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Firstrand Limited - Bee Transaction Announcement

Release Date: 24/02/2005 12:15:59      Code(s): FSR
Firstrand Limited - Bee Transaction Announcement                                
FirstRand Limited                                                               
Incorporated in the Republic of South Africa                                    
Registration number: 1966/010753/06                                             
Share Code: FSR    (Namibian Stock Exchange: FST)                               
ISIN: ZAE000014973                                                              
("FirstRand" or "the Company")                                                  
Detailed terms announcement relating to a 10% Black Economic Empowerment ("BEE")
transaction                                                                     
1. Introduction                                                                 
Further to cautionary announcements dated 4 November 2004, 17 December 2004 and 
2 February 2005, FirstRand and its BEE partners are pleased to provide further  
details relating to the BEE transaction.                                        
As one of South Africa"s premier financial institutions, FirstRand is committed 
to meaningful participation by historically disadvantaged South Africans at all 
levels of the South African economy and embraces the principles embodied in the 
Financial Sector Charter. In furthering this commitment:                        
- FirstRand is concluding agreements which will facilitate the acquisition of an
effective 10% interest in the issued ordinary share capital of the Company by   
broad-based BEE groups ("the BEE transaction"); and                             
- the BEE transaction will be funded through a combination of vendor and third  
party funding.                                                                  
At current market prices, the BEE transaction has a value of approximately R7.9 
billion, which to date, makes it one of the largest broad-based BEE transactions
in South Africa. FirstRand believes that the BEE transaction underscores its    
commitment to achieving sustainable, broad-based BEE in our community.          
As announced previously, the BEE transaction comprises two components, namely:  
- the acquisition of 6.5% of FirstRand"s issued ordinary share capital by the   
FirstRand Empowerment Trust, a trust specifically created for the benefit of the
participating broad-based BEE groups; and                                       
- the acquisition of approximately 3.5% of FirstRand"s issued ordinary share    
capital by FirstRand"s current, as well as future, black South African employees
and black non-executive directors through various trusts as outlined in         
paragraph 5 below ("the Staff Trusts"),                                         
(collectively referred to as "the BEE Partners").                               
The broad-based BEE groups who have accepted FirstRand"s invitation to          
participate in the FirstRand Empowerment Trust are:                             
- The Kagiso Charitable Trust ("Kagiso Trust");                                 
- Mineworkers Investment Trust ("MIT");                                         
- the Women"s Development Group, via WDB Trust; and                             
- the FirstRand Empowerment Foundation,                                         
(collectively referred to as "the BEE Trusts").                                 
Kagiso Trust, MIT and WDB Trust have long and successful track records of truly 
broad-based social upliftment and transformation in the South African community.
FirstRand believes that the constituencies of the BEE Trusts and the Staff      
Trusts reflect, to a significant extent, the black, and in particular rural,    
stakeholders in its businesses.                                                 
A portion of the beneficial interest in the FirstRand Empowerment Trust can be  
held through the investment subsidiaries of Kagiso Trust, MIT and WDB Trust.    
This is described more fully in paragraph 4.5 below.                            
2. Background on the BEE Trusts                                                 
Kagiso Trust                                                                    
Kagiso Trust was established in 1985 during the struggle against apartheid as a 
conduit for donor funding from the European Community"s special programme for   
the victims of apartheid.  During the first twelve years of operation, Kagiso   
Trust became the largest black-led development agency in South Africa.  By the  
mid 1990s, Kagiso Trust was disbursing funds of approximately R300 million per  
annum.  For many years the European Community remained the largest funder while 
the governments of Japan, France, the Rockefeller Foundation and the Swedish    
International Development Agency contributed sizeable amounts. Since 1986,      
Kagiso Trust has injected over R 1 billion of grant funds into various          
development projects in the fields of water and sanitation, training, health,   
education, small business development and agriculture across the country.       
MIT                                                                             
MIT was founded by the National Union of Mineworkers in July 1995 to make a     
direct contribution to the economic development and social upliftment of        
mineworkers, ex-mineworkers, construction and energy sector workers and their   
dependents. Since 1997, MIT has disbursed R62 million to fund its social        
development projects and programmes that focus on poverty alleviation, local    
economic development, enterprise development, job creation and education.       
WDB Trust                                                                       
WDB Trust was established in 1992 with the purpose of supporting the economic   
upliftment of poor black women in rural South Africa.  Its specific objectives  
are to provide poor women with access to finance through not for profit micro-  
credit, to educate women about developing their own businesses, to enhance their
household livelihoods and to improve the position of women in society overall.  
WDB emphasises a banking relationship based on mutual trust, credit discipline, 
collective responsibility, accountability and savings. Since its establishment, 
WDB has reached over 14 000 women in rural areas with its training and micro-   
credit programmes.  The micro-credit programme has disbursed in excess of R25   
million through the issuance of over 22 000 micro-loans for income generation   
activities. WDB also provides training in mother tongue functional literacy,    
computer literacy, business development skills and micro-credit delivery.       
