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MediaSun International - The introduction of a BEE Shareholding in Sun International 07 November, 2005 Sun International Limited INTRODUCTION Investec Corporate Finance ("Investec") is authorised to announce on behalf of the board of directors of Sun International ("the board") that the company has conditionally entered into a Broad-based Black Economic Empowerment ("BEE") transaction that will result in 7% of the issued share capital of Sun International ("the shares") being owned by a group of historically disadvantaged individuals ("HDI") (including a significant proportion of Sun International"s staff and black management through separate trusts) ("the BEE parties") ("the proposed BEE transaction"). It is envisaged that the BEE parties will be introduced via a company to be renamed Dinokana Investments (Proprietary) Limited ("Dinokana") which will hold shares directly into Sun International. Dinokana will, subject to the fulfilment of the conditions precedent set out in paragraph 6 below ("the conditions precedent"), acquire a 7% interest for a consideration of approximately R392 million ("the proposed BEE transaction"), based on the Sun International"s share price of R77,00 as at 26 October 2005 being the last practicable date prior to the finalisation of the circular to Sun International shareholders ("the circular") posted on Monday, 7 November 2005 ("the last practicable date"). The 7% shareholding is valued at approximately R604 million as at the last practicable date. The board has selected Lereko Investments (Pty) Limited ("Lereko") to be the lead BEE partner. Lereko has a 28,05% shareholding in Dinokana resulting in an effective 1,96% interest in Sun International. RATIONALE FOR THE BEE TRANSACTION BEE has been an integral part of Sun International"s business strategy, particularly with respect to new casino licensing and bidding processes. Sun International views BEE as a value creating strategy, designed to create realistic, meaningful and enduring partnerships. Sun International believes thatBEE will be a key driver of sustainable economic growth and transformation in South Africa. Sun International has been at the forefront of BEE in the leisure industry with all new casino operations being owned in partnership with empowerment groups. A condition of Sun International"s casino licences in the North West Province was to facilitate the sale or transfer of not less than 5% of the equity of Sun International to empowerment entities, including previously disadvantaged individuals and groupings from the North West Province, by no later than 30 June2006. In structuring the proposed BEE transaction, Sun International developed a set of key objectives ("BEE objectives") to ensure that:-
THE BEE PARTIES The shares in Dinokana have been allocated to parties with a link to the North West Province as well as a large portion to Sun International"s current and future employees and black management. The individuals and groupings with a link to the North West province include Lereko, Phodiso Investments (Proprietary) Limited ("Phodiso"), Balapeng Investment Holdings (Proprietary) Limited ("Balapeng"), Tsutsuma Investments (Proprietary) Limited ("Tsutsuma") and the North West Community Development Trust ("the North West Development Trust") (collectively "the North West Consortium"). The vitally important role played in the past and to be played in the future by the employees of Sun International and its subsidiaries ("the group") is recognised by allocating a 43% interest in Dinokana to the Sun International Employee Share Trust ("the Sun International Employee Share Trust"), which currently benefits the group"s employees (excluding executives and management) and a 6% interest in Dinokana to the Sun International Black Management Trust ("the Sun International Black Management Trust"), a new trust to be formed for the benefit of current and future black management. Approximately 80% of the beneficiaries of the Sun International Employee Share Trust are HDI. The shareholding structure of Dinokana will be as follows: (Please refer to the newspaper publication) Lereko Lereko is a 100% black owned empowerment vehicle led by Dr Popo Molefe (chairman), Mr Valli Moosa and Dr Lulu Gwagwa, all of whom are full time executives of Lereko. It includes a number of other strategic non-executive minority shareholders brought in to support and add value to Lereko"s objectives. Lereko, leveraging on its proven leadership credentials and North West roots, will lead the North West Consortium through a majority holding. North West Development Trust The North West Development Trust has been established for the benefit of the communities and entities of the North West Province including local communities situated around Sun International"s operations in that Province, namely Carousel, Morula and Sun City. The North West Development Trust will own 15,3% of Dinokana. The trustees of the North West Development Trust will be nominated by Lereko and Sun International. Tsutsuma Tsutsuma is a broad based BEE group led by Bushy Maape, a prominent North West Province businessman. Tsutsuma comprises of 80 HDIs featuring black owned companies, investment vehicles, businesswomen and professionals, all of whom arefrom the North West Province. Tsutsuma will acquire a 4.08% shareholding in Dinokana. Approximately 42% of the shareholders in Tsutsuma are women or women groupings. Balapeng Balapeng is a company owned and managed by experienced black businesswomen, Connie Mashaba (Managing Director of Black Like Me), Kobote Molefe, Connie Diphoko and Jeanette Ngwane. Balapeng has a presence in the North West Province. Balapeng will acquire a 1,02% shareholding in Dinokana. Phodiso Phodiso is owned by a broad based grouping of 64 doctors, healthcare professionals and business leaders operating in Mabopane, areas of the North West