held on
November 16, 2015, in which the Committee also resolved to recommend to the Board of Directors
the appointment of an expert in corporate issues, identified as Professor Massari, and a new legal expert
to review his work.(11)
This Draft Report provided a valuation of LAG prepared by the Committee, using as a
reference the “Focus LAG” document, developed with the discounted cash flow method (adopting the
same key parameters as those used by Mediobanca in connection with the acquisition), replacing the
data of the business plan contained in the VDD with the actual data for 2012, 2013 and 2014, the pre-
closing data for 2015 and the prospective data for 2016-2018. This valuation produced the amount of
US$ 775.8 million (in line with the price paid of US$ 774 million). The Report also provided alternative
valuation hypotheses containing some restatements of the abovementioned data and basic parameters
(regarding the tax rate, the computation of terminal value, the investments in marketing and the growth
rate of revenues in the computation of prospective cash flow) that produced amounts ranging between
US$ 677.4 million and US$ 531.3 million. The Report then contained a brief review of the work
performed by Deloitte in light of the investments and the results actually achieved by the investee
companies, from which the Committee drew the conclusion that «it would seem sufficiently evident that the
conditions for declaring that the assumptions used as the basis for the prospective data supplied to the acquirer were
reasonable are lacking.» (page 149 of the corresponding minutes).
For the sake of full disclosure, the resolution adopted by the Committee on that occasion is
reproduced below:
«The Committee unanimously resolved:
a) to approve the Draft Report showing that the requirement of reasonableness does not appear to have been met
with regard to the prospective data used as a reference for constructing the business plan on the basis of which
LAG’s value was determined and, consequently, how to identify a range of values that can be used as a basis to
define the indemnification owed by the Seller to the Acquirer ranging between US$ 96 million and US$ 242
million. The Draft Report is being annexed to the minutes of the meeting;
b) to request, as already announced at the meeting of the Board of Directors of November 10, 2015 and
recommended by the esteemed jurists Polo Montalenti and Giorgio De Nova, a technical-corporate opinion
provided by an independent expert to confirm from a technical standpoint the analysis carried out by the
(11) At the meeting, the Committee Chairman specified that the document in question was a «preliminary document
pending the appointment of experts and the acquisition of the product of their work, since the experts could identify opportunities for additional in-depth analyses and/or clarifications» (page [136] of the corresponding minutes). This clarification was then emphasized at the meeting of the Board of Directors of December 22, 2015.
20
Committee and a legal opinion, also provided by the independent expert, that can frame the analysis within the
proper legal framework and assist, when necessary, in the preparation of the required documents. Both
professionals will have to be of high standing and characterized by the utmost independence […]» (page 137 of
the corresponding minutes).
4.3.7 At the meeting of the Board of Directors of December 22, 2015, the Draft
Report on the Acquisition of LAG of December 16, 2015 was the target of severe criticisms by one of
the Directors, who pointed out several mistakes under different profiles, including, specifically, the fact
that data and criteria developed ex post (and even restated) were applied to valuations and methods that
clearly can be used only in an ex ante approach (approach that, by the way, the jurist queried
emphasized as the one to adopt in their opinions). Equally objectionable, also according to the same
Director, was deemed to be the assessment of “unreasonableness” of the prospective data, despite the
fact that it was stated hypothetical terms, because this assessment too was based on an ex post
approach and because it did not take into account the numerous verifications to the contrary cited in
the report of September 20, 2013 by Professors Cattaneo, Ziliotti and Andrei and the opinions
mentioned therein.
At that meeting, the Board of Directors, after a lengthy debate specifically focused on the
possibility of involving an additional legal expert, resolved:
«a) to take cognizance of the Preliminary Draft of the Report of the Internal Control, Risk Management and
Corporate Governance Committee regarding the LAG acquisition;
b) to request a technical-corporate opinion from an independent expert to confirm from a technical standpoint the
analysis performed by the Committee;
c) to appoint as the Committee’s independent expert for the purposes of item b) above Professor Mario Massari.»
(pages. 32 and 33 of the corresponding minutes).
4.3.8 In February 2016, following the resignations of two Directors, one of whom was
a member of the Committee, the replacement Director, at the first Committee meeting and later at a
meeting of the Board of Directors, raised some issues regarding the fact that a question had not been
addressed to Professor Massari and about the modalities adopted by the Committee or its individual
members to identify the documents that were supplied to him. In addition and more in general, the
new Director did not agree with the method followed by the Committee to render its opinion about the
Draft of the Report on the LAG Acquisition before submitting it to the opinion of a third party,
because this would have created a problem of independent judgment on the part of the advisor in the
case of diverging opinions (minutes of the meetings of the committee of February 25, 2016 and March
1, 2016; minute of the meeting of the Board of Directors of February 29, 2016).
21
The following question was then addressed to Professor Massari: «You are being asked to provide a
technical-corporate opinion for the purpose of confirming the analyses performed by the Internal Control, Risk
Management and Corporate Governance Committee with regard to ascertaining whether or not the assumptions underlying
the prospective data contained in the Vendor Due Diligence prepared by Ernst & Young were reasonable.»
Professor Massari delivered an initial preliminary presentation of the verification carried out in
the course of the committee meeting of March 1, 2016. On March 7, 2016, a draft of his opinion was
forwarded to Directors and the members of the Board of Statutory Auditors, with Professor Massari
reviewing the content of his opinion at the Board meeting of March 21, 2016, after a corresponding
Committee meeting held on March 14, 2016 period. An official version of the opinion was produced
on March 18, 2016.