FirstRand Empowerment Foundation                                                
The FirstRand Empowerment Foundation is an entity which will be created pursuant
to the BEE transaction. The FirstRand Empowerment Foundation will be a BEE      
entity, with the majority of its trustees being black South Africans and its    
objective will be to economically uplift black South Africans. Its trustees will
be drawn from amongst FirstRand"s non-executive directors, trustees of Kagiso   
Trust, MIT, WDB Trust, staff members and independent people with appropriate    
experience. Amongst its initial programmes, the FirstRand Empowerment Foundation
will focus on the educational and professional development of black South       
Africans for the financial services industry and to support the growth of a     
future skills pool to underpin FirstRand"s transformation initiatives.          
Over time, the FirstRand Empowerment Foundation will complement the corporate   
social investment programme that FirstRand conducts via the FirstRand Foundation
(www.firstrandfoundation.org.za), which receives annual voluntary donations     
equal to one per cent of post tax income from the FirstRand group.              
3. Principles and rationale for the BEE transaction                             
3.1 Principles                                                                  
FirstRand is firmly committed to the process of achieving transformation in     
South Africa. The Company specifically wishes to ensure that the long term      
benefits of the BEE transaction reach the widest possible community of black    
South Africans, with a specific focus on lower income groups.                   
FirstRand was guided by the following principles in structuring the BEE         
transaction:                                                                    
- to transfer full economic and voting rights in respect of 10% of the issued   
ordinary shares of FirstRand ("shares") to its BEE Partners on implementation of
the BEE transaction. Given that FirstRand has a number of operations outside    
South Africa, the BEE transaction represents approximately 12.2% of FirstRand"s 
South African operations;                                                       
- to achieve meaningful participation by broad-based BEE groups and black       
FirstRand employees;                                                            
- to enable active contribution by the BEE Partners to FirstRand and its        
transformation programme;                                                       
- to ensure that the BEE Partners remain shareholders of FirstRand at least     
until 31 December 2014, being the envisaged minimum period for the BEE          
transaction ("the Empowerment Period");                                         
- to ensure the BEE transaction is inherently sustainable and resilient to      
changes in market conditions;                                                   
- to achieve a realistic economic cost (inclusive of any dilution) to FirstRand 
ordinary shareholders; and                                                      
- to ensure compliance with the letter and spirit of the Financial Sector       
Charter.                                                                        
3.2 Rationale                                                                   
In seeking to achieve the broad-based, sustainable empowerment outlined above,  
FirstRand was attracted by, inter alia, the following attributes of Kagiso      
Trust, MIT and WDB Trust:                                                       
- their excellent reputations and long and successful track records in South    
Africa;                                                                         
- the longstanding and good relations between these trusts and FirstRand and    
with one another; and                                                           
- their objectives in uplifting black South Africans and in enhancing broad-    
based BEE by addressing the needs of a broad constituency.                      
The Board of FirstRand believes that an effective way to further broaden the BEE
transaction is through the participation of FirstRand"s black employees. In this
way the following objectives will be achieved:                                  
- the retention of black management and staff;                                  
- the incentivisation of outperformance by black managers; and                  
- the ability to attract top black professionals.                               
FirstRand and the BEE Trusts are also committed to ensuring that real           
transformation takes place within the organisation. FirstRand currently has a   
well developed transformation programme, which demonstrates its commitment to   
the sustainability of its BEE initiatives. Kagiso Trust, MIT and WDB Trust will 
play an active role in this as well as a number of other initiatives.           
4. The FirstRand Empowerment Trust                                              
Following the implementation of the BEE transaction, the FirstRand Empowerment  
Trust will have a shareholding of 6.5% in FirstRand. Based on the closing prices
of FirstRand on 22 February 2005 (the last practical date before finalisation of
this announcement) such interest has a market value of approximately R5.1       
billion.                                                                        
4.1 Beneficial interest in FirstRand Empowerment Trust                          
The effective participation by the BEE Trusts and their investment companies in 
the FirstRand Empowerment Trust following the implementation of the BEE         
transaction and the approximate value of such shares at the closing price on 22 
February 2005 is as follows:                                                    
                                            % of FirstRand                      
                          Number of               post BEE    Current market    
                          shares (m)           transaction       value (R"m)    
Kagiso Trust                  111.6                  2.00%             1,568    
MIT                            37.2                  0.66%               523    
MIC Financial Holdings                                                          
(Proprietary) Limited                                                           
("MFH") Note 1                  9.3                 0.17%               131     
WDB Trust                      37.2                  0.66%               523    
WDB Investment Holdings                                                         
(Proprietary) Limited                                                           
("WDBIH") Note 1                9.3                  0.17%               131    
FirstRand Empowerment                                                           
Foundation                    117.5                  2.10%             1,651    
Performance linked                                                              
shares Note 2                  41.7                  0.74%               586    
Total - FirstRand                                                               
Empowerment Trust             363.8                  6.50%             5,113    
Note 1: See paragraph 4.5 below.                                                
Note 2: See paragraph 4.4 below.                                                
4.2      Role of the BEE Trusts                                                 
Management and control of the shares held by the FirstRand Empowerment Trust    
will vest in its board of trustees, who will be representatives nominated by the
BEE Trusts.                                                                     
As indicated above, the BEE Trusts were chosen on the basis that they can       
contribute to value creation in the various group companies and assist in       
furthering FirstRand"s BEE initiatives in accordance with the Financial Sector  
Charter.  As such, FirstRand, the BEE Trusts, MFH and WDBIH have entered into a 
cooperation agreement which highlights four main areas of activity involving the
BEE Trusts and their subsidiaries, namely:                                      
- enhancing corporate governance through appointment to the FirstRand board of  
directors and various divisional and statutory boards. In addition, the BEE     
Trusts will be represented on FirstRand"s Transformation Committee;             
- partnering in business activities with FirstRand, such as joint bidding,      
creation of new businesses with mutual interests and combining resources where  
business synergies are identified;                                              
- spearheading specific business initiatives where the BEE Trusts have superior 
expertise.  These include areas such as affordable housing and banking services 
to the unbanked; and                                                            
- assisting FirstRand in its strategies in respect of transformation, employment
equity, skills transfer and other Financial Sector Charter requirements.        
