Announcement of Merger

25th Jul 2007 07:01

Friends Provident PLC25 July 2007 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO ORFROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THERELEVANT LAWS OF SUCH JURISDICTION For immediate release 25 July 2007 Merger of Friends Provident plc and Resolution plc to create Friends Financial Group plc The Boards of Friends Provident and Resolution are pleased to announce that theyhave agreed the terms of a recommended all-share merger of the two companies tocreate Friends Financial Group plc. The merger will create a significant new force in the UK life and pensionsmarket. Through its combination of new business capability and cashflowgeneration, Friends Financial can provide shareholders with both profitable newbusiness growth and growing dividend income. Given its enhanced scale andcapability, Friends Financial will be well placed to participate in futureconsolidation in the UK life and pensions sector over time. At the core of the combination is the complementary fit between FriendsProvident and Resolution, which extends across products, customers,distribution, financial profiles and management. Friends Financial will be a leading UK-based life assurer, valued atapproximately £8.6 billion(1) with: • a customer base that combines Friends Provident's approximately 2.5 million customers with Resolution's approximately 7 million customers; • combined embedded value of £7.9 billion(2); • assets under management of £165 billion(3); • combined operating profits before tax of £860 million on an EEV basis(4); and • combined profits before tax of £973 million on an IFRS basis(4). The merger is conditional on shareholder, regulatory and other approvals. The holding company name for the Combined Group will be Friends Financial Groupplc and the Friends Provident name will become the primary brand for UK life andpensions operations after a transitional period. The Scottish Provident brandwill, however, be retained. The Directors of Friends Provident, who have been so advised by JPMorganCazenove, and the Directors of Resolution, who have been so advised by Lazardand Citi, each consider the terms of the merger to be fair and reasonable. TheBoards of Friends Provident and Resolution intend unanimously to recommend themerger to their respective shareholders. Merger highlights •On completion, Resolution Shareholders and Friends Provident Shareholders are expected to hold approximately 50.9 per cent. and approximately 49.1 per cent. of the Combined Group respectively. •Resolution Shareholders will receive 3.25 New Friends Financial Shares for each Resolution Share. •The merger will be implemented by means of a scheme of arrangement pursuant to which existing Resolution Shares will be cancelled and new Resolution Shares will be issued to Friends Provident in exchange for an issue of New Friends Financial Shares to Resolution Shareholders. •Friends Financial will benefit from the complementary fit between Resolution and Friends Provident. Friends Provident brings extensive UK and international new business product capabilities and strength in IFA distribution. Resolution brings strong surplus cashflow, sector-leading management of in-force business and the distribution relationship with Abbey. In addition, both groups have broad customer bases and industry management expertise. •The Boards of Friends Provident and Resolution expect the merger to deliver significant benefits to shareholders of Friends Financial. In particular: - the merger is expected to generate at least £100 million in annualised pre-tax cost savings(5) and financial synergies by the end of 2010; - the merger is expected to be earnings per share accretive on an EEV EPS basis(6) and accretive to embedded value per share by 2009 for both Friends Provident and Resolution shareholders; and - in the longer term, it is expected that significant revenue benefits will be captured through taking advantage of increased scale and financial strength, cross-selling to the existing Friends Provident and Resolution customer bases and exploiting the complementary product and distribution capabilities. •Asset management will remain central to Friends Financial's strategy with a combined total of £165 billion of funds under management as at 31 December 2006. It is proposed that RAM will be combined with F&C on terms to be agreed with the Board of F&C. F&C will continue to be separately listed and majority owned by the Combined Group. •The Board of Directors of Friends Financial will be drawn from the Boards of Friends Provident and Resolution. Clive Cowdery will be Chairman and Sir Adrian Montague will be Deputy Chairman. Mike Biggs will be Chief Executive and Philip Moore will be Deputy Chief Executive. Financial disciplines and dividend •Friends Financial will have a strong balance sheet and operational cash flow and will have a rigorous focus on core financial disciplines. In particular, it will target an IRR on new business of at least 12 per cent. over the product life cycle on a fully costed basis both in the UK and internationally. •Friends Financial will adopt Resolution's current dividend policy and intends, in the absence of unforeseen circumstances, to declare a final dividend of 5.64 pence per share in respect of its entire issued share capital for the financial year ending 31 December 2007. Friends Provident and Resolution shareholders will remain entitled to the interim dividends, expected to be 2.70 and 9.17 pence per share respectively based on the existing dividend policies of the two companies. In total, this would represent an increase of 38 per cent. for Resolution Shareholders over the dividend they received in respect of the financial year ended 31 December 2006. The final dividend of 5.64 pence per share would represent an 8.5 per cent. increase for Friends Provident Shareholders on the final 2006 dividend. Friends Financial will target growth in dividends of at least 5 per cent. per annum thereafter. Strategy for Friends Financial •Friends Financial's strategy will be to: - become a top 5 provider, measured by new business value added, in the UK life and pensions market differentiated by its values, customer focus and service excellence; - continue to participate in consolidation of the UK life and pensions sector over time; - grow international operations in selected geographies and market segments to diversify and enhance returns; and - expand the multi-boutique model of asset management into a leading pan-European player. •In UK life and pensions, the Combined Group intends to deepen its penetration of existing markets such as protection and group pensions, to harness the Resolution customer base more effectively and to expand into new market segments such as wraps, SIPPs and post-retirement products. •In international markets, the merger brings the scale and capital to fund further expansion of FPI and Lombard. •In asset management, a combination with RAM would bring F&C enhanceddistribution. F&C will remain committed to its three year growth plan, includingits multi-boutique strategy. The combined business will work closely with jointventure partners of both groups. Structure of the merger •The merger will be implemented by means of a scheme of arrangement under section 425 of the Companies Act and will be conditional on, amongst other things, the approval of Friends Provident Shareholders and Resolution Shareholders and the sanction of the Scheme by the Court. The merger is also conditional on regulatory clearance from the FSA and from certain overseas regulators and appropriate merger control clearances. •Formal documentation relating to the merger is expected to be sent to Resolution Shareholders and Friends Provident Shareholders shortly after the publication of Resolution's interim results on 18 September 2007 and will contain notices of shareholder meetings expected to be held in mid-October 2007 to approve the merger. •It is expected that the merger will complete during the fourth quarter of 2007. Commenting on the merger, Clive Cowdery, Chairman of Resolution, said: "Today's transaction marks a turning point in the restructuring of the UK lifeindustry. The next period will focus on sustainable earnings growth and cashreturns to shareholders. Friends Financial is exceptionally well positioned toprosper in this new environment." Philip Moore, Chief Executive of Friends Provident, said: "The two groups share a single strategic vision and a conviction that we cancreate a powerful new player in the life and pensions industry. The opportunityexists to provide products and services which will attract significant demandfrom customers and generate value for shareholders. Friends Financial will haveall the capabilities in place to deliver on this opportunity." Friends Provident plc is being advised by JPMorgan Cazenove. Resolution plc isbeing advised by Lazard and Citi. There will be a newswire conference call today at 7.45a.m. BST and an analystand investor presentation with a live webcast at the offices of Goldman SachsInternational (River Court, 120 Fleet Street, London EC4A 2QQ) at 10.30a.m. BST.The dial in number for the newswire conference call is +44 (0) 20 7162 0025,conference call ID 760567. A copy of this announcement and the slidepresentation will be available from 10.00a.m. BST on www.friendsprovident.comand www.resolutionplc.com. Enquiries: Friends Provident Resolution+44 (0)845 641 7833 +44 (0)20 7489 4880Sir Adrian Montague Clive CowderyPhilip Moore Mike BiggsNick Boakes Steve Riley JPMorgan Cazenove Lazard+44 (0)20 7588 2828 +44 (0)20 7187 2000Tim Wise Jon HackConor Hillery Edmund Dilger Citi +44 (0)20 7986 4000 Chris Jillings Andrew Thompson Finsbury Temple Bar+44 (0)20 7251 3801 +44 (0)20 7002 1080James Murgatroyd Alex Child-VilliersAlex Simmons Notes: 1) Based on Friends Provident's closing share price on 24 July 2007 of 196.5 pence and approximately 4,379 million shares expected to be in issue in Friends Financial following completion. 2) Combined embedded value is based on Friends Provident and Resolution net embedded values as at 31 December 2006 without adjustment for differences in methodology. Friends Provident embedded value includes F&C at its attributable market value. 3) As at 31 December 2006. 4) For the year ended 31 December 2006. The combined EEV operating profits only include the profits of the life businesses acquired from Abbey for the half year to 31 December 2006; IFRS profits are included from 10 August 2006. EEV operating profits are stated after finance costs. 5) Annualised cost synergies arising from the proposed combination of F&C and RAM comprise £26 million. These synergies would be shared with the minority shareholders of F&C. 6) Based on underlying EEV EPS for Friends Provident and operating EEV EPS for Resolution. This summary should be read in conjunction with the full text of the followingannouncement and the Appendices. The conditions to, and certain further termsof, the Merger are set out in Appendix I. Certain definitions and terms used inthis announcement are set out in Appendix III. JPMorgan Cazenove is acting as financial adviser to Friends Provident and no oneelse in connection with the Merger and will not be responsible to any otherperson for providing the protections afforded to the clients of JPMorganCazenove nor for providing advice in relation to the Merger or any other matterreferred to in this announcement. Lazard is acting as financial adviser to Resolution and no one else inconnection with the Merger and will not be responsible to any other person forproviding the protections afforded to the clients of Lazard nor for providingadvice in relation to the Merger or any other matter referred to in thisannouncement. Citi is acting as financial adviser to Resolution and no one else in connectionwith the Merger and will not be responsible to any other person for providingthe protections afforded to the clients of Citi nor for providing advice inrelation to the Merger or any other matter referred to in this announcement. Overseas jurisdictions The release, publication or distribution of this announcement in jurisdictionsother than the United Kingdom may be restricted by law and therefore any personswho are subject to the laws of any jurisdiction other than the United Kingdomshould inform themselves about, and observe, any applicable requirements. Thisannouncement has been prepared for the purposes of complying with English law,the City Code and the Listing Rules and the information disclosed may not be thesame as that which would have been disclosed if this announcement had beenprepared in accordance with the laws and regulations of any jurisdiction outsideof England. This announcement is not intended to, and does not constitute, or form part of,an offer to sell, purchase or exchange or the solicitation of an offer to sell,purchase or exchange any securities or the solicitation of any vote or approvalin any jurisdiction. This announcement does not constitute a prospectus or aprospectus equivalent document. Shareholders of Friends Provident and Resolutionare advised to read carefully the formal documentation in relation to the Mergeronce it has been despatched. The proposals relating to the Merger will be madesolely through the Scheme Document, which will contain the full terms andconditions of the Merger, including details of how to vote with respect to theScheme. Any acceptance or other response to the proposals should be made only onthe basis of the information in the Scheme Document. In particular, this announcement is not an offer of securities for sale in theUnited States and the New Friends Financial Shares, which will be issued inconnection with the Merger, have not been, and will not be, registered under theUS Securities Act of 1933 as amended (the "US Securities Act") or under thesecurities law of any state, district or other jurisdiction of the UnitedStates, Australia, Canada or Japan and no regulatory clearance in respect of theNew Friends Financial Shares has been, or will be, applied for in anyjurisdiction other than the UK. The New Friends Financial Shares may not beoffered, sold, or, delivered, directly or indirectly, in, into or from theUnited States absent registration under the US Securities Act or an exemptionfrom registration. The New Friends Financial Shares may not be offered, sold,resold, delivered or distributed, directly or indirectly, in, into or fromCanada, Australia or Japan or to, or for the account or benefit of, any residentof Australia, Canada or Japan absent an exemption from registration or anexemption under relevant securities law. It is expected that the New FriendsFinancial Shares will be issued in reliance upon the exemption from theregistration requirements of the US Securities Act provided by Section 3(a)(10)thereof. Under applicable US securities laws, persons (whether or not USpersons) who are or will be "affiliates" within the meaning of the US SecuritiesAct of Friends Provident or Resolution prior to, or of Friends Financial after,the Effective Date will be subject to