| Thu 13 May 2004, 12:18 | | Introduction Of Empowerment Shareholders |
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African Life - Proposed Introduction Of Empowerment Shareholders And Withdrawal
Release Date: 13/05/2004 12:00:01 Code(s): AFI
African Life - Proposed Introduction Of Empowerment Shareholders And Withdrawal
Of Cautionary Announcement
African Life Assurance Company Limited
(Incorporated in the Republic of South Africa)
Registration number: 1911/003818/06
Share code: AFI ISIN code: ZAE000000246
("African Life" or "the Company")
PROPOSED INTRODUCTION OF EMPOWERMENT SHAREHOLDERS AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
INTRODUCTION
African Life shareholders are referred to the recently published cautionary
announcements, the last of which was published on 25 March 2004. African Life
has reached agreement with a consortium, consisting of certain of African Life"s
black business partners ("Partnerco") and Mvelaphanda Holdings
(Proprietary) Limited ("Mvelaphanda") and led by Mvelaphanda ("the consortium"),
to conclude an empowerment transaction that will result in the consortium
acquiring for cash, through Newco (Proprietary) Limited ("Newco"), new
redeemable preference shares representing 10% of the enlarged issued share
capital of African Life ("the BEE transaction").
In addition, African Life continues to work towards putting in place an Employee
Share Ownership Programme that will provide its entire staff with the ability to
meaningfully participate in the equity of African Life.
AFRICAN LIFE"S RATIONALE FOR THE BEE TRANSACTION
Since the early 1980s, African Life has been striving to mirror the society in
which it operates and thus position the Company such that its shareholders,
staff, customers and other stakeholders reflect, in time, the demographics of
South Africa. This objective was given further impetus prior to the African
Life initial public offering in 1990, when staff and policyholders were given
the opportunity to become shareholders in the Company. In 1994, a black
empowerment consortium led by Mr Don Ncube, acquired a 51% stake in African Life
from Southern Life Association Limited. This consortium subsequently formed Real
Africa Holdings Limited, resulting in African Life becoming the first JSE
Securities Exchange South Africa ("JSE")-listed insurance company with a
majority of its shares held by shareholders representing historically
disadvantaged South Africans ("HDSAs"). In 2000, as part of its strategy to
unlock shareholder value, Real Africa Holdings Limited unbundled its African
Life shares as a result of which African Life lost its empowerment status at
shareholder level.
African Life committed itself, at the Nedlac Financial Sector Summit in August
2002, to the development of a BEE charter, and was an active participant in the
writing of the Financial Sector Charter ("the Charter") that was published on 17
October 2003.
In developing and implementing its BEE policies, the Company"s strategy has been
to go above and beyond compliance with the Charter. African Life"s commitment
to empowerment can be seen from, inter alia, the following:
- In the 2004 Empowerdex survey, published in the Financial Mail in April
2004, on the comparative BEE status of JSE listed companies, African Life
was ranked second in both the employment equity and the skills development
categories in the financial services sector, which comprises a total of 20
companies;
- The market in which African Life operates comprises, in the main, HDSAs;
- African Life"s empowerment policies and employment equity ethos have been
in place for over a decade and are focused on creating the appropriate
environment to foster equity; and
- African Life has purposefully cultivated relationships with its business
partners, in particular, the black owned independent brokerages.
Importantly, these business partners are 35% equity owners in Newco. They
form a critical component of the empowerment consortium.
The BEE transaction progresses African Life"s BEE direct equity ownership
requirements.
A rigorous process has been followed by the Company in developing an appropriate
broad-based empowerment ownership strategy and in the selection of the
consortium members and its leader. This process included the establishment of
key criteria against which potential BEE partners could be evaluated, the
formation of a Board sub-committee comprising non-executive directors of African
Life to provide guidance to the management team in selecting the consortium and
the identification and evaluation of numerous BEE groups and personalities in a
transparent manner, prior to selecting the consortium.
In summary, it was agreed by the board that a BEE consortium would be formed,
which would be controlled by a leading broad-based empowerment group, and which
would include African Life"s key business partners such as black-owned brokers,
the Zion Christian Church ("ZCC") and the South African National Taxi
Association Council ("SANTACO"), which will be shareholders in Partnerco.