The relevant portion of the abovementioned opinion (annexed this document sub “E”), as
presented by Professor Massari himself at the meeting of the Board of Directors held on March 21,
2016, are transcribed below: «Professor Massari prefaced his remarks by stating that, after reviewing the copious
documents that he received, he became convinced that in order to provide a useful contribution in support of the
Committee’s assessments, it was indispensable to carry out a simplification process, with the aim of focusing only on the
fundamental issues.
In that regard, he reviewed all of the documents transmitted to him, he focused on the “primary” documents,
which include the vendor due diligence (and the reports related to it) and Mediobanca’s fairness opinion, and the most
recent company documents (specifically, the business plan assessments by Bain & Co. and the documents produced in
2015, with special emphasis on the legal opinions provided by Professors De Nova and Montalenti, which originated the
assignment entrusted to him).
The work carried out by Professor Massari intends, on the one hand, to provide an answer to the fundamental
question as to whether or not the assumptions underlying the data contained in the vendor due diligence are reasonable
and, on the other hand, to provide a critical commentary of the work performed by the Committee. Specifically, the subject
of the question asked of Professor Massari was “a technical-corporate opinion for the purpose of confirming the analyses
performed by the Internal Control, Risk Management and Corporate Governance Committee with regard to ascertaining
whether or not the assumptions underlying the prospective data contained in the Vendor Due Diligence prepared by Ernst
& Young were reasonable.” This review, in his opinion, must take into account the analysis performed by the committee
with regard to LAG’s valuation. Moreover, the remarks set forth in the “Focus LAG” document do not constitute a true
valuation but merely an exercise aimed at understanding ex post if there existed the conditions for performing more in-
depth analyses regarding the reasonableness of the assumptions underlying the prospective data contained in the vendor due
diligence.
That said, Professor Massari pointed out that the LAG acquisition constitutes a transaction for the relocation of
assets within the BSA Group. Technically, it involves a transfer of intercompany flows, in itself absolutely normal and
22
legitimate, but which requires a certain degree of caution due to the fact that the buyer (Parmalat) is a company listed on
the stock exchange and, consequently, transfers of value that could penalize Parmalat’s minority shareholders must be
avoided.
As a result, the use of the multiple method does not seem appropriate, because a sample of perfectly comparable
transactions might not be available. Because the transaction is an intercompany transaction, the net present value of the
flows that are being transferred with the transaction in question becomes significant. Consequently, it should be valued with
the discounted cash flow (“DCF”) method developed by using the reference parameters of the group to which the company
belongs, adjusting in part those parameters, when risk issues are present.
Specifically, in the case of transactions that take place within a group it is not always possible to determine a
convincing market value. This is because often the assets being transferred present characteristics that limit the number of
potential buyers (from the viewpoint of the seller) or the number of comparable target companies (from the viewpoint of the
buyer).
In this regard, Professor Massari pointed out that while it is true that the primary subject of this review was the
reasonableness of the assumptions underlying the prospective data contained in the vendor due diligence, it is also true that
an analysis that seeks to explain the sources of the value of the transferred asset can help rationalize the review of the
reasonableness of the abovementioned assumptions.
It is in fact complicated to perform ex post analyses concerning the reasonableness of prospective data because there
is always the risk of falling into the psychological distortion of “Monday morning quarterbacking,” when, instead, it is
well known, based both on the scientific literature and practice, that such analyses must be carried out rigorously with an
ex ante logic. This means that the reasonableness of the assumptions underlying the plan can be evaluated exclusively
based on the information available at the time when the plan was constructed.
As for the requirement of the reasonableness of the assumptions, Professor Massari pointed out that from a
methodological standpoint, in his report he made reference to Italian Valuation Principles (IVP) and the International
Standard of Assurance Engagement (ISAE) 3400 "The Examination of Prospective Financial Information" published
by the IFAC - International Federation of Accountants.
In his opinion, these principles must be viewed within the framework of the company’s organization and the
reality of the business subject of the plan.
Specifically, the conditions that help qualify the reasonableness of a plan have to do with the fact that
assumptions:
a) must not appear to be misaligned compared with the microeconomic and microfinancial parameters supplied by
authoritative sources;
b) must not appear to be misaligned compared with the dynamics projected in the target markets;
c) must be compatible with the behaviors that competitors are expected to adopt consistent with rational analyses;
d) must be compatible with the company’s tangible, intangible and management resources;
e) must be compatible with the ability to gather the financial resources needed for the plan.
23
Consequently, a simple classification of business plans can be developed, making a distinction between (i)
technically incorrect plans; (ii) plans with obvious inconsistencies; (iii) plans with particular implementation difficulties
(often these plans are defined as “challenging” or “ambitious”). The business plan contained in LAG’s vendor due
diligence falls within the last category.
The problem inherent in category (iii) has to do mainly with the structural cyclicality and volatility of the price of
raw milk.
Therefore, even though over the medium-term LAG has proven that it is capable of maintaining specific average
EBITDA values, even in the face of said volatility, there is no doubt that in the years adversely affected by the cycle of raw
milk prices, as was the case in 2014, consequences arise that could delay the plan’s objectives or adversely affect certain
objectives.