It is envisaged that the BEE Trusts will play an active role in the ongoing     
transformation of FirstRand.                                                    
4.3      Terms of participation by the BEE Trusts, MFH and WDBIH                
The following are the key terms of participation by the BEE Trusts, MFH and     
WDBIH in the FirstRand Empowerment Trust:                                       
- the BEE Trusts (and their subsidiaries as appropriate) must remain classified 
as BEE entities during the Empowerment Period.  For clarity, the BEE Trusts will
be regarded as such provided that the majority of their trustees and            
beneficiaries are black people, as defined in the Financial Sector Charter;     
- the BEE Trusts (and their subsidiaries as appropriate) will remain as         
beneficial shareholders in FirstRand through the FirstRand Empowerment Trust at 
least to 31 December 2014. This does not prevent the BEE Partners from entering 
into the following transactions during the Empowerment Period:                  
* encumbrance of their beneficial interest in the FirstRand Empowerment Trust,  
provided that such encumbrance cannot compromise the BEE status of FirstRand in 
respect of equity ownership; and                                                
* the disposal of the shares held by the FirstRand Empowerment Trust should it  
be required in terms of the third party funding arrangements entered into       
between the FirstRand Empowerment Trust and such funders;                       
- it is envisaged that, from the end of the Empowerment Period, the relevant    
proportion of shares to which a BEE Trust (or subsidiary as appropriate) is     
entitled may be distributed by the FirstRand Empowerment Trust to that BEE Trust
at the election of such trust. However, at that time should it be a requirement 
in terms of any industry charters and/or legislation that FirstRand must        
continue to retain a minimum BEE shareholding, such distribution will require   
the consent of FirstRand, which consent will not be unreasonably withheld;      
- other than as indicated above, the FirstRand Empowerment Trust will undertake 
not to dispose of any shares;                                                   
- the BEE Trusts have undertaken that, during the Empowerment Period, they will 
not participate in a BEE transaction with another major South African bank; and 
- provided that certain debt covenants are met, the BEE Partners will be        
entitled to 3% of the total dividends paid to the FirstRand Empowerment Trust.  
These payments will not be made prior to 31 December 2006 and are subject to a  
cap of R3 million in the year to 31 December 2007 in order to protect cashflows 
attributable to funders in the early years of the Empowerment Period.           
4.4  Performance linked shares                                                  
The FirstRand Empowerment Trust will hold some 11.5% of its interest in         
FirstRand, being 41.7 million shares with a current market value of R586 million
(the "performance linked shares"), on the basis that such shares will not, at   
the outset of the BEE transaction, be specifically allocated  to either Kagiso  
Trust, MIT or WDB Trust.  Instead, these performance linked shares will be      
allocated annually over the Empowerment Period as follows:                      
- 6 million shares will be available for allocation in each of the first six    
years of the Empowerment Period and 5.7 million shares in year 7 of the         
Empowerment Period;                                                             
- these shares will be allocated to one, any two or all of the Kagiso Trust, MIT
and WDB Trust in accordance with their relative contribution, based on certain  
agreed performance criteria and targets;                                        
- in this regard, certain principles will be established at the commencement of 
the Empowerment Period regarding the contribution anticipated from each of the  
Kagiso Trust, MIT and WDB Trust and the process for setting the criteria and    
targets;                                                                        
- the criteria and targets will be determined annually at the start of each year
by the senior management and board of FirstRand together with designated        
executives of the Kagiso Trust, MIT and WDB Trust and include criteria relating 
to:                                                                             
* contribution to the transformation of FirstRand;                              
* assistance with Financial Sector Charter Compliance; and                      
* general contribution to furthering the business of FirstRand;                 
- the allocation of the performance linked shares will be determined by the non-
executive directors of FirstRand (excluding any non-executive directors         
appointed by the Kagiso Trust, MIT and WDB Trust and their subsidiaries) based  
on representations received from the executives of FirstRand and the executives 
of the BEE Trusts;                                                              
- should any such determination not be satisfactory to the majority of the      
Kagiso Trust, MIT and WDB Trust, it may be referred to an independent           
adjudicator whose view will be binding on the parties; and                      
- it is possible for none of the available shares to be allocated in any year,  
in which case the shares will be allocated (at a rate of 6 million shares per   
year) in each of the years after year 7 of the Empowerment Period until all the 
shares have been allocated.                                                     
To date, the mechanism of a performance linked basis for determining the        
ultimate beneficial interest of the participants in a BEE transaction has not   
been applied in transactions of this magnitude.   FirstRand, Kagiso Trust, MIT  
and WDB Trust believe that over time this unique mechanism will be a powerful   
tool in aligning the interests of the parties and will enhance the              
sustainability and true intent of FirstRand"s transformation.                   
