Acquisition(s)

Chesnara plc 26 November 2010 NOT FOR RELEASE PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO AUSTRALIA, CANADA, JAPAN OR THE UNITED STATES Chesnara plc Proposed Acquisition of the Save & Prosper Group by Chesnara plc for GBP63.5 million and a placing of up to 10,458,877 new ordinary shares and up to 3,096,194 treasury shares in the capital of the Company Chesnara plc ("Chesnara" or the "Company") is pleased to announce that it has entered into a conditional agreement to acquire the entire issued share capital of Save & Prosper Insurance Limited and its subsidiary Save & Prosper Pensions Limited (together the "Save & Prosper Group"), currently a wholly-owned subsidiary of JPMorgan Asset Management Marketing Limited (the "Seller"), for a total consideration of GBP63.5 million, payable in cash on completion (the "Acquisition"). The Acquisition will be financed from a combination of new bank facilities of GBP40 million together with the proceeds of a placing of up to 10,458,877 new ordinary shares and up to 3,096,194 treasury shares in the capital of the Company ("Placing"). Information on and Rationale for the Acquisition The Save & Prosper Group is a UK based provider of unit-linked, non-linked and with-profits pension and life assurance products which is closed to new business. The Save & Prosper Group had approximately 174,000 policies in force (c.126,000 unit-linked and c.48,000 with-profits) as at 30 June 2010. Save & Prosper Group's outsourced business model is complementary to Chesnara's outsourced model for its existing book and Chesnara intends to continue to operate the Save & Prosper Group in substantially the same manner going forward with JPMorgan Asset Management (UK) Limited continuing to provide investment management services (pursuant to an agreement on customary, market-standard terms for services of this type) and current outsourced provider, HCL Insurance BPO Services Limited, continuing to provide the same services to the Save & Prosper Group as it currently does. The Directors intend to focus on realising additional potential synergies, such as through combining Chesnara's underlying UK life funds by means of transfer pursuant to the provisions of Part VII of the Financial Services and Markets Act 2000 ("FSMA"). The Save & Prosper Group is being acquired at an effective 31.7 per cent. discount to the Chesnara Directors' unaudited estimate of embedded value of GBP93 million*. The Acquisition is expected to have a positive impact on the embedded value per share of Chesnara. ------------------------------------------------------------------------------ * The Directors' unaudited estimate of embedded value of GBP93 million as at 30 June 2010 is stated after the deduction of GBP91 million of excess capital extracted by the Seller post-30 June 2010 ------------------------------------------------------------------------------ The Acquisition is consistent with Chesnara's stated aim of participating in the consolidation of life and pensions businesses in the UK and Western Europe. The Acquisition is a logical transaction for Chesnara given the Company's financial strength and its core skills in the efficient management of life assurance companies and, in particular, closed books in the UK. The Acquisition will be treated as a "Class 1" transaction for Chesnara pursuant to Chapter 10 of the Listing Rules and is therefore conditional on the approval of Chesnara shareholders at a General Meeting, notice of which will be included in a circular to be sent to shareholders in due course (the "Circular"). The change of control of the Save & Prosper Group that will occur as a result of the Acquisition has already received the approval of the Financial Services Authority (the "FSA") provided that the Acquisition is completed by 23 August 2011. The Acquisition is further conditional on the FSA not having revoked, or added conditions that are unacceptable to the Company (acting reasonably) to, such approval. The Placing The Placing is intended to part fund the Acquisition. The Placing will be limited to 10,458,877 new shares in the capital of Chesnara ("New Shares") representing approximately 9.99 per cent. of the current issued share capital of Chesnara together with up to 3,096,194 shares, representing 2.96 per cent. of the current issued share capital of Chesnara, which are currently held in treasury ("Treasury Shares") (together the "Placing Shares"). Chesnara has appointed Panmure Gordon and Collins Stewart as joint bookrunners to the Placing. The Placing will be effected, subject to the satisfaction of certain conditions, through an accelerated bookbuild process. It is expected that books will open immediately and close no later than 4.30 p.m. on 26 November 2010. Pricing and allocations are expected to be set as soon as practicable thereafter. Panmure Gordon and Collins Stewart reserve the right to alter the size of the Placing and to close the bookbuilding process and announce pricing and allocations at any earlier or later time. The Placing will be undertaken in accordance with the terms and conditions set out in Appendix I to this announcement. The New Shares will, when issued, be credited as fully paid and will rank equally in all respects with the existing ordinary shares of 5 pence each in the share capital of Chesnara, including the right to receive all dividends and other distributions declared, made or paid after the date of issue of the New Shares. Application will be made to the FSA (in its capacity as UK Listing Authority) for the New Shares to be admitted to the Official List maintained by the FSA and to trading by the London Stock Exchange plc on its market for listed securities ("Admission"). Settlement for the Placing Shares, as well as Admission, is expected to take place on 1 December 2010. Completion of the Placing is not conditional on the approval of the Acquisition by Chesnara's shareholders. In the unlikely event that completion of the Acquisition does not take place the Directors will assess the Group's ongoing funding needs, taking account of shareholders' best interests. The Placing will be underwritten by Panmure Gordon and Collins Stewart from announcement of completion of the accelerated bookbuild, subject to certain conditions set out in a placing agreement between Panmure Gordon, Collins Stewart and the Company. Hawkpoint Partners Limited is acting as financial adviser and sponsor to the Company in relation to the Acquisition. The Loan Facility On 17 November 2010, Chesnara entered into a loan facility with The Royal Bank of Scotland plc as mandated lead arranger, original lender and as facility agent (the "Loan Facility"). The facility will be drawn on the completion of the Acquisition, subject to the satisfaction of certain conditions precedent customary for arrangements of this type. The Loan Facility is a committed GBP40,000,000 five-year term loan repayable on the date which is the earlier of 60 months from the date of funding or 31 December 2015. The purpose of the Loan Facility is to part fund the Acquisition (and certain fees and expenses relating thereto). Current Trading Since 30 June 2010, the Group has traded in line with expectations, with Group European embedded value increasing 9.2 per cent. to GBP278.5 million** at 30 September 2010 from GBP255.1 million at 30 June 2010. Trading results have been positively impacted by favourable experience in investment markets, driven primarily by the improved performance of leading equity market indices in the UK and Sweden. While rates on fixed interest investments have declined over the last quarter in the UK they have, by contrast, strengthened in Sweden. Given the different mixes of underlying investment and insurance contracts in the UK and Swedish Businesses these contrasting movements have led to beneficial outcomes in both businesses. ---------------------------------------------------------------------------- ** Stated prior to payment of interim dividend of GBP5.9m, paid on 12 October 2010 ---------------------------------------------------------------------------- Countrywide Assured plc ("CA"), Chesnara's principal operating subsidiary in the UK, has been in run-off for a number of years and its future surplus flows can be predicted with a reasonable degree of certainty. Expenses continue to be controlled and, as equity markets have recovered, persistency remains within the Company's long-term assumptions. The level of surplus, and its embedded value, are in line with expected outcomes. Appendix III sets out the full text of Chesnara's latest interim management statement which was released on 19 November 2010. The Save & Prosper Group is similar to CA in that it has been in run off for a number of years and therefore its future surplus flows can be predicted with a reasonable degree of certainty. Whilst the Save & Prosper Group is more sensitive than CA to equity and fixed interest returns, it also benefits from positive equity market movements, has effective expense control mechanisms and persistency experience in line with assumptions. Outcomes regarding the level of surplus generation and the Save & Prosper Group's embedded value are therefore also expected to be in line with expectations. Commenting on the Acquisition, Graham Kettleborough, Chief Executive Officer of Chesnara, stated: "This is exactly the type of opportunity we have been looking for. It fully matches our strategic acquisition criteria in terms of size, the attractive discount to embedded value, its complementarity to our existing UK business and the potential capital and financial synergies which we expect will provide further support to our dividend policy." This summary should be read in conjunction with the full text of the following announcement. Appendix I sets out the full terms and conditions of the Placing. Appendix II sets out the definition of terms used in this announcement. Appendix III sets out the full text of Chesnara's latest interim management statement which was released on 19 November 2010. Enquiries Chesnara plc Graham Kettleborough, Chief Executive +44 (0) 7799 407519 Hawkpoint - financial adviser and sponsor Hugh Elwes +44 (0)207 665 4500 David Tyrrell Collins Stewart - joint bookrunner and joint corporate broker Adrian Hadden +44 (0)207 523 8350 Tom Hulme Matt Goode Panmure Gordon - joint bookrunner and joint corporate broker Hugh Morgan +44 (0)207 459 3600 Tom Nicholson Giles Stewart Cubitt Consulting Michael Henman +44 (0)207 367 5100 Notes to editors: Chesnara plc, which listed on the London Stock Exchange in May 2004, is the owner of Countrywide Assured Life Holdings Group ("CALH") and Moderna FÃ¶rsÃ¤kringar Liv AB ("Moderna"). CALH is a UK life assurance subsidiary that is substantially closed to new business. In June 2005 Chesnara acquired a further closed life insurance company - City of Westminster Assurance Company Limited ("CWA") - for GBP47.8 million. With effect from 30 June 2006, CWA's policies and assets were transferred into CA. Moderna, a life assurance company which focuses on pensions and savings, was acquired on 23 July 2009 for GBP20 million. The company, which was launched in 2002, continues to write new business and grow its strong position in the Swedish unit-linked market. Moderna's market presence was increased through the acquisition of a controlling stake in AkademikerRÃ¥dgivning I Sverige AB, an independent financial adviser, in late 2009 and the purchase of the policyholders, personnel, intellectual property and systems of Aspis FÃ¶rsÃ¤krings Liv AB, a life and health insurer, in February 2010. Important Information Collins Stewart Europe Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint bookrunner and joint corporate broker exclusively for Chesnara plc and is acting for no-one else in connection with the Placing and will not be responsible to anyone other than Chesnara plc for providing the protections afforded to clients of Collins Stewart Europe Limited nor for providing advice in connection with the Placing, or any other matter referred to herein. Panmure Gordon (UK) Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint bookrunner and joint corporate broker exclusively for Chesnara plc and for no one else in connection with the Placing and will not be responsible to anyone other than Chesnara plc for providing the protections afforded to clients of Panmure Gordon (UK) Limited or for affording advice in relation to the Placing, or any other matters referred to herein. Hawkpoint Partners Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as financial adviser and sponsor to Chesnara plc and no one else in connection with the Acquisition and will not be responsible to anyone other than Chesnara plc for providing the protections afforded to clients of Hawkpoint Partners Limited or for giving advice in connection with the Acquisition, or any other matter referred to herein. Certain statements made in this announcement are forward-looking statements. These forward-looking statements are not historical facts but rather are based on Chesnara's current expectations, estimates and projections about its industry, its beliefs and assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors, some of which are beyond Chesnara's control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These factors include, amongst others, the ability to consummate the transaction; the ability of Chesnara to successfully integrate the Save & Prosper Group's operations and employees; the ability to realise anticipated synergies; dependence on key personnel; and financial and insurance risk management. Chesnara cautions Shareholders not to place undue reliance on these forward-looking statements, which reflect the view of Chesnara only as of the date of this announcement. The forward-looking statements made in this announcement relate only to events as of the date on which the statements are made. Chesnara will not undertake any obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date of this announcement except as required by law or by any appropriate regulatory authority. NOT FOR RELEASE PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO AUSTRALIA, CANADA, JAPAN OR THE UNITED STATES Chesnara plc Proposed Acquisition of the Save & Prosper Group by Chesnara plc for GBP63.5 million and a placing of up to 10,458,877 new ordinary shares and up to 3,096,194 treasury shares in the capital of the Company Chesnara is pleased to announce that it has entered into a conditional agreement to acquire the entire issued share capital of the Save & Prosper Group, a wholly-owned subsidiary of JPMorgan Asset Management Marketing Limited for a total consideration of GBP63.5 million, payable in cash on completion. The Acquisition will be financed from a combination of new bank facilities of GBP40 million together with the proceeds of a placing of up to 10,458,877 new ordinary shares and up to 3,096,194 treasury shares in the capital of the Company. Background to and reasons for the Acquisition The Acquisition of the Save & Prosper Group is consistent with Chesnara's stated aim of participating in the consolidation of life and pensions businesses in the UK and Western