That said, LAG’s strategy according to the plan – aimed at developing and leveraging the strength of its brands
(which includes the migration of dairy products to the national Galbani brand) and strengthening the President brand for
deli products — is absolutely rational and supportable.
The achievement of the plan’s objectives requires overcoming some critical issues mainly related to the central role
played by investments in marketing and capex, which could be constrained or delayed by a negative trend for milk prices in
some years.
The analysis performed by Bain & Co., which Professor Massari calls objective and reliable, acknowledges that
this problem also affects LAG’s competitors and, thus, represents a structural characteristic of the sector in question.
Therefore, Professor Massari concludes stating:
- the plan in question was based on an acceptable strategy;
- there were elements capable of supporting this strategy, including in particular the strength of the two
abovementioned brands.
From an ex ante perspective, the plan does present some problems. Specifically, in an unfavorable context for the
procurement of raw milk, LAG, in order to defend its market share in the dairy segment, could have been forced to lower
prices. Moreover, the defense of margins through a policy of cutting marketing costs could have compromised the brand
migration strategy. These problems were confirmed by the market evolution during the period subsequent to the plan and
caused a delay in the achievement of the plan’s targets.
The foregoing comments refer to the 2012-2014 plan, contained in the vendor due diligence.
However, according to what Bain claims, in 2015 — a highly favorable year that offsets the unfavorable
situation of 2014 — the plan’s objectives were achieved to a certain degree and, specifically, Bain reports that the brand
migration process was completed.
In light of the foregoing remarks, Professor Massari believes that:
- the plan’s long-term strategic approach (leverage the value of the “strong” brands) is totally acceptable, as noted
also in the Plan Assessment produced by Bain & Co;
24
- the assumption that any unfavorable fluctuations in the cost of milk can be transferred to prices, sales volumes
remaining equal makes the plan challenging, since it would require a high ability to manage the market and
respond to the defensive policies that competitors may implement; however, the following must be considered:
o the vendor due diligence provides extensive and detailed information about the strategy underlying the
plan and the problems associated with the projections;
o there is a specific mention of the effects on margins of unfavorable fluctuations in the price of milk that
are not recoverable through increases in sales prices;
o these are problems that are typical of this industry and so well known that they can be discounted;
o in cases similar to the one being discussed here the quality of the information used to evaluate the
assumptions underlying the plan becomes particularly relevant; specifically, if the plan does more than
just provide action guidelines for management but also provides an information basis for determining a
given value or a given price, the information underlying the plan’s assumptions are expected to facilitate
the use of techniques to address uncertainty (sensitivity analysis, scenario analysis, Montecarlo
simulation and so on); in this regard, the VDD supporting documents appear to be sufficiently detailed;
o the completeness of the information must also be assessed in relationship to the recipient of the
information; in the case in point, the recipient is an operator in the milk sector.
Therefore, in Professor Massari’s opinion, there are no objective elements that justify claiming that the plan’s
projections contained in the VDD are unreasonable because, as stated by Bain & Co., LAG was able to maintain on
average, over the long-term, it’s margins of profitability. Secondly, the brand migration and margin protection strategy is
based on leveraging highly recognizable brands (Presidents and Galbani) with market strength.
Professor Massari’s report is based on data received until March 1, 2016, which is the date when he presented
the results of his work to the Committee.
Subsequently, additional data, such as the results of the impairment test and the actual LAG data, became
available. He reviewed these numbers as well, which confirmed the conclusions he had reached. Specifically, the results for
2015 are comparable to those projected for 2014, which confirmed a postponement of the plan’s target attributable to the
characteristics typical of the business in question. Moreover, Bain had already clearly indicated that 2014 should be
viewed as an exceptionally unfavorable year, while 2015 should probably be considered as a very favorable year.
It is also true that the evolution of LAG’s plans, from 2012 to today, shows as systematic downward revision of
the plan’s objectives. However, when looking at Bain’s latest Plan Assessment, the characteristics of strong growth that
could be found in the previous business plans is no longer present. Indeed, it often happens that plans are ambitious.
Nevertheless, in 2015, LAG reported EBITDA of more than 100 million, which makes it a business unit within
important cash flow generation and the ability to support such cash flow during less favorable market periods..» (pages
from 37 to 41 of the corresponding minutes).
25
As for the main condition mentioned in the opinions of the two abovementioned jurists
regarding the “unreasonableness” of the assumptions underlying the business plan, Professor Massari
reached the conclusion that: «there are no objective elements that justify claiming that the plan’s projections contained
in the VDD are unreasonable because, as stated by Bain & Co., LAG was able to maintain on average, over the long-
term, it’s margins of profitability. Secondly, the brand migration and margin protection strategy is based on leveraging
highly recognizable brands (Presidents and Galbani) with market strength.» (page 41of the corresponding
minutes).
4.3.9 Following the completion of the presentation by Professor Massari and the
ensuing discussion, the Chairperson of the Board of Directors, also at the meeting of March 21, 2016,
acknowledged that the Internal Control, Risk Management and Corporate Governance Committee had
not «delivered to the Board of Directors its opinion to complete the extensive and detailed effort launched almost a year
and half earlier in connection with the LAG transaction,», specifying that «this opinion is mandatory in order to allow
the Board of Directors to adopt a resolution with regard to this issue. The Chairperson also pointed out that he asked
Professor Perotta to submit this opinion with an email that should have been sent the past Thursday. Consequently, the
Board of Directors, on that occasion and in accordance with the required procedure for related party transactions could only
acknowledge being cognizant of the exhaustive presentation provided by Professor Massari and asked the Committee to
submit a written and reasoned opinion to conclude its activity. Once the Board of Directors receives this opinion, it will
meet again to adopt the relevant resolutions.» (page 51 of the corresponding minutes).