Kagiso Trust, MIT and WDB Trust can elect that 20% of any beneficial interest   
allocated to them in terms of this mechanism be awarded to their investment     
companies or other subsidiaries of such BEE Trusts in accordance with the       
principle highlighted in paragraph 4.5 below.                                   
4.5 Allocation to BEE investment companies                                      
Up to 20% of the total beneficial interest allocated to each of the Kagiso      
Trust, MIT and WDB Trust can be made available to their investment companies or 
other subsidiaries of such BEE Trusts. Both MIT and WDB Trust have elected to   
transfer 20% of the beneficial entitlement allocated to them to MFH and WDBIH   
respectively.                                                                   
The rationale for such transfer is to:                                          
- provide such subsidiaries, over time, with a capital base for further BEE     
transactions; and                                                               
- ensure the involvement of these investment companies in the BEE transaction   
and in assisting the BEE Trusts to play the role envisaged in paragraphs 4.2 to 
4.4 above.                                                                      
Kagiso Trust has an option to transfer up to 20% of the shares allocated to it  
in the first four years of the Empowerment Period. This is subject to the       
approval of FirstRand, which approval is not to be unreasonably withheld, and   
certain other conditions to ensure that the subsidiary is and remains classified
as a BEE company.                                                               
The undertakings given and responsibilities assumed by the BEE Trusts are also  
applicable to their subsidiaries.                                               
4.6      Proposed changes to the Board of Directors                             
Upon implementation of the BEE transaction, a number of representatives from the
BEE Trusts and their respective investment subsidiaries will be invited to join 
the Board of directors of FirstRand as follows:                                 
- Yunus Mahomed, currently Chairman of Kagiso Trust;                            
- Paul Nkuna, CEO of Mineworkers Invesment Company (Proprietary) Limited and    
MFH; and                                                                        
- Sonja Sebotsa, an executive director of WDBIH.                                
Appointments to various divisional and statutory boards within FirstRand will be
finalised in due course.                                                        
5. Black South African FirstRand employees                                      
5.1 Allocations to Black employees                                              
FirstRand intends to make available 171.4 million shares representing           
approximately 3.1% of FirstRand to its black South African employees. These     
shares would be made available to the Staff Trusts as follows:                  
- 20.0 million shares to the FirstRand Staff Assistance Trust;                  
- 136.4 million shares to a Black Employee Share Trust; and                     
- 15.0 million shares to the Black Non-executive Directors Trust.               
Certain of the incumbent FirstRand black managers have existing rights to       
27 million shares which represents 0.48% of the ordinary share capital of       
FirstRand following the implementation of the BEE transaction.  These shares    
will be transferred to the Black Employee Share Trust.                          
The table below summarises the shares to be acquired by the Staff Trusts and    
indicates the approximate value of such shares at the closing price on          
22 February 2005:                                                               
                                  Shares (m)    % of issued                     
share capital         Current     
                                                   post BEE          market     
                                                transaction     value (R"m)     
FirstRand Staff Assistance Trust        20.0          0.36%             281     
Black Employee Share Trust             163.4          2.92%           2,296     
Black Non-executive Directors Trust     15.0          0.27%             211     
Total                                  198.4          3.55%           2,788     
FirstRand Bank Limited ("FirstRand Bank") will make capital contributions of the
shares it acquires pursuant to the scheme of arrangement ("the scheme") in terms
of Section 311 of the Companies Act (Act 61 of 1973), as amended, ("the         
Companies Act") referred to in paragraph 6 below to the Staff Trusts. The terms 
of such capital contributions will provide that:                                
- all dividends received from the shares vest in FirstRand Bank except for the  
FirstRand Staff Assistance Trust, in which case a proportion of the dividends   
will be available to enable this trust to make distributions;                   
- FirstRand Bank will not be able to require repayment of its capital           
contributions for a minimum period of 10 years; and                             
- FirstRand Bank will in time be repaid its capital contributions and in each   
case a premium which provides an effective return equivalent to 80% of the prime
overdraft interest rate net of any dividends received.                          
The total funding required at a share price of R12.28 is in the order of        
R2.1 billion.                                                                   
5.2 The FirstRand Staff Assistance Trust                                        
This trust will be formed for the benefit of black South African employees who  
do not participate on a regular or ongoing basis in the share incentive schemes 
of the FirstRand group.                                                         
The FirstRand Staff Assistance Trust will use any monies received by it to fund:
- bursaries for tertiary education specifically for the benefit of FirstRand"s  
black South African employees and their immediate families;                     
- healthcare costs for current black employees and their immediate families not 
covered by medical aid schemes; and                                             
- any other costs incurred by a black employee that the trustees at their sole  
discretion believe warrants assistance.                                         
Applications for assistance will be dealt with by trustees in their discretion  
in a transparent manner. Initially, 95% of dividends received by the FirstRand  
Staff Assistance Trust will vest in FirstRand Bank but, as the capital          
contribution is repaid, the funds available for distribution to FirstRand black 
employees will increase.                                                        
5.3  Black Employee Share Trust                                                 
This trust has been set up specifically for the benefit of FirstRand"s black    
South African employees. The participation in this trust will be in addition to 
participation in any existing FirstRand share incentive schemes. The focus of   
this scheme will be on:                                                         
- an initial allocation of 500 shares to each black FirstRand staff member who  
on 31 December 2004 was in the employ of the group and did not have a below     
satisfactory performance rating. Approximately 17 000 FirstRand black staff will
receive this allocation; and thereafter                                         
- black managers, as defined in the Financial Sector Charter.                   