Europe. The Acquisition is a logical transaction for Chesnara given the Company's financial strength and its core skills in the efficient management of life assurance companies and, in particular, closed books in the UK. This is further supported by the fact that the Save & Prosper Group operates a substantially equivalent operating model to Chesnara, including using one of the outsource providers currently used by the Group. Chesnara aims to provide shareholders with an attractive long-term dividend yield, supported by the emergence of surplus from its existing UK portfolios. By the nature of the Group's business the surplus arising from Chesnara's existing underlying UK life funds will diminish over time. The Acquisition is expected to enhance the future cash flows available for distribution to shareholders, achieved through the generation of cash surplus as the Save & Prosper Group's business runs down over the longer term. A number of planned potential management actions, including combining Chesnara's UK life companies by means of transfer pursuant to the provisions of Part VII of FSMA, are expected to generate synergies within the enlarged group post transaction. The Acquisition at a discount to embedded value (a term commonly used to refer to an economic valuation technique that is in widespread use in the insurance industry), should enhance future cash flows available for distribution to shareholders. Further details of the principal terms of the Acquisition Agreement are set out below. Information on Save & Prosper The Save & Prosper Group is a UK based provider of unit-linked, non-linked and with-profits pension and life assurance products with approximately 174,000 policies in force as at 30 June 2010. The Save & Prosper Group consists of Save & Prosper Insurance Limited and its wholly-owned subsidiary Save & Prosper Pensions Limited and was founded in 1936. Save & Prosper is currently a wholly-owned subsidiary of the Seller and ceased writing new business in 1998, but existing policyholders are able to purchase increments or switch their existing investments to other products offered by, or available through, the Save & Prosper Group. The Save & Prosper Group has two with-profits funds (combined 48,000 policies as at 30 June 2010) which provide a guarantee of a minimum value payable at maturity or death, the possibility of bonus depending on the performance of the underlying investments of the fund and some smoothing of fluctuations in the value of the underlying investments. The market and credit risk within these funds is primarily borne by policyholders. However, the Save & Prosper Group does have some potential market risk should the policyholder fund be unable to meet the cost of guarantees. The Save & Prosper Group's with-profits books were established to enable participation in the with-profits market. However, the structure adopted by the group for its with-profits business was very different from that of most (if not all) other similar companies. The with-profits policies are administered in a similar manner to unit-linked contracts with shareholder assets clearly distinguished from policyholder assets. This distinction from traditional 90:10 with-profits funds led Save & Prosper to request that the FSA grant a waiver from the requirements contained in the FSA Rules (IPRU (INS) 3.3R), in order to facilitate the orderly and timely releases of surplus capital from its respective shareholder funds. On 29 July 2010, the FSA granted a five year waiver from such rule on the condition that the effect of any proposed capital extraction is considered by the with-profits actuary and an actuarial report is supplied to the FSA at least 21 days in advance of any planned extraction. This waiver will continue to be effective following the Acquisition and provides the framework for the extraction of excess capital, subject to FSA approval, as the books run-off. The Save & Prosper Group's outsourced business model is complementary to Chesnara's outsourced model for its existing book. The administration role is outsourced to HCL (one of Chesnara's outsourcing partners) and the asset management function resides with JPMorgan Asset Management (UK) Limited. Following completion, Chesnara intends to continue to operate the Save & Prosper Group in substantially the same manner and management intends to focus on realising additional potential synergies when they might be available, such as through combining the underlying UK life funds by means of transfer pursuant to the provisions of Part VII of FSMA, and other operational efficiencies. The Directors have estimated an unaudited embedded value of the Save & Prosper Group as at 30 June 2010 of GBP184 million. Post 30 June 2010, excess capital of GBP91 million was extracted by the Seller. Chesnara will retain Save & Prosper's residual embedded value (estimated to be GBP93 million as at 30 June 2010, post capital extraction adjustments). After the extraction of capital, the acquired book remains well capitalised with regulatory capital at 243 per cent. of required levels (based on the 30 June 2010 unaudited balance sheet). The Acquisition is expected to have a positive impact on the embedded value per share of Chesnara. Embedded value is a term commonly used to refer to an economic valuation technique that has been in widespread use in the insurance industry for some time. An embedded value is an estimate of the economic value of a company, excluding the value of any future new business that the company may be expected to write. The embedded value of the business is the aggregate of the shareholder net worth and the present value of future shareholder cash flows from in-force covered business (value of in-force business) less deductions for (i) the cost of guarantees within the business, and (ii) the cost of required capital. It is stated after allowance has been made for aggregate risks in the business. Shareholder net worth comprises those amounts in the long-term business, which are either regarded as required capital or which represent surplus assets within the business. The components of the Directors' estimate of the Save & Prosper Group's unaudited estimated embedded value which has been prepared on a market consistent basis are as follows: Directors' estimate of embedded value 30 June 2010 Unaudited GBP million Free surplus 103.9 Required capital 43.1 ---------- Adjusted Shareholder Net Worth 147.0 Value of in-force business 60.3 Cost of capital (3.3) Cost of guarantees (20.0) ---------- Embedded Value 184.0 ========== Dividend paid to Seller post 30 June 2010 (91.0) ---------- Estimated embedded value post dividend paid to Seller 93.0 ========== Embedded value assumptions The Directors have estimated the unaudited market-consistent embedded value of the Save & Prosper Group as at 30 June 2010 on projections of surplus which were derived from the actuarial systems of Save & Prosper and using a methodology which is consistent with that used by Chesnara and which are in accordance with assumptions established on the following bases: (a) Discount rates The discount rates applied to the cash flows at differing durations are a combination of the reference rate and a risk margin. The reference rate reflects the time value of money and is consistent with the investment return assumptions set out below, while the risk margin, which is established to cover any risks which are considered to be non-market and non-diversifiable, is set at 50 basis points. (b) Economic assumptions Investment returns Duration* % 5 year 2.47 10 year 3.42 15 year 3.81 20 year 3.90 25 year 3.90 Inflation RPI 2.90 *A full yield curve is used and the rates quoted are presented as illustrative rates. (c) Demographic assumptions The Directors have reviewed information based on recent experience for mortality and persistency and have set appropriate best-estimate assumptions. (d) Expense assumptions Expense assumptions are based on internal expense analysis and are determined by reference to: (i) the outsourcing agreement in place with a third-party business process administrator; (ii) anticipated revisions to the terms of such agreement as it falls due for renewal; (iii) expected investment management expenses; and (iv) related corporate governance costs. Where appropriate these expenses allow for VAT. (e) Taxation Projected tax has been determined assuming current tax legislation and rates and allows for changes in corporation tax as announced by the Chancellor in his budget speech of 22 June 2010, thereby reflecting a reduction from the current rate of 28 per cent. to 24 per cent. in steps of 1 per cent. p.a. Sensitivities to alternative assumptions The following table shows the sensitivity of the embedded value as estimated at 30 June 2010 to variations in the assumptions: Increase/(decrease) in embedded value GBP million Economic 100 basis point increase in yield curve 11.4 100 basis point reduction in yield curve (16.0) 10% decrease in equity and property (8.4) values Operating 10% decrease in maintenance expenses 3.0 10% decrease in lapse rates (0.4) 5% decrease in mortality rates (0.1) Reduction in required capital to the 0.2 statutory minimum In the financial year ended 31 December 2009, the Save & Prosper Group generated total income of GBP200.6 million, reported profit on ordinary activities before tax of GBP53.2 million and had total assets of GBP1,463.4 million on an unaudited consolidated International Financial Reporting Standards ("IFRS") basis. In the financial year ended 31 December 2008, the Save & Prosper Group recognised a loss, primarily due to the value of the with-profits policyholders' fund being lower than the amount of the long-term business provision (the present value of projected payments to policyholders based on guaranteed minimum payments to policyholders). However, in 2009 this position reversed and the Save & Prosper Group reported a profit as noted above. In the six months to 30 June 2010, the Save & Prosper Group had total income of GBP23.0 million, reported a loss on ordinary activities before tax of GBP24.7 million and had total assets of GBP1,418.2 million on an unaudited consolidated, IFRS basis. The accounting loss recognised as at 30 June 2010 was primarily a result of a decrease in the discount rate used to calculate the actuarial liabilities due to management actions taken to de-risk the investment portfolio, including hedging the equity exposure and selling an element of its corporate bond portfolio resulting in a higher weighting within the investment portfolio of lower yielding cash assets. The Directors believe that this accounting loss does not materially affect the expected cash generation of the Save & Prosper Group business, which remains the primary reason for completing the Acquisition. Unaudited financial information on the Save & Prosper Group covering the three years and six months to 30 June 2010 is appended to this announcement. Current Trading and Prospects Since 30 June 2010, the Group has traded in line with expectations, with Group European Embedded Value increasing 9.2 per cent. to GBP278.5 million*** at 30 September 2010 from GBP255.1 million at 30 June 2010. Trading results have been positively impacted by favourable experience in investment markets, driven primarily by improved performance by leading equity market indices in the UK and Sweden. While rates on fixed interest investments have declined over the last quarter in the UK they have, by contrast, strengthened in Sweden. Given the different mixes of underlying investment and insurance contracts in the UK and Swedish Businesses these contrasting movements have led to beneficial outcomes in both businesses. ------------------------------------------------------------------------------ *** Stated prior to payment of interim dividend of GBP5.9m, paid on 12 October 2010 ------------------------------------------------------------------------------ CA has been in run-off for a number of years and its future surplus flows can be predicted with a reasonable degree of certainty. Expenses have continued to be controlled and as equity markets have recovered persistency has remained within the Company's long-term assumptions, the level of surplus, and its embedded value, are in line with expected outcomes. The Save & Prosper Group is similar to CA in that it has been in run-off for a number of years and therefore its future surplus flows can be predicted with a reasonable degree of certainty. Whilst the Save & Prosper Group is more sensitive than CA to equity and fixed interest returns, it also benefits from positive equity market movements, has effective expense control mechanisms and persistency experience in line with assumptions. Outcomes regarding the level of surplus generation and Save & Prosper's embedded value are therefore also expected to be in line with expectations. The Acquisition Agreement The Acquisition Agreement is dated 26 November 2010 (the "Effective Date"), pursuant to which the Company has agreed to purchase the entire issued share capital of the Save & Prosper Group from the Seller for an aggregate consideration of GBP63.5 million (the "Purchase Price") and interest on the Purchase Price for the period from (and excluding) the date of the Acquisition Agreement up to (and including) the date of completion of the Acquisition Agreement ("Completion") at the rate of The London Interbank Offered Rate at Completion (the "Consideration"). The Consideration will be paid, in cash, on Completion. Completion is conditional upon the passing, at a general meeting of the Company, of the resolution required to approve the acquisition of the Save & Prosper Group and the FSA not having revoked, or added conditions that are unacceptable to the Company (acting reasonably) to, its approval of the Company acquiring the Save & Prosper Group. The Acquisition Agreement contains customary warranties for an acquisition of this type which will be given as at the date of the Acquisition Agreement. The Seller has also given customary undertakings in relation to the conduct of the business of the Save & Prosper Group between the Effective Date and Completion and also certain restrictive covenants, for a period of two years from the date of Completion, in relation to soliciting employees and customers of the Save & Prosper Group. The Seller will further indemnify the Company in connection with (a) any error made in the calculation of either the value of any units or shares in any fund maintained by the Save & Prosper Group where such miscalculation was caused by the Seller having provided incorrect information to the Save & Prosper Group's outsourced provider (but only to the extent that the Company does not have a claim against such outsource provider) and (b) certain liabilities that may arise as a result of the Salt Group acting as trustee for certain small self-administered pension schemes. The Acquisition Agreement may only be terminated either (a) by either party, if the conditions referred to above have not been satisfied by 25 February 2011 or (b) by the Company if either (i) there is a material breach by the Seller of its pre-Completion obligations that would give