The Committee Chairman then declared that «he concurred with the Chairperson about the need to
formalize the conclusions of the Committee on the issues at hand at the next Committee meeting, already scheduled for the
next day at 5:30 PM.» However he also raised a series of issues, that became the subject of an extensive
discussion, concerning mainly the fact that within the Committee different positions had developed
among its members «regarding the interpretation of how the work of the Committee should proceed.» (pages 52 and
53 of the corresponding minutes).
4.3.10 At the meeting of March 22, 2016, after the Chairperson of the Board of
Directors repeated his request that the Committee delivered its opinion (12), the Committee approved,
by majority vote, the text of the “opinion” prepared by its president, which is transcribed below:
«The Internal Control, Risk Management and Corporate Governance Committee (“the Committee”), with
regard to the investigative activity carried out at the request of the Board of Directors for the purpose of
assessing the possibility of enforcing the contractual clauses contained in the LAG sales agreements, with the
(12) The following occurred: «Ms. Chersicla, Chairperson of the Board of Directors took the floor to repeat a request to receive the
Committee opinion in completion of the assigned investigative task. She pointed out that the Committee was required to provide the opinion pursuant to the Procedure for Related Party Transactions. She then emphasized that any dispute with the majority shareholders must be well motivated since the company would incur costs that could be substantial.» (page 158 of the corresponding minutes).
26
aim of protecting the Company’s interest;
— given the legal opinions rendered by Professor Giorgio De Nova (at the request of the Chairperson of the
Board of Directors) and Professor Paolo Montalenti (at the request of the Board of Directors, or proposal
by the Committee);
— taking into account the information provided in the report submitted by the Committee to the Board of
Directors on December 22, 2015;
— given the subsequent technical-corporate opinion rendered by Professor Mario Massari (at the request of
the Board of Directors, on a proposal by the Committee);
BEING COGNIZANT
of the assessment provided by Professor Mario Massari about the absence of the conditions for considering as
technically “unreasonable” the assumptions underlying the construction of the business plan included in the
vendor due diligence prepared by E&Y;
BEING ALSO COGNIZANT
of the fact that the detailed opinion provided by Professor Mario Massari, which confirmed to large extent
the validity and the accuracy of the methodology applied to the work performed by the Committee,
nevertheless points to several problems with regard to the business plan and its underlying assumptions, as
well as the qualification of the entire transaction not as a related party transaction but as a reallocation of
assets within the group in accordance with a guidance and coordination logic;
REMITS
to the Board of Directors the decision whether it would be appropriate to make the decision as to whether or
not the activation of any action for compensation or indemnification based on the abovementioned
contractual clauses conditional on a further review of a legal nature — possibly entrusted to Professor Paolo
Montalenti, author of the latest legal opinion in this regard — to be carried out taking into account the
conclusions of the opinion rendered by Professor Mario Massari;
ASKS
the Board of Directors to also consider, with due care, the possibility of carrying out additional verifications,
with the aim of determining if there exist the conditions for activating actions for compensation or otherwise
designed for the Company’s protection, based not on the contractual clauses but rather on the remedies
available under the law, specifically with regard to those provided in the area of guidance and coordination
pursuant to Articles 2497 and subsequent articles of the Italian Civil Code, taking into account the
absence of a declaration of the existence of a unified management at the time the facts occurred and the
different findings of the documents and investigating activity that arose on the occasion of the complaint filed
with the Board of Statutory Auditors pursuant to Article 2408 of the Italian Civil Code, a copy of which
was delivered to the members of the Committee (pages 160 and 161 of the corresponding minutes).
27
This opinion was approved by the Committee with the favorable vote of its Chairman Riccardo Perotta and
the Director Umberto Mosetti. The Director Nicolò Dubini cast a dissenting vote.» (page 165 of the
corresponding minutes).
For the sake of full disclosure, the reasons for the dissenting vote cast at the Committee
meeting by a Committee members are reproduced below as they were stated by the dissenting member
at the Board meeting of March 30, 2016, reasons that were not listed in the “opinion” delivered to the
Board of Directors.