Province and on a national basis as well. Phodiso has a majority stake in the Legae Private Clinic, as well as a significant interest in the Curamed groupof hospitals. Phodiso will own 2,55% of Dinokana. The Sun International Employee Share Trust The group directly employs over 8 000 people who are Sun International"s most valuable resource. The Sun International Employee Share Trust is for the benefitof the group"s employees (excluding directors or employees holding executive andsenior management positions), in order to enable eligible employees to participate indirectly in the benefits of share ownership. The Sun International Employee Share Trust will hold a 43% shareholding in Dinokana through which it will acquire an effective 3,01% shareholding in Sun International. The trustees of the Sun International Employee Share Trust have approved the necessary amendments to certain of the terms of the Trust deed in order to enable the Sun International Employee Share Trust to participate in the proposedBEE transaction. The necessary resolution for the amendments to the Sun International Employee Share Trust deed will be put forward, for consideration and approval by shareholders at the forthcoming annual general meeting of Sun International shareholders ("the AGM") to be held on Tuesday, 29 November 2005. Sun International Black Management Trust As a further commitment to BEE and to assist Sun International in retaining black managerial staff, to attract new black talent and to contribute towards the creation of sustainable black leadership, a new trust is being formed for the benefit of current and future South African black management of the group. Permanent employees of the group in South Africa, who occupy management grade levels and are black people, as defined in the Broad Based Black Economic Empowerment Act, No 53 of 2003, will be eligible to participate in the Sun International Black Management Trust. The Sun International Black Management Trust will own 6% of Dinokana TERMS OF THE PROPOSED BEE TRANSACTION Mechanics of the proposed BEE transaction The proposed BEE transaction will be implemented as detailed below: The BEE parties will acquire all of the issued Dinokana ordinary shares for a consideration equal to their par value of R1,00 pro rata to their shareholdings in Dinokana, 3 days after the fulfilment of the conditions precedent ("the effective date") Dinokana will raise approximately R392 million, based on the Sun International share price on the JSE Limited ("the JSE") as at the last practicable date, in the form of preference share funding ("preference share funding") from Nedbank Limited ("Nedbank"), on market related terms and conditions. Using the preference share funding raised, Dinokana will effect: - the acquisition of 3,58 million shares Sun International shares currently held by the Public Investment Corporation ("the PIC") (approximately 3.2% of the total shares in issue following the implementation of the proposed BEE transaction) at a price of R77,50 each plus interest of 7% per annum charged by the PIC from 31 October 2005 up to the effective date ("the PIC acquisition"); - the acquisition of approximately 1,47 million shares (approximately 1,3% ofthe total shares in issue following the implementation of the proposed BEE transaction) which will be sold to Dinokana by the Sun International Limited Employee Share Purchase Trust (1986) ("the share option trust") ("the share option trust acquisition") for cash at market related values, resulting in a cash consideration payable of approximately R113 million based on the Sun International share price as at the last practicable date; and - the payment of any costs incurred by Dinokana, such as legal and corporate advisory expenses and stamp duties payable. The remaining 2,80 million shares (approximately 2,5% of the total shares in issue following the implementation of the proposed BEE transaction) to bring Dinokana"s shareholding in Sun International to 7% will be transferred to Dinokana out of treasury shares currently held by two wholly owned subsidiaries of the group ("the Sun International Subsidiaries") for no consideration ("the treasury share transfer"). To the extent that insufficient shares are sold to Dinokana in terms of the share option trust acquisition such shares will be sold by the Sun International Subsidiaries at market value. The treasury share transfer and the share option trust acquisition will result in an additional 4,27 million shares being in issue. In terms of the JSE Listings Requirements, the treasury share transfer is treated as a specific issue of shares for cash requiring an ordinary resolution to be passed by 75% of ordinary shareholders present or represented in person orby proxy in a general meeting. The necessary resolution will be included in thenotice of AGM. Information relating to Dinokana Dinokana will be a limited-purpose vehicle whose sole objective is to acquire and hold Sun International shares for the benefit of its shareholders, the participants in the proposed BEE transaction. The Sun International shares to be held by Dinokana carry full voting rights andfull rights to participate in dividends. The dividends received by Dinokana on the Sun International shares held by it will be used to service the dividends and capital on the preference share funding. Dinokana will not be entitled to encumber or dispose of its interest in Sun International shares until the expiry of the lock-up period. Nomination to the Sun International board Following the implementation of the proposed BEE transaction, Dinokana is entitled to recommend 2 directors, which subject to the formal approval by the board, will be appointed to the board. Dinokana have proposed Mr Valli Moosa andDr Lulu Gwagwa for appointment to the board. FINANCIAL EFFECTS Economic cost to Sun International shareholders The economic cost of the proposed BEE transaction to