After the initial allocation, the primary purposes of this scheme will be to    
appropriately attract, incentivise and retain black managers within the         
organisation. It will assist FirstRand in attracting black professionals from   
outside the group to achieve its transformation targets. The initial allocation 
will absorb some 6.2% of the shares available to this trust. Thereafter it is   
envisaged that approximately 70% of the remaining shares available to the trust 
will be allocated to individuals within four months of implementation of the BEE
transaction, with the remainder being allocated over the first five years of the
Empowerment Period.                                                             
Each participant in the Black Employee Share Trust will receive rights to shares
net of associated obligations incurred by the trust to acquire the shares.      
FirstRand will make a capital contribution on the terms referred to in paragraph
5.1 above.                                                                      
Salient features of the Black Employee Share Trust are as follows:              
- this scheme will have a longer time horizon than the other share incentive    
schemes currently operated by FirstRand:                                        
* employees who leave the employ of FirstRand within the first three years after
allocation of rights in the Black Employee Share Trust will forfeit all such    
rights.                                                                         
* thereafter, the rights held by such employees will `vest" on a sliding scale, 
with full vesting taking place in the tenth year from allocation.               
- participants who leave the employ of FirstRand after three years but before   
the tenth year from allocation will have their `vested" rights frozen and will  
continue to hold such rights to these shares to the end of the Empowerment      
Period; and                                                                     
- each participant will receive the shares to which they are entitled (after all
funding obligations have been settled) at the end of the Empowerment Period and 
will be free to trade them at that time.                                        
The trustees will have the right to relax these restrictions for later          
participants provided that such later participants can be no better off than    
those whose rights were allocated at the start of the Empowerment Period.       
The Black Employee Share Trust will not be entitled to dispose of any shares    
during the Empowerment Period.                                                  
5.4  Black Non-executive Directors Trust                                        
The beneficiaries of this trust will be incumbent black non-executive directors 
of the FirstRand group"s statutory boards namely FirstRand, FirstRand Bank and  
Momentum, who accept an invitation to participate. This invitation will not be  
extended to the representatives of the BEE Trusts who will be appointed to these
boards as referred to in paragraph 4.6 above.                                   
Participation in this trust will be made available to each of the black non-    
executive directors in their personal capacities. The funding will be provided  
by FirstRand on the terms referred to in paragraph 5.1. Each black non-executive
director may hold a beneficial interest of not more than 1.0 million shares in  
terms of this invitation.                                                       
The intention is to appropriately incentivise the black non-executive directors 
and reward them for their loyalty.   The quantum of the invitations to          
individual directors is such that it will be considered by other directors,     
stakeholders and employees as not insignificant, but on the other hand not      
extravagant.                                                                    
The rights held by each non-executive director will `vest" on a sliding scale at
a rate of 10% per annum, with full vesting taking place in the tenth year from  
allocation. A non-executive director who resigns as a director of FirstRand will
have his/her `vested" rights frozen and will continue to hold such rights to    
these shares to the end of the Empowerment Period. Each non-executive director  
will receive the shares to which they are entitled (after all funding           
obligations have been settled) at the end of the Empowerment Period and will be 
free to trade them at that time.                                                
The Black Non-executive Directors Trust will not be entitled to dispose of any  
shares during the Empowerment Period.                                           
6. Mechanism to implement the BEE transaction                                   
It is proposed that the shares required for the BEE transaction will be procured
from two sources:                                                               
- proportionately from all shareholders by way of the scheme; and               
- by way of a specific issue of 119 million shares for cash by the Company at   
par value ("the specific issue").                                               
The shares (other than the specific issue) acquired by the FirstRand Empowerment
Trust for the benefit of the BEE Trusts will be funded by independent third     
parties.                                                                        
6.1  Proposed scheme of arrangement                                             
In order to procure the shares necessary to implement the BEE transaction, the  
FirstRand Empowerment Trust and FirstRand Bank will propose the scheme between  
FirstRand and its ordinary shareholders for the acquisition of approximately    
416.2 million shares on a pro rata basis from ordinary shareholders.            
Pursuant to the scheme:                                                         
- the FirstRand Empowerment Trust will acquire 244.8 million shares (the "Trust 
Scheme Shares"); and                                                            
- FirstRand Bank will acquire 171.4 million shares in terms of Section 89 of the
Companies Act.                                                                  
If the scheme is approved by shareholders and becomes operative, it will result 
in the FirstRand Empowerment Trust and FirstRand Bank acquiring 7.6 shares for  
every 100 shares held by each shareholder on the record date for a cash         
consideration of R12.28 per share. The total consideration will be approximately
R5,112 million.                                                                 
The acquisition price per share is R12.28, which represents the 10 trading day  
volume weighted average FirstRand share price on the JSE Securities Exchange    
South Africa to the close of business on 3 November 2004, the day immediately   
preceding signature of the memorandum of understanding between FirstRand and the
BEE Trusts.  This memorandum and the acquisition price set out therein formed   
the basis for subsequent negotiations with third party funders.                 