«1) on March 14, 2016, the Director Nicolò Dubini concurred with the statement of the Committee
Chairman, listed in the minutes of the meeting of the Board of Directors of February 18, 2016, according
to which “if the third parties whose services were retained by the Board of Directors should conclude that the
requirement of the reasonableness of the prospective data underlying the construction of the business plan on
the basis of which LAG’s value was determined could be met, no tools would be available to claim any
indemnification from the counterparty,” therefore concluding that this was the Committee’s final position,
albeit contrary to the opinion of Professor Mosetti;
2) on today’s date [i.e., March 22, 2016], the Chairman took a different position submitting the current
prepackaged opinion. […] However, the “opinion” is not an opinion but a simple remission to the Board of
Directors of the decision whether or not an umpteenth legal opinion is necessary. This circumstance is
particularly serious, not only because it confirms the Committee’s lack of independence deriving from the
method followed and the difficulty it faces in disregarding the preliminary position stated at the meeting of
the Board of Directors of December 22, 2015, despite the fact that this position was rejected by the expert
chosen by the Committee, but because it constitutes a failure to perform the task assigned by the Board of
Directors and satisfy the requests repeated by the Board of Directors at the meetings of March 18 and 21,
2016, as well as those received from the Consob;
3) moreover, this failure cannot be justified in light of the fact that, based on the legal opinions rendered by
Professors De Nova and Montalenti and the opinion of Professor Massari, there existed all of the elements
necessary for concluding that the requirement of lack of reasonableness cannot be met with regard to the
assumptions underlying the prospective data contained in the Vendor Due Diligence prepared by Ernst &
Young and consequently, the conditions required to enforce the contractual guarantee contained in the LAG
sales agreement versus the Seller cannot be met. It is also worth mentioning that Professor Massari, in
discussions at meetings of the Committee and the Board of Directors held on March 21, 2016, also
excluded the occurrence of the damage in light of the results of the latest impairment test approved by the
Company with Bain’s support;
4) the Committee’s “opinion” provides an incorrect reading of the opinion rendered by professor Massari,
who (i) does not appear to have rendered an opinion about the “validity and accuracy of the method followed
28
by the Committee in its work,” (ii) did not detect “significant” problems with the business plan but rather
the usual problems in plans of this type, expressly excluding that these problems invalidate the assessment
that the assumptions underlying the plan are reasonable (see Section 9.12 on page 44 of his opinion) and
(iii) while having concluded that the acquisition of LAG constitutes a “reallocation of assets within the
group,” did not “qualify the entire transaction as a transactions between independent parties … in
accordance with a guidance and coordination logic”;
5) the “request” that concludes the Committee’s opinion is totally unorthodox and is not part either of the
attributions or the functions of the Committee, particularly in the case of an issue in which the Board of
Statutory Auditors is directly involved.”
According to Mr. Dubini, it is quite obvious that the Committee has no intention of defining the
abovementioned opinion but is attempting to postpone indefinitely the performance of this task which it is
required to perform by virtue of the resolutions adopted by the Board of Directors (pages 66 and 67 of
the minutes of the Board of Directors meeting of March 30, 2016).
4.3.11 At a subsequent meeting of the Board of Directors held on March 30, 2016, the
Committee Chairman, in response to the objections raised by the Chairperson of the Board of
Directors for the fact that the document submitted «did not constitute an opinion by the Committee for Related
Party Transactions, prepared in accordance with the requirements of the corresponding procedure,» stated that «the
opinion in question was in reality provided by the Internal Control, Risk Management and Corporate Governance
Committee.» He then also stated that, in his opinion, the Committee for Related Party Transactions «had
never been involved in this issue, as all requests regarding it were addressed to the Internal Control, Risk Management
and Corporate Governance Committee» (pages 62 and 63 of the corresponding minutes). Lastly, further to
the objections raised by the Chairperson and the ensuing discussion regarding the qualification for
enforcing (or not enforcing) the LAG contractual guarantees in a related party transaction —
qualification questioned by the Committee Chairman and one of its members — the Committee
Chairman stated that «if this was the requests of the Board of Directors, he pointed out that, for the purpose of issuing
such an opinion, it will be necessary to obtain a legal opinion the need for which was emphasized by the Committee since
this past month of December» (page 76 of the corresponding minutes).
In the course of the meeting, among various speakers, the Chairman of the Board of Statutory
Auditors took the floor and, with regard to the “request” contained in the Committee document
regarding verifications about possible compensatory remedies alternative to those provided
contractually, stated the following: «Professor Rutigliano acknowledged that the issues regarding the LAG
acquisition were indeed discussed, debated and analyzed on various occasions, as mentioned by Ms. Vasco. But it would
also true that this issue was raised again due to the filing of a complaint pursuant to Article 2408 of the Italian Civil
29
Code by the shareholder Amber Capital. As a result of this complaint, the Board of Statutory Auditors, as mandatorily
required, is proceeding with the performance of the necessary verifications in order to render an opinion on this issue, at
least in part, as early as the next Shareholders’ Meeting. It is well known that the powers held by the Board of Statutory
Auditors are much more invasive and powerful than those attributed to individual Directors and, consequently, in this
phase the Board of Statutory Auditors has been working and will continue to work with all of the means at its disposal,
with the help of the Company’s organization, to study in depth the issues at hand. In view of these considerations,
Professor Rutigliano indicated that he did not believe it would the appropriate at this point for the Board of Directors and
the Committee to reopen the more general issue (regarding whether the requirements could be met for activating actions for
compensation, or otherwise intended to protect the Company, that are not based on contractual clauses but rather on legal
remedies) until the Board of Statutory Auditors concludes its review activities. Moreover, the task of the Board of
Statutory Auditors is not to absolve of convict, but rather to ascertain the facts based on the information it will obtain.
Consequently, while the Board of Statutory Auditors cannot impede the initiatives of Directors, it recommends that all
analyses of the abovementioned more general issue be temporarily suspended, while waiting for the Board of Statutory
Auditors to complete its review.» (page 74 of the corresponding minutes).
