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FIRSTRAND LIMITED - CAUTIONARY ANNOUNCEMENT RELATING TO A 10% BLACK ECONOMIC

Release Date: 04/11/2004 14:01
Code(s): FSR
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FIRSTRAND LIMITED - CAUTIONARY ANNOUNCEMENT RELATING TO A 10% BLACK ECONOMIC EMPOWERMENT ("BEE") TRANSACTION FIRSTRAND LIMITED Incorporated in the Republic of South Africa Registration number: 1966/010753/06 Share Code: FSR ISIN: ZAE000014973 ("FirstRand") CAUTIONARY ANNOUNCEMENT RELATING TO A 10% BLACK ECONOMIC EMPOWERMENT ("BEE") TRANSACTION 1. Introduction FirstRand intends to conclude a BEE transaction in respect of 10% of its issued ordinary share capital ("the BEE transaction") funded through a combination of vendor and third party funding. A binding memorandum of understanding has been entered into with FirstRand"s BEE partners and discussions with a number of third party funders are at an advanced stage. In order to progress the third party funding discussions it is necessary to fix the purchase price of the FirstRand shares for the purposes of the BEE transaction. The BEE transaction comprises two components, namely: - broad based BEE groups ("the BEE partners") will be the beneficial owners of 6.5% of FirstRand"s issued ordinary share capital, such shares to be held via the FirstRand Empowerment Trust, a trust to be created for the purposes of the BEE transaction; and - FirstRand"s black South African staff and non-executive directors will have a beneficial interest in 3.5% of FirstRand"s issued ordinary share capital. To give effect to the BEE transaction, approximately 7.6% of FirstRand"s issued ordinary shares will need to be procured from existing shareholders. This will be implemented by proposing a scheme of arrangement in terms of section 311 of the Companies Act (Act 61 of 1973), as amended, between FirstRand and its ordinary shareholders ("the scheme"). A total of 418.3 million shares ("the scheme shares") will be procured on a pro rata basis from existing ordinary shareholders in terms of the scheme. In addition, to facilitate the BEE transaction and ensure its sustainability, FirstRand plans to issue Approximately 120 million FirstRand ordinary shares to the FirstRand Empowerment Trust at the par value thereof. This aspect of the BEE transaction will lead to a dilution of approximately 2.1% for FirstRand shareholders. As one of South Africa"s premier financial institutions, FirstRand is committed to BEE and embraces the principles embodied in the Financial Sector Charter ("the Charter"). The BEE transaction demonstrates FirstRand"s commitment to broad based BEE. At current market prices, the BEE transaction has a value of approximately R6.8 billion, which will make it one of the largest broad based BEE transactions in South Africa to date. 2. Details of the BEE transaction 2.1 Rationale and principles for the BEE transaction FirstRand is committed to the process of achieving transformation in South Africa. It specifically wishes to ensure that the long term benefits of the BEE transaction reach the widest possible community of black South Africans, with a focus on lower income groups. FirstRand was guided by the following principles in structuring the BEE transaction: - transfer full economic and voting rights in respect of 10% of the issued ordinary shares of FirstRand to the BEE partners and black FirstRand staff on implementation of the BEE transaction. Given that FirstRand has a number of operations outside South Africa, the transaction represents more than 10% of FirstRand"s South African operations; - focus on broad based BEE groups and FirstRand staff; - enable active contribution by the BEE partners to the FirstRand group and its transformation programme; - ensure that the BEE partners remain shareholders of FirstRand for at least ten years, being the envisaged minimum period for the BEE transaction; - provide inherent sustainability and resilience to changes in market conditions; - achieve a realistic economic cost (inclusive of any dilution) to FirstRand shareholders; and - ensure compliance with the letter and spirit of the Charter. 2.2 The FirstRand Empowerment Trust Participants The BEE partners were selected taking account of, inter alia: - their excellent reputations and long and successful track records in South Africa; - the longstanding good relations between each of the partners and FirstRand and with each other; and - their objectives in uplifting black South Africans and in enhancing broad based BEE by addressing the needs of a wide constituency; The BEE partners selected to participate in the BEE transaction as participants in the FirstRand Empowerment Trust comprise: - Kagiso Trust; - Mineworkers Investment Trust ("MIT"); - WDB Trust; (collectively "the BEE trusts"); and the FirstRand Empowerment Foundation. 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. First Rand Empowerment Foundation The FirstRand Empowerment Foundation (which may be renamed at a later stage) 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 the BEE trusts, staff members and independent people with appropriate experience. Amongst its initial programmes, the FirstRand Foundation will focus on the educational and professional development of black South Africans for the industry and to support the growth of a future skills pool to underpin FirstRand"s transformation initiatives. 2.3 Black South African FirstRand staff and directors FirstRand"s board of directors believes that further broad based BEE can be achieved through the participation of its black staff in the BEE transaction. In this way the following objectives will be achieved: - the attraction and retention of black management; the incentivisation of out-performance by black managers; and - the ability to attract and retain black employees. FirstRand and the BEE partners are also committed to ensuring that real transformation takes place within the organisation. FirstRand already has a well developed transformation programme, which demonstrates its commitment to the sustainability of its BEE initiatives. The BEE partners will play an active role in this area as well as in the strategic direction of the FirstRand group and numerous other initiatives. 3. Details of the scheme 3.1 Rationale for the scheme On 7 October 2004, FirstRand announced that as part of its capital management strategy and to further improve its cost of capital, it had raised variable rate non-redeemable, non-cumulative preference shares to the value of R3 billion. This has resulted in FirstRand having excess capital, enabling it to meet that part of the envisaged funding requirements over and above the third party funding of the BEE transaction. Given the excess capital that exists, the issue of additional shares at market value to the BEE partners would not be value enhancing to existing shareholders. In the context of the BEE transaction and the quantum of shares involved, it is important that the shares for the BEE transaction are acquired as a "block" at an appropriate price. The scheme represents the most practical and equitable method of procuring such shares from all shareholders. 3.2 Details of the scheme In terms of the scheme, 7.6 FirstRand shares will be acquired for every 100 FirstRand shares held by a FirstRand shareholder on the record date. The acquisition price per share will be 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 total consideration payable to existing FirstRand shareholders in terms of the scheme will be approximately R5.1 billion. The operative date of the scheme is envisaged to be in March 2005. The scheme will be subject to a number of conditions precedent, including the approval by a majority of not less than 75% of the ordinary shareholders of FirstRand present and voting or voting by proxy at a meeting convened to consider the scheme and the sanction of the scheme by the High Court of South Africa. 4. Further announcement A further announcement will be published once third party funding arrangements are finalised. This announcement will provide full details of the BEE transaction, including the financial effects and expected economic cost of the BEE transaction, which cost is anticipated to be comparable to BEE transactions announced to date in the financial services sector. 5. Cautionary announcement Shareholders are advised to exercise caution when dealing in their FirstRand shares until publication of the announcement referred to above. Sandton 4 November 2004 Merchant bank and joint Lead sponsor sponsor PWC RAND MERCHANT BANK (A division of FirstRand Bank Limited) CORPORATE FINANCE Financial adviser to Kagiso Trust, MIT and WDB Trust Rothschild Date: 04/11/2004 02:01:06 PM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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