rise to a material adverse effect on the Save & Prosper Group (otherwise than result from changes in the UK or global economy or as a result of law) or (ii) it has a claim (or claims) for breach of the warranties given by the Seller which, either individually or in aggregate, would be likely to exceed GBP5 million. Save in the case of fraud and fraudulent concealment, the aggregate liability of the Seller in respect of claims under the warranties (other than claims relating to title of the shares of the Save & Prosper Group, the liability of which shall be limited to the Purchase Price), the tax deed and the specific indemnities will not, in aggregate, exceed GBP28.5 million. Any claim by the Company in respect of either breach of the warranties, the specific indemnities or the tax deed must be made by the Company by written notice to the Seller on or before 5.00 pm on the date being 18 months, three years and six years and one month (respectively) from Completion. The Save & Prosper Group Material Contracts The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Save & Prosper Group (a) in the two years immediately preceding the date of this announcement and are, or may be, material to the Save & Prosper Group or (b) contain provisions under which any member of the Save & Prosper Group has any obligation or entitlement which is material to the Save & Prosper Group as at the date of this announcement: (a) an agreement between Prudential Retirement Income Limited (''Prudential'') and Save & Prosper Pensions Limited dated 19 December 2006 (and effective as from 1 July 2007), pursuant to which Save & Prosper Pensions Limited agreed exclusively to market certain annuity products provided by Prudential to its customers. This agreement expires on 1 July 2012, with the option to extend by mutual agreement between the parties; (b) Save & Prosper Insurance Limited granted a subordinated loan of GBP10 million to Save & Prosper Pensions Limited on 24 December 2002. The current balance of the loan is GBP5 million, and this is repayable upon Save & Prosper Pensions Limited giving Save & Prosper Insurance Limited five years' notice, having first obtained consent from the FSA. Interest accrues on the loan balance at a rate of 6.5 per cent. and is payable annually on 1 April. Save & Prosper Insurance Limited's rights to repayment of the loan are subordinate to all other creditors, including any policyholders of Save & Prosper Pensions Limited; (c) a reinsurance arrangement (consisting of two reinsurance agreements) between JPMorgan Life Limited and Save & Prosper Pensions Limited, whereby each reinsures investment risk of the other. The reinsurer agrees to allocate units in certain funds managed by the reinsurer to the reinsured in return for a premium. The arrangement is capable of termination either immediately or upon five months' notice, depending upon whether the terminating party is the reinsurer or the reinsured (respectively); (d) reinsurance arrangements entered into between Swiss Reinsurance Company Limited (''Swiss Re'') and each member of the Save & Prosper Group pursuant to which Swiss Re provides reinsurance in relation to life policies and mortality risk. The arrangement is of an indefinite duration but was discontinued with respect to new business on 10 January 2003; and (e) a reinsurance agreement between Save & Prosper Insurance Limited and the Phoenix Assurance Company Limited having effect from 17 June 1969, pursuant to which the Phoenix Assurance Company Limited reinsures certain unit-linked endowment policies issued by Save & Prosper Insurance Limited. The agreement is of indefinite duration (but subject to agreement between the parties) and may be discontinued in relation to new business by either party giving the other six months' notice. Circular and General Meeting The Acquisition will be treated as a "Class 1" transaction for the purposes of Chapter 10 of the Listing Rules and as such requires prior approval of Chesnara shareholders at a General Meeting, notice of which will be included in the Circular to be sent to shareholders in due course. The FSA has agreed the change of control of Save & Prosper, provided the Acquisition is completed prior to 23 August 2011. The Acquisition is further conditional on the FSA not having revoked, or added conditions that are unacceptable to the Company (acting reasonably) to, such approval. The Placing The Placing is intended to part fund the Acquisition. The Placing will be limited to 10,458,877 New Shares in the capital of Chesnara representing approximately 9.99 per cent. of the current issued share capital of Chesnara together with up to 3,096,194 shares, representing 2.96 per cent. of the current issued share capital of Chesnara, which are currently held in treasury. Chesnara has appointed Panmure Gordon and Collins Stewart as joint bookrunners to the Placing. The Placing will be effected, subject to the satisfaction of certain conditions, through an accelerated bookbuild process. It is expected that books will open immediately and close no later than 4.30p.m. on 26 November 2010. Pricing and allocations are expected to be set as soon as practicable thereafter. Panmure Gordon and Collins Stewart reserve the right to alter the size of the Placing and to close the bookbuilding process and announce pricing and allocations at any earlier or later time. The Placing will be undertaken in accordance with the terms and conditions set out in Appendix I to this announcement. The New Shares will, when issued, be credited as fully paid and will rank equally in all respects with the existing ordinary shares of 5 pence each in the share capital of Chesnara, including the right to receive all dividends and other distributions declared, made or paid after the date of issue of the New Shares. Application will be made to the Financial Services Authority (the "FSA") for the New Shares to be admitted to the Official List maintained by the FSA and to trading by the London Stock Exchange plc on its market for listed securities ("Admission"). Settlement for the Placing Shares, as well as Admission, is expected to take place on 1 December 2010. Completion of the Placing is not conditional on the approval of the Acquisition by Chesnara's shareholders. In the unlikely event that completion of the Acquisition does not take place, the Directors will assess the Group's ongoing funding needs, taking account of shareholders' best interests. The Placing will be underwritten by Panmure Gordon and Collins Stewart from announcement of completion of the accelerated bookbuild, subject to certain conditions set out in a placing agreement between Panmure Gordon, Collins Stewart and the Company. Hawkpoint Partners Limited is acting as financial adviser and sponsor to the Company in relation to the Acquisition. The Loan Facility The Loan Facility is a committed GBP40,000,000 credit facility entered into on 17 November 2010 between Chesnara as borrower and The Royal Bank of Scotland plc as mandated lead arranger, original lender and as facility agent. The principal amount will be drawn on completion of the Acquisition subject to the satisfaction of certain conditions precedent customary for arrangements of this type. The Loan Facility is a five-year term loan repayable on the date which is the earlier of 60 months from the date of funding or 31 December 2015. The purpose of the Loan Facility is to fund the Acquisition (and certain fees and expenses relating thereto). Repayment of the Loan Facility is mandatory in certain circumstances, including, if there is an acceleration following an event of default, a change of control in Chesnara or if a lender notifies the facility agent and Chesnara plc that it has become unlawful in any applicable jurisdiction for that lender to perform any of its obligations under the loan facility or to fund or maintain its share of the loan. The representations, warranties, undertakings and events of default contained in the agreement setting out the terms of the loan facility are customary for a transaction of this nature. Effect of the Acquisition The Directors believe that completion of the Acquisition will enhance Chesnara's embedded value per share. Embedded value per share is calculated by dividing the embedded value by the number of shares in issue. However this does not mean that the future embedded value per share of Chesnara will necessarily be lower, match or exceed its historical embedded value per share. The Directors believe that the Acquisition will be accretive to the cash flows of the Group and hence will enhance future cash flows available for distribution to shareholders. Notwithstanding the Save & Prosper Group's reported loss for the six month period to 30 June 2010 which would have had a negative effect on the earnings of the Enlarged Group, the Directors believe that in the medium and long term the earnings of the Enlarged Group will be enhanced as a result of the Acquisition. Had the Acquisition taken place at the date of Chesnara's last balance sheet, being 30 June 2010, the effect of the transaction on Chesnara's balance sheet would have been a decrease in cash equal to the difference between the purchase price of the Acquisition and the sum of net proceeds of the Placing and the post-balance sheet term facility of GBP40 million, and an increase in net assets equal to the fair value of the assets acquired (net of post balance sheet capital extractions) of the Save & Prosper Group. Dividend Policy The Group is committed to offering its Shareholders an attractive and reliable income stream arising from the profits of its life-assurance businesses. The Group has a progressive dividend policy which it aims to continue to pursue. In its interim results which were announced on 26 August 2010 the Group declared an interim dividend of 5.8p per share, an increase of 2.65 per cent. over the dividend of 5.65p declared for the comparable period in 2009. The interim dividend was paid on 12 October 2010. Directors' Intentions Certain of the Directors of Chesnara (including all of the executive directors) intend to participate in the Placing. The extent of Director participation will be announced post completion of the accelerated bookbuild. Risk Factors Investors and prospective investors should consider carefully whether an investment in Chesnara is suitable for them in light of the information set out in this announcement. The risks and uncertainties summarised below may not be the only ones facing the Group, or following the Acquisition, the Enlarged Group. Additional risks and uncertainties not currently known to the Group or that the Group deems immaterial may also impair its business operations. The Group's business, prospects, financial condition and results of operations could be materially and adversely affected by any of these risks. Risks relating to the Acquisition and the Placing * Completion of the Acquisition remains conditional on the approval of the Resolution by Shareholders at the General Meeting. Failure to complete the Acquisition may materially adversely affect the trading price of Chesnara's ordinary shares. * Completion of the Placing is not conditional on the approval of the Acquisition and, since the Acquisition is itself conditional, there is a risk that the market value of Chesnara's Ordinary Shares may go down as well as up in value and investors may not be able to recover their original investment. * It is possible that, between the execution of the Acquisition Agreement and its completion, there may be an adverse change in the financial condition of the Save & Prosper Group. If such change does not give rise to a right of the Company to terminate the Acquisition Agreement, the value of the Save & Prosper Group may be less than the consideration paid which could reduce the net assets of the Enlarged Group. * The Enlarged Group may fail to realise the benefits of the Acquisition. Risks relating to the Group, the Save & Prosper Group and, following the Acquisition, the Enlarged Group * The primary insurance activity carried out by Chesnara and the Save & Prosper Group comprises the assumption of the risk of loss from persons that are directly subject to risk which in general relate to life, accident, health and financial perils that may arise from an insurable event. As such, the Group, and following the Acquisition the Enlarged Group, is exposed to the uncertainty surrounding the timing and severity of claims under related insurance contracts. * The Group is and, following the Acquisition the Enlarged Group will be, exposed to a range of financial risks through its insurance contracts, financial assets, including assets representing shareholder assets, financial liabilities, including investment contracts and borrowings, and it reinsurance assets: accordingly the key financial risk is that, in the long-term, its investment proceeds are not sufficient to fund the obligations arising from its insurance and investment contracts. * Persistency risk is the risk that the policyholder cancels the contract or discontinues paying new premiums into the contract, thereby exposing the Group and the Enlarged Group to losses resulting from adverse movements in actual experience compared to that expected in product pricing or from lower future levels of management fees. * The effective management of expenses is critical to the Group and the Enlarged Group. Any significant variation in actual experience from that expected in product pricing will expose the Group, and following the Acquisition, the Enlarged Group to losses. * Failure by the Group, and following the Acquisition the Enlarged Group, to comply with the relevant regulatory requirements applicable to its business could materially adversely affect the financial performance and the reputation of the Group and the Enlarged Group. * The final form of the EU Commission's wide-ranging review in relation to solvency margins and reserves (the project known as "Solvency II") could have an impact on the reported results for the insurance businesses within the Group /Enlarged Group and hence any return on investment in such businesses, and could, among other things, result in the Group and the Enlarged Group being required to reserve additional capital in respect of its liabilities. * A significant regulatory action against the Group and the Enlarged Group could have a material adverse effect on its business, results of operations and/or financial condition. * Whilst the Group has and the Enlarged Group will have in place disaster recovery plans covering current critical business information systems requirements, interruptions (e.g. due to accidental or malicious damage) could have a material adverse effect on the Group and the Enlarged Group's operations, results of operations and/or financial condition. * The Group and the Enlarged Group's continued success depends on its ability to attract, motivate and retain highly skilled managers and finance, actuarial, compliance, IT and customer services personnel. The loss of key personnel from the business may have a material adverse effect on the Group and the Enlarged Group's operations, results of operations and/or financial