The Chairman of the Board of Statutory Auditors also address the issue of the qualification for
enforcing the contractual guarantees in a related party transaction, stating the following: «Professor
Rutigliano, speaking on behalf of the Board of Statutory Auditors, expressed the opinion that an assessment as to
whether or not the requirements can be met to enforce the guarantee provided by Clause 5.24.3 of the Share Purchase
Agreement concerns a transaction with a related party. Moreover, even if there were elements of uncertainty in this regard,
a conservative approach would recommend the adoption of the more restrictive and conservative interpretation. In view of
these considerations, the Board of Statutory Auditors believes that the question at hand concerns not just a transaction
with a related party but actually a transaction with the utmost related party, i.e., the parent company» (page 78 of the
corresponding minutes).
The Board of Directors, with the favorable votes of all of its members (including the
Committee Chairman) and the dissenting vote of a Director and Committee member, resolved, as
mentioned above: «to qualify the assessment as to whether or not the conditions could be met to enforce the guarantee
clauses contained in the Share Purchase Agreement of May 29, 2012, the subject of which was the acquisition of LAG,
as a highly material related party transaction for the effects of the Regulation adopted by the Consob with Resolution No.
1722 of March 12, 2010, as amended.» (page 80 of the corresponding minutes).
In addition, the Board of Directors unanimously resolved «to authorize the Chairperson of the Board
of Directors to entrust to Professors Giorgio De Nova and Paolo Montalenti the assignment of preparing a joint opinion
as to whether or not the requirements can be met to enforce the guarantee provided by Clause 5.24.3 of the Share Purchase
Agreement, taking into account the corporate issue opinion rendered by Professor Mario Massari with regard to
30
ascertaining whether or not the assumptions underlying the prospective data contained in the Vendor Due Diligence are
reasonable.» (page 80 of the corresponding minutes).
4.3.12 Professors De Nova and Montalenti rendered their opinion on April 7, 2016,
annexed to this document sub “F,” stating the following: «In conclusion, it being understood that any questions
concerning any abuses in guidance and coordination are outside the scope of our opinion, we believe that, in light of
Professor Massari’s opinion, the assumptions are not unreasonable and, consequently, there is no basis for a compensation
or indemnification claim for damages caused by unreasonable prospective information (see Clause 5.24.3) beyond what
was already settled with the Price Adjustment Agreement.»
4.3.13 On April 11, 2016, the Committee — which up until that point had always met
and always adopted all resolutions in a single context, whether or not they involved related party
transactions — held two separate meetings, one in the capacity as Internal Control, Risk Management
and Corporate Governance Committee and the other one in the capacity as Committee for Related
Party Transactions.
During the first meeting it approved an opinion with the following text, as offered by its
Chairman:
«The Internal Control, Risk Management and Corporate Governance Committee (“the Committee”), with
regard to the investigative activity carried out at the request of the Board of Directors for the purpose of
assessing the possibility of enforcing the contractual clauses contained in the LAG sales agreement, with the
aim of protecting the Company’s interest,
- being cognizant of the legal opinions rendered by Professor Giorgio De Nova (at the request of the
Chairperson of the Board of Directors) and Professor Paolo Montalenti (at the request of the
Chairperson of the Board of Directors, upon a proposal by the Committee);
- taking into account the content of the report provided by the Committee to the Board of Directors on
December 22, 2015
- being cognizant of the subsequent technical-corporate opinion rendered by Professor Mario Massari (at
the request of the Chairperson of the Board of Directors, upon a proposal by the Committee);
BEING COGNIZANT
of the assessment provided by Professor Mario Massari about the absence of the conditions for considering as
technically “unreasonable” the assumptions underlying the construction of the business plan included in the
vendor due diligence prepared by E&Y, even though this opinion confirms the validity and correctness of the
methodology followed by the Committee in his work and qualifies the entire transaction not as a transaction
between independent parties but as a reallocation of assets within the group consistent with a guidance and
coordination approach;
31
BEING ALSO COGNIZANT
of the joint opinion rendered by Professors De Nova and Montalenti, which confirms from a legal standpoint
the conclusions reached by Professor Massari with regard to the contract clause contained in Article 5.24.3;
RENDERS THE OPINION
that the contractual requirements for enforcing the clause contained in Article 5.24.3 of the LAG sales
agreement cannot be met and, consequently, recommends that the Board of Directors adopt the necessary
resolutions and
ASKS
the Board of Directors to also consider, with appropriate care, the opportunity of carrying out additional
verifications, with the aim of determining if there exist the conditions for pursuing actions for compensation to
or otherwise designed for the Company’s protection, based not on the contractual clauses but rather on the
remedies available under the law specifically with regard to those provided in the area of guidance and
coordination pursuant to Articles 2497 and subsequent articles of the Italian Civil Code, also in relation to
the complaint pursuant to Article 2408 of the Italian Civil Code filed with the Board of Statutory Auditors
on March 7, 2016 and forwarded for their information to all Directors, taking also into account all of the
findings that the Board of Statutory Auditors will deliver.
This opinion was approved with the favorable vote of Chairman Perotta and Director Mosetti. Director
Dubini approved the opinion limited to the part concerning the inability to meet the contractual requirements
for enforcing the clause contained in Article 5.24.3 of the LAG sales agreement for the reasons put forth on
multiple occasions, which shall be deemed to have been cited in full here by reference.» (pages 170 and 171
of the corresponding minutes).