Mvelaphanda is a leading empowerment group in South Africa and brings with it
the key criteria identified by African Life as essential for the successful
implementation of its BEE policy.
THE CHARTER
On 17 October 2003, the Charter was released. This was the culmination of a
commitment made by the financial services sector in South Africa at the Nedlac
Financial Sector Summit in August 2002. As stated in paragraph 1.2 of the
Charter, the parties to the Charter commit themselves to "actively promoting a
transformed, vibrant and globally competitive financial sector that reflects the
demographics of South Africa, and contributes to the establishment of an
equitable society by effectively providing accessible financial services to
black people and by directing investment into targeted sectors of the economy".
The Charter includes guidelines on a number of areas, including, inter alia,
human resource development, procurement policies, corporate social investment
and ownership. In respect of ownership, paragraph 10.1 of the Charter requires
that a minimum of 10% has to be direct black ownership and African Life is
confident that the BEE transaction complies with the spirit and letter of the
Charter in this regard and that it is well positioned to meet the other criteria
set out in the Charter.
THE STRUCTURE OF THE BEE TRANSACTION
This information is available and illustrated in a graph form and can be viewed
in the press.
The consortium"s interest in African Life will be held through an intermediate
holding company, namely Newco. The BEE transaction will be implemented using the
following mechanics:
- African Life is to create a new class of share, namely the redeemable
preference shares.
- African Life will, following shareholder approval, issue by way of a
specific issue for cash, 13 050 781 redeemable preference shares at R2,00
each to Newco. Newco will procure the funding required for the subscription
of 13 050 781 redeemable preference shares at R2,00 each, totalling R26 101
562. Newco will be the beneficial and registered holder of the redeemable
preference shares. All the shareholders (direct and indirect) and directors
of Newco will be HDSAs and Newco will therefore qualify as a black company
for the purposes of the Charter.
- The redeemable preference shares will not be listed.
- Each redeemable preference share will have one option attached to it,
entitling the holder thereof to subscribe, on any option exercise date,
during the option period, for one African Life ordinary share in cash at
the option strike price of R18,00 per share. In the event that all the
options are exercised at the R18,00 option strike price, an amount of R235
million of capital will be raised and R26 101 562 will be repaid by way of
redemption proceeds.
- When the option attached to the redeemable preference share is exercised,
the redeemable preference share will be compulsorily redeemed at R2,00.
- Any options not exercised will lapse on the final option exercise date
(being the fifth anniversary date of issue of the redeemable preference
shares), and the redeemable preference shares will be redeemed with effect
on the final option exercise date at R2,00 per share.
The consortium, Newco and African Life will be parties to a shareholders"
agreement, regulating the consortium"s affairs as shareholders in Newco and
ensuring Newco remains HDSA controlled until 31 March 2011 ("the final date").
African Life, Newco and the consortium will enter into a relationship agreement
to protect both African Life"s and Newco"s rights under the BEE transaction.
THE CONSORTIUM
The consortium comprises of Mvelaphanda, Partnerco shareholders and Strategic
Partnerco shareholders, as illustrated in the above diagram.
Mvelaphanda
Mvelaphanda was established in 1998 and has emerged in a very short space of
time as a leading black managed, investment company, with broad based ownership.
Mvelaphanda"s primary focus is on the resources sector and it has a number of
strategic investments in the financial services, healthcare, property, transport
and technology industries.
Mvelaphanda has a diverse shareholder participation, which enables it to
contribute to the benefit of a constituency previously excluded from the
business sector.
Mvelaphanda has an inclusive philosophy towards empowerment and believes that
community participation is critical to its future success. Its shareholder
profile reflects its commitment to ensuring that grassroots communities benefit
from its assets and investments.
Partnerco shareholders
Partnerco shareholders comprise selected business partners of African Life who
qualify as HDSAs details of which are set out below:
Artwell & Associates M.J. Hlope & Associates
Benevolent Insurance Brokers M.P. Brokers
D.G. Sibiya Mabotja Insurance Brokers
D.J. Brokers Masutu Brokers
Epitomy Financial Services CC Matlala Brokers
Excel Healthcare Brokers Multi Properties
Felinko Broker Services N.A. Mhlongo & Associates
Gagasini Insurance Brokers Progressive Entity
Indyebo R.J. Insurance Brokers
Inyanda Investments SANTACO
Isinamva Brokers SECCAWU
J.M. Brokers T.T. Brokers
Jaco-Matt Financial Services Thabondle Investments
Kopanelo Financial Services Timir
Kwathu Insurance Brokers Universal
Liseko Strategic Investments Winnies Investments
Lukeans Insurance Brokers Kganya Benefits Fund Trust,
M.I.G.L. Insurance Brokers representing the ZCC
Strategic Partnerco
Shares in Strategic Partnerco will be sold and transferred to approved
business partners of African Life and other HDSA organisations as and when
they are identified in the future. Voting rights will initially be held by
Mvelaphanda.
