Overview of the Black Business Partner selection process

The Old Mutual Group has selected the WIPHOLD and BRIMSTONE Consortia as its Black Business Partners. The selection process involved the assessment of the potential Black Business Partners against the following criteria:

• Empowerment credentials and broad-based criteria – an assessment of the shareholding and the ultimate beneficiaries of the Black Business Partners with the specific objective of ensuring that potential partner companies are black-owned and controlled companies, representing a broad-base of beneficiaries. Consideration was also given as to whether directors and management of the potential Black Business Partners comprised predominantly black people, as defined in the FSC.
• Leadership and values – an assessment of whether the potential Black Business Partners had strong, clear leadership and shared the Group’s values. Regard was also given as to whether the leadership of the potential Black Business Partners would be able to commit sufficient time and resources to focus on business development and transformation.
• Experience – an assessment of whether the potential Black Business Partners had a demonstrable track record of transformational ability as well as financial services sector experience.
• Risk and reward philosophy – an assessment of whether the potential Black Business Partners would be able to place their own capital at risk and therefore make a capital contribution of 2.5% of the transaction value.

A further assessment of each of the potential Black Business Partners’ ability to assist Old Mutual (SA), Nedcor and Mutual & Federal with each of the following objectives was undertaken:

• the retention of existing business and the attraction of additional business;
• the strategic and holistic transformation of the Group in response to a changing business environment; and
• improving the corporate profile and image of the Group in the market and helping to position the business.
  

This process assisted the Group to determine the level of participation of each of the Black Business Partners in the Group Transactions.

Performance agreements

The Black Business Partners have each concluded binding performance MOUs (referred to hereinafter as “performance agreements”) with the relevant Group companies, which will govern the relationship with and performance and remuneration of the Black Business Partners.

It is intended that on an annual basis the Black Business Partners will meet with each of the business units of Old Mutual (SA), Nedcor and Mutual & Federal, as appropriate, in order to detail the specific tasks to be performed in the following twelve month period. The Black Business Partners have agreed the first set of performance criteria with the Group which will benchmark future performance agreements in terms of the type and the amount of work required and which will apply to the eighteen month period from 1 July 2005.

In terms of the performance agreements, the WIPHOLD and BRIMSTONE Consortia will commit substantial time and resources to the business units of Old Mutual (SA), Nedcor and Mutual & Federal in order to meet the requirements of their respective performance agreements. Progress will be monitored semi-annually.

The Black Business Partners will be paid an annual performance fee that will be linked to performance targets achieved in terms of the performance agreements. The annual fee will range between Rnil and R36.5m, Rnil and R25m and Rnil and R10m for Old Mutual (SA), Nedcor and Mutual & Federal respectively. A portion of this performance fee will be used to cover pre-agreed working capital requirements of the Black Business Partners. The balance in the case of Old Mutual (SA) will be applied to satisfy the amounts remaining due in respect of the Old Mutual shares issued to the relevant SPV. In the case of Nedcor and Mutual & Federal, the balance will be utilised to acquire new Nedcor and Mutual & Federal shares as detailed in the paragraphs dealing with the funding arrangements in the separate Old Mutual (SA), Nedcor and Mutual & Federal sections below.

Key terms of the Group’s agreements with the Black Business Partners

Subject to the terms of the subscription agreements the Black Business Partners:

• Must remain black companies as defined in the FSC during the 10 year lock-in period;
• May not dispose of Old Mutual plc, Nedcor and/or Mutual & Federal shares acquired as a result of the Group Transactions during such lock-in period;
• May not enter into equity transactions or substantial relationships with any of the Old Mutual Group’s competitors; and
• May not take up any directorships with any of the Old Mutual Group’s competitors.

The Women Investment Portfolio Holdings Limited (“WIPHOLD”) Consortium:

The WIPHOLD Consortium will acquire:

• 0.71% of the enlarged issued share capital of Old Mutual plc, which equates to 1.70% of Old Mutual (SA);
• 0.91% of the enlarged issued share capital of Nedcor; and
• 3.50% of the enlarged issued share capital of Mutual & Federal.

The WIPHOLD Consortium is led by WIPHOLD (82.0% of the WIPHOLD Consortium) – WIPHOLD was founded 10 years ago by four successful women executives as an organisation dedicated to women’s empowerment. With 1 200 direct beneficiaries and 18 000 indirect beneficiaries through the WIPHOLD Investment Trust, and over 300 000 indirect beneficiaries through the WIPHOLD NGO Trust, whose constituent Non-Government Organisations (“NGOs”) span all nine provinces, WIPHOLD is one of the most genuinely broad-based black empowerment companies in South Africa. WIPHOLD is a majority black owned company, with in excess of 50% of the shareholding in the hands of women. All shareholdings are direct and unencumbered. As at December 2003, the WIPHOLD Investment Trust had distributed R46m to its beneficiaries.

