REVISED BEE CODES OF GOOD PRACTICE - ECMBA

1 To all our Clients REVISED BEE CODES OF good PRACTICE . This letter serves to give a summary of the most important changes affecting BEE scorecards. There are still some uncertainties regarding the new CODES and, therefore, workshops for our clients will be run at the beginning of 2014. Our clients will be notified of the dates and venues for these workshops. Hopefully by then there will be more clarity on these changes. This will still leave our clients enough time to prepare for the first audit on the new CODES . It is, however, a good idea for all our clients to read the CODES themselves. If there are then any questions, please forward to the writer for consideration and an informed reply.

2 General rules The REVISED BEE CODES will come into effect on 10 October 2014. If the entity's next financial year ends on a date prior to 10 October 2014, it will still be measured on the old CODES . If the financial year ends on a date after 10 October 2014, it will be measured on the REVISED CODES . Note that enterprises which split, separate or divide a measured entity as a means of ensuring eligibility as an Exempted Micro-Enterprise, a QSE or a Start-Up Enterprise, may constitute an offence dealt with in accordance with the provisions in the BEE Act as amended. ( Any person convicted of an offence in terms of the Act is liable to a fine or to imprisonment for a period not exceeding 10 years or to both a fine and imprisonment; or to imprisonment for a period not exceeding 12 months or to both a fine and imprisonment; or to a fine of 10% of that enterprise's annual turnover, said Dr Rob Davies, Minister of Trade and Industry).

3 A measured entity in a sector in respect of which a sector code has been issued in terms of Section 9 of the BBBEE act as amended, may only be measured for compliance in accordance with that sector code . This means that the REVISED BEE CODES do not replace the Sector CODES until such time that the respective Sector Councils align their Sector Charter with the REVISED CODES . This will most probably happen at some point in time in the future. Priority elements, subminimum and discounting principle There are 3 priority elements, namely Ownership, Skills Development and Enterprise and Supplier Development.

4 Generic entities are required to comply with each of the priority elements. QSE entities are required to comply with Ownership and one of the remaining 2. priority elements. The thresholds for the 3 types of entities are as follows: Generic Annual Turnover of R50 mil plus QSE Annual Turnover of R10 mil to R50 mil Exempted Micro-enterprises Annual Turnover of less than R10 mil 11/11/2013 Page 1 of 12. If a Generic entity does not achieve a subminimum in any one of the three priority elements, the BEE status level will be discounted by one level down. If a QSE entity does not achieve a subminimum in either Ownership or one of the other two priority elements, the BEE status level will be discounted by one level down.

5 Please note that if you score less than 40% on more than one priority element your status level will only be discounted by one level. One status level penalty is, therefore, the maximum, irrespective of whether entities do not achieve a subminimum on one or all priority elements. Subminimum for Ownership The subminimum for Ownership is 40% of the 8 points for Net Value. If entities, therefore, do not score more than out of 8 for net value, the overall score will be discounted by one level. This implies that entities need to have at least 10% Black Ownership and achieve the applicable time-based graduation factor for the entity in order to prevent a downgrade of one level.

6 Subminimum for Skills Development The subminimum for Skills Development is 40% of the total weighting points for Skills Development, namely 8 out of 20 points. Enterprise and Supplier Development The subminimum for Enterprise and Supplier Development is 40% for each of the three sub categories, namely Preferential Procurement (10 out of 25 points), Supplier Development (4 out of 10 points) and Enterprise Development (2 out of 5 points). Eligibility as an Exempted Micro Enterprise (EME). An EME with 100% Black Ownership qualifies as a Level One Contributor An EME with at least 51% Black Ownership qualifies as a Level Two Contributor All other EME's qualify as a Level Four Contributor EME's can elect to be measured as a QSE to improve their status level.

7 Eligibility as a QSE. A QSE must comply with all 5 elements of the New CODES , namely Ownership 25 points Management Control 15 points Skills Development 20 points Enterprise and Supplier Development 40 points Socio-Economic Development 5 points 11/11/2013 Page 2 of 12. Enhanced recognition A QSE which is 100% black owned qualifies as a Level One Contributor A QSE which is at least 51% black owned qualifies as a Level Two Contributor Evidence required for Black owned EME and QSE businesses with turnover of R50mil and less A sworn affidavit, on an annual basis, confirming annual turnover and Black Ownership is required.

8 Any misrepresentation in terms of turnover or Black Ownership constitutes a criminal offence. As a result of this risk and the fact that the PPPFA requires an accredited BEE. certificate (SANAS or Irba) if tendering for a government tender, it is recommended that black owned EME's and QSE's require a BEE certificate issued by a SANAS or IRBA accredited BEE verification agency. Eligibility as a Generic Company A Generic entity must comply with all 5 elements of the New CODES , namely: Ownership 25 points Management Control 15 points Skills Development 20 points Enterprise and Supplier Development 40 points Socio-Economic Development 5 points Eligibility as a start-up enterprise Start-up enterprises qualify as a BEE Status Level Four, irrespective of turnover.

9 If the start-up enterprise tenders for a contract between R10mil and R50mil it must be measured in terms of the QSE rules using annualised data. If the start-up enterprise tenders for a contract of more than R50mil it must be measured in terms of the Generic rules using annualised data. 11/11/2013 Page 3 of 12. BEE recognition levels BEE. B-BBEE Status Qualification Recognition Level Level One Contributor 100 135%. Level Two Contributor 95 but <100 125%. Level Three Contributor 90 but <95 110%. Level Four Contributor 80 but <90 100%. Level Five Contributor 75 but <80 80%. Level Six Contributor 70 but <75 60%.

10 Level Seven Contributor 55 but <70 50%. Level Eight Contributor 40 but <55 10%. Non-compliant Contributor < 40 points 0%. Each of the five elements will now be dealt with. 11/11/2013 Page 4 of 12. Ownership The Ownership scorecard is as follows: Major new rules: A measured entity applying the Modified Flow-Through Principle cannot benefit from the Exclusion Principle and, therefore, exclude up to 40% Mandated Investments and vice versa. The rules for Trusts, Broad Based Ownership Schemes and Employee Share Ownership schemes are clearly stated and it is recommended that measured entities which have this kind of ownership satisfy themselves that their Trust Deeds meet the stipulated requirements.