FirstRand Bank will make capital contributions of the shares it acquires        
pursuant to the scheme to the Staff Trusts as described in paragraph 5.1 above. 
Upon implementation of the scheme, the specific issue and the capital           
contributions, the following entities will have acquired the shares:            
                                            %    Funding                        
                         Shares (m)  interest   required           Source of    
                                                   (R"m)             funding    
FirstRand Empowerment Trust  244.8      4.38%      3,007  Third party funded    
FirstRand  Staff                                                                
Assistance Trust              20.0      0.36%        246       FirstRand Bank   
Black Employee Share Trust   136.4      2.44%      1,675       FirstRand Bank   
Black Non-executive                                                             
Directors Trust               15.0      0.27%        184       FirstRand Bank   
Total pursuant                                                                  
to the scheme                416.2      7.45%      5,112                        
This can be reconciled to the total number of shares forming part of the BEE    
transaction as follows:                                                         
                                            %    Funding                        
                         Shares (m)  interest   required           Source of    
(R"m)             funding    
Total pursuant to the scheme 416.2      7.45%      5,112                        
FirstRand Empowerment Trust  119.0      2.12%          0                        
Transfer to Black                                                               
Employee Share Trust          27.0      0.48%        332      FirstRand Bank    
Total shares                 562.2     10.05%       5444                        
6.2  Rationale for the scheme                                                   
Given the quantum of shares required for the BEE transaction, a scheme          
represents the most practical and equitable method of procuring the shares from 
all shareholders without impacting the market price of the shares.              
Accordingly, the scheme is being proposed for the FirstRand Empowerment Trust   
and the Staff Trusts to acquire 7.6% of the shares in issue from shareholders on
a pro rata basis. The ratio of 7.6% is prior to giving effect to the specific   
issue.                                                                          
Subject to all the conditions precedent set out in paragraph 11 below, upon the 
scheme becoming operative FirstRand will be able to implement the BEE           
transaction.                                                                    
6.3 The specific issue                                                          
In order to provide the necessary collateral against which the FirstRand        
Empowerment Trust can raise the funding to acquire the Trust Scheme Shares      
outlined in paragraph 6.4 below, FirstRand"s existing shareholders will be      
requested to approve the specific issue to the FirstRand Empowerment Trust of   
119.0 million new shares which will represent 2.12% of FirstRand"s issued share 
capital after giving effect to the specific issue ("the Subscription Shares").  
6.4 Funding of the FirstRand Empowerment Trust                                  
6.4.1 Scheme consideration                                                      
The scheme consideration payable by the FirstRand Empowerment Trust in terms of 
the scheme is approximately R3,007 million. The FirstRand Empowerment Trust will
acquire 244.8 million shares, representing 4.38% of FirstRand"s issued ordinary 
share capital pursuant to the scheme.  The FirstRand Empowerment Trust will have
to raise funding for the majority of the consideration payable for the Trust    
Scheme Shares. The total funding required to fund the acquisition of the Trust  
Scheme Shares is shown in the table below:                                      
                                                             R"m                
Initial contribution by the BEE Trusts, MFH and WDBIH        101                
Third party funding                                        2,936                
Less: Estimated costs                                        (30)               
Total third party funding requirement                      3,007                
The total third party funding requirement will be contributed to the FirstRand  
Empowerment Trust as capital contributions by two special purpose funding       
vehicles and by the BEE Trusts, MFH and WDBIH.  Each of the two special purpose 
funding vehicles will in turn raise the funding to be contributed by it from    
third party funders.                                                            
6.4.2 Initial contribution by BEE Trusts, MFH and WDBIH                         
The BEE Trusts, MFH and WDBIH will be required to make an initial contribution  
which will be utilised, in addition to the borrowings referred to above, to     
acquire the Trust Scheme Shares. This initial contribution is expected to be    
R101 million which represents approximately 3.3% of the value of the Trust      
Scheme Shares at a price of R12.28 per share, such value being determined as the
total cost of procuring the Trust Scheme Shares. FirstRand Bank has approved    
certain facilities to the BEE Trusts on commercial terms so that they are in a  
position to make this initial contribution ("initial contribution facilities"). 
6.4.3 Third party funding raised                                                
Each of the special purpose funding vehicles will raise R1,468 million and make 
a contribution of this amount to the FirstRand Empowerment Trust.  The third    
party funding raised by the special purpose funding vehicles will be as follows:
- R1,468 million senior funding, through the issue of preference shares by a    
special purpose vehicle which will attract a fixed rate of approximately 8.5%   
nacsa; and                                                                      
- R1,468 million subordinated or `mezzanine" funding introduced via a special   
purpose vehicle ("Subordinated SPV"), which will rank behind the senior funding 
and attract a fixed rate of 13.25% nacsa, a portion of which will roll-up each  
year.                                                                           
The total of 363.8 million shares held by the FirstRand Empowerment Trust will  
be pledged and ceded for the benefit of the senior funders first, with a cession
of the FirstRand Empowerment Trust"s reversionary interest to those shares for  
the benefit of the subordinated funders.                                        
The initial term of the funding is five years. At the end of the five year term,
should it be commercially feasible, it is envisaged that the BEE Trusts and     
their investment companies will refinance the funding, although there is no     
commitment on the part of either the senior or subordinated funders to          
refinance.                                                                      
The participants in the funding will be as follows:                             
- senior funding:                                                               
* Citigroup;                                                                    
* Barclays Bank plc, South Africa Branch ("Barclays"); and                      
* Liberty Group Limited;                                                        
- subordinated funding:                                                         
* international - total R495 million:                                           
# Proparco (a company of the French Development Agency Group);                  
# International Finance Corporation;                                            
# DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbh (a member of the
KfW banking group); and                                                         
* South African - total R973 million:                                           
