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DISCOVERY - ISSUE OF SHARES FOR CASH FOLLOWING THE REDEMPTION OF PREFERENCE SHARES DISCOVERY HOLDINGS LIMITED (Incorporated in the Republic of South Africa) (Registration number : 1999/007789/06) ISIN: ZAE000022331 Share Code : DSY ("Discovery" or "the company") ISSUE OF SHARES FOR CASH FOLLOWING THE REDEMPTION OF PREFERENCE SHARES 1. Introduction Rand Merchant Bank is authorised to announce the details relating to the issue of a total of 12 811 590 Discovery ordinary shares to certain employees, over a three-year period ("the Issue"), in terms of an authority obtained from shareholders at the annual general meeting held on 15 November 2001 ("AGM"). 2. Background to the Issue Discovery Life Limited ("Discovery Life") was established in 2001. To attract and retain employees with the entrepreneurial spirit and commitment required for this new venture, Discovery Life implemented an arrangement to provide effective ownership of 15% of the new business to management and senior employees by the issue of redeemable preference shares. In June 2001, Discovery Life issued 1 500 000 preference shares of 1 cent each ("Preference Shares") to certain directors and employees of Discovery Life. The preference shareholders may opt to redeem their Preference Shares as follows: - one third of the Preference Shares on 30 June 2004; - one third of the Preference Shares on 30 June 2005; and - one third of the Preference Shares on 30 June 2006. Preference shares not redeemed on these dates may only be redeemed the following year. It will be compulsory for all preference shareholders to redeem their Preference Shares on 30 June 2006. On the redemption date, the preference shareholders will be required to invest the full amount of the redemption proceeds in Discovery ordinary shares. At the AGM, shareholders ratified the issue of these Preference Shares as well as the issue of Discovery ordinary shares after the compulsory redemption of the Preference Shares. Since the company"s inception, Discovery Life"s management team have created a business with tremendous value. Currently, Discovery Life insures the lives of over 137 000 people, and has created employment for nearly 500 people. The company"s annual revenue exceeds one billion Rand and so does the value of its in-force business. 3. Details of the Issue After following the rigorous process to value the Preference Shares, as set out in paragraph 5 below, it was determined that each Preference Share will be redeemed at a premium of R108.44. As described above, the preference shareholders are obliged to invest the amount received in new shares to be issued by Discovery. The issue price per Discovery ordinary share, for the purpose of determining the number of Discovery ordinary shares to be issued following the redemption of the Preference Shares, is R12.57. This is based on the volume weighted average share price of Discovery shares over the 30 trading days to 30 June 2004. Accordingly, a total of 12 811 590 Discovery ordinary shares will be issued after the redemption of the Preference Shares. The Discovery ordinary shares will be issued in three tranches as follows: - The first tranche of 4 270 530 shares was allotted and issued on 31 August 2004; - The second tranche of 4 270 530 shares will be allotted and issued on 30 June 2005; and - The third tranche of 4 270 530 shares will be allotted and issued on 30 June 2006. 4. Financial effects The financial effects presented below have been prepared for illustrative purposes only and because of their nature, may not give a fair reflection of Discovery"s financial position nor the effect on earnings going forward. _____________________________________________________________________ Actual Pro forma Increase/ Increase/ before the after the (Decrease) (Decrease)
Issue(2) Issue(1) (%) _____________________________________________________________________ Earnings per 83.0 80.9(3) (2.1) (2.5%) share (cents) Headline 80.5 78.4(3) (2.1) (2.6%) earnings per share (cents) Net asset value 474.6 493.7(4) 19.1 4.0% per share (cents) Tangible net 467.2 455.8(4) (11.4) (2.4%) asset value per share (cents) Weighted average 504 050 711 516 862 298 12 811 587 2.5% number of shares in issue _____________________________________________________________________ Notes: 1. The pro forma effects are based on the issue of 12 811 590 Discovery ordinary shares; 2. The "Actual before the Issue" column has been extracted from Discovery"s financial report for the year ended 30 June 2004; and 3. The pro forma earnings per share and headline earnings per share after the Issue represents the financial information of Discovery for the year ended 30 June 2004, adjusted for the redemption of the Preference Shares and the Issue based on the assumption that the redemption of the Preference Shares and the Issue was implemented on 30 June 2003. 4. The pro forma net asset value per share and tangible net asset value per share after the Issue represents the financial position of Discovery as at 30 June 2004, adjusted for the redemption of the Preference Shares and the Issue based on the assumption that the redemption of the Preference Shares and the Issue was implemented on 30 June 2004. Process and independent expert opinion The Discovery board completed a rigorous process to determine the redemption valuation for the Preference Shares. Deutsche Bank advised the board on the appropriate valuation methodology and factors to consider in arriving at the redemption valuation, based on the embedded values of Discovery and Discovery Life. The statutory actuaries of Discovery Life, QED Actuaries and Consultants (Proprietary) Limited, and the independent actuaries, PricewaterhouseCoopers Inc., reviewed the embedded value calculations, under the supervision of the independent chairman of the actuarial committee. The board considered all these inputs in their determination. In addition, Discovery has received an opinion from KPMG Services (Proprietary) Limited, an independent professional expert, that the valuation of the Preference Shares is fair and reasonable to the existing Discovery shareholders. The fair and reasonable opinion statement will be available for inspection at the registered office of Discovery, 155 West Street, Sandton for a period of 28 days from the date of this announcement. Sandton 31 August 2004 Merchant bank and sponsor RAND MERCHANT BANK (A division of FirstRand Bank Limited) CORPORATE FINANCE Independent professional expert KPMG Services (Proprietary) Limited Date: 31/08/2004 10:44:07 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department