SALIENT TERMS OF THE REDEEMABLE PREFERENCE SHARES
Issue price R2,00 per redeemable preference share in cash.
Dividend Cumulative preferential cash dividend ranking in priority
to any dividend declared in respect of any African Life
ordinary shares.
Dividend calculated on the subscription price of the
redeemable preference share at a rate of 72% (subject to
any change in law) of the prime overdraft rate charged by
Absa Bank Limited to its most favoured corporate customers
from time to time.
Due and payable six monthly in arrear on 30 September and
31 March of each year.
Options
- Option strike price Each redeemable preference share confers on its holder
the right and option to subscribe for one new African
Life ordinary share at the option strike price.
- Option period and
option exercise dates Options may be exercised at certain specified times
during the option period (being the period commencing
on the first business day after the third anniversary
of the date of issue of the redeemable preference
shares and ending on the fifth anniversary of the date
of issue) namely on 1 March, 1 June, 1 September or
1 December of each year or if that day is not a
business day, the immediately succeeding business day;
if that day falls within an African Life "closed
period" defined as such in the JSE Listings
Requirements ("Listings Requirements"), the first
business day immediately following expiry of the
relevant closed period, which day immediately follows
the receipt of the notice in terms of which the options
are exercised or by the board of African Life.
- Lapse of options Options not exercised by the fifth anniversary of the
date of issue will lapse.
- Listing of shares issued
pursuant to the
exercise of the options African Life will apply for the listing on the JSE of
the shares issued pursuant to the exercise of the
options.
Redemption
- Redemption dates The redeemable preference shares are automatically
redeemable subject to compliance with the requirements
of the Companies Act, on the deemed effective date in
respect of the option which has been exercised or on
the fifth anniversary of the date of issue when the
option lapses on the basis that:
- if the option is exercised, then the underlying
redeemable preference share is redeemable on the next
option exercise date; or
- if the option lapses, it is redeemable on the date
the option lapses.
- Redemption price Redeemable by African Life at R2,00 per redeemable
preference share in cash.
Transfer of redeemable
preference shares The redeemable preference shares can only be
issued/transferred to HDSAs reasonably acceptable to
the African Life board.
Ranking pari passu with
African Life ordinary shares Save for the special rights attaching to the
redeemable preference shares (as regards
dividends, redemption and the options), each
redeemable preference share shall rank pari passu
with each African Life ordinary share in all
respects and in particular holders shall have the
same rights as the holders of African Life
ordinary shares as regards voting, notices,
rights issues and any restructuring of African
Life and/or its capital.
SALIENT TERMS OF THE RELATIONSHIP AGREEMENT BETWEEN AFRICAN LIFE, THE
CONSORTIUM AND NEWCO
Duration The relationship agreement will endure from the
signature date until the final date or such later
date as agreed between the parties to the
agreement.
Subscription by Newco for
redeemable preference shares Newco is to subscribe on the implementation date
for 13 050 781 redeemable preference shares at a
subscription price of R2,00 per share (total of
R26 101 562) in cash.
Rights of Newco to
nominate directors to the
board of African Life Newco is to have the right (for so long as it is
a shareholder of African Life) and provided that
it is not in breach of any of the material terms
of the relationship agreement and/or the
shareholders" agreement and/or Newco"s memorandum
and Articles of Association to nominate one
director to the board of African Life in respect
of each completed 10,0% (provided that if at any
time after the initial nomination (in respect of
which a full 10,0% is required) Newco"s
shareholding in African Life is diluted because
of African Life issuing additional shares or
other voting securities only, then such right
shall remain for so long as Newco holds at least
a complete 8,0%) holding of shares in the
enlarged issued share capital of African Life by
Newco.