condition. * Although Chesnara is confident that its operating systems and controls are robust, there can be no assurance that all historical operational errors have been identified, nor that operational errors will not arise in the future. The identification of previously unidentified historical errors or new operational errors may result in adverse publicity and may have a material adverse effect on the Group's and, following the Acquisition the Enlarged Group's, operations, results of operations and/or financial condition. Additional risks relating to CALH * CALH is dealing with endowment mis-selling complaints in accordance with the FSA's procedural requirements. CALH has established a reserve in respect of these liabilities based on its current and expected experience. However, failure to adequately provide for the number and quantum of endowment complaints could, in the longer term, result in a deterioration of the Group's solvency position, surplus available for distribution and thus its capacity to pay dividends. * The operating model of CALH's life business is directed towards maintaining Shareholder value by outsourcing all support activities to professional specialists. CALH is not aware of any prospect of either of its two outsourcers ceasing to trade or defaulting on their responsibilities under the contract. There is no guarantee that the replacement services could be procured at the same cost, notwithstanding the availability of any compensation, and therefore default may give rise to a material adverse effect on the financial position, results and prospects of the Group and following the Acquisition, the Enlarged Group. Additional risks relating to the Save & Prosper Group * The Save & Prosper Group has some exposure to endowment mortgage policies as outlined for CALH above. Although this is a relatively low exposure in comparison to CALH, should its understanding of the rules be incorrect or the letters issued to policyholders in accordance with the FSA's procedural requirements be ineffective, then the number and quantum of endowment complaints could, in the longer term, result in a deterioration of the Save & Prosper Group, and following the Acquisition, the Enlarged Group's solvency position, surplus available for distribution and thus its capacity to pay dividends. * The operating model of the Save & Prosper Group's life business is directed towards maintaining Shareholder value by outsourcing all support activities to a professional specialist. The Save & Prosper Group is not aware of any prospect of the outsourcer ceasing to trade or defaulting on their responsibilities under the contract. There is no guarantee that the replacement services could be procured at the same cost, notwithstanding the availability of any compensation, and therefore default may give rise to a material adverse effect on the financial position, results and prospects of the Save & Prosper Group and following the Acquisition the Enlarged Group. * The FSA has recently undertaken a comprehensive review of compliance with its rules and guidance by life insurance companies operating within the with-profits sector (''with-profits firms''). Though the Save & Prosper Group's review of the issues raised by the FSA's report is not complete, Chesnara has no reason to believe, based on its due diligence enquiries, that any measures which the Save & Prosper Group takes to address the findings of the FSA's report would be likely to have a material adverse effect on the business of the Enlarged Group. However, no assurance can be given that this will prove to be the case, or that regulatory proceedings will not be taken in this regard. Any such proceedings could have a material adverse effect on the Enlarged Group's business, results of operations and/or financial condition. Any future changes to the rules and guidance affecting with-profits firms may also have similar adverse effect. * With-profits deferred annuity contracts provide for guaranteed minimum pension funds at retirement and the with-profits endowments provide for guaranteed minimum lump sums. These with-profits policies issued by the Save & Prosper Group are entitled to participate in the profits arising from the relevant with-profits fund. Should the assets of the fund backing the liabilities arising from the with-profits policies be insufficient at any time to meet claims arising on policies participating in the fund, whether through the death of a policyholder or a policy's maturity date being reached, then Shareholders may be required to meet the deficit in the with-profits fund. This effect could occur in times of volatile or falling investment returns, where assumptions as to future growth are not borne out in reality. Additional risks relating to Moderna * Moderna operates in a highly competitive area and the performance of the business is dependent upon its ability to attract new, and retain existing, customers. * Moderna outsources the provision of its IT infrastructure. Whilst Moderna has in place a disaster recovery plan covering current critical business requirements, interruptions in its operation (e.g. from damage) could have a material adverse effect on Moderna's operations, results of operations and/or financial condition. * Swedish tax authorities could challenge the industry practice of treating commissions received by insurance companies from fund managers for investing in their funds as exempt from corporation tax. * Moderna currently obtains reinsurance as well as a material portion of the financing of external acquisitions costs (commissions) from Hannover RÃ¼ckversicherung AG and Swiss Re. Although there is no indication that either reinsurer intends to do so, a risk exists that should either decide to discontinue their contract then Moderna would have to negotiate a similar contract with a replacement financial reinsurer or determine an alternative means of financing the business. Risks relating to Chesnara * Exposure to interest rate risk in particular the impact of extreme upward movements in LIBOR affecting the interest cost of the Loan Facility which is based on a margin above LIBOR. * Exposure to exchange rate risk in connection with the Swedish business through the presentation of the results of the Swedish subsidiary in the consolidated financial statements in pounds sterling and Chesnara's intention to continue to finance the development of the Swedish business through capital contributions made by way of the transfer of Swedish Krona cash assets. Risks relating to the ordinary shares * The value of the Ordinary Shares could go down as well as up and may not always reflect the underlying asset value or prospects of the Group or (if applicable) the Enlarged Group. * The ability of Chesnara to pay dividends on the Ordinary Shares is a function of its profitability, primarily linked to the performance of the Enlarged Group's investments. Chesnara can give no assurances that it will be able to continue with its undertaking to pursue a progressive dividend policy in the future. The Board of Chesnara considers that this statement and the appended financial information for the three years and six months ended 30 June 2010 contains sufficient information about the Save & Prosper Group to provide a properly informed basis for assessing its financial position. The Board of Chesnara will make further announcements to keep the market informed without delay of any developments concerning the target business that would be required to be released were the enlarged group listed. Unaudited financial information for the six months ended 30 June 2010 and 2009, and for the years ended 31 December 2009, 2008 and 2007 The Save & Prosper Group Consolidated Statement of Comprehensive Income Six months ended Year ended 31 December 30 June 2010 2009 2009 2008 2007 GBP000 GBP000 GBP000 GBP000 GBP000 Insurance premium revenue 6,602 7,769 14,721 17,574 26,857 Insurance premium ceded to reinsurers (108) (162) (189) 1,237 (10,579) ---------- ---------- ---------- ---------- ---------- Net insurance premium revenue 6,494 7,607 14,532 18,811 16,278 Fee and commission income: Insurance contracts 711 632 1,329 1,695 2,117 Investment contracts 88 84 149 212 227 Net investment return 11,422 7,148 176,832 (309,760) 55,024 ---------- ---------- ---------- ---------- ---------- Total revenue (net of reinsurance payable) 18,715 15,471 192,842 (289,042) 73,646 Other operating income 4,299 3,527 7,752 8,321 10,296 ---------- ---------- ---------- ---------- ---------- Total income 23,014 18,998 200,594 (280,721) 83,942 ---------- ---------- ---------- ---------- ---------- Insurance contract claims and benefits incurred: Claims and benefits paid to insurance contract holders (60,872) (46,109) (102,277) (129,309) (207,022) Net increase/ (decrease) in insurance contract provisions 18,672 6,513 (27,663) 307,818 291,535 Reinsurers' share of claims and benefits paid to insurance contract holders 599 317 1,279 928 11,228 Reinsurers' share of net (decrease)/ increase in insurance contract provisions (643) 246 848 (4,005) (145,025) Movement in unallocated divisible surplus 615 - (2,017) 23,186 21,024 ---------- ---------- ---------- ---------- ---------- Net insurance contract claims and benefits (41,629) (39,033) (129,830) 198,618 (28,260) (Increase)/ decrease in investment contract liabilities (2,667) 1,558 (10,060) 30,566 (1,068) Fees, commission and other acquisition costs (46) (97) (141) (156) (350) Administrative expenses (3,338) (3,897) (7,344) (7,195) (10,258) ---------- ---------- ---------- ---------- ---------- Total expenses (47,680) (41,469) (147,375) 221,833 (39,936) ---------- ---------- ---------- ---------- ---------- (Loss)/profit before income taxes (24,666) (22,471) 53,219 (58,888) 44,006 Income tax credit/ (expense) 6,692 6,440 (15,506) 24,278 (11,072) ---------- ---------- ---------- ---------- ---------- (Loss)/profit for the period, being the total comprehensive income for the period (17,974) (16,031) 37,713 (34,610) 32,934 ========== ========== ========== ========== ========== The Save & Prosper Group Consolidated Balance Sheet 30 June 31 December 2010 2009 2008 2007 GBP000 GBP000 GBP000 GBP000 Assets Investment properties 111,852 104,898 105,100 145,032 Reinsurers' share of insurance contract provisions 6,621 6,936 5,553 9,431 Financial assets: Equity securities at fair value through income 32,866 34,091 33,701 169,158 Holdings in collective investment schemes at fair value through income 1,152,535 1,218,823 1,111,565 1,371,081 Debt securities at fair value through income 79,091 76,311 108,408 108,910 Insurance and other receivables 14,533 8,683 14,898 9,039 Prepayments and accrued income 64 67 771 1,105 Derivative financial instruments 227 279 - - ---------- ---------- ---------- ---------- Total financial assets 1,279,316 1,338,254 1,269,343 1,659,293 ---------- ---------- ---------- ---------- Reinsurers' share of accrued policyholder claims 3 329 864 991 Income taxes 6,902 - 6,188 - Cash and cash equivalents 13,457 13,006 8,628 8,499 ---------- ---------- ---------- ---------- Total assets 1,418,151 1,463,423 1,395,676 1,823,246 ---------- ---------- ---------- ---------- Liabilities Bank overdrafts 142 216 293 223 Insurance contract provisions 1,121,997 1,141,290 1,115,274 1,423,388 Financial liabilities: Investment contracts at fair value through income 105,288 106,061 102,106 142,774 ---------- ---------- ---------- ---------- Total financial liabilities 105,288 106,061 102,106 142,774 ---------- ---------- ---------- ---------- Unallocated divisible surplus 1,402 2,017 - 23,186 Deferred tax liabilities 7,967 9,710 12,404 25,843 Reinsurance payables 65 54 854 985 Payables related to direct insurance and investment contracts 9,869 9,824 9,300 10,461 Income taxes 1,987 7,472 112 6,719 Other payables 12,437 11,808 8,075 7,799 --------- ---------- ---------- ---------- Total liabilities 1,261,154 1,288,452 1,248,418 1,641,378 --------- ---------- ---------- ---------- Net assets 156,997 174,971 147,258 181,868 ========== ========== ========== ========== Shareholders' equity Share capital 20,000 20,000 20,000 20,000 Retained earnings 136,997 154,971 127,258 161,868 ---------- ---------- ---------- ---------- Total shareholders' equity 156,997 174,971 147,258 181,868 ========== ========== ========== ========== The Save & Prosper Group Consolidated Statement of Cash Flows Six months ended Year ended 30 June 31 December 2010 2009 2009 2008 2007 GBP000 GBP000 GBP000 GBP000 GBP000 (Loss)/profit for the period (17,974) (16,031) 37,713 (34,610) 32,934 Adjustments for: Tax (recovery)/ expense (6,692) (6,440) 15,506 (24,278) 11,072 Interest receivable (425) (208) (447) (250) (2,539) Dividends receivable (8,711) (10,088) (24,901) (42,280) (50,278) Rental receivable (3,904) (3,654) (7,394) (7,086) (7,069) Loss on sale of subsidiary - - - - 89 Change in fair value of investment properties (4,144) 9,006 (1,003) 40,024 5,169 Fair value losses/(gains) on financial assets 5,601 (2,364) (143,412) 311,798 (11,039) Interest received 432 493 874 247 2,901 Dividends received 8,714 10,701 25,605 42,614 50,198 Rental received 3,926 3,740 7,402 7,196 6,912 Changes in operating assets and liabilities: Decrease in financial assets 59,184 29,541 67,582 83,677 195,122 Purchase of investment properties (4,828) (24) - (662) (36,964) Sale of investment properties 2,018 - 1,205 570 7,601 Decrease/ (increase) in reinsurers' share of insurance contract provisions 641 (246) (848) 4,005 145,026 (Increase)/ decrease in insurance and other receivables (5,882) (10,204) 5,076 (6,300) (1,419) Decrease/ (increase) in prepayments 3 613 704 334 (80) (Decrease)/ increase in insurance contract provisions (19,908) (8,190) 28,033 (331,300) (313,329) (Decrease)/ increase in investment contract liabilities (773) (3,734) 3,955 (40,668) 4,750 Increase/ (decrease) in reinsurance payables 11 66 (800) (131) (7,444) Increase/ (decrease) in payables related to direct insurance and investment contracts 45 1,141 524 (1,161) (1,068) Increase/ (decrease) in other payables 629 8,435 3,733 276 (1,336) ---------- ---------- ---------- --------- ---------- Cash generated by operations 7,963 2,553 19,107 2,015 29,209 Income tax (paid)/received (7,438) 4,074 (4,652) (1,956) (13,345) ---------- ---------- ---------- ---------- ---------- Net cash generated by operating activities 525 6,627 14,455 59 15,864 Cash flows from financing activities Dividends paid - - (10,000) - (15,000) ---------- ---------- ---------- ---------- ---------- Net cash utilised by financing activities - - (10,000) - (15,000) Net increase in cash and cash equivalents 525 6,627 4,455 59 864 Cash and cash equivalents at beginning of the period 12,790 8,335 8,335 8,276 7,412 ---------- ---------- ---------- ---------- ---------- Cash and cash equivalents at end of the period 13,315 14,962 12,790 8,335 8,276 ========== ========== ========== ========== ========== Assets: Cash and cash equivalents 13,457 15,035 13,006 8,628 8,499 Liabilities: Bank overdrafts (142) (73) (216) (293) (223) ---------- ---------- ---------- ---------- ---------- Cash and cash equivalents at end of the period 13,315 14,962 12,790 8,335 8,276 ========== ========== ========== ========== ========== APPENDIX I: Terms and Conditions of the Placing THIS ANNOUNCEMENT, INCLUDING THE APPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN AND THE INFORMATION CONTAINED HEREIN, IS NOT FOR PUBLICATION OR FOR RELEASE, OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, CANADA, JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION. IMPORTANT INFORMATION FOR PLACEES ONLY REGARDING THE PLACING MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE PLACING. THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUT AND REFERRED TO HEREIN ARE DIRECTED ONLY AT (A) PERSONS IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA (OTHER THAN THE UNITED KINGDOM) WHO ARE "QUALIFIED INVESTORS" WITHIN THE MEANING OF ARTICLE 2(1)(e) OF THE PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC) ("QUALIFIED INVESTORS"), (B) IN THE UNITED KINGDOM, QUALIFIED INVESTORS WHO ARE (i) "INVESTMENT PROFESSIONALS" FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (THE "FPO"), OR (ii) "HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS ETC" FALLING WITHIN ARTICLE 49(2)(a) to (d) OF THE FPO, AND (C) TO PERSONS TO WHOM IT MAY OTHERWISE LAWFULLY BE COMMUNICATED (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS"). THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS ANNOUNCEMENT RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. DISTRIBUTION OF THIS ANNOUNCEMENT IN CERTAIN JURISDICTIONS MAY BE RESTRICTED OR PROHIBITED BY LAW. PERSONS DISTRIBUTING THIS ANNOUNCEMENT MUST SATISFY THEMSELVES THAT IT IS LAWFUL TO DO SO. THE PLACING SHARES (WHICH INCLUDE, FOR THE AVOIDANCE OF DOUBT, THE TREASURY SHARES) ARE NOT BEING OFFERED OR SOLD TO ANY PERSON IN THE EUROPEAN UNION, OTHER THAN TO "QUALIFIED INVESTORS" AS DEFINED IN ARTICLE 2.1(E) OF DIRECTIVE 2003/71/EC (THE "PROSPECTUS DIRECTIVE"), WHICH INCLUDES LEGAL ENTITIES WHICH ARE REGULATED BY THE FINANCIAL SERVICES AUTHORITY (THE "FSA") OR ENTITIES WHICH ARE NOT SO REGULATED WHOSE CORPORATE PURPOSE IS SOLELY TO INVEST IN SECURITIES. The Placing Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act") or under the securities laws of any state or other jurisdiction of the United States and may not be offered, sold, resold or delivered, directly or indirectly, in or into the United States absent registration except pursuant to an exemption from, or in a transaction not subject to the registration requirements of the Securities Act. The Placing Shares are being offered and sold outside the United States only in offshore transactions in accordance with Regulation S under the Securities Act. No public offering of the Placing Shares is being made in the United States. Persons receiving this Appendix (including custodians, nominees and trustees) must not forward, distribute, mail or otherwise transmit it in or into the United States or use the United States mails, directly or indirectly, in connection with the Placing. This Appendix does not constitute an offer to sell or issue or a solicitation of an offer to buy or subscribe for Placing Shares in any jurisdiction including, without limitation, the United States, Canada, Australia, Japan or any other jurisdiction in which such offer or solicitation is or may be unlawful (a "Prohibited Jurisdiction"). This Appendix and the information contained herein are not for publication or distribution, directly or indirectly, to persons in a Prohibited Jurisdiction unless permitted pursuant to an exemption under the relevant local law or regulation in any such jurisdiction. Any indication in this Announcement of the price at which the ordinary shares have been bought or sold in the past cannot be relied upon as a guide to future performance. Persons needing advice should consult an independent financial adviser. No statement in this Announcement is intended to be a profit forecast and no statement in this Announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company. The distribution of this Announcement, the Placing and/or issue of the Placing Shares may be restricted by law and/or regulation in certain circumstances. No action has been taken by the Company, Collins Stewart Europe Limited or Panmure Gordon (UK) Limited or any of their respective Affiliates (as defined below) that would permit an offer of the Placing Shares or possession or distribution of this Announcement or any other publicity material relating to such Placing Shares in any jurisdiction where action for that purpose is required. Persons receiving this Announcement are required to inform themselves about and to observe any such restrictions. Persons (including, without limitation, nominees and trustees) who have a contractual or other legal obligation to forward a copy of this Announcement should seek appropriate advice before taking any action. Collins Stewart Europe Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint bookrunner and joint corporate broker exclusively for Chesnara plc and is acting for no-one else in connection with the Placing and will not be responsible to anyone other than Chesnara plc for providing the protections afforded to clients of Collins Stewart Europe Limited nor for providing advice in connection with the Placing, or any other matter referred to herein. Panmure Gordon (UK) Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as joint bookrunner and joint corporate broker exclusively for Chesnara plc and for no one else in connection with the Placing and will not be responsible to anyone other than Chesnara plc for providing the protections afforded to clients of Panmure Gordon (UK) Limited or for affording advice in relation to the Placing, or any other matters referred to herein. By participating in the Placing, each person who is invited to and who chooses to participate in the Placing (a "Placee") by making an oral offer to take up Placing Shares is deemed to have read and understood this Appendix in its entirety, to be making an offer and acquiring Placing Shares on the terms and conditions herein, and to be providing the representations, warranties, undertakings, agreements and acknowledgements contained herein. EACH PLACEE SHOULD CONSULT WITH ITS OWN ADVISERS AS TO LEGAL, REGULATORY, TAX, BUSINESS AND RELATED ASPECTS OF A PURCHASE OF PLACING SHARES. Details of the Placing Agreement and the Placing Shares The Company has entered into a placing agreement (the "Placing Agreement") with Collins Stewart Europe Limited and Panmure Gordon (UK) Limited (together the "Managers"), pursuant to which each of the Managers has, on the terms and subject to the satisfaction of certain conditions set out therein, undertaken severally, and not jointly and severally, to use its reasonable endeavours as agent of the Company to seek to procure Placees for the Placing Shares. In accordance with the terms of the Placing Agreement and a subscription and transfer agreement between the Company, Amber Lily (Jersey) Limited and the Managers (the "Subscription and Transfer Agreement") and, subject to execution of terms of sale setting out the total number of Placing Shares and the final Placing Price following completion of the Bookbuilding Process (as defined below), if Placees procured by the Managers fail to take up their allocation of Placing Shares at the Placing Price, the Managers agree severally, and not jointly and severally, to subscribe for or acquire such Placing Shares themselves at the Placing Price on and subject to the terms set out in the Placing Agreement. Completion of the Placing is not conditional on the approval of the Acquisition by Chesnara's shareholders. In the unlikely event that completion of the Acquisition does not take place the Directors will assess the Group's ongoing funding needs taking account of shareholders' best interests. The issue of the Placing Shares (excluding the Treasury Shares) is to be effected by way of a cashbox placing, pursuant to which the allotment and issue of the Placing Shares will be made by the Company to Placees in consideration for the transfer to the Company of certain shares in a Jersey-incorporated subsidiary of the Company by the Managers. The Placing is conditional upon, inter alia, Admission becoming effective and on the Placing Agreement becoming unconditional and not being terminated in accordance with its terms. The Placing Shares will, when issued (or, in the case of the Treasury Shares, transferred), be credited as fully paid and will rank pari passu in all respects with the existing issued ordinary shares of 5 pence each in the capital of the Company, with the right to receive all dividends and other distributions declared, made or paid in respect of such ordinary shares after the date of issue of the Placing Shares. The Placing will be made on a non pre-emptive basis. The Placing Shares will be issued free of any encumbrance, lien or other security interest. Application for listing and admission to trading Application will be made to the FSA (as the competent authority for listing) for admission of the Placing Shares (excluding the Treasury Shares) to the Official List maintained by the FSA in accordance with section 74(1) of the Financial Services and Markets Act 2000 ("FSMA") for the purposes of part VI of FSMA and to the London Stock Exchange plc (the "London Stock Exchange") for admission to trading of the Placing Shares (excluding the Treasury Shares) on the London Stock Exchange's main market for listed securities (together "Admission"). It is expected that Admission will become effective and that dealings will commence on or around 1 December 2010. Bookbuild Commencing today, each of the Managers will be conducting an accelerated bookbuilding process (the "Bookbuilding Process") to determine demand for participation in the Placing by Placees. This Appendix gives details of the terms and conditions of, and the mechanics of participation in, the Placing. Participation in, and principal terms of, the Bookbuilding Process Participation in the Placing will only be available to persons who may lawfully be, and are, invited to participate by the Managers. Each of the Managers and their respective Affiliates is entitled to participate as a Placee in the Bookbuilding Process. The Bookbuilding Process will establish a single price (the "Placing Price") payable to the Managers by all Placees whose bids are successful. Any discount to the market price of the Placing Shares of the Company will be determined in accordance with the Listing Rules as published by the FSA pursuant to Part IV of FSMA (the "Listing Rules"). The books will open with immediate effect. The Bookbuilding Process is then expected to close not later than 4.30 p.m. London time on 26 November 2010, but may be closed earlier at the sole discretion of the Managers. A further announcement will be announced on a Regulatory Information Service as soon as practicable following the close of the Bookbuilding Process detailing the Placing Price at which the Placing Shares are being placed (the "Pricing Announcement"). The Company reserves the right (upon the agreement of the Managers) to reduce or seek to increase the amount to be raised pursuant to the Placing, in its absolute discretion. The Managers may, subject to the prior consent of the Company, accept bids that are received after the Bookbuilding Process has closed. A bid in the Bookbuilding Process will be made on the terms and conditions in this Appendix and will not be capable of variation or revocation after the close of the Bookbuilding Process. A Placee who wishes to participate in the Bookbuilding Process should communicate its bid by telephone to the usual sales contact at Collins Stewart or Panmure Gordon. If successful, the relevant Manager will re-contact and confirm orally to Placees following the close of the Bookbuilding Process the size of their respective allocations and a trade confirmation will be dispatched as soon as possible thereafter. The identity of Placees and the basis of the allocations are at the discretion of the Company and the Managers. The relevant Manager's oral confirmation of the size of allocations and each Placee's oral commitments to accept the same will constitute an irrevocable legally binding agreement in favour of the Company and the Managers, pursuant to which each such Placee will be required to accept the number of Placing Shares allocated to the Placee at the Placing Price set out in the Pricing Announcement and otherwise on the terms and subject to the conditions set out herein and in accordance with the Company's articles of association. Each of the Managers reserves the right to accept bids, either in whole or in part, on the basis of allocations determined in accordance with the Company and to scale back the number of Placing Shares to be subscribed for or acquired by any Placee in the event of an oversubscription under the Placing. Each of the Managers also reserves the right not to accept offers to subscribe for or acquire Placing Shares or to accept such offers in part rather than in whole. The acceptance of offers shall be at the absolute discretion of each of the Managers. Each of the Managers shall be entitled to effect the Placing by such alternative method to the Bookbuilding Process as they may determine in agreement with the Company. To the fullest extent permissible by law, neither the Company, the Managers or any holding company thereof, nor any subsidiary, branch, affiliate or associated undertaking or any subsidiary, branch, affiliate or associated undertaking of any such holding company nor any of their respective directors, officers and employees (each an "Affiliate") nor any person acting on their behalf shall have any liability to Placees (or to any other person whether acting on behalf of a Placee or otherwise). In particular, neither Manager, the Company nor any Affiliate thereof, nor any person acting on their behalf shall have any liability (including, to the extent permissible by law, any fiduciary duties) in respect of their conduct of the Bookbuilding Process or of such alternative method of effecting the Placing as may be agreed by the Company and the Managers. No commissions will be paid to Placees or by Placees in respect of any Placing Shares. Irrespective of the time at which a Placee's allotment pursuant to the Placing is confirmed, settlement for all Placing Shares to be acquired by the Placee pursuant to the Placing will be required to be made at the same time, on the basis explained below under "Registration and Settlement". Each Placee's obligations will be owed to the Company and to the Managers. The allotment and issue of Placing Shares (excluding the Treasury Shares) to Placees by the Company will be in consideration for the transfer to the Company of certain shares in a Jersey-incorporated subsidiary of the Company ("Newco") by the Managers. The consideration for the transfer of Treasury Shares to Placees by the Company will be the payment by the Managers to the Company of an amount equal to the product of the number of Treasury Shares and the Placing Price (the "Cash Consideration"). Following the oral confirmation referred to above, each Placee will also have an immediate, separate, irrevocable and binding obligation, owed