Sun International shareholders amounts to approximately R216 million based on the Sun International share price as at the last practicable date of R77.00, which equates to 2,5% of Sun International"s market capitalisation after the implementation of the proposed BEE transaction. Pro forma financial effects The unaudited pro forma financial effects for which the Sun International board are responsible, are presented for illustrative purposes only and may not give a fair reflection of the financial position and results of operations post the implementation of the proposed BEE transaction. The table below sets out the unaudited pro forma financial effects of the proposed BEE transaction based on the published financial results of Sun International for the year ended 30 June 2005: TABLE Notes: (1) The EPS, HEPS, AHEPS and NAV per ordinary share "Before the proposed BEE transaction" are based on the audited results for the year ended 30 June 2005. (2) The EPS and HEPS "After the proposed BEE transaction" are based on the following assumptions: a. the proposed BEE transaction was implemented on 1 July 2004; and b. the weighted average number of ordinary shares in issue of 117 368 837 (113 100 000 weighted average ordinary shares in issue as per the audited results for the year ended 30 June 2005 plus 4 268 837 shares transferred out of treasury shares and sold out of the share option trust). (3) The fully diluted EPS and HEPS "After the proposed BEE transaction" are based on the following assumptions: a. the proposed BEE transaction was implemented on 1 July 2004; and b. the diluted weighted average number of ordinary shares in issue of 118 938 837 (114 670 000 weighted average ordinary shares in issue as per the audited results for the year ended 30 June 2005 plus 4 268 837 shares transferred out of treasury shares and sold out of the share option trust). (4) The AHEPS "After the proposed BEE transaction" are based on the following assumptions: a. the proposed BEE transaction was implemented on 1 July 2004; and b. the weighted average number of ordinary shares in issue of 108 778 837 (104 510 000 weighted average ordinary shares in issue as per the audited results for the year ended 30 June 2005 plus 4 268 837 shares transferred out of treasury shares and sold out of the share option trust). (5) The fully diluted AHEPS "After the proposed BEE transaction" are based on the following assumptions: a. the proposed BEE transaction was implemented on 1 July 2004; b. the diluted weighted average number of ordinary shares in issue of 110 348 837 (106 080 000 weighted average ordinary shares in issue as per the audited results for the year ended 30 June 2005 plus 4 268 837 shares transferred out of treasury shares and sold out of the share option trust). (6) The NAV per ordinary share "After the proposed BEE transaction" is based on the following assumptions: a. the proposed BEE transaction was implemented on 1 July 2004; b. the number of ordinary shares in issue of 120 662 000 (116 393 000 as per the audited results for the year ended 30 June 2005 plus 4 268 837 shares transferred out of treasury shares and sold out of the share option trust); and c. based on R77.00, being the Sun International share price on the JSE, on the last practicable date. (7) In terms of the International Financial Reporting Standards (IFRS 2) - Share Based Payments, the cost of granting the shares to the Sun International Employee Share Trust and the Sun International Black Management Trust of approximately R115 million as at the last practicable date will be expensed over the next 15 years. (8) Dinokana is not consolidated into the Sun International group. (9) The shares sold out of the share option trust will increase the number of Sun International shares in issue. CONDITIONS PRECEDENT The proposed BEE transaction is subject to inter alia, the following conditions precedent: - the passing of the resolutions approving the treasury share transfer by the requisite majority of Sun International shareholders; OPINIONS AND RECOMMENDATIONS The board has considered the terms and conditions of the proposed BEE transaction and is of the opinion that the proposed BEE transaction is in the best interests of all of Sun International"s key stakeholders and, accordingly, recommend that Sun International shareholders vote in favour of the resolutions required to implement the proposed BEE transaction. The directors of Sun International, who directly or indirectly beneficially own Sun International shares, intend to vote in favour of the resolutions to implement the proposed BEE transaction in respect of their shareholdings. NOTICE OF ANNUAL GENERAL MEETING The AGM of shareholders of Sun International will be held in the boardroom at the registered office of Sun International, 4th Floor, 27 Fredman Drive, Sandown, Sandton at 09:00 on Tuesday, 29 November 2005 in order to consider and, if deemed fit, pass, with or without modification, the special and ordinary resolutions required to give effect to the proposed BEE transaction, the amendments to the trust deed of the Sun International Employee Share Trust in order to enable the Sun International Employee Share Trust to participate in the proposed BEE transaction, as well as other matters generally dealt with at an AGM including the consideration for the implementation of an odd-lot offer and consequentially amendments to the articles of association and the adoption of new share plans (collectively "the proposed transactions"). FURTHER DOCUMENTATION A circular containing full details of the proposed transactions and forming partof the annual report for the financial year ended 30 June 2005 (which contains the notice of annual general meeting) was posted to Sun International shareholders on Monday, 7 November 2005. Sandton Corporate Law advisers to Sun International Edward Nathan Metier
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