certain transfer restrictions relating tothe New Friends Financial Shares received in connection with the Scheme. Notice to US Investors: The Merger relates to the shares of a UK company and isproposed to be made by means of a scheme of arrangement provided for under thelaws of England and Wales. The Merger is subject to the disclosure requirementsand practices applicable in the United Kingdom to schemes of arrangement, whichdiffer from the disclosure and other requirements of US securities laws.Financial information included in the relevant documentation will have beenprepared in accordance with accounting standards applicable in the UnitedKingdom that may not be comparable to the financial statements of US companies. If the Merger is implemented by way of an offer, it will be made in accordancewith the procedural and filing requirements of the US securities laws, to theextent applicable. If the Merger is implemented by way of an offer, the NewFriends Financial Shares to be issued in connection with such offer will not beregistered under the US Securities Act or under the securities laws of anystate, district or other jurisdiction of the United States and may not beoffered, sold or delivered, directly or indirectly, in the United States exceptpursuant to an applicable exemption from, or in a transaction not subject to,the registration requirements of the US Securities Act or such other securitieslaws. Friends Provident does not intend to register any such New FriendsFinancial Shares or part thereof in the United States or to conduct a publicoffering of the New Friends Financial Shares in the United States. Dealing disclosure requirements Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,"interested" (directly or indirectly) in 1 per cent. or more of any class of"relevant securities" of Friends Provident or Resolution all "dealings" in any"relevant securities" of that company (including by means of an option inrespect of, or a derivative referenced to, any such "relevant securities") mustbe publicly disclosed by no later than 3.30 pm (London time) on the Londonbusiness day following the date of the relevant transaction. This requirementwill continue until the date on which any offer becomes, or is declared,unconditional as to acceptances (or, if implemented by a scheme of arrangement,such scheme becomes effective), lapses or is otherwise withdrawn or on which the"offer period" otherwise ends. If two or more persons act together pursuant toan agreement or understanding, whether formal or informal, to acquire an"interest" in "relevant securities" of Friends Provident or Resolution, theywill be deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the City Code, all "dealings" in "relevantsecurities" of Resolution by Friends Provident or of Friends Provident byResolution, or by any of their respective "associates", must be disclosed by nolater than 12.00 noon (London time) on the London business day following thedate of the relevant transaction. A disclosure table, giving details of thecompanies in whose "relevant securities" "dealings" should be disclosed, and thenumber of such securities in issue, can be found on the Takeover Panel's websiteat www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the City Code, which can also be foundon the Takeover Panel's website. If you are in any doubt as to whether or notyou are required to disclose a "dealing" under Rule 8, you should consult theTakeover Panel. Forward looking statements This announcement may contain forward looking statements that are based oncurrent expectations or beliefs, as well as assumptions about future events.Generally, the words "will", "may", "should", "continue", "believes", "expects","intends", "anticipates" or similar expressions identify forward-lookingstatements. These statements are based on the current expectations of managementand are naturally subject to risks, uncertainties and changes in circumstances.Undue reliance should not be placed on any such statements because, by theirvery nature, they are subject to known and unknown risks and uncertainties andcan be affected by other factors that could cause actual results, andmanagement's plans and objectives, to differ materially from those expressed orimplied in the forward looking statements. There are several factors which couldcause actual results to differ materially from those expressed or implied inforward looking statements. Among the factors that could cause actual results todiffer materially from those described in the forward looking statements are theability to combine successfully the businesses of Friends Provident andResolution and to realise expected synergies from that combination, changes inthe global, political, economic, business, competitive, market and regulatoryforces, future exchange and interest rates, changes in tax rates and futurebusiness combinations or dispositions. Neither Friends Provident nor Resolutionundertakes any obligation (except as required by the Listing Rules and theDisclosure and Transparency Rules and the rules of the London Stock Exchange) torevise or update any forward looking statement contained in this announcement,regardless of whether that statement is affected as a result of new information,future events or otherwise. NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO ORFROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THERELEVANT LAWS OF SUCH JURISDICTION For immediate release25 July 2007 Merger of Friends Provident plc and Resolution plc to create Friends Financial Group plc 1. Introduction The Boards of Friends Provident and Resolution are pleased to announce that theyhave agreed the terms of a recommended all-share merger of the two companies tocreate Friends Financial Group. The merger creates a leading UK-based life assurer, valued at approximately £8.6billion(1) with: •a customer base that combines Friends Provident's approximately 2.5 million customers with Resolution's approximately 7 million customers; •combined embedded value of £7.9 billion(2); •assets under management of £165 billion(3); •combined operating profits before tax of £860 million on an EEV basis(4); and •combined profits before tax of £973 million on an IFRS basis(4). The merger will create a significant new force in the UK life and pensionsmarket. Through its combination of new business capability and cashflowgeneration, Friends Financial can provide shareholders with both profitable newbusiness growth and growing dividend income. Given its enhanced scale andcapability, Friends Financial will be well placed to participate in futureconsolidation in the UK life and pensions sector over time. The Combined Group will benefit from the complementary fit between Resolutionand Friends Provident. Friends Provident brings extensive UK and internationalnew business expertise, product capabilities and strength in IFA distribution.Resolution brings strong surplus cashflow, sector-leading management of in-forcebusiness and the distribution relationship with Abbey. In addition, both groupshave broad customer bases and industry management expertise. 2. Terms of the merger The merger will be implemented by means of a scheme of arrangement pursuant towhich existing Resolution Shares will be cancelled and new Resolution Shareswill be issued to Friends Provident in exchange for an issue of New FriendsFinancial Shares to Resolution Shareholders. Under the terms of the merger,Friends Provident Shareholders will retain their shares in Friends Provident (tobe renamed Friends Financial) and Resolution Shareholders will receive: for each Resolution Share held at the relevant record date 3.25 New Friends Financial Shares. Fractional entitlements to Friends Financial Shares under the merger will bedisregarded and will not be issued. The terms of the merger are based on the recent relative equity marketcapitalisations of the two companies. Upon completion of the merger, FriendsProvident Shareholders will hold approximately 49.1 per cent. and ResolutionShareholders will hold approximately 50.9 per cent. of the enlarged issued sharecapital of Friends Financial, based on the current issued share capital of thetwo companies. 3. Irrevocable undertakings Irrevocable undertakings to vote in favour of the Scheme at the Court Meetingand in favour of the Scheme Resolutions at the Resolution EGM have been receivedby Friends Provident from the Resolution Directors in respect of their aggregateholding of 25,460,415 Resolution Shares, representing approximately 3.7 percent. of the existing issued share capital of Resolution. Irrevocable undertakings to vote in favour of the merger at the FriendsProvident EGM have been received by Resolution from the Friends ProvidentDirectors in respect of their aggregate holding of 222,453 Friends ProvidentShares, representing approximately 0.01 per cent. of the issued share capital ofFriends Provident. Since the merger is to be implemented by Court approval of the Scheme, theirrevocable undertakings cease to be binding in certain circumstances where therelevant directors' fiduciary duties require. 4. Background to and reasons for the merger The merger will create a UK-based life assurer which will have the scale andfinancial strength to grow new business in accordance with its IRR targets andthe strategic flexibility to participate in a broader range of consolidationopportunities than either Friends Provident or Resolution could do on its own. At the core of the combination is the complementary fit between FriendsProvident and Resolution that extends across products, customers, distribution,financial profiles and management capabilities. In particular, Resolution brings: •strong cashflow and capital base - Resolution had approximately £1.5 billion surplus cash receivable from subsidiaries during the first half of 2007, of which £695 million(5) has been used to pay down existing debt. In addition, it had a surplus of £1.4 billion in respect of the group capital adequacy test as at 31 December 2006; •a substantial customer base of approximately 7 million customers, as well as the Abbey distribution relationship; •strength in protection products through the Scottish Provident franchise which distributes to both IFAs and Abbey customers; •proven expertise in extracting value from in-force business where Resolution is a leading acquiror and consolidator of closed life funds in the UK; and •an asset management business with over £60 billion of assets under management, which is proposed to be combined, on terms to be agreed, with F&C to create a business with greater scale and opportunities. Friends Provident brings: •a strong new business franchise in the UK - contribution to profit from new business has grown at a compound annual rate of 36 per cent. since 2004; •a high quality specialist international business, comprising FPI and Lombard; •product capabilities extending across group pensions, protection, investment products and annuities as well as high net worth and high value products through Friends Provident's international operations; •a strong brand in IFA distribution where it had an approximate 7 per cent. share of new business in 2006; •administrative efficiency and service excellence - evidenced through its straight-through processing capabilities and its innovative e-select protection platform; and •majority ownership of F&C, a substantial asset manager with over £100 billion of funds under management. By bringing these complementary strengths together, the merger will createtangible benefits for both Friends Provident and Resolution shareholders. Inparticular, it will create a group with: •the financial strength and new business platform to accelerate profitable growth in the UK and internationally; •broad distribution across the IFA and direct channels and the distribution relationship with Abbey; •a balanced profile of embedded value earnings and cash emergence; •annualised pre-tax cost savings and financial synergies expected to be at least £100 million by the end of 2010(6); •an attractive dividend return with a targeted growth rate of at least 5 per cent. per annum, including an uplift to Friends Provident Shareholders through the adoption of Resolution's dividend policy; •the strategic flexibility to pursue a broader range of both organic growth and acquisition opportunities; and •a combined management team with a unique blend of experience. The merger is expected to be earnings accretive on an EEV EPS basis(7) andaccretive to embedded value per share by 2009 for both Friends Provident andResolution shareholders. 5. Strategy Friends Financial's strategy will be to: •become a top 5 provider, measured by new business value added, in the UK life and pensions market differentiated by its values, customer focus and service excellence; •continue to participate in consolidation of the UK life and pensions sector over time; •grow international operations in selected geographies and market segments to diversify and enhance returns; and •expand the multi-boutique model of asset management into a leading pan-European player. UK life operations New business In 2006, the Combined Group had £4,758(8) million of combined new business salesin UK life and pensions with market leading positions in key segments of themarket and a balanced distribution profile. Friends Provident has delivered 36 per cent. compound annual growth in UKcontribution to profit from new business since 2004. Friends Provident'sextensive product capabilities, market-leading administration and strength inIFA distribution are complemented by Resolution's own capabilities in theprotection market and its distribution relationship with Abbey. Friends Financial intends to pursue opportunities to grow new businessprofitably. It will have the capital, the product capabilities and thedistribution to support this objective. The group will benefit from FriendsProvident's customer base of approximately 2.5 million and Resolution's customerbase of approximately 7 million and the merger will provide the opportunity toapply Friends Provident's new business expertise and the shared aspiration ofcustomer focus to the enlarged customer base. Recognising its profile and heritage, the Friends Provident name will become theprimary brand for UK life and pensions operations after a transitional period.The Scottish Provident brand will, however, be retained. Friends Financial will seek to: •accelerate growth in segments of the market where either Friends Provident or Resolution already has strengths, for example: - in protection where, bringing together the Friends Provident and Scottish Provident franchises, Friends Financial will compete more effectively with the largest providers; - in group pensions, where Friends Provident is a leader and where market trends present a significant opportunity for providers with the critical mass and capital resources to seize it; and - in annuities, where Friends Provident already sells products to a large number of customers with vesting policies on attractive margins, driven by disciplined pricing; •apply Friends Provident's new