Old Mutual (SA), has an effective 32.5% stake in WIPHOLD, demonstrating the strength of its existing relationship.

WIPHOLD’s current business activities are focused in three areas:

• Financial services (advisory, asset management, stockbroking, treasury services);
• Ownership of infrastructure assets; and
• Diversified investments (in telecommunications, tourism, manufacturing and power & automation).

The directors of WIPHOLD include two of the original founding members, Louisa Mojela, CEO of WIPHOLD and Gloria Tomatoe Serobe, CEO of Wipcapital (Pty) Limited.

Wendy Luhabe (2% of WIPHOLD’s 82% in the WIPHOLD Consortium), one of the other original founding members of WIPHOLD, will be contributing her experience in the areas of financial services and human resource development as a further operational value-add by the WIPHOLD Consortium.

WIPHOLD has also included Sphere Holdings (Proprietary) Limited (“Sphere”) in its consortium (15% of the WIPHOLD Consortium). Sphere is a new generation empowerment company, comprised of experienced individuals with a proven track record in private equity, investment banking and asset management. Sphere’s ownership structure promotes broad-based empowerment whilst incentivising founder shareholders and management. Sphere’s directors and management include Itumeleng Kgaboesele, CEO, Executive Directors Pulane Kingston and Aadil Carim and Associate Director, Marang Denalane. Directors and management hold the majority shareholding of Sphere (57%). 17.5% of Sphere’s shareholding are reserved for broad-based groupings that have a particular focus on education and the economic upliftment of black women. These groups include Ditikeni Investment Company Limited (an investment vehicle for 24 NGOs involved in education and training, health (HIV/AIDS), housing and rural development) and the Student Sponsorship Programme (a non-profit organisation offering scholarships to previously disadvantaged students) to which shares have already been allocated. Nedbank Limited owns 13% of Sphere.

The remaining 3% of the WIPHOLD Consortium’s stake will be held by the WIPHOLD NGO Trust. The WIPHOLD NGO Trust was established in 2004 with the aim of further enhancing the black and female profile of WIPHOLD, as well as its broad-base of beneficiaries. Louisa Mojela and Gloria Tomatoe Serobe serve as trustees. A majority of independent trustees will be appointed.

The Trust has two primary objectives:

• To empower and support NGOs whose primary focus is development programmes pertaining to black women and/or children; and
• The inclusion of NGOs with the ability to contribute strategically to the activities of WIPHOLD.
  

The ten organisations that currently form part of the WIPHOLD NGO Trust are: The Democratic Nursing Organisation of South Africa; the South African Democratic Teachers Union (women’s chapter); National Baptist Church, Kwa Drabo Trust; People Opposing Women Abuse; the Thusanang Development and Training Project; Tshwarangang Legal Advocacy Centre; Tshepang Educare Trust; Young Women’s Christian Association and the Thandanani Association.

The Brimstone Investment Corporation Limited (“BRIMSTONE”) Consortium:

The BRIMSTONE Consortium will acquire:

• 0.71% of the enlarged issued share capital of Old Mutual plc, which equates to 1.70% of Old Mutual (SA); and
• 0.91% of the enlarged issued share capital of Nedcor.

Mtha, a 33% shareholder in the BRIMSTONE Consortium, will acquire 0.50% of the enlarged issued share capital of Mutual & Federal.

• The BRIMSTONE Consortium is led by BRIMSTONE (67.0% of the BRIMSTONE Consortium) –BRIMSTONE was incorporated in South Africa on 2 October 1995 as an investment vehicle for black South Africans and listed in the "Investment Companies" sector of the JSE in 1998. The company's mission is to be profitable, empowering and to have a positive social impact on the businesses and individuals with whom it is involved, including shareholders, employees, suppliers, customers and the community. BRIMSTONE currently has a market capitalisation of approximately R240m.

The directors of BRIMSTONE include two of its original founding members, Mustaq Brey, Chief Executive Officer, and Fred Robertson, Executive Deputy Chairman, both of whom have long and extensive experience across the financial services sector. BRIMSTONE’s board is chaired by Professor Jakes Gerwel, former Director General in the Office of President Nelson Mandela and Secretary of the State in the first Government of National Unity.