# Industrial Development Corporation of South Africa Limited;                   
# Public Investment Commissioners;                                              
# Makalani Holdings Limited;                                                    
# Investec Bank Limited;                                                        
# Eskom Pension and Provident Fund; and                                         
# Futuregrowth Asset Management (Proprietary) Limited on behalf of clients.     
FirstRand Bank intends to enter into separate arrangements with each of         
Citigroup and Barclays in which it will purchase the preference shares          
subscribed for by them. Citigroup and Barclays will provide credit protection to
FirstRand Bank in respect of such preference shares.                            
In addition, FirstRand Bank has agreed to provide loan funding to the           
Subordinated SPV on commercial terms over the first five years from draw down to
ensure that the Subordinated SPV has sufficient funding available to meet       
certain minimum debt servicing obligations. Over the five year period this      
commitment by FirstRand Bank in total is envisaged to amount to between R50     
million and R100 million.                                                       
6.4.4 Key terms of third party finance                                          
The terms of both the senior and subordinated funding contain various conditions
of default and security which are usual for funding of this nature. Certain of  
these events of default are linked to the FirstRand share price and entitle the 
funders to dispose of shares owned by the FirstRand Empowerment Trust. In the   
event of any default in terms of the subordinated funding, FirstRand has a pre- 
emptive right to acquire any shares disposed.                                   
7. Resultant structure                                                          
After the implementation of the BEE transaction, FirstRand"s shareholding       
structure will be as follows:                                                   
See press announcement                                                          
At the commencement of the transaction, 100% of the shares acquired by the      
FirstRand Empowerment Trust will benefit broad-based BEE groups.                
8. Percentage direct black shareholding in the South African operations of      
FirstRand                                                                       
Given that FirstRand has a number of operations outside of South Africa, the    
participation by the BEE Trusts and the Staff Trusts in FirstRand"s South       
African operations, will in effect, be greater than the stated 10% of           
FirstRand"s issued share capital. The South African operations account for      
approximately 82% of the FirstRand group. Accordingly, the BEE transaction      
effectively results in a direct black shareholding of 12.2% of FirstRand"s South
African operations.                                                             
9. Financial effects and estimated economic cost                                
The financial effects of the scheme and the specific issue are presented        
together as they comprise one indivisible transaction.                          
9.1 Pro forma financial effects on FirstRand shareholders                       
The table below sets out the unaudited pro forma financial effects of the scheme
and the specific issue on shareholders, based on the assumptions set out below. 
The unaudited pro forma financial effects have been prepared for illustrative   
purposes only to provide information on how the scheme would have impacted on a 
shareholder.  Due to the nature of the unaudited pro forma financial effects, it
may not give a fair reflection of shareholders" financial position after        
completion of the scheme and the specific issue, nor the effect on their future 
earnings.                                                                       
                                       Before the   After the                   
                                       scheme and  scheme and                   
specific    specific                   
                                    issue(Note 1)       issue       Percentage  
                                          (cents)      (cents)         change   
Basic earnings per share ("EPS")            109.3       106.7(Note 3)    -2.4%  
Headline earnings per share ("HEPS")        110.3       107.7(Note 4)    -2.4%  
Net asset value ("NAV")per share            457.5       420.2(Note 5)    -8.1%  
Tangible NAV per share                      444.9       407.4(Note 6)    -8.4%  
Notes and assumptions:                                                          
1. Audited results as reported for the year ended 30 June 2004.                 
2. The EPS and HEPS "After the scheme and specific issue" are based on the      
following assumptions:                                                          
a) that the scheme was implemented with effect from 1 July 2003;                
b) the Staff Trusts are consolidated and consequently the weighted average      
number of shares in issue has been reduced by the 171.4 million shares issued to
the Staff Trusts;                                                               
c) 8.1 million of the Trust Scheme Shares are treated as treasury stock and     
eliminated against the initial contribution facility;                           
d) 5,132 million weighted average shares were in issue for the year ended 30    
June 2004.                                                                      
3. Based on the assumptions in 2 above, and on a pro forma attributable income  
of R 5,475 million for the year ended 30 June 2004.                             
4. Based on the assumptions in 2 above and on pro forma headline earnings of    
R5,526 million for the year ended 30 June 2004.                                 
5. Net asset value of R21,709 million and issued shares of 5,166 million.       
6. Tangible net asset value of R21,049 million and issued shares of             
5,166 million.                                                                  
The dilution in NAV and tangible NAV per share arises from the consolidation of 
the Staff Trusts using the scheme acquisition price per share of                
R12.28 which is greater than NAV.                                               
9.2 Implications of accounting statement issued on share based payments         
As required when preparing pro forma financial effects, the above table has been
prepared on the basis of FirstRand"s accounting policies for the year ended 30  
June 2004. In compliance with South African Generally Accepted Accounting       
Practice, FirstRand did not account for share based payments in the manner      
contemplated by International Financial Reporting Standard 2 - Share based      
payments ("IFRS 2") during the period.                                          
Upon adopting IFRS 2, FirstRand will account for share based payments in its    
financial statements for the year ended 30 June 2006. Consequently, the shares  
issued by FirstRand to the Black Employee Share Trust and the Black Non         
executive Directors Trust will be valued at the date the shares are granted to  
employees and this value will be expensed in the income statement over the      
vesting period of the option, which is expected to be 10 years.                 