Restrictions on sale or
encumbrance by Newco of
redeemable preference
shares Newco shall not sell or encumber any of the
redeemable preference shares it holds in African
Life prior to the final option exercise date,
except when it is done with African Life"s prior
written consent.
Restrictions on sale or
encumbrance by Newco of
African Life ordinary shares Newco shall not sell or encumber any African Life
ordinary shares issued to Newco, pursuant to the
exercise of options, prior to the final date
without the prior written consent of African
Life.
Exercise or lapse of
options/redemption of
redeemable preference
shares The Newco board will decide in its sole
discretion whether or not and when to exercise
the options.
On exercise or lapse of any option, African Life
will, on the relevant option exercise dates,
redeem the relevant redeemable preference share
at R2,00 each.
Newco will raise the funds necessary to pay the
option strike price in respect of options
exercised.
African Life will allot and issue the new African
Life ordinary shares to Newco (or its nominee -
being an eligible HDSA), against payment of the
subscription price in cash.
No listing of redeemable
preference shares or
Newco shares Until the final date none of the redeemable
preference shares nor the shares in Newco shall
be listed (directly or indirectly) on the JSE or
on any recognised exchange.
Support and co-operation Newco and the BEE groupings (as set out in the
paragraph above "The Consortium") agree at all
times to actively and willingly promote and,
where reasonably possible at the request of
African Life, assist African Life in protecting,
enhancing and promoting the business of African
Life and its subsidiaries.
Restraint Newco, for so long it is a beneficial shareholder
of African Life, and the BEE groupings, for so
long as they hold shares in Newco and for a
period of one year thereafter, are restrained
from concluding or participating in any similar
BEE transaction with any of the life assurance
related businesses of African Life"s competitor
groups as defined.
Breach If Newco and/or any of the BEE groupings commit a
material breach of the terms of the relationship
agreement and do not remedy the breach, a
compulsory offer by all of the Newco shareholders
(in the case of a Newco breach) and by the BEE
groupings and its relevant BEE groupings company
(in the case of a BEE groupings breach) of all
their Newco shares will be deemed to have been
made to HDSA SPV in terms of the shareholders"
agreement.
SALIENT TERMS OF THE SHAREHOLDERS" AGREEMENT BETWEEN NEWCO SHAREHOLDERS, NEWCO
AND AFRICAN LIFE
The shareholders in Newco and Newco have entered into a shareholders"
agreement amongst themselves regulating their affairs as shareholders in
Newco. African Life will be a party to the agreement until the final date for
the purposes of ensuring that Newco remains BEE controlled.
Duration The shareholders" agreement will endure from the
date of signature until the final date.
Business of Newco To acquire and hold up to 10% of the issued
voting shares on a fully diluted basis in African
Life, and no other assets or business.
Business of HDSA SPV HDSA SPV has been established as a special
purpose warehousing vehicle controlled by
Mvelaphanda for the purposes of ensuring through
the voluntary or compulsory pre-emption
mechanisms that Newco at all times prior to the
final date will constitute and remain an HDSA.
HDSA SPV has a period of six months after
acquiring any Newco shares pursuant to this, to
sell such shares to eligible HDSAs.
Restrictions on sale or
encumbrance by Newco
shareholders of Newco
shares Newco shareholders shall not be entitled prior to
the final date to sell or encumber Newco shares
unless:
- the Newco board approves the sale or
encumbrance;
- the relevant Newco shares are first offered to
HDSA SPV and the BEE groupings under the rights
of pre-emption;
- the sale or encumbrance is to an eligible HDSA.
Pre-emptive rights over
Newco shares No Newco shares may be sold or encumbered unless:
- they are first offered to HDSA SPV and the BEE
groupings, subject to the HDSA SPV and BEE
groupings not being entitled at any time prior to
the final date hold, together with their existing
Newco shares, directly or indirectly more than
75% of all issued Newco shares;
- residual shares not taken up by other
shareholders of Newco being offered to third-
party investors who are eligible HDSAs.
Compulsory offers of
Newco shares If a Newco shareholder prior to the final date
ceases to be an HDSA or commits a material breach
of the shareholders agreement, which is then not
remedied, then that Newco shareholder will be
deemed to have offered all of its Newco shares in
accordance with the rights of pre-emption
referred to above.