BRIMSTONE is a focused black controlled and managed investment holding company seeking to achieve above average returns for its shareholders by investing in businesses and entering into alliances to which it contributes capital, ideas, management, impeccable empowerment credentials and a value driven corporate identity. BRIMSTONE has strategic investments in the following sectors of the South African economy:

• Industrial sector: investments in the manufacturing of upmarket men's clothing, packaging and fishing;
• Financial Services sector: investments in insurance broking, consulting, and short-term insurance; and
• Healthcare sector: investments in one of South Africa's largest private hospital groups and smaller investments in the supply of medical equipment to this sector.

More than 52% of BRIMSTONE’s economic value is held by approximately 3 700 black South Africans. The company has a black board of directors and operational management is in black hands.

BRIMSTONE employs approximately 1 100 employees directly in its subsidiaries and more than 19 300 in its associate companies and has sought to empower its people through extensive employee participation in the equity of BRIMSTONE.

Old Mutual (SA) holds 9.95% of BRIMSTONE’s ‘N’ ordinary shares.

The BRIMSTONE Consortium includes Mtha-we-Mpumelelo (“Mtha”) (33% of the BRIMSTONE Consortium) which is comprised as follows:

• Chestnut Hill is a 35% shareholder in Mtha and the shareholders of Chestnut Hill include Bulelani Ngcuka, Chairman, Sango Ntsaluba, Non-executive Chairman of Sizwe Ntsaluba and Chief Executive Officer of Amabubesi Investments (Proprietary) Limited (“Amabubesi”) and Thabiso Tlelai, Chair of the Tourism Business Council of South Africa. Other shareholders include Mveleleli Booi, currently an Executive at Amabubesi, Gilimamba Mahlati, Chairman of Risk Monitor Group and Kennedy Memani, Director of KREM Investment Holdings and the Senior Partner in XK Memani, Ruiters and Associates.
• Izingwe Financial Investments, an associate company of Izingwe Capital, is a 35% shareholder in Mtha. Izingwe’s Chairman is Sipho M. Pityana, formerly a Group Executive Director of Nedcor Investment Bank Holdings, managing director of Strategic Business Development at Nedbank Corporate and the Director General of the Departments of Foreign Affairs and Labour. Other directors include Ashley Ally, the former CEO of the Legal Aid Board, Tsakani Matshazi, a Chartered Accountant, Phillip Dexter, the former Executive Director of Nedlac, and Mark Sifris, a corporate attorney.

Mtha includes the investment vehicles of three broad-based groupings that represent black professionals namely:

• The Black Lawyers Association (“BLA”) (10% of Mtha) – The BLA represents approximately 900 black legal professionals and 300 legal students. It is a voluntary association whose objectives include the support and development of black lawyers and the provision of legal education and services to the black community.
• National Association for Democratic Lawyers (“Nadel”) (10% of Mtha) – Nadel is a voluntary organisation of lawyers, which has the primary goal of ensuring access to justice for previously disadvantaged individuals. Its members comprise all legal practitioners including attorneys, advocates, judges, paralegals and law students. Nadel provides legal advocacy and various legal support programmes, including judicial skills training.
• South African Medical and Dental Practitioners (“SAMDP”) (10% of Mtha) – SAMDP represents black medical and dental practitioners. It has 5 000 members and is an active player in the transformation of the health industry. It also plays a significant role in ensuring ethical standards, quality service and accessible healthcare throughout South Africa.

Resolved conflicts

The Old Mutual Group identified and sought to address any perception of potential conflicts of interests between the Group and its potential Black Business Partners. Three key conflicts are identified and disclosed below:

• Pulane Kingston, a 20.3% shareholder in Sphere and a senior member of the WIPHOLD team, is married to a member of the advisory team from Deutsche Securities. The Old Mutual plc board has considered this issue and is of the view that this potential conflict is not material.
• The board of Old Mutual plc is aware of the fact that the majority of the board members and shareholders of Chestnut Hill are common to the board and shareholders of Amabubesi. An Old Mutual (SA) executive who is a shareholder of Amabubesi is however not a shareholder or board member of Chestnut Hill. Old Mutual (SA) holds a 20% stake in Amabubesi. The Old Mutual plc board has considered this issue and is of the view that it does not give rise to a potential conflict.
• Professor Jakes Gerwel already sits on the board of Old Mutual Life Assurance Company (South Africa) Limited (“OMLACSA”). He is the Chairman of BRIMSTONE. The Old Mutual plc board has considered this issue and is of the view that it does not give rise to a potential conflict.