business expertise and the Combined Group's shared customer focus to Resolution's customer base. There is a significant opportunity to broaden the product offering to Abbey, Scottish Provident and other in-force customers; •expand into new areas as opportunities arise and new trends emerge. For example, in wraps, SIPPs and in post-retirement products where Friends Financial's natural strengths in financial and capital risk management can be applied; •be a more compelling partner of choice in the negotiation of new distribution relationships with banks, IFAs, affinity schemes and other distribution channels; and •participate in future consolidation opportunities in the UK life and pensions sector over time. All new business opportunities will be subject to the strict discipline ofFriends Financial's IRR target of at least 12 per cent. over the full productlife cycle on a fully costed basis. Protection will remain a core area for Friends Financial, with a combined marketshare of approximately 14 per cent. in this segment. Although this marketremains competitive, Friends Financial's management believes that the combinedstrengths and scale of the Friends Provident and Scottish Provident franchiseswill enable the Combined Group to compete more effectively with other largeproviders and build further market share, whilst maintaining attractive returns. The market for group pensions is expected to see significant growth from definedcontribution pension schemes over the coming years. The Combined Group will lookto build on its leading position in this market, with a combined market share ofapproximately 11 per cent., but will remain selective in the segments in whichit chooses to participate to protect margins. It is expected that its grouppensions business will exceed the Combined Group's 12 per cent. IRR target andwill be self-financing by 2011. The growth in demand for account aggregation and open architecture funds has ledto the development of wrap platforms which is expected to support the growth ofinvestment products, including bonds. This will be a key area of growth forFriends Financial. Friends Financial has the technology, service and distributorrelationships that are key to capturing assets. The Combined Group's wrapplatform will be rolled out through 2008, starting with an initial release inlate 2007. The demographics of an ageing UK population presents an attractive opportunityfor the Combined Group to expand in the post-retirement market by selling moreannuities to existing customers and by developing other structured productsusing Friends Financial's natural strengths in financial and capital riskmanagement. Post-retirement is a rapidly growing segment of the UK market andmaturing policies from Friends Provident's and Resolution's in-force booksprovide a large customer base. In-force Friends Financial will have one of the largest in-force businesses in the UK andwill continue to extract value through operating, financial and capitalefficiencies. The strong cash flows and capital generation from the CombinedGroup's in-force book will support the growth of profitable new business.Resolution continues to work towards the planned merger of its in-force funds bythe end of 2008. The combination of Resolution and Friends Provident will enable better servicingof Resolution's in-force customers - both its continuing relationships andholders of maturing policies. Friends Provident's brand will replace Resolutionbrands for in-force business over time. International life operations Friends Provident has a well established international business built up throughacquisitions and organically, comprising FPI and Lombard. In 2006, FriendsProvident's international business represented nearly 50 per cent. of FriendsProvident's contribution to profit from new business, reflecting the stronggrowth and attractive returns from its international operations. The merger brings the capital and scale to fund further expansion of FriendsProvident's international business and that of Scottish Provident. Friends Financial intends to grow its international operations in selectedterritories and product segments to diversify and enhance returns. Inparticular, it proposes to export its UK skills - in product design, managementof distribution relationships and service through technology - to new marketsenabling it to achieve strong differentiation and enhance pricing andcompetitiveness. Lombard's business model is built around partnering with leading specialistadvisers and distribution partners. The scale, profile and enhanced credentialsof Friends Financial will make Lombard more attractive to distribution partners. Friends Financial will continue to expand organically and by selectiveacquisitions in markets where attractive opportunities exist. Asset management Asset management will be a core activity of the Combined Group which had totalfunds under management of £165 billion as at 31 December 2006. Followingcompletion of the merger, it is proposed that RAM will be combined with F&C onterms to be agreed between the boards of the Combined Group and F&C. F&C willcontinue to be separately listed and majority owned by Friends Financial. The combined asset management operations would be a leading manager of UK lifefund assets as well as a significant manager of third party funds. It isestimated that total annualised cost savings of approximately £26 million beforetax could be achieved from the combination of RAM and F&C. F&C will remain committed to its three year accelerated growth plan announcedwith its preliminary results in March this year. Subject to reaching anagreement with the F&C Board, F&C's management will lead the integration of F&Cand RAM in such a way as to build on the capabilities and skills of bothbusinesses. The combined business will work closely with joint venture partnersof both groups. 6. Financial Potential for cost savings and financial synergies The merger is expected to generate at least £100 million in annualised pre-taxcost savings and financial synergies by the end of 2010, to be delivered by amanagement team with a proven track record of successful integration. The synergies will be achieved through: •creating a single group management structure and head office functions; •integrating the Combined Group's UK life and pensions operations; •combining sales and marketing for the UK protection and Isle of Man businesses; and •delivering a rationalised governance and financial management operating model over time around areas of best practice within the two organisations. The figure of £100 million of pre-tax synergies includes £52 million of costsavings from the integration of the life and pensions operations and headoffice, £22 million from financial synergies and £26 million of total savingsexpected to be achieved from the combination of RAM and F&C(6). The estimated pre-tax cost of achieving the synergies is expected to beapproximately £120 million, of which £46 million relates to asset management. These synergies are in addition to the estimated net increase in embedded valueof £150 million resulting from the Resolution fund merger planned for 2008 andare calculated after Resolution's existing plans for rationalisation and costreduction have been implemented. Capital strength and cashflows Friends Financial will have a strong capital position and Operational Cashflows.In particular, its Operational Cashflows are expected to be more than sufficientto fund planned new business growth (having an indicative cash requirement of£250 million per annum based on 2006 results) and dividend commitments and toprovide opportunities for further investment over the next three years. FriendsFinancial will adhere to strict disciplines in the deployment of its resources.Capital will be returned to shareholders to the extent that sufficientlyprofitable investment opportunities are not identified. The combined capital adequacy of Friends Financial based on the position at 31December 2006 was a surplus in excess of £2.4 billion. Financial disciplines In achieving its strategic ambitions, the management of Friends Financial willmeasure its performance and assess opportunities against the following financialtargets: •new business - an IRR of at least 12 per cent. over the product life cycle on a fully costed basis both in the UK and internationally; •acquisitions - currently a pre-leveraged IRR of at least 12 per cent. The new Board of Friends Financial will consider whether this is an appropriate discipline going forward. Its considerations will include moving to a post-leveraged IRR underpinned by a pre-leveraged margin in excess of the Combined Group's weighted average cost of capital; •capital adequacy - maintain existing capital policies; •credit rating - manage the balance sheet on metrics consistent with an "A" rating at holding company level (with debt to gross embedded value gearing normally in the range of 25 to 35 per cent.); and •dividends - will only be paid out of embedded value earnings. Financial reporting Friends Provident and Resolution will publish their interim results for 2007 on8 August 2007 and 18 September 2007, respectively. The preliminary announcementfor the year ending 31 December 2007 will include the consolidated IFRS resultsfor the Combined Group which will combine the full year results of FriendsProvident with the post acquisition results of Resolution. A combinedconsolidated EEV income statement for the full year will also be presented atthat time. Consolidated balance sheets on an IFRS and EEV basis for the CombinedGroup as at 31 December 2007 will also be included in the announcement. 7. Benefits for policyholders Both companies share a commitment to managing life funds in a way that treatscustomers fairly and delivers leading standards of service. Friends Financialwill maintain a continued focus on its customers, developing and promotingproducts and services that meet the needs of customers, providing clearinformation and quality of service. Friends Financial's complementary strengths will create a customer-ledorganisation, seeking to add value through clear differentiation in operationalexcellence and financial management. These strengths are expected to enhanceFriends Financial's returns from both new and in-force business. The positive disclosure and information initiatives introduced by Resolution andFriends Provident will continue. These are designed to help policyholders makeinformed decisions about their policies. 8. Employees and share schemes The Boards of Friends Provident and Resolution believe that the prospects ofemployees of both groups generally will be enhanced as a result of thestrengthened market position and growth prospects of the Combined Group.Undertaking a merger of this size means that some redundancies will beinevitable in due course but these will be kept to a minimum and are anticipatedto be fewer than would normally be expected from a merger of this magnitude. Theintegration process is likely to take place over a period of two to three yearsand every effort will be made to minimise the number of compulsory job losses.The Combined Group intends to be flexible to employee needs and to use a varietyof alternatives before implementing compulsory redundancies. Communication and consultation with employees will play a major part in theintegration process and there will be a fair and transparent process forselection of people to fill management and staff positions in the CombinedGroup. Management and staff positions are intended to be filled with the bestpeople from Friends Provident and Resolution. Friends Financial will be committed to policies and practices which are expectedto provide enhanced opportunities for employees generally to learn and growthrough experience and training. The Friends Provident Board has given assurances to the Resolution Directorsthat, following the merger becoming effective, the existing contractualemployment rights of all employees of the Resolution Group will be fullysafeguarded. Any process of harmonising employment terms and conditions will beundertaken with the full involvement of recognised employee representativebodies. Participants in the Resolution Share Schemes and the Friends Provident ShareSchemes will be advised separately in due course of the impact of the merger ontheir entitlements and of the choices available to them. 9. Board and management The Board of Friends Financial will comprise the Chairman, Deputy Chairman,eight other non-executive directors and six executive directors. The Chairman will be Clive Cowdery, currently Chairman of Resolution. Sir AdrianMontague, currently Chairman of Friends Provident, will be the Deputy Chairmanand senior independent director. Mike Biggs, currently Group Chief Executive ofResolution, will be Group Chief Executive of the Combined Group and PhilipMoore, currently Group Chief Executive of Friends Provident, will be DeputyGroup Chief Executive with specific responsibility for the Combined Group'sinternational business, asset management operations and certain group functions. The eight other non-executive directors will consist of Ray King, Sir MervynPedelty, and Gerhard Roggemann from Friends Provident and David Allvey, SirDavid Cooksey and Sir Brian Williamson from Resolution, together with two newappointments expected to be made by the time of completion of the merger. TheCombined Group will establish three principal Board committees. The Governanceand Nominations Committee will be chaired by Sir Adrian Montague and willcomprise all the non-executive directors. The Audit Committee will be chaired byRay King. The Remuneration Committee will be chaired by Sir David Cooksey. In addition to the Group Chief Executive and Deputy Group Chief Executive, theexecutive directors will be: Name Position Jim Newman Group Finance DirectorBen Gunn Chief Executive, Friends Provident Life and PensionsIan Maidens Group Chief Actuary and Corporate Development DirectorAlain Grisay Chief Executive of F&C Asset Management Clive Cowdery, David Allvey, Sir David Cooksey, Sir Brian Williamson, MikeBiggs, Jim Newman and Ian Maidens will join the Board of Friends Financial oncompletion of the merger, subject to agreement of letters of appointment or theterms of their service contracts, as appropriate. A summary of the terms oftheir proposed letters of appointment or service contracts, as appropriate, willbe included in the circular to be sent to Friends Provident Shareholders inrelation to the merger and the Scheme Document. In addition, an executive committee will be put in place to manage theday-to-day operations of the group. The Combined Group expects to put in place a new long-term incentive plan thatwill adhere to best practice for listed companies, approval for which will besought from Resolution and Friends Provident Shareholders in connection with themerger. 