At the second meeting, the Committee resolved by majority vote: «to ask Professor Paolo
Montalenti, who is being given nunc pro tunc mandate to contact Professor Giorgio De Nova to verify his availability to
undertake the assignment detailed below together with Professor Paolo Montalenti, to prepare a report in response to the
following question: «Can the designated expert indicate whether the transaction [not the enforcement of the contractual
guarantee] falls within the implementation scope of the Procedure for Related Party Transactions, considering the remarks
put forth in the introduction, and whether the transaction qualifies as a highly material transaction, in view of the fact
that, on the one hand, the transaction could qualify as a development of a highly material transaction (the LAG
acquisition) and, on the other hand, the valuations provided in Professor Mario Massari’s report provide evidence of a
discrepancy significantly below the reference threshold for highly material transactions and equal to 100 million euros. If
the Procedure for Related Party Transactions is applicable, what should be the subject and scope of the analysis that the
Committee is required to perform to better identify and substantiate Parmalat’s corporate interests, as well as: (a) if the
decision not to enforce the clause contained in the LAG sales agreement, specifically with regard to Clause 5.24.3 of the
abovementioned agreement, could be deemed to be in the Company’s interest; (b) if there are, and what are they, any
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additional contractual and/or legal remedies that can be activated to protect the Company’s interest, also in light of any
facts potentially relevant pursuant to regulations governing guidance and coordination activities, as referred to in Article
2497 and following articles of the Italian Civil Code, and any issues recently raised in the complaint pursuant to Article
2408 of the Italian Civil Code filed on March 7, 2016 with the Board of Statutory Auditors and forwarded for their
information to all Directors, taking also into account the findings that the Board of Statutory Auditors will provide.»
(pages 189 and 190 of the corresponding minutes).
4.3.14 At the meeting of April 14, 2016, the Board of Directors took cognizance of
these two resolutions and, pointing out that the opinion pursuant to the procedure required for related
party transactions had not been rendered, did not adopt resolutions on the issue at hand, except for
approving, by majority vote, a press release aimed at supplementing the financial disclosures provided
with regard to the verifications made regarding the enforcement of the contractual guarantees
contained in the Share Purchase Agreement.(13)
4.3.15 Subsequently to the election of a new Board of Directors by the Shareholders’
Meeting of April 29, 2016, the Committee in its current composition took over responsibility for these
issues and met to review them on June 13, 2016, June 27, 2016 and July 19, 2016.
At the first meeting, it gathered all of the documents mentioned in the list annexed sub “A” and,
after having jointly «obtained cognizance of the resolution adopted by the Board of Directors on March 30, 2016, cited
at the beginning of the meeting, fully concurring with all of the conclusions reached by the Board of Statutory Auditors and
Directors in this regard at the abovementioned meeting and based on the considerations developed by the Chairman and
the assessments expressed by the Committee members at the meeting,» (page 1 of the corresponding minutes) in
light of the considerations stated at the beginning of this opinion, unanimously resolved «to revoke the —
based on the knowledge of the resolution adopted by the Board of Directors on March 30, 2016 and for the motivations
provided just now in support of considering the issue of the enforcement, or non-enforcement, of the guarantee provided by
Clause 5.24.3 of the Share Purchase Agreement of May 29, 2012, the subject of which was the transfer of the entire
share capital of LAG, as falling within the scope of the implementation of the Company’s Procedure Governing Related
Party Transactions — the resolution of the Committee for Related Party Transactions of April 11, 2016, in the part in
which it assigned to the designated expert the task of rendering an opinion on the following question: whether the
transaction [non-enforcement of contractual guarantees] falls within the scope of implementation of the Procedure
Governing Related Party Transactions,» thereby revoking the engagement assigned in this regard, to the best of his
(13) As mentioned earlier in this document, these developments were also addressed by the regulatory authority,
which on multiple occasions asked the Board of Directors to complete its analyses on this issue and report the findings in its Report on Operations. Most recently, the Consob requested information about this transaction by communication dated April 28, 2016, to which the Company responded with a letter dated May 9, 2016, providing the Consob with the minutes of Committee meetings and the relevant meetings of the Board of Directors, plus the opinions reviewed on those occasions, within an addendum sent on July 7, 2016, with additional minutes of meetings.
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knowledge, on April 18, 2016 to Professors Giorgio De Nova and Paolo Montalenti,» as well as «to suspend, at this
stage, notwithstanding the different subsequent determination adopted by the Committee further to the activity planned as
above, the remaining part of the resolution adopted by the Committee for Related Party Transactions on April 11, 2016,
thereby suspending the effectiveness of the engagement assigned in this regard, to the best of his knowledge, on April 18,
2016 to Professors Giorgio De Nova and Paolo Montalenti and ask the Chairman to communicate this resolution to
Professors Giorgio De Nova and Paolo Montalenti.» (pages 3 and 4 of the corresponding minutes).
At the second meeting, a consensus was reached about the completeness and exhaustiveness of
the supporting documentation supplied.
