Claw Back Rights Offers

Rights Offers

This is a subscription offer of shares made by a listed Company to its

shareholders, in proportion to their existing shareholdings, to subscribe to such
shares for cash. It is effected by issuing existing shareholders with a letter of
allotment (“LA”, or “nil paid letter”) which trades on the JSE during the period the
rights offer is open. The LA may be sold for cash (i.e. the shareholder sells his
right for cash), left to lapse or followed by subscribing for the shares offered.

The benefits of a Rights Offer is that no one can accuse the company of bias
when placing the shares – it is a completely fair method to distribute the new
shares – and it is also a placement with very short timelines – it normally takes
about three weeks of trading.

Claw Back Offers

A Claw Back offer is a rights offer whereby all the shares on offer have already
been agreed to be subscribed for by placees, which placees have agreed to let
existing shareholders be offered such shares in terms of a normal rights offer
(called a claw back right), but who will subscribe for any shares not subscribed
for in terms of the rights offer.

Said differently a claw-back offer effectively amounts to a fully underwritten

'reverse' rights offer in that the claw-back offer proceeds are paid to the
Company by an investor/placee against the allotment of new shares in the
Company. The claw-back offer then affords the Company's shareholders the
opportunity to 'claw-back' the shares thus allocated through an entitlement in
proportion to their existing shareholdings or to renounce such right to a
renouncee. Shares not acquired pursuant to the claw-back offer remain with the
investor/placee.

The benefits of a Claw Back offer is that it is a very good way to counter act
shareholders who do not follow their rights and it also allows more mechanisms
to fine-tune the required results from a placement. Moreover, it’s a great way to
increase major shareholding in an illiquid stock while not running up the price.

Successful Claw Back Offers

To ensure a very successful Claw Back offer there are three mechanisms one
may apply, namely:

1. Deep discounting: a large discount to the current market price would

ensure that more shareholders take up the offer. Also, the placees would
take up discounted shares as compensation for the “risk” they take.

2. Offer excess shares: to make the offer even more successful, invite
application for excess shares where shareholders can apply for more
 shares than they are entitled to. This means they may take up shares that
others have not.

3. Pre-placing with the largest shareholders: these shareholders are given

the right to subscribe to all the shares.

• This is a very effective way of positively “underwriting” a rights

offer as any non take up by some shareholders is still described as a
100% subscription.

• Moreover, there is no risk of “overhang” if the rights offer is

unsuccessful. Especially the negative signalling caused by a highly
discounted offer that was not fully subscribed.

Using Claw Back Mechanisms

To ensure a low up take, so the placees can increase their shareholding, keep
the discounting low and do not offer excess shares.