10. Branding and locations The holding company name will be Friends Financial Group plc. In the CombinedGroup's core UK life and pensions operations, it is proposed to move most newbusiness activities to the single brand of Friends Provident, reinforcing itscommitment to establishing a leading market position. The Combined Group willretain the Scottish Provident brand and will build on its strength and heritagein the protection market. The F&C brand will be used for asset management and the Lombard and FriendsProvident brands will continue to be used in the international markets. The Combined Group's head office will be Resolution's current head office inLondon. It is intended that the key operating locations of both FriendsProvident and Resolution will be maintained. 11. Dividend policy The Combined Group will adopt Resolution's existing dividend policy followingthe completion of the merger. Accordingly, the dividend policy will be to targetat least 5 per cent. per annum growth, with one-third payable as an interimdividend and two-thirds payable as a final dividend. Dividends will be paid outof embedded value earnings and not out of any capital releases. Friends Provident's and Resolution's interim dividends in respect of the yearended 31 December 2007 are unaffected. Following completion of the merger, thefinal dividend declared by the Combined Group is expected to be set at a levelwhich will provide shareholders in Friends Financial with the same level ofpayout as would have been received by Resolution Shareholders had the merger nottaken place. In the absence of unforeseen circumstances, this will result in afinal dividend for Friends Financial shareholders of 5.64 pence per share,equivalent to 18.33 pence per existing Resolution Share, an increase of 38 percent. over the final dividend for 2006 and an increase to Friends ProvidentShareholders of 8.5 per cent. over the final dividend for 2006. In addition, Resolution Shareholders who are on the register of Resolution as atclose of business on 5 October 2007 will be entitled to receive Resolution's2007 interim dividend, expected to be 9.17 pence per share, and FriendsProvident Shareholders who are on the register of Friends Provident as at closeof business on 12 October 2007 will be entitled to receive Friends Provident's2007 interim dividend, expected to be 2.70 pence per share. The New FriendsFinancial Shares to be issued to Resolution Shareholders under the terms of themerger will not carry the right to receive Friends Provident's 2007 interimdividend. 12. Structure of the merger The terms of the merger are based on the recent relative equity marketcapitalisations of the two companies. The merger will be implemented by means of a Court-sanctioned scheme ofarrangement between Resolution and Resolution Shareholders under section 425 ofthe Companies Act. Under the Scheme, Resolution's entire issued share capitalwill be cancelled and re-issued to Friends Provident. Friends Provident willtherefore be the listed holding company of the Combined Group and will changeits name to Friends Financial Group plc upon the Scheme becoming effective. Resolution Shareholders will receive: for each Resolution Share held at the relevant record date 3.25 New Friends Financial Shares. Fractional entitlements to Friends Financial Shares under the merger will bedisregarded and will not be issued. The merger will be subject to the conditions and further terms set out inAppendix I, including the approval of the merger by shareholders of both FriendsProvident and Resolution as described below, satisfaction of certain regulatoryconditions and sanction of the Scheme by the Court. The Scheme will require approval by a special resolution of ResolutionShareholders to be proposed at the Resolution Extraordinary General Meeting. TheScheme will also require approval separately by Resolution Shareholders at ameeting to be convened by order of the Court. The approval required at thatScheme Meeting is a majority in number representing 75 per cent. in value ofthose holders who vote in person or by proxy at that meeting. Once the Schemebecomes effective, the terms will be binding on all Resolution Shareholderswhether or not they voted in favour. The Scheme can only become effective if all the conditions to the merger havebeen satisfied or, where relevant, waived. The Scheme will become effective uponthe delivery to the Registrar of Companies by Resolution of a copy of the CourtOrder and the registration of such order. As a result of the size of the transaction, the merger will also requireapproval of Friends Provident Shareholders at the Friends ProvidentExtraordinary General Meeting. Friends Provident is required to prepare and sendto its shareholders the Friends Provident Shareholder Circular summarising thebackground to and reasons for the merger (which will include a notice conveningthe Friends Provident Extraordinary General Meeting). Friends Provident will also be required to publish a Prospectus in connectionwith the issue of the New Friends Financial Shares. The Prospectus will containinformation relating to the Combined Group and the New Friends Financial Shares. It is expected that the Scheme will become effective and that the merger willcomplete during the fourth quarter of 2007. 13. Merger Agreement and Inducement Fee Friends Provident and Resolution have entered into the Merger Agreement whichprovides, among other things, for the implementation of the merger in accordancewith an agreed indicative timetable and contains assurances and confirmationsbetween the parties, including provisions to implement the Scheme on a timelybasis and governing the conduct of the businesses of Friends Provident andResolution during the period prior to the merger becoming effective. Each of Friends Provident and Resolution have agreed that, immediately prior tothe Court Hearings, they shall waive all remaining Conditions other than thosein set out in paragraphs 1, 2, 3.1, 3.2 and 3.5 of Appendix I unless the otherparty has notified it and provided reasonable evidence that an event hasoccurred or circumstance has arisen which is sufficient for the Panel to permitthe other party to withdraw from the merger. In addition, the Merger Agreement contains certain covenants from each party toproceed to implement the Scheme after the passing of the resolutions at theFriends Provident Extraordinary General Meeting and the Resolution ExtraordinaryGeneral Meeting, in which the shareholders of Friends Provident and Resolutionshall direct their respective directors, subject only to the Conditions, to usetheir reasonable endeavours to ensure that the Scheme becomes effectivenotwithstanding any Alternative Proposal or any fiduciary duties which theirrespective directors might otherwise have. Each party has agreed under the Merger Agreement to pay to the other theInducement Fee if: •an Alternative Proposal becomes or is declared wholly unconditional, becomes effective, or is otherwise completed before or within 12 months of the date on which the merger is withdrawn, not implemented or lapses; or •either Board does not unanimously and unqualifiedly recommend the merger or withdraws, or adversely modifies or qualifies such recommendation and the merger is withdrawn, not implemented or lapses; or •the shareholder resolutions required by either party to implement the merger are not passed by the requisite majorities or in the case of Resolution, if it fails to obtain the sanction for the Scheme by the Court, and the merger is withdrawn, not implemented or lapses; or •the merger is withdrawn, not implemented or lapses as a result of either party committing a breach of its obligations under the Merger Agreement which is so material as to have caused or to have contributed materially to such withdrawal, failure to implement, or lapse. Under the Merger Agreement, Friends Provident and Resolution have undertakenthat they should not offer or agree to any inducement fee or any similararrangement with any third party prior to the termination of the MergerAgreement and have each agreed that they will not initiate or solicit anydiscussion for the purposes of procuring an Alternative Proposal. Friends Provident and Resolution have also each agreed that they will notifyeach other of any approach regarding an Alternative Proposal, the material termsof any such approach and undertakes, subject to the directors' fiduciary duties,not to withdraw, modify or qualify their recommendation within 48 hours of suchnotification unless the other party confirms it is not willing to revise theScheme or exercise its right to make a takeover offer for the other party. Both of the parties have reserved the right in the event of an AlternativeProposal for the other party to elect to implement the merger by means of atakeover offer, such offer to be on terms no less favourable to the otherparty's shareholders, to be subject to a 50 per cent. acceptance condition andto remain open until day 60 under the City Code. The Merger Agreement shall terminate in certain circumstances including, withoutprejudice to the rights of either party that may have arisen prior totermination and without prejudice to the Inducement Fee, if: •the merger does not become effective on or before the Long Stop Date; •any Condition becomes incapable of satisfaction or is invoked; •an Alternative Proposal becomes or is declared wholly unconditional or is completed; or •following the occurrence of any of the events triggering a payment of the Inducement Fee. 14. Current trading and outlook Friends Provident On 8 August 2007, Friends Provident will release its interim results for the sixmonths to 30 June 2007. The main highlights will be: •Total sales on a present value of new business premiums basis are up 13 per cent. at £3,428 million (2006: £3,032 million). - Life and pension sales in the UK are up 12 per cent. at £2,257 million (2006: £2,020 million). Protection sales are up only 2 per cent. and sales of savings and investment products fell 26 per cent. due to competitive market conditions. - International life and pension sales are up 16 per cent. at £1,171 million (2006: £1,012 million), reflecting a robust performance against strong comparatives from the previous year. •The total contribution to profit from new business was up 7 per cent. at £95 million (2006: £89 million). - In the UK, the contribution to profit from new business was £62 million, up 17 per cent. (2006: £53 million), reflecting improvements in group pension margins, higher sales of annuities and unusually high DWP rebates, partially offset by some reductions in margins on protection and savings and investment products. - In International, the contribution to profit from new business was £33 million (2006: £36 million), reflecting the mix of products and territories in which sales were made. •EEV underlying profit(9) before tax was £264 million (2006: £247 million), up 7 per cent. - This includes a profit of £12 million arising from the reinsurance treaty which transferred annuity longevity risk. - The EEV underlying profit also reflects a charge of £7 million for persistency. This reflects lapse experience to date on legacy with profit bonds in the UK and on investment portfolio bonds. There has also been a modest deterioration in persistency in old style group pension schemes, which are no longer sold. Friends Provident will monitor these trends in the second half of the year before updating its operating assumptions. If current trends continue, Friends Provident would expect to incur a total persistency charge of approximately £70 million in its full year 2007 results. The majority of the charge is expected to be for legacy products and only a small amount is expected to be for pensions business. •IFRS underlying profit(10) before tax was £111 million (2006: £120 million), down 8 per cent. This included a benefit of £11 million from the annuity reinsurance treaty after writing off related deferred acquisition costs. The changes to the regulatory reserving bases to complete the implementation of PS06/14 will be made in the second half of 2007 and no benefit from this has been taken in the interim results. Resolution Resolution plans to announce its interim results for the six months to 30 June2007 on 18 September 2007. The business is currently performing in line withmanagement's expectations. 15. Information on Resolution Resolution is a specialist manager of in-force UK life funds and a member of theFTSE 100 Index. It was formed on 6 September 2005 when the merger of BritannicGroup and Resolution Life Group ("RLG") was completed. Britannic's heritage dates back to 1866, but it was only in 2003 that it closedfor new business to focus on acquiring closed life funds. Britannic acquired thelife operations of Allianz Cornhill in December 2004 for £115 million and theCentury Group in March 2005 for £45 million. RLG was formed for the purpose of buying and managing closed life funds. Itacquired the Royal & Sun Alliance life companies in September 2004 for £850million and Swiss Life UK for £205 million in March 2005. On 1 September 2006 Resolution completed the acquisition of the UK and offshorelife insurance businesses of Abbey together with the associated new businessinfrastructure and services companies. The total consideration was £3.6 billion. Resolution's head office is in London with significant administration operationsin Wythall and Glasgow. Resolution's asset management operations are also basedin Glasgow. Resolution has total policyholder invested assets of £55 billion, comprising thefinancial assets and investment properties on the balance sheet at 31 December2006. Total funds under management at that date including third party fundstotalled £61 billion. Resolution's embedded value at 31 December 2006 was £4,197million and its EEV profit before tax for the year then ended was £669 million(including the results of the acquired Abbey businesses for the second half ofthe year). Reported IFRS profits before tax for the year ended 31 December 2006were £482 million including the results of the acquired Abbey businesses from 10August 2006. Gross assets on an IFRS basis as at 31 December 2006 were £65,374million. The terms of the merger value the Resolution Group at £4,381 million. 16. Information on Friends Provident Friends Provident is a leading UK financial services group and a member of theFTSE 100 Index. Founded in 1832, Friends Provident has established a reputationfor innovative systems supporting unrivalled service and backed by strongethical values. Friends Provident has three core businesses: •the UK Life and Pensions business is a leading UK life and pensions provider with approximately 2.5 million customers, and markets a comprehensive range of life protection, income protection, pensions and investment products for individual customers and corporate clients throughout the UK; •the International Life and Pensions business operates throughout Europe, Asia, and the Middle East, and incorporates the Luxembourg-based company Lombard International which specialises in providing life assurance based estate planning solutions; and •the Asset Management business - F&C Asset Management plc - manages funds of £104 billion and markets a wide range of investment products both to personal and institutional customers. Friends Provident's head office is in Dorking, with significant functions inLondon, Salisbury, Exeter, Manchester and Edinburgh. Friends Provident's total embedded value as at 31 December 2006 was £3,660million. Reported EEV underlying profit before tax was £509 million and IFRSunderlying profit before tax was £400 million in 2006. Friends Provident'sinterim results for the six months to 30 June 2007 will be announced on 8 August2007. 