Training workshop for Designated Advisers of Lusaka Stock Exchange

1. Training workshop for Designated Advisers of Lusaka Stock Exchange

2. Overview • Role of the DA • Responsibilities • Preparation for listing • Methods of listing • Marketing • Modes of payment • Disciplinary action • Failures & successes

3. Role of DA on JSE • Prepares company for listing (with attorneys & accountants) • Company on ALTx must have DA at all times • DA is company’s liaison /intermediary with JSE • DA attends all Board meetings • DA is observer at all Audit Committee meetings • DA must inform JSE of non-compliance • DA is company’s trusted adviser

4. JSE Forum for DAs • This forum was a noble concept promote by the JSE, especially to share and learn from one another. • It however did not work in practice, and was discontinued after a few meetings. • Why? We can only speculate: • DA’s were reluctant to share information • DA’s were not prepared to take up issues with JSE as a consolidated front – preferred to do so individually

5. Responsibilities of DAs on JSE/LuSE • Advise issuer of all its responsibilities i.t.o. the JSE LR in a “competent, professional and impartial manner” • DA must immediately inform JSE of non-compliance & when it has “reason to suspect a breach” • Confirm to JSE that applicant is “suitable for listing” & complies with all Listings Requirements • Must brief new board members of their responsibilities • Must brief board of amendments to LR • Must review all financial info prior to publication • Must ensure appropriate disclosure in light of performance of company • Must attend all board and audit com meetings in advisory capacity

6. Holding of directors’ shares in trust • 50% of shares in company held by directors must be held in trust by applicant’s auditor or attorneys • [LuSE: by the DA] • 50% thereof released upon publication of results for remainder of year in which lists plus one year thereafter • Balance released one year thereafter • Why? To give comfort to shareholders that directors/founders will not list and run

7. Holding of DA’s shares in trust • DA may hold shares in the listed company, but not >20% • DA’s shareholding must be disclosed in prospectus • Subject to same restrictions as shares of directors: • 50% of shares in company held by directors must be held in trust by applicant’s auditor or attorneys • 50% thereof released upon publication of results for remainder of year in which lists plus one year thereafter • balance released one year thereafter

8. Preparation for listing (1) • Misconception • Client meets DA • Client meets all Listings Requirements • DA prepares presentation to ALTxCommittee • DA prepares prospectus • Client lists within 3 months

9. Preparation for listing (2) • Reality • Client meets DA • Needs are determined via Business Assessment • If listing: Client does not meet all Listings Requirements • Client has to be prepared/ groomed for listing • Time goes by • Thereafter: presentation to ALTx Committee • Prospectus prepared • Roadshow & marketing • Client lists after 24 months!

10. Preparatory steps • Determine what has to be done & timetable • Sanitise: remove personal assets • Corporatise: MOI/agreements/licences • Restructure: create holding co & opco’s • Beef up Finance Department • Appoint non executive directors to Board • Establish corporate governance • Adopt appropriate policies • Wait for next set of clean audited results

11. Our requirements for “listability” • Audited track record • Sufficient size • Proper structure • Shares in public hands (free float) >20% • Credible management team • Presentable CEO • Balanced Board with non execs • Corporate governance in place (co sec) WHY? BECAUSE INVESTORS HAVE CHOICES

12. Matters for consideration • Convert private company to public company; • Draft and adopt new memo & articles of association complying with LR • Review structure of group • Consider current and new shareholders • Consider adequacy of share capital • Perform indicative valuation and determine issue price

13. Matters for consideration • Determine amount to be raised • Board composition • Share incentive scheme • Financials and forecasts • Legal due diligence: contracts, licences, litigation & insurance • Draft detailed business plan for presentation to ALTx / • LuSE: Directors & DA present Prospectus to Listings Committee

14. Action list after approval • Revise timetable • Firm up indicative fees & costs • Various submissions to Stock Exchange for approval • Register Prospectus with registrar of Companies • Design cover of prospectus • Plan communication campaign/ employ investor relations expert • Plan marketing & roadshow to investors • Arrange for printing & proofreading • Appoint transfer secretaries

15. Methods of listing • Front door: comply with all LR and apply for listing • Back door: approach cash shell (listco without business); let them acquire client in exchange for shares; draft revised listings particulars • Reverse take-over: Listco has business; acquires large target co in exchange for shares; shareholders of target co become controlling shareholders; revised listings particulars

16. Marketing the issuer to investors • To whom? • Institutional investors & asset managers • Stockbrokers • How? • Draft investment analysis & report (optional) • Invite parties to presentations (roadshow) • What? • The company, history and prospects • Attractive issue price

17. Modes of payment for services • Cash • Shares: • If shares are issued to DA in lieu of fees upon listing, shares must be held in trust for 2 years (5.127) • If shares issued to DA after listing in lieu of fees, regarded as specific issue of shares for cash (5.50) to be approved by shareholders (Ord res 75%)

18. Disciplinary action against DAs • Legislation: Financial Services Board, esp insider trading [investigation; judgment; fine] • JSE • contravention of Listings Requirements [stern letter or red carpet treatment] • Investigations Unit [private/public reprimand or fine] • Surveillance Unit [normally escalates to FSB] • Takeover Regulation Panel

19. Amendments to JSE LR • JSE LR have been amended with effect from 1 October 2014. Examples: • Written resolutions allowed for all companies listed on ALTx; no meetings therefore required – only proxies. • All circulars for companies listed on ALTx in summary circular format only. • Incorporation by reference allowed in circulars (full disclosure in prospectuses); could help with CPR’s

20. Failures: lessons learnt (1) • i • Entrepreneurs are by nature over optimistic • Failure to meet forecasts – vital blow to credibility • Institutions are wary of newcomers: on trial for few years • Some CEO’s unable to adapt to listed environment: e.g. governance by non execs; interaction with investors; doing business in the spotlight; approvals by shareholders • Flaws in business model only exposed over time (e.g. micro lenders)

21. Failures: lessons learnt (2) • i • Growth requires cash flow • Regulatory environment could be obstacle • Illiquidity affects share value and ability to do deals • Listing inflates egos • Some CEO’s surround them with yes-men • If Financial director is weak or disempowered • If IT systems are unreliable

22. Failures: lessons learnt (3) • If Audit Committees are mere rubber stamps • Transactions fail for two reasons: • Poor due diligence; • Weak implementation • Taking too much gearing (debt) on board • Reporting not on time • Disrespect for laws, regulations, stock exchange and advisors

23. Successes : characteristics • Competent CEO • Quality and independence of board • Stable board with diverse skills • Strong financial management & systems • Institutional investors • Timeous reporting • No negative surprises • Sound business model

24. Contact Details Marius Meyer Tel: 27 11 880 2113 or 082 495 4405 Email: marius@exchangesponsors.co.za Van Zyl Swanepoel Tel: 27 11 880 2113 or 082 654 6719 Email: vanzyl@exchangesponsors.co.za Mareo Bekker Tel: 27 11 880 2113 or 082 900 3804 Email: mareo@exchangesponsors.co.za Paul Pretorius Tel: 27 11 880 2113 or Email: paul@exchangesponsors.co.za Keeley Ermann Tel: 27 11 880 2113 or 083 626 6814 Email: keeley@exchangesponsors.co.za

25. Contact details: • Address: 44A Boundary Road, Inanda, Johannesburg • Telephone : 011 880 2113 • Fax : 011 447 4824 • Website : exchangesponsors.co.za