If Newco commits a breach of the agreements to
which it is a party and fails to remedy, then all
Newco shareholders will be deemed to have offered
all of their Newco shares to HDSA SPV.
Composition of the Newco
board The maximum number of Newco directors shall be
five.
Newco board powers and
duties The Newco board of directors shall manage Newco,
including, inter alia, the right to nominate
directors to the African Life board, the right to
vote any shares in African Life, the
responsibility to raise funding for the exercise
of options and the right to exercise options.
Right of Newco
shareholders to information Newco shareholders may inspect during business
hours the books of account and other books and
documents of Newco, at Newco"s registered office.
Status of African Life African Life is a party to the shareholders"
agreement until the final date and has only
rights (no obligations). African Life will cease
to be such a party (and its rights under the
shareholders" agreement will lapse) on the final
date.
STOCK EXCHANGE LISTINGS
All of African Life"s ordinary shares are listed on the JSE. The redeemable
preference shares shall not be listed.
Rule 4.24 of the Listings Requirements provides that "Where shareholders are
required to vote in terms of the Listings Requirements, the votes of
shareholders of unlisted securities will not be taken into account in
determining either a quorum or for approval of any resolution considered at any
general/annual general meeting". The redeemable preference shares will be
unlisted and accordingly, if the Listings Requirements were implemented under
normal circumstances, would not be able to vote at shareholder meetings on
matters that require a vote in terms of the Listings Requirements nor would such
redeemable preference shares qualify for the purpose of determining a quorum. In
the light of the BEE transaction being a meaningful BEE initiative by African
Life, the JSE has ruled for the purposes of the Listings
Requirements that, on the basis that current shareholders will not be diluted by
more than 10% of the present share capital as a result of the BEE transaction,
the:
- unlisted redeemable preference shares shall be entitled to voting rights
equivalent to those of the listed ordinary shares; but
- unlisted redeemable preference shares will not be taken into account for
determining any categorisation in terms of Section 9 (namely,
"Transactions") of the Listings Requirements.
EFFECTS ON AFRICAN LIFE AND AFRICAN LIFE SHAREHOLDERS
The authorised and issued share capital of African Life before and after the
creation of the redeemable preference shares and after giving effect to the
specific issue are as follows:
Before After After exercising
issuing the all the options (i.e.
redeemable after redemption
preference of the redeemable
shares preference shares
and subscription
of ordinary
shares)
R"m R"m R"m
Authorised
150 000 000 ordinary shares of
R0,10 each 15,0 15,0 -
13 050 781 redeemable preference
shares of R0,10 each - 1,3
163 050 781 ordinary shares of
R0,10 each - - 16,3
Issued
117 457 028 ordinary shares of
R0,10 each 11,7 11,7 -
A maximum of 13 050 781 redeemable
preference shares of R0,10 each - 1,3 -
A maximum of 130 507 809 ordinary
shares of R0,10 each - - 13,0
Share premium 425,3 425,3 657,9*
* assumed that ordinary shares are issued at R18,00 each and after share issue
expenses of R1 million.
Effect of the specific issue (and option) on African Life"s shareholders
In terms of the BEE transaction, 13 050 781 redeemable preference shares are
to be issued at R2,00 each. The holders of these shares have an option
attached to the redeemable preference share to subscribe for ordinary shares
at the relevant option strike price during the option period, as described
above. African Life has attributed a value to the option of R3,01 per
redeemable preference share, which translates to a total value for the options
of R39,3 million, being 2,3% of African Life"s market capitalisation of R1,69
billion (based on 117 457 028 African Life shares in issue and the volume
weighted average closing price for the five days ended 11 May 2004 of 1 437
cents per share).
The value of R3,01 was calculated using the widely accepted Binomial Pricing
Theory technique for pricing options, with the following assumptions:
Input Assumption
Style Bermudan option
Spot price 1 437 cents (being the five-day volume-
weighted average closing price on the JSE
up to 11 May 2004)
Strike price 1 800 cents
Exercise date 3 years from date of issue of the options
Expiry date 2 years from exercise date
Volatility to price the option 28,0%
Risk-free interest rate 11,0%
Dividend yield 5,0%
It should be noted that the value of the option will vary as the variable
assumptions set out above fluctuate during the life of the option.