17. Settlement, listing and dealing It is intended that the UKLA and the London Stock Exchange will be requestedrespectively to cancel the listing of the Resolution Shares from the OfficialList and the trading in Resolution Shares on the London Stock Exchange's marketfor listed securities on the Effective Date. As soon as possible after theEffective Date it is intended that Resolution be re-registered as a privatelimited company. Applications will be made to the UKLA and the London Stock Exchange for the NewFriends Financial Shares to be admitted to the Official List and to trading onthe London Stock Exchange's main market for listed securities. It is expectedthat listing of the New Friends Financial Shares will become effective and thatdealings for normal settlement will commence at 8.00a.m. on the day followingthe date on which the Scheme becomes effective. Friends Provident Shareholders who hold their shares in certificated form willretain their existing certificates which will remain valid. New certificates inthe name of Friends Financial will be issued when transfers to persons who wishto hold their Friends Provident Shares in certificated form are lodged forregistration. Certificates for New Friends Financial Shares to be issued toResolution Shareholders are expected to be despatched shortly after the day onwhich the Scheme becomes effective. Further details on settlement, listing and dealing will be included in thedocuments to be sent to Friends Provident Shareholders and ResolutionShareholders. 18. Interests in shares As at close of business on 24 July 2007, being the latest practicable date priorto the date of this announcement, save in respect of any shares held withinfunds under management, neither Friends Provident nor any director of FriendsProvident, nor, so far as Friends Provident is aware, any party acting inconcert with Friends Provident, owns or controls any Resolution Shares or anysecurities convertible or exchangeable into, or any rights to subscribe for orpurchase, or any options to purchase any Resolution Shares or holds anyderivatives referenced to Resolution Shares. 19. Securities in issue In accordance with Rule 2.10 of the City Code, as at close of business on 24July 2007, being the latest practicable date prior to the date of thisannouncement, Friends Provident has 2,149,926,065 ordinary shares of 10 penceeach in issue, excluding shares held in treasury (ISIN number GB0030559776) andResolution had 685,932,691 ordinary shares of 5 pence each in issue (ISIN numberGB0004342563). In addition, Friends Provident has in issue £290 million 5.25 per cent.Convertible Bonds due December 2007 (ISIN number XS0159504801). The conversionprice is £1.71 per Friends Provident Share. Unless previously purchased,cancelled, redeemed or converted, the Convertible Bonds will be converted on orbefore 11 December 2007 into New Friends Financial Shares. 20. Recommendations The Directors of Friends Provident, who have been so advised by JPMorganCazenove, consider the terms of the merger to be fair and reasonable. Inproviding its advice to the Directors of Friends Provident, JPMorgan Cazenovehas taken into account the commercial assessments of the Directors of FriendsProvident. The Directors of Friends Provident consider that the merger is in the bestinterests of shareholders taken as a whole and accordingly have unanimouslyagreed to recommend that Friends Provident Shareholders vote in favour of theresolutions relating to the merger to be proposed at the Friends ProvidentExtraordinary General Meeting as they have irrevocably undertaken to do inrespect of their own beneficial holdings of 222,453 Friends Provident Sharesrepresenting, in aggregate, approximately 0.01 per cent. of the existing issuedshare capital of Friends Provident. The Directors of Resolution, who have been so advised by Lazard and Citi,consider the terms of the merger to be fair and reasonable. In providing theiradvice to the Directors of Resolution, Lazard and Citi have taken into accountthe commercial assessments of the Directors of Resolution. The Directors of Resolution consider that the merger is in the best interests ofResolution Shareholders as a whole and accordingly have unanimously agreed torecommend that Resolution Shareholders vote in favour of the resolutionsrelating to the merger to be proposed at the Resolution Extraordinary GeneralMeeting and the Scheme Meeting as they have irrevocably undertaken to do inrespect of their own beneficial holdings of 25,460,415 Resolution Sharesrepresenting, in aggregate, approximately 3.7 per cent. of the existing issuedshare capital of Resolution. 21. General The merger will be governed by English law and will be subject to thejurisdiction of the English courts. The merger will be subject to the Conditions and further terms set out hereinand in Appendix 1 and to the full terms and conditions which will be set out inthe Scheme Document. The Scheme Document convening the Resolution Extraordinary General Meeting andScheme Meeting will be sent to Resolution Shareholders, other than certainoverseas shareholders, in due course. At the same time or as nearly aspracticable at the same time as these documents are sent to ResolutionShareholders, the Friends Provident Shareholder Circular convening the FriendsProvident Extraordinary General Meeting will be sent to Friends ProvidentShareholders. In addition, a Prospectus will be made available by FriendsProvident in accordance with the requirements of the Prospectus Rules. Friends Provident reserves the right to elect to implement the merger by makinga takeover offer for the entire issued and to be issued share capital ofResolution. If Friends Provident elects to implement the merger by means of atakeover offer, that offer will be implemented on the same terms, so far asapplicable, as those which would apply to the Scheme. Enquiries: Friends Provident Resolution+44 (0)845 641 7833 +44 (0)20 7489 4880Sir Adrian Montague Clive CowderyPhilip Moore Mike BiggsNick Boakes Steve Riley JPMorgan Cazenove Lazard+44 (0)20 7588 2828 +44 (0)20 7187 2000Tim Wise Jon HackConor Hillery Edmund Dilger Citi +44 (0)20 7986 4000 Chris Jillings Andrew Thompson Finsbury Temple Bar+44 (0)20 7251 3801 +44 (0)20 7002 1080James Murgatroyd Alex Child-VilliersAlex Simmons There will be a newswire conference call today at 7.45a.m. BST and an analystand investor presentation with a live webcast at the offices of Goldman SachsInternational (River Court, 120 Fleet Street, London EC4A 2QQ) at 10.30a.m. BST.The dial in number for the newswire conference call is +44 (0) 20 7162 0025,conference call ID 760567. A copy of this announcement and the slidepresentation will be available from 10.00a.m. BST on www.friendsprovident.comand www.resolutionplc.com. Notes: 1) Based on Friends Provident's closing share price on 24 July 2007 of 196.5 pence and approximately 4,379 million shares expected to be in issue in Friends Financial following completion. 2) Combined embedded value is based on Friends Provident and Resolution net embedded values as at 31 December 2006 without adjustment for differences in methodology. Friends Provident embedded value includes F&C at its attributable market value. 3) As at 31 December 2006. 4) For the year ended 31 December 2006. The combined EEV operating profits only include the profits of the life businesses acquired from Abbey for the half year to 31 December 2006; IFRS profits are included from 10 August 2006. EEV operating profits are stated after finance costs. 5) Of the £695 million of surplus cash used to repay existing debt, £200 million was used to pay down amounts outstanding under a revolving credit facility, which amount is available to be re-drawn. 6) Annualised cost synergies arising from the proposed combination of F&C and RAM comprise £26 million. These synergies would be shared with the minority shareholders of F&C. 7) Based on underlying EEV EPS for Friends Provident and operating EEV EPS for Resolution. 8) Combined new business represents the full year 2006 new business sales for Friends Provident together with new business sales of the life businesses acquired from Abbey for the half year to 31 December 2006. 9) EEV underlying profit is based on expected investment return and excludes: (i) amortisation and impairment of Asset Management acquired intangible assets (ii) effect of economic assumption changes (iii) non-recurring items; and is stated after deducting interest payable on STICS. 10) IFRS underlying profit is a measure of profit which excludes profit generated within policyholder funds that is not allocated to shareholders. Management consider that underlying profit better reflects the ongoing performance of the Group and focus on this measure of profit in its internal monitoring of the Group's IFRS results. IFRS underlying profit is based on longer-term investment return and excludes: (i) policyholder tax, (ii) returns attributable to minority interests in policyholder funds, (iii) non-recurring items, (iv) amortisation and impairment of acquired intangible assets and present value of acquired in-force business; and is stated after deducting interest payable on STICS. The conditions to, and certain further terms of, the Merger are set out inAppendix I. Certain definitions and terms used in this announcement are set outin Appendix III. JPMorgan Cazenove is acting as financial adviser to Friends Provident and no oneelse in connection with the Merger and will not be responsible to any otherperson for providing the protections afforded to the clients of JPMorganCazenove nor for providing advice in relation to the Merger or any other matterreferred to in this announcement. Lazard is acting as financial adviser to Resolution and no one else inconnection with the Merger and will not be responsible to any other person forproviding the protections afforded to the clients of Lazard nor for providingadvice in relation to the Merger or any other matter referred to in thisannouncement. Citi is acting as financial adviser to Resolution and no one else in connectionwith the Merger and will not be responsible to any other person for providingthe protections afforded to the clients of Citi nor for providing advice inrelation to the Merger or any other matter referred to in this announcement. Overseas jurisdictions The release, publication or distribution of this announcement in jurisdictionsother than the United Kingdom may be restricted by law and therefore any personswho are subject to the laws of any jurisdiction other than the United Kingdomshould inform themselves about, and observe, any applicable requirements. Thisannouncement has been prepared for the purposes of complying with English law,the City Code and the Listing Rules and the information disclosed may not be thesame as that which would have been disclosed if this announcement had beenprepared in accordance with the laws and regulations of any jurisdiction outsideof England. This announcement is not intended to, and does not constitute, or form part of,an offer to sell, purchase or exchange or the solicitation of an offer to sell,purchase or exchange any securities or the solicitation of any vote or approvalin any jurisdiction. This announcement does not constitute a prospectus or aprospectus equivalent document. Shareholders of Friends Provident and Resolutionare advised to read carefully the formal documentation in relation to the Mergeronce it has been despatched. The proposals relating to the Merger will be madesolely through the Scheme Document, which will contain the full terms andconditions of the Merger, including details of how to vote with respect to theScheme. Any acceptance or other response to the proposals should be made only onthe basis of the information in the Scheme Document. In particular, this announcement is not an offer of securities for sale in theUnited States and the New Friends Financial Shares, which will be issued inconnection with the Merger, have not been, and will not be, registered under theUS Securities Act of 1933, as amended, (the "US Securities Act") or under thesecurities law of any state, district or other jurisdiction of the UnitedStates, Australia, Canada or Japan and no regulatory clearance in respect of theNew Friends Financial Shares has been, or will be, applied for in anyjurisdiction other than the UK. The New Friends Financial Shares may not beoffered, sold, or, delivered, directly or indirectly, in, into or from theUnited States absent registration under the US Securities Act or an exemptionfrom registration. The New Friends Financial Shares may not be offered, sold,resold, delivered or distributed, directly or indirectly, in, into or fromCanada, Australia or Japan or to, or for the account or benefit of, any residentof Australia, Canada or Japan absent an exemption from registration or anexemption under relevant securities law. It is expected that the New FriendsFinancial Shares will be issued in reliance upon the exemption from theregistration requirements of the US Securities Act provided by Section 3(a)(10)thereof. Under applicable US securities laws, persons (whether or not USpersons) who are or will be "affiliates" within the meaning of the US SecuritiesAct of Friends Provident or Resolution prior to, or of Friends Financial after,the Effective Date will be subject to certain transfer restrictions relating tothe New Friends Financial Shares received in connection with the Scheme. Notice to US Investors: The Merger relates to the shares of a UK company and isproposed to be made by means of a scheme of arrangement provided for under thelaws of England and Wales. The Merger is subject to the disclosure requirementsand practices applicable in the United Kingdom to schemes of arrangement, whichdiffer from the disclosure and other requirements of US securities laws.Financial information included in the relevant documentation will have beenprepared in accordance with accounting standards applicable in the UnitedKingdom that may not be comparable to the financial statements of US companies. If the Merger is implemented by way of an offer, it will be made in accordancewith the procedural and filing requirements of the US securities laws, to theextent applicable. If the Merger is implemented by way of an offer, the NewFriends Financial Shares to be issued in connection with such offer will not beregistered under the US Securities Act or under the securities laws of anystate, district or other jurisdiction of the United States and may not beoffered, sold or delivered, directly or indirectly, in the United States exceptpursuant to an applicable exemption from, or in a