On July 19, 2016, the Committee, consequently and for the sake of consistency, revoked the
remaining part of the resolutions adopted on April 11, 2016 regarding the request for a new, further
legal opinion. On that occasion, the Committee also acknowledged that it was aware of the
circumstance, already mentioned above, that Amber Capital UK LLP by a complaint dated March 7,
2016, pursuant to and for the purposes of Article 2408 of the Italian Civil Code, reported facts that it
deemed objectionable with regard to the LAG acquisition under different profiles (conduct of the
Board of Directors; guidance and coordination activities by BSA over Parmalat; cash pooling
transaction; purposes of the Acquisition transaction; marketing expenses; LAG’s value and
negotiations; valuation of synergies; commercial agreements) with the Company’s Board of Statutory
Auditors, which submitted an initial report to the Shareholders’ Meeting on April 29, 2016, reserving
the right to conduct further activities. In this regard, however, the Committee believes, on the one hand
and from a formal standpoint, not differently from the considerations made with regard to letter (b) of
the question addressed to Professors De Nova and Montalenti, that a review of the complaint filed by
Amber Capital is beyond the scope of the activities entrusted to the Committee by the Board of
Directors for the purpose or rendering this opinion and, anyhow, that with regard to the
abovementioned complaint the Committee lacks any unofficial procedural power, as well as any other
power to initiate actions; on the other hand and from a substantial standpoint, that it should fully
concur, together with the majority of the Board of Directors, with the recommendation made to the
Directors by the Board of Statutory Auditors at the meeting of the Board of Directors of March 30,
2016 «that all analyses of the abovementioned more general issue [i.e., and the contents of the complaint
pursuant to Article 2408 of the Italian Civil Code filed by Amber Capital] be temporarily suspended, while
waiting for the Board of Statutory Auditors to complete its review». (14).
(14) Also the Committee Chairman in office at the time of those “requests” at a meeting of the Board of Directors
on April 14, 2016 stated the following: «Professor Perotta specified that, in his opinion, the Committee did not intend to disregard the opinion of the the board of Statutory Auditors according to which, the Board of Directors must eventually address the issues set forth in the complaint filed by the shareholder Amber Capital pursuant to Article 2408 of the Italia Civil Code, following the conclusion of the review that the Board of Statutory Auditors will perform with regard to this issue.» (page 135 of the corresponding minutes).
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5. Assessments and conclusions
Within the framework outlined thus far of the evermore complex and structured transaction
involving the sale of LAG by Lactalis to Parmalat, the analyses performed by Professors De Nova,
Montalenti and Massari appear to be reasonable from a factual, technical and argumentative standpoint
and the conclusions that they reached completely acceptable: (also) by the unanimous opinion of this
Committee there appears to be no basis for exercising the rights deriving from the clause stipulated in
Article 5.24.3 of the Share Purchase Agreement executed on March 29, 2012 by B.S.A. S.A., Groupe
Lactalis S.A. and B.S.A. International S.A., on the one hand, and Parmalat s.p.a., on the other hand, the
subject of which is the transfer of the entire share capital of Lactalis American Group Inc. (in turn,
owner of the entire share capital of: Sorrento Lactalis Inc., Lactalis USA Inc., Lactalis Deli Inc.,
Mozzarella Fresca Incorporated, Lactalis Retail Dairy Inc., S.C.C. Properties Inc. and Lactalis Export
Americas SAS), Lactalis do Brasil – Comercio, Importação e Exportação de Laticinios Ltda and Lactalis
Alimentos Mexico S.deRL.; and, consequently, there is no basis for pursuing a compensation or
indemnification claim for damages caused by prospective information that was unreasonable pursuant
to and for the purposes of the abovementioned clause, in addition to what was already settled through
the Price Adjustment Agreement of May 30, 2013.
Having said this, it is now necessary to develop some final considerations about the nature and
importance of this opinion in terms of the Consob Regulation and the Procedure adopted by the
company, keeping in mind the absolute peculiarity of the “transaction – enforcement (or non-
enforcement) of a contractual guarantee clause” subject of the review.
As a rule, a negative opinion by the independent Directors with regard to the implementation of
a transaction with a related party — binding on the Board of Directors when the transaction is a highly
material transaction — is the result of an assessment of nonconformity of the transaction with the
criteria, as stated in the regulations, that it must be in the Company’s interest, its terms must be
advantageous and it must be substantially and procedurally fair. These nonconformities indicate a
potential danger of shielding private benefits from the control and preclusive effect of a negative
opinion — except for the potential effects of the whitewash system — and avoid an unjustified
prejudice for the issuer.
Now therefore, this so-to-speak “normal” configuration of the negative opinion and its
rationale do not seem to fit in our case: the valuation expressed above is not the result of identified
nonconformities of our “transaction – enforcement (or non-enforcement) of a contractual guarantee
35
clause” with the abovementioned criteria, but rather a perceived lack of justification from a technical
legal standpoint. It is true that from such lack of justification could result the dismissal of a possible
lawsuit and the resulting obligation to pay court costs (also in terms of aggravated liability, given the
knowledge deriving from the broad and in-depth investigative activity carried out) and, consequently, a
lack of interest and economic benefits in pursuing it.
Ultimately, for these reasons this Committee recommends to the Board of Directors, on the
one hand, to become cognizant of the content of this opinion; on the other hand, to conclude that the
issue of the enforcement of the rights arising from the clause stipulated in Article 5.24.3 of the Share
Purchase Agreement of May 29, 2012 is reserved for its jurisdiction and disposition, pursuant to Article
8, section 1, letter a) of the Consob Regulation.
Milan, July 19, 2016
(Piergiuseppe Biandrino) (Nicolò Dubini) (Angela Gamba)
Available only in Italian