to the Company and the relevant Managers as agents of the Company, to pay to the Managers (or as the Managers may direct) in cleared funds an amount equal to the product of the Placing Price and the number of Placing Shares such Placee has agreed to acquire. The Managers will procure the allotment by the Company of such Placing Shares (excluding the Treasury Shares) to each Placee by effecting the necessary transfer to the Company of shares in the Subsidiary and the transfer of such Treasury Shares to each Placee by paying the Cash Consideration to the Company following each Placee's payment to the Managers of such amount. All obligations of the Managers under the Placing will be subject to fulfillment of the conditions referred to below under "Conditions of the Placing". Conditions of the Placing The obligations of each of the Managers under the Placing Agreement are conditional, inter alia, on: 1 agreement being reached by the Company and the Managers on the Placing Price and the number of Placing Shares; 2 Admission becoming effective in accordance with paragraph 2.1 of the Admission and Disclosure Standards produced by the London Stock Exchange by no later than 8:00am on 1 December 2010; 3 the Company complying with its obligations under the Placing Agreement to the extent that the same fall to be performed prior to Admission including the delivery, by no later than 7.00 a.m. on the day of Admission, to the Managers of a certificate confirming, inter alia, that none of the representations, warranties and undertakings given by the Company in the Placing Agreement has been breached or was untrue, inaccurate or misleading when made or would cease to be true and accurate were they to be repeated by reference to the facts and circumstances subsisting on the date of the certificate; 4 the Placing Agreement becoming unconditional in all other respects and not having been terminated in accordance with its terms; and 5 the Company allotting (or selling in the case of the Treasury Shares) the Placing Shares subject only to Admission in accordance with the terms of the Placing Agreement. If (a) the conditions are not fulfilled (or, to the extent permitted under the Placing Agreement, are not waived in whole or in part by the Managers by the respective time or date where specified (or such later time or date as the Managers and the Company may agree)), or (b) any such condition becomes incapable of being fulfilled and the Managers inform the Company that they will not waive such condition, or (c) the Placing Agreement is terminated in the circumstances specified below, the Placing will lapse and each Placee's rights and obligations hereunder shall cease and terminate at such time and each Placee agrees that no claim can be made by or on behalf of a Placee in respect thereof. None of the Managers, the Company or any of their respective Affiliates shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise) in respect of any decision it may make as to whether or not to waive or to extend the time and/or date for the satisfaction of any condition in the Placing Agreement or in respect of the Placing generally. By participating in the Bookbuilding Process, each Placee agrees that its rights and obligations hereunder cease and terminate only in the circumstances described above and/or under "Right to terminate under the Placing Agreement" below, and will not be capable of rescission or termination by the Placee after the relevant Manager's oral confirmation of the size of such Placee's allocation and such Placee's oral commitment to accept the same. Right to terminate under the Placing Agreement Either of the Managers may, in its absolute discretion, terminate the Placing Agreement in certain circumstances by giving notice to the Company at any time prior to Admission if, inter alia: a) there has been a material breach of any warranty or undertaking in the Placing Agreement which is material in the context of the Placing or an event occurs or is likely to occur which, if the warranties and undertakings in the Placing Agreement were repeated immediately after that event, would give rise to a material breach of them; b) there has been a change in or a development involving a prospective change in or affecting the condition (financial or otherwise), prospects, earnings, results of operations or business affairs of the Company or any group company which makes it inadvisable or impractical to proceed with the Placing; c) there has been: (i) any change or development involving a prospective change in the financial, political (including an outbreak or escalation of hostilities or act of terrorism), economic or market conditions or currency exchange rates or exchange controls in the United Kingdom or elsewhere; or (ii) any change or development involving a prospective change in taxation adversely affecting the Company or the issue or transfer of shares of the Subsidiary or the Company (including the Placing Shares); or (iii) any other calamity or crisis, and in each case, which would be likely to prejudice dealings in the ordinary shares of the Company (including the Placing Shares); or (iv) trading in any securities of the Company has been suspended or materially limited by the London Stock Exchange, or if trading generally on the London Stock Exchange has been suspended or materially limited, or minimum or maximum prices for trading in securities have been fixed, or maximum ranges for prices have been required, by the London Stock Exchange or by such system or by order of any governmental or regulatory authority; or (v) a general moratorium on commercial banking activities has been declared by the relevant authorities in the United Kingdom or if there has occurred a material disruption in commercial banking or securities settlement or clearance services in the United Kingdom. If the obligations of each of the Managers under the Placing Agreement are terminated in accordance with its terms, the rights and obligations of each Placee in respect of the Placing as described in this Announcement (including this Appendix) shall cease and terminate at such time and no claim can be made by any Placee in respect thereof. By participating in the Placing, each Placee agrees with the Managers that the exercise by the Managers of any right of termination or other discretion under the Placing Agreement shall be within the absolute discretion of each of the Managers and that neither of the Managers need make any reference to any such Placee in this regard and that, to the fullest extent permitted by law, neither of the Managers shall have any liability whatsoever to any such Placee (or to any other person whether acting on behalf of a Placee or otherwise) in connection with the exercise of such rights. No Prospectus No offering document or prospectus has been or will be prepared in relation to the Placing and Placees' commitments will be made solely on the basis of the information contained in this Announcement (including this Appendix) and any information previously published by or on behalf of the Company by notification to a Regulatory Information Service (as defined in the Listing Rules). Each Placee, by accepting a participation in the Placing, agrees that the content of this Announcement (including this Appendix) and the Pricing Announcement is exclusively the responsibility of the Company and confirms to the Managers and the Company that it has neither received nor relied on any information, representation, warranty or statement made by or on behalf of the Managers (other than the amount of the relevant Placing participation in the oral confirmation given to Placees and the trade confirmation referred to below), any of their Affiliates, any persons acting on their behalf or the Company and neither the Managers nor any of their Affiliates, nor any persons acting on their behalf, nor the Company will be liable for the decision of any Placee to participate in the Placing based on any other information, representation, warranty or statement which the Placee may have obtained or received (regardless of whether or not such information, representation, warranty or statement was given or made by or on behalf of any such persons). By participating in the Placing, each Placee acknowledges to and agrees with the Managers for itself and as agent for the Company that, except in relation to the information contained in this Appendix, it has relied on its own investigation of the business, financial or other position of the Company in deciding to participate in the Placing. Nothing in this paragraph shall exclude the liability of any person for fraudulent misrepresentation. Registration and settlement Settlement of transactions in the Placing Shares following Admission will take place within the system administered by Euroclear UK & Ireland Limited ("CREST") using the delivery versus payment ("DVP") mechanism, subject to certain exceptions. The Company and each of the Managers reserves the right to require settlement for and delivery of the Placing Shares to Placees in certificated form as they deem necessary, if delivery or settlement is not possible or practicable within CREST within the timetable set out in this Appendix or would not be consistent with the regulatory requirements in the Placee's jurisdiction. Each Placee allocated Placing Shares in the Placing will be sent a trade confirmation stating the number of Placing Shares allocated to it, the Placing Price, the aggregate amount owed by such Placee to the relevant Manager and settlement instructions. It is expected that such trade confirmation will be dispatched on 26 November and that this will also be the trade date. Each Placee agrees that it will do all things necessary to ensure that delivery and payment is completed in accordance with either the standing CREST or certificated settlement instructions which it has received from the relevant Manager. It is expected that settlement will be on 1 December 2010 on a DVP basis in accordance with the instructions set out in the trade confirmation unless otherwise notified by the Managers. Interest is chargeable daily on payments not received from Placees on the due date in accordance with the arrangements set out above at the rate of 2 percentage points above the base rate of Barclays Bank Plc. Each Placee is deemed to agree that if it does not comply with these obligations, the Managers may sell any or all of the Placing Shares allocated to the Placee on such Placee's behalf and retain from the proceeds, for the Manager's account and profit, an amount equal to the aggregate amount owed by the Placee plus any interest due. The Placee will, however, remain liable for any shortfall below the aggregate amount owed by such Placee and it may be required to bear any stamp duty or stamp duty reserve tax (together with any interest or penalties) which may arise upon the sale of such Placing Shares on such Placee's behalf. If Placing Shares are to be delivered to a custodian or settlement agent, the Placee should ensure that the trade confirmation is copied and delivered immediately to the relevant person within that organisation. Insofar as Placing Shares are registered in the Placee's name or that of its nominee or in the name of any person for whom the Placee is contracting as agent or that of a nominee for such person, such Placing Shares will, subject as provided below, be so registered free from any liability to UK stamp duty or stamp duty reserve tax. If there are any circumstances in which any other stamp duty or stamp duty reserve tax is payable in respect of the issue or transfer of the Placing Shares, neither the Managers nor the Company shall be responsible for the payment thereof. Placees will not be entitled to receive any fee or commission in connection with the Placing. Representations and Warranties By participating in the Placing, each Placee (and any person acting on such Placee's behalf) irrevocably acknowledges, confirms, undertakes, represents, warrants and agrees (as the case may be) with and to each of the Managers and the Company (for their own benefit and, where relevant, the benefit of their Affiliates and any person acting on their behalf), in each case as a fundamental term of their application for Placing Shares, the following: 1. that it has read and understood this Announcement (including this Appendix) in its entirety and that its purchase of the Placing Shares is subject to and based upon all the terms, conditions, representations, warranties, acknowledgements, agreements and undertakings and other information contained herein; 2. that it has not received a prospectus or other offering document in connection with the Placing and acknowledges that no prospectus or offering document has been prepared in connection with the placing of the Placing Shares; 3. that the Placing is not conditional on the approval of the Acquisition which, if not approved by Shareholders at the General Meeting, may fail to complete; 4. that it will indemnify on an after-tax basis and hold harmless each of the Company, the Managers, their respective Affiliates and any person acting on their behalf from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements, agreements and undertakings in this Appendix and further agrees that the provisions of this Appendix shall survive after completion of the Placing; 5. that the ordinary shares of the Company in issue at the date of this Announcement are listed on the Official List of the UK Listing Authority and admitted to trading on the main market of the London Stock Exchange, and the Company is therefore required to publish certain business and financial information in accordance with the rules and practices of the FSA (collectively, the "Exchange Information") and that the Placee is able to obtain or access the Exchange Information without undue difficulty; 6. that neither the Managers, nor any of their respective Affiliates nor any person acting on their behalf has provided, and will not provide it with any material or information regarding the Placing Shares or the Company other than this Announcement; nor has it requested either of the Managers, any of their Affiliates or any person acting on their behalf to provide it with any such material or information; 7. that the content of this Announcement is exclusively the responsibility of the Company and that neither of the Managers, nor any of their respective Affiliates nor any person acting on their behalf will be responsible for or shall have any liability for any information, representation or statement relating to the Company contained in this Appendix or any information previously published by or on behalf of the Company and neither of the Managers, nor any of their respective Affiliates nor any person acting on their behalf will be liable for any Placee's decision to participate in the Placing based on any information, representation or statement contained in this Announcement or otherwise. Each Placee further represents, warrants and agrees that the only information on which it is entitled to rely and on which such Placee has relied in committing to subscribe for or acquire the Placing Shares is contained in this