transaction not subject to,the registration requirements of the US Securities Act or such other securitieslaws. Friends Provident does not intend to register any such New FriendsFinancial Shares or part thereof in the United States or to conduct a publicoffering of the New Friends Financial Shares in the United States. Dealing disclosure requirements Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,"interested" (directly or indirectly) in 1 per cent. or more of any class of"relevant securities" of Friends Provident or Resolution all "dealings" in any"relevant securities" of that company (including by means of an option inrespect of, or a derivative referenced to, any such "relevant securities") mustbe publicly disclosed by no later than 3.30 pm (London time) on the LondonBusiness Day following the date of the relevant transaction. This requirementwill continue until the date on which any offer becomes, or is declared,unconditional as to acceptances (or, if implemented by a scheme of arrangement,such scheme becomes effective), lapses or is otherwise withdrawn or on which the"offer period" otherwise ends. If two or more persons act together pursuant toan agreement or understanding, whether formal or informal, to acquire an"interest" in "relevant securities" of Friends Provident or Resolution, theywill be deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the City Code, all "dealings" in "relevantsecurities" of Resolution by Friends Provident or of Friends Provident byResolution, or by any of their respective "associates", must be disclosed by nolater than 12.00 noon (London time) on the London business day following thedate of the relevant transaction. A disclosure table, giving details of thecompanies in whose "relevant securities" "dealings" should be disclosed, and thenumber of such securities in issue, can be found on the Takeover Panel's websiteat www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the City Code, which can also be foundon the Takeover Panel's website. If you are in any doubt as to whether or notyou are required to disclose a "dealing" under Rule 8, you should consult theTakeover Panel. Forward looking statements This announcement may contain forward looking statements that are based oncurrent expectations or beliefs, as well as assumptions about future events.Generally, the words "will", "may", "should", "continue", "believes", "expects","intends", "anticipates" or similar expressions identify forward-lookingstatements. These statements are based on the current expectations of managementand are naturally subject to risks, uncertainties and changes in circumstances.Undue reliance should not be placed on any such statements because, by theirvery nature, they are subject to known and unknown risks and uncertainties andcan be affected by other factors that could cause actual results, andmanagement's plans and objectives, to differ materially from those expressed orimplied in the forward looking statements. There are several factors which couldcause actual results to differ materially from those expressed or implied inforward looking statements. Among the factors that could cause actual results todiffer materially from those described in the forward looking statements are theability to combine successfully the businesses of Friends Provident andResolution and to realise expected synergies from that combination, changes inthe global, political, economic, business, competitive, market and regulatoryforces, future exchange and interest rates, changes in tax rates and futurebusiness combinations or dispositions. Neither Friends Provident nor Resolutionundertakes any obligation (except as required by the Listing Rules and theDisclosure and Transparency Rules and the rules of the London Stock Exchange) torevise or update any forward looking statement contained in this announcement,regardless of whether that statement is affected as a result of new information,future events or otherwise. Appendix I Conditions to and certain further terms of the merger The merger will be conditional upon the Scheme becoming unconditional andeffective by 31 March 2008 or such later date as Resolution and FriendsProvident may agree and (if required) the Court may allow. 1 The Scheme will be subject to the following conditions: 1.1 approval by a majority in number representing not less thanthree-fourths in value of the holders of Scheme Shares, present and voting,whether in person or by proxy, at the Court Meeting (or any adjournment thereof)and such approval not subsequently being revoked; 1.2 the resolutions required to implement the Scheme being passed atthe Resolution Extraordinary General Meeting (or any adjournment thereof); and 1.3 the sanction of the Scheme and the confirmation of the CapitalReduction by the Court (in either case with or without modification (but subjectto such modification being acceptable to Friends Provident and Resolution)),office copies of the Court Order and of the minute of reduction being deliveredto the Registrar of Companies and, in relation to the Capital Reduction, beingregistered by him. 2 The merger will be conditional upon the passing at theFriends Provident Extraordinary General Meeting (or any adjournment thereof) ofsuch resolution or resolutions as are necessary to approve, implement and effectthe merger and the acquisition of Resolution Shares pursuant to the merger orotherwise (as such resolutions may be set out in the Friends ProvidentShareholder Circular, including a resolution or resolutions to increase theshare capital of Friends Provident and authorise the creation and allotment ofthe Friends Financial Shares) and such resolutions not subsequently beingrevoked. 3 Friends Provident and Resolution have agreed that, subjectto the provisions of paragraph 5 of this Appendix I below and the requirementsof the Panel in accordance with the City Code, the Scheme will also beconditional upon, and accordingly the necessary actions to effect the mergerwill only be taken on, the satisfaction, or where relevant, waiver of thefollowing Conditions: 3.1 all necessary and/or appropriate merger control clearances andapprovals from Competition Authorities being obtained in terms reasonablysatisfactory to Friends Provident and Resolution and all waiting or other timeperiods (including any extensions thereof) having expired, lapsed or terminated; 3.2 Admission becoming effective in accordance with the ListingRules and the admission of such shares to trading becoming effective inaccordance with the Admission and Disclosure Standards of the London StockExchange or, if Friends Provident and Resolution so determine, and subject tothe consent of the Panel, the UKLA agreeing to admit such shares to the OfficialList and the London Stock Exchange agreeing to admit such shares to tradingsubject only to (i) the allotment of such shares and/or (ii) the merger becomingEffective; 3.3 except as (i) publicly announced in accordance with the ListingRules or Disclosure and Transparency Rules by Friends Provident or Resolutionprior to 25 July 2007, (ii) disclosed in the annual report and accounts ofResolution for the financial year ended 31 December 2006, (iii) disclosed in theannual report and accounts of Friends Provident for the financial year ended 31December 2006, or (iv) fairly disclosed by or on behalf of Friends Provident orResolution to the other prior to 25 July 2007, there being no provision of anyagreement, arrangement, licence, permit or other instrument to which any memberof the wider Friends Provident Group or the wider Resolution Group is a party orby or to which any such member or any of its assets may be bound, entitled orsubject, which in consequence of the merger or because of a change in thecontrol or management of Friends Provident or Resolution or otherwise, would ormight reasonably be expected to result (in each case to an extent which ismaterial in the context of the wider Resolution Group as a whole or the widerFriends Provident Group as a whole) in: 3.3.1 any moneys borrowed by or any other indebtedness (actual orcontingent) of, or grant available to any such member, being or becomingrepayable or capable of being declared repayable immediately or earlier thantheir or its stated maturity date or repayment date or the ability of any suchmember to borrow moneys or incur any indebtedness being withdrawn or inhibitedor being capable of becoming or being withdrawn or inhibited; 3.3.2 any such agreement, arrangement, licence, permit or instrumentor the rights, liabilities, obligations or interests of any such memberthereunder being terminated or modified or affected or any obligation orliability arising or any action being taken thereunder; 3.3.3 any assets or interests of any such member being or falling tobe disposed of or charged or any right arising under which any such asset orinterest could be required to be disposed of or charged otherwise than in theordinary course of business; 3.3.4 the creation or enforcement of any mortgage, charge or othersecurity interest over the whole or any part of the business, property or assetsof any such member or any such mortgages, charge or other security interest(whenever arising or having arisen) becoming enforceable; 3.3.5 the rights, liabilities, obligations or interests of any suchmember in or to, or the business of any such member with, any person, firm orbody (or any arrangement or arrangements relating to any such interest orbusiness) being terminated or adversely modified or affected; 3.3.6 the value of any such member or its financial or tradingposition being prejudiced or adversely affected; 3.3.7 any such member ceasing to be able to carry on business underany name under which it presently does so; or 3.3.8 the creation of any liability, actual or contingent, by any suchmember, and no event having occurred which, under any provision of any agreement,arrangement, licence, permit or other instrument to which any member of thewider Friends Provident Group or the wider Resolution Group is a party or by orto which any such member or any of its assets may be bound, entitled or subject,would result in or would reasonably be expected to result in any of the eventsor circumstances as are referred to in sub-paragraphs 3.3.1 to 3.3.8 of thisparagraph 3.3 (in each case to an extent which is material in the context of thewider Friends Provident Group as a whole or the wider Resolution Group as awhole); 3.4 no government or governmental, quasi-governmental,supranational, statutory, regulatory, environmental or investigative body,court, trade agency, association, institution or any other body or person(whether or not a governmental or similar body or person) whatsoever in anyjurisdiction (each a "Third Party") having decided to take, institute, implementor threaten any action, proceeding, suit, investigation, enquiry or reference,or enacted or made any statute, regulation, decision or order, or having takenany other steps which would or would reasonably be expected to (in each case toan extent which is material in the context of the wider Friends Provident Groupas a whole or the wider Resolution Group as a whole): 3.4.1 require, prevent or delay the divestiture, or alter the termsenvisaged or agreed for any proposed divestiture by any member of the widerFriends Provident Group or any member of the wider Resolution Group of all orany portion of their respective businesses, assets or property or impose anymaterial limitation on the ability of any of them to conduct their respectivebusinesses (or any of them) or to own any of their respective assets orproperties or any material part thereof; 3.4.2 impose any limitation on, or result in a delay in, the abilityof any member of the wider Friends Provident Group or the wider Resolution Groupdirectly or indirectly to acquire or to hold or to exercise effectively anyrights of ownership in respect of shares or loans or securities convertible intoshares or any other securities (or the equivalent) in any member of the widerResolution Group or the wider Friends Provident Group or to exercise managementcontrol over any such member; 3.4.3 otherwise adversely affect the business, assets or profits ofany member of the wider Friends Provident Group or of any member of the widerResolution Group; 3.4.4 make the merger or its implementation or the acquisition orproposed acquisition by Friends Provident or any member of the wider FriendsProvident of any shares or other securities in, or control of Resolution void,illegal and/or unenforceable under the laws of any jurisdiction, or otherwisedirectly or indirectly, restrain, restrict, prohibit, delay or otherwisematerially interfere with the same, or impose additional conditions orobligations with respect thereto, or otherwise challenge or materially interferetherewith; 3.4.5 require any member of the wider Friends Provident Group or thewider Resolution Group to offer to acquire any shares or other securities (orthe equivalent) or interest in any member of the wider Resolution Group or thewider Friends Provident Group owned by any third party; or 3.4.6 result in any member of the wider Friends Provident Group or thewider Resolution Group ceasing to be able to carry on business under any nameunder which it presently does so, and all applicable waiting and other time periods during which any such ThirdParty could institute, implement or threaten any action, proceeding, suit,investigation, enquiry or reference or any other step under the laws of anyjurisdiction in respect of the merger having expired, lapsed or been terminated; 3.5 all necessary filings or applications having been made inconnection with the merger and all applicable waiting periods under anyapplicable legislation or regulations having expired and all statutory orregulatory obligations in any jurisdiction having been complied with inconnection with the merger and all authorisations, orders, recognitions, grants,consents, licences, confirmations, clearances, permissions and approvals(collectively "Consents") reasonably deemed necessary and/or appropriate for orin respect of, the merger having been obtained in terms and in a form reasonablysatisfactory to Friends Provident and Resolution from all appropriate ThirdParties or persons with whom any member of the wider Friends Provident Group orthe wider Resolution Group has entered into contractual arrangements, and allsuch Consents together with all material Consents reasonably necessary and/orappropriate to carry on the business of any member of the wider FriendsProvident Group or the wider Resolution Group remaining in full force and effectand all filings, notifications or applications necessary and/or appropriate forsuch purpose having been made and there being no notice or intimation of anyintention to revoke or not to renew any of the same at the time at which themerger otherwise becomes Effective and all necessary and/or appropriatestatutory or regulatory obligations in any jurisdiction having been compliedwith in all material respects; 3.6 except as (i) publicly announced in accordance with the ListingRules or Disclosure and