FirstRand has considered the potential impact of the recently promulgated       
IFRS 2, together with a recently issued exposure draft ED 189 - Preliminary     
views on accounting for Black Economic Empowerment transactions ("ED 189"), on  
the BEE transaction.                                                            
ED 189 endeavours to include within the ambit of IFRS 2 equity linked BEE       
accreditation transactions as a "good" or "service". Based on existing industry 
practice, FirstRand has been advised that the shares acquired by the FirstRand  
Empowerment Trust do not fall within the ambit of a good or service, and        
consequently, IFRS 2 is not considered applicable to this aspect of the BEE     
transaction under existing accounting standards.                                
The application of IFRS 2 to BEE transactions is subject to ongoing industry    
debate, both in South Africa, and internationally. The outcome of these         
discussions may have an impact on the accounting treatment reflected above.     
9.3 Estimated economic cost                                                     
FirstRand estimates the economic cost of the BEE transaction to its shareholders
to be as follows:                                                               
- the dilution of 2.1% arising from the specific issue;                         
- the present value of the opportunity cost for FirstRand of funding the Staff  
Trusts, which cost can be estimated as the differential between FirstRand"s cost
of equity and the effective return it will receive in respect of the funding it 
will provide to the Staff Trusts.                                               
In total, FirstRand estimates the economic cost of the BEE transaction to be    
3.15% of market capitalisation. This is based on the scheme consideration of    
R12.28 per share and ignores any costs or taxes that may be attributable to     
shareholders. It also ignores the potential future value to be added to         
FirstRand arising out of the participation of the BEE Partners in FirstRand.    
10. Discovery Holdings Limited ("Discovery")                                    
FirstRand has a 63% shareholding in the ordinary shares of Discovery. In terms  
of paragraph 10.9 of the Financial Sector Charter, Discovery may take into      
account 63% of the black ownership in FirstRand. Discovery intends to undertake 
its own BEE transaction to augment the black ownership of Discovery pursuant to 
the FirstRand BEE transaction.                                                  
11. Conditions precedent                                                        
The BEE transaction and the scheme are subject to, inter alia, the following    
conditions precedent:                                                           
- the signature of the agreements required to implement the BEE transaction;    
- the approval by shareholders of the specific issue of the Subscription Shares 
to the FirstRand Empowerment Trust;                                             
- the approval by ordinary shareholders of the resolutions relating to the      
acquisition of 171.4 million shares by FirstRand Bank in terms of Section 89 of 
the Companies Act;                                                              
- the approval by ordinary shareholders of the ordinary resolution approving the
terms and conditions of the Black Employee Share Trust and the Black Non-       
executive Directors Trust;                                                      
- the approval of the scheme by a majority representing not less than three     
fourths (75%) of the votes exercisable by shareholders eligible to vote at the  
scheme meeting, either in person or by proxy;                                   
- the sanctioning of the scheme by the High Court of South Africa in terms of   
the Companies Act;                                                              
- the registration of a certified copy of the Order of Court sanctioning the    
scheme with the Registrar of Companies in terms of the Companies Act;           
- obtaining any approvals required by the Registrar of Banks in terms of the    
Banks Act 1990 (Act 94 of 1990), as amended;                                    
- obtaining any other regulatory approvals that may be required; and            
- no default in respect of the senior and subordinated funding arising prior to 
the operative date of the scheme.                                               
12. Timetable and documentation                                                 
A circular to shareholders, including particulars of the BEE transaction and the
scheme, will be sent to ordinary shareholders in the second half of March 2005. 
A detailed timetable will be published at that time.                            
Sandton                                                                         
24 February 2005                                                                
Merchant bank and joint sponsor                                                 
RAND MERCHANT BANK                                                              
(A division of FirstRand Bank Limited)                                          
CORPORATE FINANCE                                                               
Lead sponsor                                                                    
PWC Corporate Finance (Pty) Ltd                                                 
Reporting accountants to FirstRand                                              
PricewaterhouseCoopers                                                          
Legal advisors to FirstRand                                                     
Deneys Reitz                                                                    
Vorster Pereira                                                                 
Sponsoring broker in Namibia                                                    
Simonis Storm Securities                                                        
Financial adviser to Kagiso Trust, MIT and WDB Trust                            
Rothschild                                                                      
Legal adviser to Kagiso Trust, MIT and WDB Trust                                
mj king inc.                                                                    
Legal advisers to senior funders                                                
Webber Wentzel Bowens                                                           
Sonnenberg Hoffmann Galombik                                                    
Legal advisers to subordinated funders                                          
Bowman Gilfillan Inc.                                                           
Kwinana Nyapotse Inc.                                                           
Mashile Ntlhoro Inc.                                                            
Date: 24/02/2005 12:16:14 PM Supplied by www.sharenet.co.za                     
Produced by the JSE SENS Department                                             
                                                                                
                                                                                
                                                                                



                                        
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