Appendix and any Exchange Information, such information being all that it deems necessary to make an investment decision in respect of the Placing Shares, and that it has relied on its own investigation with respect to the Placing Shares and the Company in connection with its decision to subscribe for or acquire the Placing Shares and acknowledges that it is not relying on any investigation that the Managers, any of their Affiliates or any person acting on their behalf may have conducted with respect to the Placing Shares or the Company and none of such persons has made any representations to it, express or implied, with respect thereto; 8. that it has not relied on any information relating to the Company contained in any research reports prepared by either of the Managers, their Affiliates or any person acting on their or any of their Affiliates' behalf and understands that (i) neither of the Managers, any of their Affiliates nor any person acting on their behalf has or shall have any liability for public information or any representation; (ii) neither of the Managers, any of their Affiliates nor any person acting on their behalf has or shall have any liability for any additional information that has otherwise been made available to such Placee, whether at the date of publication, the date of this Appendix or otherwise; and that (iii) neither of the Managers, any of their Affiliates nor any person acting on their behalf makes any representation or warranty, express or implied, as to the truth, accuracy or completeness of such information, whether at the date of publication, the date of this Announcement or otherwise; 9. that (i) it (or the beneficial owner, as applicable) is entitled to subscribe for or acquire the Placing Shares under the laws and regulations of all relevant jurisdictions which apply to it (or the beneficial owner, as applicable); (ii) it has fully observed such laws and regulations and obtained all such governmental and other guarantees and other consents and authorities which may be required thereunder and complied with all necessary formalities; (iii) it has the necessary power, authority and capacity to make the acknowledgements, agreements, representations and warranties contained herein and in the investor letter, commit to participate in the Placing and to perform its obligations in relation thereto and will honour such obligations including, inter alia, subscribing for or acquiring the Placing Shares and executing and delivering all necessary documents in connection with the same; (iv) it has paid any issue, transfer or other taxes due in connection with its participation in any territory and (v) it has not taken any action which will or may result in the Company, the Managers, any of their Affiliates or any person acting on their behalf being in breach of the legal and/or regulatory requirements of any territory in connection with the Placing; 10. that the allocation, allotment, issue or transfer and delivery to the Placee, or the person specified by the Placee for registration as holder, of Placing Shares will not give rise to a liability under any of sections 67, 70, 93 or 96 of the Finance Act 1986 (depositary receipts and clearance services) and that the Placing Shares are not being acquired in connection with arrangements to issue depositary receipts or to issue or transfer Placing Shares into a clearance system; 11. that it understands that the Placing Shares have not been and will not be registered under the Securities Act or under the securities laws of any state or other jurisdiction of the United States, not approved or disapproved by the US Securities and Exchange Commission, any State Securities Commission in the Untied States or any other United States regulatory authority; 12. that it is acquiring the Placing Shares in an "offshore transaction" outside the Untied States in a transaction which is in compliance with Regulation S under the Securities Act; 13. that it will not offer, sell, pledge or transfer any Placing Shares, except in accordance with the Securities Act and any applicable laws of any state of the United States and any other jurisdiction; 14. that it will not distribute, forward, transfer or otherwise transmit any materials concerning the Placing Shares to any person within the United States; 15. that it has not offered or sold and will not offer or sell any Placing Shares to persons in the European Economic Area prior to Admission except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and which will not result in an offer to the public in any member state of the European Economic Area within the meaning of the Prospectus Directive (including any relevant implementing measure in any member state); 16. that it has not offered or sold and will not offer or sell any Placing Shares to persons in the United Kingdom prior to the expiry of a period of six months from Admission, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and which will not result in an offer to the public in the United Kingdom within the meaning of section 85(1) of FSMA; 17. that it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) relating to the Placing Shares in circumstances in which it is permitted to do so pursuant to section 21 of FSMA; 18. that it has complied and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the Placing Shares in, from or otherwise involving the United Kingdom; 19. that it has complied with its obligations in connection with money laundering and terrorist financing under the Criminal Justice Act 1993, the Proceeds of Crime Act 2002, the Terrorism Act 2000, the Anti-terrorism Crime and Security Act 2001 and the Money Laundering Regulations (2007) (the "Regulations") and, if it is making payment on behalf of a third party, that satisfactory evidence has been obtained and recorded by it to verify the identity of the third party as required by the Regulations; 20. that it is (a) a person falling within Article 19(5) of the FPO or (b) a person falling within Article 49(2)(a) to (d) of the FPO and undertakes that it will acquire, hold, manage or dispose of any Placing Shares that are allocated to it for the purposes of its business; 21. that it is a "qualified investor" as defined in section 86(7) of FSMA, being a person falling within Article 2.1(e) of the Prospectus Directive; 22. that it (and any person acting on its behalf) will pay for the Placing Shares acquired by it in accordance with this Announcement on the due time and date set out herein against delivery of such Placing Shares against it, failing which the relevant Placing Shares may be placed with other subscribers or sold as the Managers may, in their absolute discretion, determine and it will remain liable for any shortfall below the net proceeds of such sale and the placing proceeds of such Placing Shares and may be required to bear any stamp duty or stamp duty reserve tax (together with any interest or penalties due pursuant to the terms set out or referred to in this Appendix) which may arise upon the sale of such Placee's Placing Shares on its behalf; 23. that neither of the Managers, none of their Affiliates nor any person acting on their behalf is making any recommendations to it or advising it regarding the suitability or merits of any transaction it may enter into in connection with the Placing, and acknowledges that neither of the Managers, any of their Affiliates nor any person acting on their behalf has any duties or responsibilities to it for providing advice in relation to the Placing or in respect of any representations, warranties, undertakings or indemnities contained in the Placing Agreement or for the exercise or performance of any of each of the Managers' rights and obligations thereunder, including any right to waive or vary any condition or exercise any termination right contained therein; 24. that (i) the person whom it specifies for registration as holder of the Placing Shares will be (a) the Placee or (b) the Placee's nominee, as the case may be, (ii) neither the Managers nor the Company will be responsible for any liability to stamp duty or stamp duty reserve tax resulting from a failure to observe this requirement and (iii) the Placee and any person acting on its behalf agrees to subscribe for or acquire the Placing Shares on the basis that the Placing Shares will be allotted to the CREST stock account of either of the Managers which will hold them as nominee for the Placees until settlement in accordance with its standing settlement instructions with payment for the Placing Shares being made simultaneously upon receipt of the Placing Shares in the Placee's stock account on a delivery versus payment basis; 25. that these terms and conditions and any agreements entered into by it pursuant to these terms and conditions and any non-contractual obligations arising out of or in connection with such agreements shall be governed by and construed in accordance with the laws of England and it submits (on behalf of itself and on behalf of any person on whose behalf it is acting) to the exclusive jurisdiction of the English courts as regards any claim, dispute or matter arising out of any such contract, except that enforcement proceedings in respect of the obligation to make payment for the Placing Shares (together with any interest payable thereon) may be taken by the Company or the Managers in any jurisdiction in which the relevant Placee is incorporated or in which any of its securities have a quotation on a recognized Stock Exchange; 26. that it irrevocably appoints any director of the relevant Manager as its agent for the purposes of executing and delivering to the Company and/or its registrars any documents on its behalf necessary to enable it to be registered as the holder of any of the Placing Shares agreed to be taken up by it under the Placing; 27. that it is not a resident of any Prohibited Jurisdiction and acknowledges that the Placing Shares have not been and will not be registered nor will a prospectus be cleared in respect of the Placing Shares under the securities legislation of any Prohibited Jurisdictions and, subject to certain exceptions, may not be offered, sold, taken up, renounced, delivered or transferred, directly or indirectly, within any Prohibited Jurisdiction; 28. that any person who confirms to either of the Managers on behalf of a Placee an agreement to subscribe for or acquire Placing Shares and/or who authorises either of the Managers to notify the Placee's name to the Company's registrar, has authority to do so on behalf of the Placee; 29. that the agreement to settle each Placee's acquisition of Placing Shares (and/ or the acquisition of a person for whom it is contracting as agent) free of stamp duty and stamp duty reserve tax depends on the settlement relating only to an acquisition by it and/or such person direct from the Company of the Placing Shares in question. Such agreement assumes that the Placing Shares are not being acquired in connection with arrangements to issue depositary receipts or to issue or transfer the Placing Shares into a clearance service. If there were any such arrangements, or the settlement related to other dealing in the Placing Shares, stamp duty or stamp duty reserve tax may be payable, for which neither the Company nor the Managers will be responsible. If this is the case, the Placee should take its own advice and notify the Managers accordingly; 30. that the Placing Shares will be issued and/or transferred subject to the terms and conditions set out in this Appendix; 31. that when a Placee or any person acting on behalf of the Placee is dealing with the relevant Manager any money held in an account with the relevant Manager on behalf of the Placee and/or any person acting on behalf of the Placee will not be treated as client money within the meaning of the relevant rules and regulations of the FSA. The Placee acknowledges that the money will not be subject to the protections conferred by the client money rules; as a consequence, this money will not be segregated from the relevant Manager's money in accordance with the client money rules and will be used by the relevant Manager in the course of its business; and the Placee will rank only as a general creditor of the relevant Manager (as the case may be); 32. that the basis of allocation will be determined by the Company and the Managers at their absolute discretion. The right is reserved to reject in whole or in part and/or scale back any participation in the Placing; 33. that its commitment to subscribe for Placing Shares on the terms set out herein and in the investor letter will continue notwithstanding any amendment that may in future be made to the terms of the Placing and that Placees will have no right to be consulted or require that their consent be obtained with respect to the Company's conduct of the Placing; 34. that, in making any decision to participate in the Placing, it has knowledge and experience in financial, business and international investment matters as is required to evaluate the merits and risks of subscribing for or purchasing the Placing Shares. It further confirms that (a) it is experienced in investing in securities of this nature in this sector and is aware that it may be required to bear, and is able to bear, the economic and financial risk of, and is able to sustain a complete loss in connection with the Placing, (b) it has had sufficient time to consider and conduct its own investigation with respect to the offer and purchase of the Placing Shares, including the tax, legal, currency and other economic considerations relevant to such investment, and (c) it will not look to the Company, the Managers, any of their respective Affiliates or any person acting on their behalf for all or part of any such loss or losses it or they may suffer; 35. that the Company, the Managers, their respective Affiliates and any person acting on their behalf will rely upon its irrevocable representations, warranties, undertakings, agreements and acknowledgments set forth herein and in the investor letter, and it agrees to notify the Company and the Managers promptly in writing if any of its representations, warranties, undertakings and agreements or acknowledgements cease to be accurate and complete; and 36. that it irrevocably authorises the Company and the Managers to produce this announcement pursuant to, in connection with, or as maybe required by any applicable law or regulation, administrative or legal proceeding or official inquiry with respect to the matters set forth herein. No UK stamp duty or stamp duty reserve tax should be payable to the extent that the Placing Shares are issued or transferred (as the case may be) into CREST to, or to the nominee of, a Placee who holds those shares beneficially (and not as agent or nominee for any other person) within the CREST system and registered in the name of such Placee or such Placee's nominee. Any arrangements to issue or transfer the Placing Shares into a depositary receipts system or a clearance service or to hold the Placing Shares as agent or nominee of a person to whom a depositary receipt may be issued or who will hold the Placing Shares in a clearance service, or any