Transparency Rules by Friends Provident or Resolutionprior to 25 July 2007, (ii) disclosed in the annual report and accounts ofResolution for the financial year ended 31 December 2006, (iii) disclosed in theannual report and accounts of Friends Provident for the financial year ended 31December 2006, or (iv) fairly disclosed by or on behalf of Friends Provident orResolution to the other prior to 25 July 2007, no member of the wider ResolutionGroup having, since 31 December 2006, and no member of the wider FriendsProvident Group having, since 31 December 2006: 3.6.1 save as between Friends Provident and wholly-owned subsidiariesof Friends Provident, or as between Resolution and wholly-owned subsidiaries ofResolution, or for Friends Provident Shares issued pursuant to the exercise ofoptions granted under the Friends Provident Share Schemes, or for ResolutionShares issued pursuant to the exercise of options granted under the ResolutionShare Schemes, issued, authorised or proposed the issue of additional shares ofany class; 3.6.2 save as between Friends Provident and wholly-owned subsidiariesof Friends Provident, or as between Resolution and wholly-owned subsidiaries ofResolution, or for the grant of options under the Friends Provident ShareSchemes or the Resolution Share Schemes, issued or agreed to issue, authorisedor proposed the issue of securities convertible or exchangeable into shares ofany class or rights, warrants or options to subscribe for, or acquire, any suchshares or convertible securities; 3.6.3 other than to another member of the Friends Provident Group orthe Resolution Group and save as provided for in respect of Resolution orFriends Provident in this announcement, recommended, declared, paid or made orproposed to recommend, declare, pay or make any bonus, dividend or otherdistribution whether payable in cash or otherwise; 3.6.4 save pursuant to the merger, merged or demerged with any bodycorporate or acquired or disposed of or transferred, mortgaged or charged orcreated any security interest over any assets or any right, title or interest inany asset (including shares and trade investments) or authorised or proposed orannounced any intention to propose any merger, demerger, acquisition ordisposal, transfer, mortgage, charge or security interest which, in any case, isnot in the ordinary course of business and is material in the context of thewider Friends Provident Group taken as a whole or the wider Resolution Grouptaken as a whole; 3.6.5 save for intra-Friends Provident Group or intra-Resolution Grouptransactions, made or authorised or proposed or announced an intention topropose any change in its loan capital; 3.6.6 issued, authorised or proposed the issue of any debentures or(save for intra-Friends Provident Group or intra-Resolution Group transactions),save in the ordinary course of business, incurred or increased any indebtednessor become subject to any guarantee or contingent liability, which in any case ismaterial in the context of the wider Friends Provident Group taken as a whole orthe wider Resolution Group taken as a whole; 3.6.7 purchased, redeemed or repaid or announced any proposal topurchase, redeem or repay any of its own shares or other securities or reducedor, save in respect to the matters mentioned in sub-paragraph 3.6.1 above, madeany other change to any part of its share capital; 3.6.8 implemented, or authorised, proposed or announced its intentionto implement, any reconstruction, amalgamation, scheme, commitment or othertransaction or arrangement which, in any case, is not in the ordinary course ofbusiness and is material in the context of the wider Friends Provident Grouptaken as a whole or the wider Resolution Group taken as a whole, or entered intoor changed the terms of any contract with any director or senior executive; 3.6.9 entered into or varied or authorised, proposed or announced itsintention to enter into or vary any contract, transaction or commitment (whetherin respect of capital expenditure or otherwise) which is of a long term, onerousor unusual nature or magnitude or which is or would be reasonably likely to bematerially restrictive on the businesses of the wider Resolution Group or thewider Friends Provident Group taken as a whole or which involves or couldinvolve an obligation of such a nature or magnitude or which is other than inthe ordinary course of business, and in each such case is or would be reasonablylikely to be material in the context of the wider Resolution Group taken as awhole or the wider Friends Provident Group taken as a whole; 3.6.10 (other than in respect of a member which is dormant and wassolvent at the relevant time) taken any corporate action or had any legalproceedings started or threatened against it for its winding-up, dissolution orreorganisation or for the appointment of a receiver, administrative receiver,administrator, trustee or similar officer of all or any of its assets orrevenues or any analogous proceedings in any jurisdiction or had any such personappointed; 3.6.11 been unable, or admitted in writing that it is unable, to pay itsdebts or having stopped or suspended (or threatened to stop or suspend) paymentof its debts generally or ceased or threatened to cease carrying on all or asubstantial part of its business; 3.6.12 made or agreed or consented to any material change to the terms orthe trust deeds and rules constituting any pension schemes established for itsdirectors and/or employees and/or their dependants or to the benefits whichaccrue, or to the pensions which are payable, thereunder, or to the basis onwhich qualification for or accrual or entitlement to such benefits or pensionsare calculated or determined or to the basis on which such liabilities of suchpension schemes are funded or calculated, or agreed or consented to any changeto the trustees which is material and adverse in the context of the wider HoldCoGroup or the wider SchemeCo Group; 3.6.13 entered into any contract, transaction or arrangement which wouldbe restrictive on the business of any member of the wider Resolution Group orthe wider Friends Provident Group other than to a nature and extent which isnormal in the context of the business concerned, to an extent which is or wouldbe reasonably likely to be material in the context of the wider Resolution Grouptaken as a whole or wider Friends Provident Group taken as a whole; 3.6.14 waived or compromised any claim otherwise than in the ordinarycourse of business and in any case which is or would be reasonably likely to bematerial in the context of the wider Friends Provident Group taken as a whole orthe wider Resolution Group taken as a whole; or 3.6.15 entered into any contract, commitment, arrangement or agreementotherwise than in the ordinary course of business or passed any resolution ormade any offer (which remains open for acceptance) with respect to or announcedany intention to, or to propose to, effect any of the transactions, matters orevents referred to in this condition; 3.7 except as (i) publicly announced in accordance with the ListingRules or Disclosure and Transparency Rules by Friends Provident or Resolutionprior to 25 July 2007, (ii) disclosed in the annual report and accounts ofResolution for the financial year ended 31 December 2006, (iii) disclosed in theannual report and accounts of Friends Provident for the financial year ended 31December 2006, or (iv) fairly disclosed by or on behalf of Friends Provident orResolution to the other prior to 25 July 2007: 3.7.1 no material adverse change or deterioration having occurred inthe business, assets, financial or trading position or profits of the widerFriends Provident Group or the wider Resolution Group taken as a whole; 3.7.2 no litigation, arbitration proceedings, prosecution or otherlegal proceedings to which any member of the wider Friends Provident Group orthe wider Resolution Group is or may become a party (whether as a plaintiff,defendant or otherwise) and no inquiry or investigation by any Third Partyagainst or in respect of any member of the wider Friends Provident Group or thewider Resolution Group having been instituted, announced or threatened by oragainst or remaining outstanding in respect of any member of the wider FriendsProvident or the wider Resolution Group which in any such case would have orwould reasonably be expected to have a material adverse effect on the widerFriends Provident Group or the wider Resolution Group as a whole; 3.7.3 no contingent or other liability having arisen or beenidentified which would have or would reasonably be expected to have a materialadverse effect on the wider Friends Provident Group or the wider ResolutionGroup as a whole; or 3.7.4 no steps having been taken which are likely to result in thewithdrawal, cancellation, termination or modification of any licence held by anymember of the wider Friends Provident Group or the wider Resolution Group whichis necessary for the proper carrying on of its business and the absence of whichin any case would have or would reasonably be expected to have a materialadverse effect on the wider Friends Provident Group or the wider ResolutionGroup as a whole; 3.8 save as (i) publicly announced in accordance with the ListingRules or Disclosure and Transparency Rules by Friends Provident or Resolutionprior to 25 July 2007, (ii) disclosed in the annual report and accounts ofResolution for the financial year ended 31 December 2006, or (iii) disclosed inthe annual report and accounts of Friends Provident for the financial year ended31 December 2006, Friends Provident not having discovered in relation to thewider Resolution Group and Resolution not having discovered in relation to thewider Friends Provident Group: 3.8.1 that any financial, business or other information concerning thewider Friends Provident Group or the wider Resolution Group as contained in theinformation publicly disclosed or disclosed to Friends Provident at any time byor on behalf of any member of the wider Resolution Group, or to Resolution atany time by or on behalf of any member of the wider Friends Provident Group, ismaterially misleading, contains a material misrepresentation of fact or omits tostate a fact necessary to make that information not materially misleading; or 3.8.2 that any member of the wider Friends Provident Group or thewider Resolution Group is subject to any liability (contingent or otherwisewhich is material in the context of the Friends Provident Group or theResolution Group as a whole) which is not disclosed in the annual report andaccounts of Resolution for the year ended 31 December 2006 or of FriendsProvident for the year ended 31 December 2006. 4 For the purposes of these conditions the "wider ResolutionGroup", "wider Friends Provident Group" "subsidiary undertaking", "associatedundertaking", "undertaking" and "significant interest" are defined in thedefinitions in Appendix 3. 5 Subject to the requirements of the Panel in accordance withthe City Code: 5.1 Friends Provident reserves the right to waive, in whole or inpart, all or any of the above conditions, except the conditions in paragraphs 1,2 and 3.2, so far as they relate to Resolution, the wider Resolution Group, orany part thereof; and 5.2 Resolution reserves the right to waive, in whole or in part, allor any of the above conditions, except the conditions in paragraphs 1, 2 and3.2, so far as they relate to Friends Provident, the wider Friends ProvidentGroup, or any part thereof. 6 Either party may terminate the Merger Agreement if at anytime prior to the conclusion of the Court Hearing any of these Conditionsbecomes incapable of satisfaction or is invoked by that party. 7 The merger will not proceed if, after the date of thisannouncement and before the Court Hearing, all necessary and/or appropriatemerger control clearances and approvals from Competition authorities beingobtained in terms reasonably satisfactory to Friends Provident and Resolutionand all waiting or other time periods (including any extensions thereof) haveexpired, lapsed or terminated. 8 If Friends Provident is required by the Panel to make anoffer for Resolution Shares under the provisions of Rule 9 of the City Code,Friends Provident may make such alterations to any of the above conditions asare necessary to comply with the provisions of that Rule. 9 Friends Provident and Resolution may decide to implement themerger by way of an offer. In such event the merger will be implemented on thesame terms (subject to appropriate amendments including (without limitation) anacceptance condition set at 50 per cent. of the shares to which the mergerrelates or such other percentage as may be required by the Panel and subject toavailability of an exemption from the registration requirements of the USSecurities Act and such amendments that Friends Provident deems necessary orappropriate in respect of US Securities laws), so far as applicable, as thosewhich would apply to the implementation of the merger by means of the Scheme. 10 The merger will be governed by English Law and be subject tothe jurisdiction of the English Courts, and to the Conditions set out in thisannouncement and in the formal Scheme Document. 11 This announcement is not an offer of securities for sale in theUnited States and the New Friends Financial Shares, which will be issued inconnection with the merger, have not been, and will not be, registered under theUS Securities Act or under the securities law of any state, district or otherjurisdiction of the United States, Australia, Canada or Japan and no regulatoryclearance in respect of the Friends Financial Shares has been, or will be,applied for in any jurisdiction other than the UK. The Friends Financial Sharesmay not be offered or sold in the United States absent registration under the USSecurities Act or an exemption from registration. It is expected that theFriends Financial shares will be issued in reliance upon the exemption from theregistration requirements of the US Securities Act provided by Section 3(a)(10)thereof. Under applicable US securities laws, persons (whether or not USpersons) who are or will be "affiliates" (for the purposes of the US SecuritiesAct) of Friends Provident or Resolution prior to, or of Friends Provident after,the Effective Date will be subject to certain transfer restrictions relating tothe Friends Financial Shares received in connection with the merger. Appendix II Sources and bases 1. Unless otherwise stated: (i)financial information relating to Resolution has been extracted(without material adjustment) from the audited annual report and accounts forResolution for the year ended 31 December 2006; (ii)financial information relating to Friends Provident has been extracted(without material adjustment) from the audited annual report and accounts forFriends Provident for the year ended 31 December 2006. 2. The terms of the merger value the Resolution Group at £4,381million, based on a share price of 196.5 pence per Friends Provident Share (theClosing Price on 24 July 2007, the last practicable date prior to thisannouncement) and approximately 2,229 million New Friends Financial Shares to beissued to Resolution Sharehers. 