Effect of the specific issue (and option) on African Life"s historical earnings
and net asset value per ordinary share
Set out below are the unaudited pro forma attributable earnings per share,
headline earnings per share, adjusted headline earnings per share, net asset
value per share and net tangible asset value per share for African Life firstly
after the specific issue of the redeemable preference shares and secondly after
redeeming the redeemable preference shares and issuing the ordinary shares,
prepared in compliance with the Listings Requirements. They have been prepared
for illustrative purposes only to show the effect of the specific issue and then
the effect of issuing the ordinary shares as if both events had occurred on 30
September 2003 (for balance sheet purposes) and 1 April 2003 (for income
statement purposes) and because of their nature, may not fairly present African
Life"s financial position and results of operations at 30 September 2003. The
unaudited pro forma financial effects are the responsibility of the directors
and are determined in accordance with the
Listings Requirements.
Before Pro forma Increase/ Pro forma after Increase/
after the (decrease) redeeming the (decrease)
specific redeemable
issue of the preference
redeemable shares and
preference issuing the
shares, but ordinary
before the shares in
exercise of terms of the
the options options
(cents) (cents) (%) (cents) (%)
Notes 1 2, 3, 6, 7 & 12 4, 5, 8, 9 & 12
Attributable
earnings
per share 83,9 78,0 (7,0) 74,8 (10,9)
Headline earnings
per share 87,2 81,3 (6,8) 77,7 (10,9)
Adjusted headline
earnings per
share (Note 12) 87,2 86,4 (0,9) 82,3 (5,6)
Net asset value
per share 1498 1493 (0,3) 1526 1,9
Net tangible asset
value per share 1457 1452 (0,3) 1489 2,2
Explanatory notes to the information above:
1. Extracted from African Life"s published interim results for the six months
ended 30 September 2003.
The adjustments below have been taken into account in arriving at the
amounts in the table above.
2. he specific issue of redeemable preference shares with a par value of 10
cent at R2,00 per share. The capital raised is allocated to debt in line
with AC133. The cash raised is applied to working capital.
3. Costs relating to the issue of the redeemable preference shares and
consultant"s fees are assumed to be R5,5 million. The cost is written off
against income.
4. The repayment of the long term debt associated with the redeemable
preference shares at R2,00 per share (refer note 2 above). The issue of the
maximum number of ordinary shares, being 13 050 781, in terms of the
options at an option strike price of R18,00, including a premium of R17,90
per share, assuming that all options are exercised. The cash redemption and
the capital raised are applied to working capital.
5. The cost of the issue of ordinary shares is assumed to be R1 million. The
cost is set off against share premium.
6. Interest earned on cash raised through the specific issue. It is assumed
that interest is earned at 6,7% before tax and that the interest received
is taxable. This adjustment is of a recurring nature, assuming that the
cash raised will be employed in the business. Ordinary shares may be
issued, in lieu of the options attached to redeemable preference shares, at
the option strike price from the third to the fifth years. Redeemable
preference shares will be redeemed by latest in the fifth year.
7. Redeemable preference shares are guaranteed a dividend calculated at 72% of
the prime rate charged by Absa Bank Limited to its most favoured corporate
customers from time to time. This adjustment is recurring in nature until
such time that the redeemable preference shares are redeemed.
8. Discontinuation of the cumulative dividend into the future as a result of
the redemption of the redeemable preference shares in terms of the option
to take up ordinary shares. It is assumed that all redeemable preference
shares are redeemed, which will be the case at the fifth year at the
latest.
9. Interest earned on cash raised through the issue of ordinary shares in lieu
of the options attached to the redeemable preference shares. It is assumed
that all options are exercised and that interest is earned at 6,7% before
tax and that the interest received is taxable. This adjustment is of a
recurring nature, assuming the cash raised will be employed in the
business.
10. The dilution effect of the specific issue of redeemable preference shares,
as a result of the potential exercise of the options attached thereto
resulting in the issue of ordinary shares from the third to the fifth year
and the redemption thereof at the end of the fifth year, is subject to the
future decisions by the preference shareholders. It can be expected that
options will only be exercised if the option strike price is lower than the
market price of the ordinary shares, implying a discount. The issue of
ordinary shares at a price lower than the market price will have a dilution
effect. The quantification of the dilution will depend on the size of the
implied discount of the option strike price in comparison to the market
price of the ordinary shares at the time. Therefore no dilutive effect has
been calculated for illustrative purposes.