arrangements subsequently to transfer the Placing Shares, may give rise to UK stamp duty and /or stamp duty reserve tax, for which neither the Company nor the Managers will be responsible and the Placee to whom (or on behalf of whom, or in respect of the person for whom it is participating in the Placing as an agent or nominee) the allocation, allotment, issue or delivery of Placing Shares has given rise to such stamp duty or stamp duty reserve tax undertakes to pay such stamp duty or stamp duty reserve tax forthwith and to indemnify on an after-tax basis and to hold harmless the Company and the Managers in the event that any of the Company and/or the Managers has incurred any such liability to stamp duty or stamp duty reserve tax. In addition, Placees should note that they will be liable for any capital duty, stamp duty and all other stamp, issue, securities, transfer, registration, documentary or other duties or taxes (including any interest, fines or penalties relating thereto) payable outside the UK by them or any other person on the acquisition by them of any Placing Shares or the agreement by them to subscribe for or acquire any Placing Shares.All times and dates in this Appendix may be subject to amendment. The Managers shall notify the Placees and any person acting on behalf of the Placees of any such changes. This Announcement has been issued by the Company and is the sole responsibility of the Company. The rights and remedies of the Managers and the Company under these terms and conditions are in addition to any rights and remedies which would otherwise be available to each of them and the exercise or partial exercise or partial exercise of one will not prevent the exercise of others. Each Placee may be asked to disclose in writing or orally to the Managers: (a) if he is an individual, his nationality; or (b) if he is a discretionary fund manager, the jurisdiction in which the funds are managed or owned. Appendix II: Definitions The following definitions apply throughout this Announcement unless the context otherwise requires: "Acquisition" the proposed acquisition by the Company of the Save & Prosper Group through the proposed acquisition of the entire issued share capital of Save & Prosper Insurance Limited pursuant to the Acquisition Agreement; "Acquisition the conditional acquisition agreement between the Company and Agreement" the Seller dated Thursday, 25 November 2010 relating to the Acquisition; "Admission" admission of the New Shares to the Official List of the UK Listing Authority and to trading on the main market of the London Stock Exchange; "CA" Countrywide Assured plc; "CALH" Countrywide Assured Life Holdings Group; "Chesnara" or Chesnara plc; the "Company" "Collins Stewart" Collins Stewart Europe Limited; "CREST" the relevant system (as defined in the Uncertificated Securities Regulations 2010) in respect of which Euroclear is the operator (as defined in The Uncertificated Securities Regulations 2010); "CWA" City of Westminster Assurance Limited; "Directors" or the directors of the Company as at the date of this "Board" Announcement; "Enlarged The Group as enlarged by the acquisition of the Save & Prosper Group" Group; "Euroclear" Euroclear UK & Ireland Limited, a company incorporated under the laws of England and Wales; "Facility the agreement between the Company and The Royal Bank of Scotland Agreement" plc dated 17 November 2010 relating to the Loan Facility; "Financial the Financial Services Authority of the UK in its capacity as Services the competent authority for the purposes of Part VI of FSMA and Authority" or in the exercise of its functions in respect of admission to the "FSA" Official List otherwise than in accordance with Part VI of FSMA; "FSMA" the Financial Services and Markets Act 2000 of England and Wales, as amended; "General the general meeting of the Company, notice of which will be set Meeting" out in the Class 1 Circular; "Group" the Company and its existing subsidiary undertakings; "HCL" HCL Insurance BPO Services Limited; "IFRS" International Financial Reporting Standards; "LIBOR" London Interbank Offered Rate; "Listing the listing rules made by the FSA under Part VI of FSMA (as Rules" amended from time to time); "Loan a new five year term facility of GBP40 million with Royal Bank Facility" of Scotland plc pursuant to the Facility Agreement; "London Stock London Stock Exchange plc; Exchange" "Moderna" Moderna FÃ¶rsÃ¤kringar Liv AB and its subsidiary and associated companies; "NewCo" Amber Lily (Jersey) Limited, a company incorporated in Jersey having its registered address at Whiteley Chambers, Don Street, St. Helier, Jersey, JE4 9WG; "New Shares" The 10,458,877 new Ordinary Shares issued pursuant to the Placing; "Official the Official List of the Financial Services Authority; List" "Ordinary Ordinary shares of five pence each in the capital of the Shares" Company; "Panmure Panmure Gordon (UK) Limited Gordon" "Placing" the placing by Collins Stewart Europe Limited and Panmure Gordon (UK) Limited of the New Shares and the Treasury Shares at the Issue Price pursuant to the Placing Agreement; "Placing the placing agreement dated 26 November 2010 between, inter Agreement" alia, Collins Stewart Europe Limited, Panmure Gordon (UK) Limited and Chesnara relating to the Placing; "Resolution" the resolution set out in the notice of General Meeting set out in the Class 1 Circular; "Save & Save & Prosper Insurance Limited and its subsidiary, Save & Prosper Group" Prosper Pensions Limited; "Save & Save & Prosper Insurance Limited, a company incorporated under Prosper the laws of England and Wales with company number 0322226; Insurance Limited" "Save & Save & Prosper Pensions Limited, a company incorporated under Prosper the laws of England and Wales with company number 0615364; Pensions Limited" "Seller" JP Morgan Asset Management Marketing Limited; "Shareholder holder(s) of Ordinary Shares; (s)" "Treasury the 3,096,194 Ordinary Shares (which are "qualifying shares" for Shares" the purposes of section 724(2) of the Companies Act 2006 and which were held by the Company as treasury shares as at the date of the Placing Agreement) sold pursuant to the Placing; "UK" or the United Kingdom of Great Britain and Northern Ireland. "United Kingdom" Appendix III: Chesnara Interim Management Statement Interim Management Statement for the period from 1 January 2010 to 18 November 2010 19 November 2010 This statement relates primarily to the financial position of Chesnara plc as at 30 September 2010 and to its financial performance during the first three quarters of the year. Where events and transactions have occurred since the end of the third quarter, which are estimated to have a material impact on management's core expectation of the financial position and/or financial performance of the Group, then these are identified, together with a broad indication of their impact. EEV The movement in Group European Embedded Value ('EEV'), since the position last reported in the interim financial statements for the six months ended 30 June 2010, is set out in the following table: Quarter ended 30 Quarter ended Year ended September 30 September 31 December 2010 2009 2009 GBPm GBPm GBPm EEV at beginning of 255.1 178.9 182.7 period Profit arising on acquisition of Swedish Business - 54.7 54.2 Earnings for the period, net of tax - UK Business 10.1 13.2 28.1 - Swedish Business 4.9 4.9 8.7 - Other Group (0.8) (1.3) (0.7) Activities Foreign exchange reserve movement 9.2 8.3 5.5 Dividends paid - - (15.9) ---------- ---------- ---------- EEV at end of period 278.5 258.7 262.6 ---------- ---------- ---------- EEV of GBP278.5 million as at 30 September 2010 is stated before appropriation of a dividend of GBP5.9 million which was paid on 12 October 2010. EEV of GBP258.7 million as at 30 September 2009 is stated before appropriation of a dividend of GBP5.7 million which was paid on 12 October 2009. The third quarter result has been significantly impacted by favourable experience in investment markets. Leading UK equity market indices improved by some 13 per cent. over the quarter and leading Swedish market indices improved by 8-10 per cent.. While rates on fixed interest investments continued to drift down during the quarter in the UK they have, by contrast, strengthened in Sweden. Given the different mixes of underlying investment and insurance contracts in the UK and Swedish Businesses these contrasting movements have, in fact, led to beneficial outcomes in both as set out below. UK Business Within the UK Business favourable investment market effects gave rise to pre-tax gains of some GBP8.0 million (GBP6.3 million net of tax) in the third quarter, arising principally from higher deductions from unit-linked funds, which have increased in value, and through significant increases in the capital value of fixed interest securities which match non-linked funds. This result has been enhanced by: (i) continuing favourable mortality and morbidity experience of GBP0.5 million (GBP0.4 million net of tax); (ii) continuing favourable persistency experience of GBP1.9 million (GBP1.5 million net of tax); (iii) unwind of the risk discount rate on existing business of GBP1.2 million (GBP1.0 million net of tax); and (iv) new business contribution and expense efficiencies together realising GBP1.2 million (GBP1.0 million net of tax). Swedish Business (all stated amounts are pre-tax, tax effects for the period being immaterial) Within the Swedish Business favourable investment markets effects gave rise to gains of some GBP6.0 million in the quarter, arising principally from the impact of higher investment growth in both equity and fixed interest markets on assumed future earnings from the core pensions and savings business. This outcome has been enhanced by: (i) a GBP0.8 million favourable outturn on risk and health insurance business, underpinned by the performance of the Aspis business acquired earlier in the year; (ii) GBP1.6 million unwind of the risk discount rate; and (iii) a new business contribution of GBP0.8 million. On the adverse side, the result has been impacted by: (i) unfavourable persistency experience of GBP0.8 million; (ii) an expense overrun of GBP1.6 million; and (iii) an unfavourable effect of GBP1.8 million arising from the change in the investment mix in the underlying unit-linked contracts. The foreign exchange gain of GBP9.2 million set out in the table above arises from the effect of translating the SEK-denominated EEV of the Swedish business into UK pounds sterling which depreciated 9 per cent. against the Swedish Krona over the third quarter. The subsequent 4 per cent. appreciation of sterling against the Swedish Krona is estimated to have reduced this gain by GBP4.1 million. IFRS The IFRS result arising in the quarter ended 30 September 2010 is set out in the following table: Quarter ended 30 Quarter ended 30 Year ended 31 September 2010 September 2009 December 2009 GBPm GBPm GBPm Beginning of the period* Pre-tax 12.0 11.2 - earnings Tax (4.2) (2.9) - ---------- ---------- ---------- Post-tax 7.8 8.3 - earnings ---------- ---------- ---------- Pre-tax earnings arising in the third quarter Profit arising on acquisition of the Swedish Business - 25.6 25.1 UK Business 7.8 9.5 24.7 result Swedish (0.5) (1.4) (2.6) Business result Other group (0.8) (1.3) (2.5) activities ---------- ---------- ---------- 6.5 32.4 44.7 Tax arising (1.8) (1.9) 1.2 in the period ---------- ---------- ----------- Post-tax earnings arising in the period 4.7 30.5 45.9 ----------- ---------- ---------- End of period Pre-tax 18.5 43.6 44.7 earnings Tax (6.0) (4.8) 1.2 ---------- ---------- ---------- Post-tax 12.5 38.8 45.9 earnings ---------- ---------- ---------- * Cumulative earnings position for the first two quarters of 2010 The total IFRS pre-tax result for the third quarter continues to be dominated by the surplus arising within the UK life and pensions business which is in run-off. This was enhanced in the period by favourable investment market effects of GBP1.7 million and favourable mortality and morbidity experience of GBP1.6 million. The following key performance indicators relating to the Swedish Business underpin the progress which has been made during the quarter: Three quarters Three quarters Year ended ended ended 30 September 30 September 31 December 2010 2009 2009 Total premium income* Pensions and 189.0 193.4 257.6 savings Risk insurance 26.8 21.2 26.6 Total GBP215.8m GBP214.6m GBP284.2m New business premium income* Pensions and 36.7 37.3 49.4 savings Risk insurance 7.1 1.0 3.3 ---------- ----------- ---------- Total GBP43.8m GBP38.3m GBP52.7m ---------- ----------- ---------- Quarter ended 30 Quarter ended 30 Year ended 31 September 2010 September 2009 December 2009 Market share of unit-linked pensions business Total business 3.1% 5.3% 5.7% Company-paid contribution 10.3% 9.3% 9.9% Business 30 September 30 September 31 December 2010 2009 2009 Assets under GBP1156.7m GBP922.3m GBP1015.2m management* ----------- ----------- ------------ * Translated into sterling at a constant rate of SEK10.9 = GBP1 During the quarter, Moderna has continued to seek to re-establish its sales and market share in Sweden and, consequent upon a refocused sales and marketing approach, has slightly improved its share of its main target market as can be seen in the table above. Generally the Pensions and Savings side of the business has made some ground although it continues, as expected, to generate losses albeit these are at a lower level than the run rate experienced in the first half of 2010. On a positive note the Risk and Health insurance side of the business has made good ground following the acquisition of Aspis FÃ¶rsÃ¤krings Liv AB ('Aspis') with lower claims ratios than expected. As a result, it has contributed GBP0.8 million to IFRS profit (matching its contribution on the EV basis). Solvency The underlying emergence of surplus in the UK Business, and hence the capacity of the Group to continue to pursue its dividend policy, remains strong. This is reflected in the ratio of regulatory capital resources to regulatory capital requirements in the UK life company, which has improved from 263 per cent. as at 30 June 2010 to 307 per cent. as at the end of the third quarter. The Swedish life business solvency ratio as at 30 September 2010 is estimated to be 176 per cent., compared with 220 per cent. as at 30 June 2010. This solvency ratio has reduced over the quarter as a result of the growth in the Risk and Health business and the associated increase in the capital resource requirement. Both the UK and Swedish life businesses continue to have a target ratio of a minimum of 150 per cent.. As at the quarter end, the corresponding Group (IGD) position remains strong at 329 per cent. compared with 330 per cent. as at 30 June 2010. Market Opportunity We continue to review a flow of potential acquisition opportunities and will readily progress these where we see value and a clear strategic fit. As regards opportunities, we remain open-minded as to location in the UK and Western Europe and will continue to apply strict financial and risk criteria in assessing them.

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