3.As at the close of business on 24 July 2007, FriendsProvident had in issue 2,149,926,065 ordinary shares of 10 pence each, excludingshares held in treasury; and Resolution had in issue 685,932,691 ordinary sharesof 5 pence each. 4. The expected operational cost savings have been calculatedon the basis of the existing cost and operating structures of the Resolution andFriends Provident Groups and, in the case of Resolution, after existing plansfor rationalisation and cost reduction have been implemented. These statementsof estimated cost savings and one-off costs for achieving them relate to futureactions and circumstances which, by their nature, involve risks, uncertaintiesand other factors. Because of this, the cost savings referred to may not beachieved, or those achieved could be materially different from those estimated.This statement is not intended to be a profit forecast and should not beinterpreted to mean that the earnings per share in 2007 or any subsequentfinancial period, would necessarily match or be greater than those for therelevant preceding financial period. 5. The embedded value for the Combined Group at 31 December2006 on a combined basis amounts to £7.9 billion. The embedded valuemethodologies adopted by Friends Provident and Resolution are materiallyconsistent except for the reporting of covered businesses. Friends Provident andResolution have both adopted a market-consistent approach to embedded value.However, while Friends Provident includes its service company expenses on a"look-through" basis and its asset management business at market value,Resolution includes these businesses on the basis of IFRS net worth. Other thanmoving to a consistent definition of covered business, the impact of fullyharmonising the embedded value methodologies and assumptions would not beexpected to result in a material change to the combined embedded value. 6. UK life and pensions market share figures are for the yearended 31 December 2006 and are sourced from the Association of British Insurers. Appendix III Definitions In this announcement, the following definitions apply unless the contextrequires otherwise: "Abbey" means Abbey National plc; "Admission" means the admission of the Friends Financial Shares to the OfficialList, in accordance with the Listing Rules, and the admission of the FriendsFinancial Shares to trading on the London Stock Exchange's main market forlisted securities in accordance with the Admission and Disclosure Standards; "Alternative Proposal" means a transaction, or series of transactions, enteredinto by Friends Provident or Resolution which would be reasonably likely topreclude, impede, delay or prejudice the implementation of the Merger; "BST" means British Summer Time; "Business Day" means a day (other than a Saturday or Sunday or public holiday)on which banks are open for business in London; "Capital Reduction" means the proposed reduction of Resolution's share capitalin connection with the merger under section 135 of the Companies Act; "Citi" means Citigroup Global Markets Limited; "City Code" means the City Code on Takeovers and Mergers; "Closing Price" means the closing middle market price of a relevant share asderived from SEDOL on any particular day; "Combined Group" means with effect from the Effective Date, the combined FriendsProvident Group/Resolution Group; "Companies Act" or the "Act" means the Companies Act 1985 (as amended); "Competition Authorities" shall mean (i) all the competition authorities havingjurisdiction over the merger and to which notification of the merger ismandatory and/or appropriate, under applicable merger control laws, and (ii) theUK competition authorities, should they have jurisdiction over the merger underapplicable merger control laws; "Conditions" means the conditions to the merger set out in Appendix I to thisannouncement; "Court" means the High Court of Justice in England and Wales; "Court Hearings" means the hearings by the Court of the petition to sanction theScheme and to confirm the cancellation of the entire issued share capital ofResolution provided by the Scheme under section 137 of the Companies Act; "Court Order" means the orders of the Court sanctioning the Scheme under section425 of the Companies Act and confirming the Capital Reduction; "Disclosure and Transparency Rules" means the Disclosure and Transparency Rules,as published by the FSA; "Effective" means the Scheme having become effective pursuant to its terms; "Effective Date" means the date on which the Scheme becomes Effective; "F&C" means F&C Asset Management plc; "Friends Financial" means Friends Financial Group plc, being Friends Providentfollowing its change of name on the Effective Date and the holding company ofthe Combined Group; "FPI" means Friends Provident International; "Friends Provident" means Friends Provident plc; "Friends Provident Extraordinary General Meeting" means the extraordinarygeneral meeting of Friends Provident Shareholders to consider and, if thoughtfit, to approve the merger and to pass certain other resolutions in connectionwith the merger; "Friends Provident Group" means Friends Provident, its subsidiaries andsubsidiary undertakings; "Friends Provident Shares" means ordinary shares of 10 pence each in the capitalof Friends Provident; "Friends Provident Shareholders" means the holders of Friends Provident Shares; "Friends Provident Shareholder Circular" the circular to be dispatched toFriends Provident Shareholders outlining the merger and containing the noticeconvening the Friends Provident Extraordinary General Meeting; "Friends Provident Share Schemes" means The Friends Provident plc Executive LongTerm Incentive Plan; The Friends Provident plc Executive Share Option Scheme;The Friends Provident plc Deferred Bonus Plan 2005; The Friends Provident plcShare Incentive Plan; The Friends Provident plc Inland Revenue ApprovedSharesave plan; "FSA" means the Financial Services Authority; "Inducement Fee" means the fee in the maximum amount permitted under the CityCode payable by Friends Provident to Resolution, or by Resolution to FriendsProvident as set out in the Merger Agreement; "JPMorgan Cazenove" means JPMorgan Cazenove Limited; "Lazard" means Lazard & Co., Ltd; "Listing Rules" means the rules and regulations of the UKLA, as amended fromtime to time and contained in the UKLA's publication of the same name; "Lombard" means Lombard International Assurance SA; "London Stock Exchange" means London Stock Exchange plc; "Long Stop Date" means 31 March 2008 (or such later time or date as FriendsProvident and Resolution may agree, with the approval of the Court and/or thePanel if required); "Merger" means the merger of Friends Provident and Resolution; "Merger Agreement" means the agreement, dated 25 July 2007, between FriendsProvident and Resolution governing implementation of the merger; "New Friends Financial Shares" means the new Friends Financial shares proposedto be issued, credited as fully paid up, pursuant to the merger; "Official List" means the official list of the UKLA; "Operational Cashflows" means the combined earnings and capital releases fromthe operating companies within Friends Financial Group; "Panel" means the Panel on Takeovers and Mergers; "pence" and "£" means the lawful currency of the United Kingdom; "Prospectus" means the prospectus, or document equivalent to a prospectus, to bepublished by Friends Provident in respect of Admission; "RAM" means Resolution Asset Management; "Registrar of Companies" means the Registrar of Companies in England and Wales,within the meaning of the Companies Act; "Resolution" means Resolution plc; "Resolution Extraordinary General Meeting" means the extraordinary generalmeeting of Resolution Shareholders to be convened for the purposes ofconsidering and, if thought fit, approving certain resolutions required toimplement or appropriate in connection with the Scheme and the merger; "Resolution Group" means Resolution, its subsidiaries and subsidiaryundertakings; "Resolution Shareholders" means the holders of Resolution Shares; "Resolution Shares" means the ordinary shares of 5 pence each in the capital ofResolution; "Resolution Share Schemes" means Resolution 1998 Unapproved Share Option Scheme;Resolution 1998 Approved Share Option Scheme; Resolution 1998 Savings RelatedShare Option Scheme; Resolution 2002 Long Term Incentive Plan; Resolution 2005Long Term Incentive Plan; Resolution 2005 Savings Related Share Option Scheme;Resolution Share Matching Plan 2006; Resolution Deferred Bonus Plan 2007; "Scheme" means the proposed scheme of arrangement of Resolution under section425 of the Act including the cancellation of the entire issued share capital ofResolution under section 135 of the Act, as modified or varied; "Scheme Document" means the document to be dispatched to Resolution Shareholdersin relation to the Scheme comprising the particulars required by section 426 ofthe Companies Act; "Scheme Meeting" means the meeting of the Scheme Shareholders to be convened byan order of the Court under section 425 of the Companies Act to consider and, ifthought fit, approve the Scheme (with or without amendment) and any adjournmentthereof; "Scheme Record Time" means 6.00pm on the Business Day immediately preceding theEffective Date; "Scheme Shareholders" means the holders of Scheme Shares; "Scheme Shares" means (a) the existing unconditionally issued Resolution Sharesat the date of the Scheme Document; (b) any further Resolution Shares which areunconditionally issued after the date of the Scheme Document but before theScheme Voting Record Time; and (c) any Resolution Shares issued at or after theScheme Voting Record Time and before the Scheme Record Time in respect of whichthe original or any subsequent holders thereof are, or shall have agreed inwriting to be, bound by the Scheme; in each case other than any ResolutionShares beneficially owned by Friends Provident; "Scheme Voting Record Time" means 48 hours prior to the time at which the SchemeMeeting is held or, if the Scheme Meeting is adjourned, 48 hours prior to thetime of such adjourned meeting; "Scottish Provident" means Scottish Provident International Life Assurance; "SEDOL" means the London Stock Exchange Daily Official List; "significant interest" means a direct or indirect interest in ten per cent. ormore of the equity share capital (as defined in the Companies Act) in a company; "subsidiary", "subsidiary undertaking", "associated undertaking" and"undertaking" have the meanings ascribed to them under the Companies Act, otherthan paragraph 20(1)(b) of Schedule 4A to that Act which shall be excluded forthis purpose; "wider Friends Provident Group" means Friends Provident and its subsidiaryundertakings, associated undertakings and other undertakings in which FriendsProvident and/or such undertakings (aggregating their interests) have asignificant interest; "wider Resolution Group" means Resolution and its subsidiary undertakings,associated undertakings and other undertakings in which Resolution and/or suchundertakings (aggregating their interests) have a significant interest; "UK Listing Authority" or "UKLA" means the Financial Services Authority in theUK acting in its capacity as the competent authority for the purposes of Part VIof the Financial Services and Markets Act 2000; "US" or "United States" means the United States of America, its territories andpossessions, any state in the United States of America and the District ofColumbia; and "US Securities Act" means the United States Securities Act of 1933 (as amended). Unless otherwise stated, all times referred to in this announcement arereferences to London time. Any reference to any provision of any legislation shall include any amendment,modification, re-enactment or extension thereof. Appendix IV Schedule of irrevocable undertakings +-----------------------+-----------------------+-----------------------+|Name of Friends |Number of Friends |Percentage of Friends ||Provident Director |Provident Shares |Provident issued share || | |capital |+-----------------------+-----------------------+-----------------------+|Sir Adrian Montague |6,174 |0.0003 |+-----------------------+-----------------------+-----------------------+|Philip Moore |53,084 |0.002 |+-----------------------+-----------------------+-----------------------+|Jim Smart |19,205 |0.0009 |+-----------------------+-----------------------+-----------------------+|Alain Grisay |NONE |N/A |+-----------------------+-----------------------+-----------------------+|Ben Gunn |106,125 |0.005 |+-----------------------+-----------------------+-----------------------+|Lady Judge |17,865 |0.0008 |+-----------------------+-----------------------+-----------------------+|Ray King |10,000 |0.0005 |+-----------------------+-----------------------+-----------------------+|Alison Carnwath |10,000 |0.0005 |+-----------------------+-----------------------+-----------------------+|Sir Mervyn Pedelty |NONE |N/A |+-----------------------+-----------------------+-----------------------+|Gerhard Roggemann |NONE |N/A |+-----------------------+-----------------------+-----------------------+|Total |222,453 |0.0103 |+-----------------------+-----------------------+-----------------------+ Resolution+------------------------+------------------------+------------------------+|Name of Resolution |Number of Resolution |Percentage of Resolution||Director |Shares |issued share capital |+------------------------+------------------------+------------------------+|Clive Cowdery |20,548,532 |2.9957 |+------------------------+------------------------+------------------------+|Malcolm Williamson |37,777 |0.0055 |+------------------------+------------------------+------------------------+|Sir Brian Williamson |37,777 |0.0055 |+------------------------+------------------------+------------------------+|David Allvey |1,133 |0.0002 |+------------------------+------------------------+------------------------+|Sir David Cooksey |371,553 |0.0542 |+------------------------+------------------------+------------------------+|Paul Spencer |4,722 |0.0007 |+------------------------+------------------------+------------------------+|Adam Shishmanian |NONE |N/A |+------------------------+------------------------+------------------------+|David Woods |11,474 |0.0017 |+------------------------+------------------------+------------------------+|Mike Biggs |1,482,483 |0.2161 |+------------------------+------------------------+------------------------+|Jim Newman |NONE |N/A |+------------------------+------------------------+------------------------+|Ian Maidens |1,482,482 |0.2161 |+------------------------+------------------------+------------------------+|Brendan Meehan |1,482,482 |0.2161 |+------------------------+------------------------+------------------------+|Total |25,460,415 |3.7118 |+------------------------+------------------------+------------------------+ This information is provided by RNS The company news service from the London Stock Exchange

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