11. The International Financial Reporting Standard on share-based payments
(IFRS 2) will be applicable to African Life for the financial year ending
31 March 2006. As IFRS 2 is not yet applicable to African Life and because
there is uncertainty regarding the application of IFRS 2 to BEE
transactions, the value of the options has not been accounted for in the
income statement. Depending on the final interpretation of IFRS 2 in
relation to BEE transactions, the value of the option of R39,3 million may
be accounted for in the income statement (either as a once off item or
spread over a period). In view of the effective date of IFRS 2, a portion
of this value may be reflected as an adjustment against opening retained
earnings depending on the final interpretation of the transition rules.
12. For illustration purposes, the share issue and consultants" costs have been
excluded from the adjusted headline earnings attributable to shareholders.
FAIR AND REASONABLE OPINION
In terms of the Listings Requirements, a fair and reasonable opinion from an
independent expert is required, detailing whether the terms and conditions of
the BEE transaction are fair and reasonable to African Life"s shareholders.
The African Life board of directors appointed EY Corporate Finance
(Proprietary) Limited ("EY Corporate Finance") to provide such a fairness
opinion. EY Corporate Finance has advised the board that it has considered the
terms of the BEE transaction, and that it is of the opinion that the BEE
transaction is fair and reasonable to shareholders as at the date of this
announcement.
DIRECTORS" OPINION AND RECOMMENDATION
The board believes the transaction to be fair and reasonable and in the best
interests of African Life.
The board unanimously recommends that shareholders vote in favour of the
resolutions to be considered at a general meeting to be convened specifically
for this purpose. In respect of their own holdings of African Life shares, the
African Life board members intend to vote in favour of the resolutions to be
presented at the general meeting.
SUSPENSIVE CONDITIONS
The implementation of the BEE transaction is subject to the fulfilment of the
following suspensive conditions:
- that the signed relationship and shareholder agreements become
unconditional in accordance with their terms;
- that shareholders" agreements in respect of each of Partnerco and Strategic
Partnerco have been entered into on terms to the satisfaction of African
Life and that such agreements have become unconditional;
- that, insofar as may be necessary, the JSE, Securities Regulation Panel and
the South African Reserve Bank gives unqualified and unconditional
approval, to the extent required, of the BEE transaction, or if such
approval is qualified or given subject to a condition, African Life
approves such qualification and/or condition in writing; and
- that the following resolutions are passed by the requisite majority of
African Life shareholders and that such resolutions are (to the extent
required) registered by the Registrar of Companies:
i) a special resolution to increase African Life"s authorised share
capital by 13 050 781 redeemable preference shares;
ii) a special resolution amending the articles of African Life to provide
for the terms and conditions attaching to the redeemable preference
shares; and
iii) resolutions in terms of Rule 5.68 of the Listings Requirements of the
JSE to approve the specific issue of the redeemable preference shares
for cash in terms of the BEE transaction.
The Registrar of Long-Term Insurance has approved the issue of the redeemable
preference shares to Newco, and has approved the terms of the redeemable
preference shares.
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT AND DOCUMENTATION
With the publication of the details of the BEE transaction, shareholders are
advised that caution is no longer required to be exercised by shareholders when
dealing in their shares.
A circular containing full details of the proposed BEE transaction, and
incorporating a notice of general meeting, will be mailed to African Life
shareholders in due course.
Houghton
13 May 2004
Independent financial adviser
Ernst & Young Corporate Finance (Pty) Ltd
(Registration number 2000/031575/07)
Independent reporting accountants
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants & Auditors
(Registration no. 1998/012055/21)
Transfer secretaries
Computershare Limited
(Registration number 2000/006082/06)
Merchant bank
ABSA
Corporate Finance
Absa Bank Limited
Reg. No. 1986/004794/06
Sponsor
Merrill Lynch
Global Markets & Investment Banking Group
Merrill Lynch South Africa (Pty) Ltd
Registration number 1995/001805/07
Registered Sponsor and Member of the
JSE Securities Exchange South Africa
Legal adviser to the transaction
WEBBER WENTZEL BOWENS
Corporate law advisers to African Life and to the transaction
Edward Nathan & Friedland
Corporate Law advisers & Consultants
(Registration number 1999/026464/07)
