REQUEST FOR PROPOSALS ON THE ESTABLISHMENT OF DEFENCE INDUSTRY FUND (DIF) REF NO.: DIF1117

1/8 REQUEST FOR PROPOSALS ON THE ESTABLISHMENT OF DEFENCE INDUSTRY FUND (DIF) REF NO.: DIF1117 CLOSING DATE: 31 JANUARY 2018 TIME: 11H00 Delivery Address: AMD Offices Cnr Nossob & Swakop Castlewalk Shopping Centre (Located just above Nedbank) Enquiries: Dr Moses Khanyile E-mail: moses@masharps.co.za

2/8 REQUEST FOR PROPOSAL (RFP): DEFENCE INDUSTRY FUND Ref: DIF01117 1. OVERVIEW When South Africa s Parliament approved the Defence Review in 2015, it signalled the country s commitment to equipping and capacitating the SANDF for all ordered operations inside and outside South Africa. The ability to provide the requisite defence equipment and services depends on the existence of a vibrant and competitive defence industry, comprising local and international companies. Such an industry is seen as an integral part of the SANDF s capabilities and, in return, the industry views the SANDF as an anchor client. From an SA broader economic and trade points of view, there is a set of national imperatives that range from localisation to transformation and SMME development as well as strategic partnerships with international suppliers. All these imperatives are geared towards ensuring future sustainability of the SA Defence Industry (SADI). Furthermore, new entrants into the defence industry will have to be introduced for future sustainability. Given the complexity and a high cost of defence materiel and equipment, the barriers of entry into the industry are high, which results in long-term single-source contracting and over-dependence on international suppliers, even in critical and sovereign capabilities. One of the barriers of entry is access to affordable finance for both existing and prospective defence companies. It was against this background that Armscor and the defence industry association the South African Aerospace, Maritime and Defence Industries (AMD) 1 initiated a project to establish a Defence Industry Fund (DIF). While both Armscor and AMD have a strategic role to play in the defence industry, they will not be involved in the operations and management of the fund. 2. PURPOSE The purpose of this document is two-fold: 2.1 To invite companies to submit proposals for the implementation of the Defence Industry Fund; 2.2 To initiate the process of selecting a company that will structure the Defence Industry Fund. 3. OPERATING COMPANY This request for proposals seeks to identify and select a company that will be responsible for setting up and implementing the Defence Industry Fund. 3.1 Nature of the company This will be South African company, incorporated in terms of the Companies Act No. 71 of 2008, headquartered in South Africa, with the majority of shareholders and directors being South Africans. Only public and private companies may participate. Therefore, state-owned companies, trusts, non-profit companies and personal liability companies may not participate as operating companies for the fund. However, these may participate by supporting the defence industry initiatives or by providing capital for use by the defence industry.

3/8 3.2 Mandate It will have the mandate and powers to: a. Design, develop and introduce financial products and services for the defence industry; b. Market its financial products and services to companies that are servicing the broader security cluster companies, for instance, the South African Police Service, Intelligence Services, Correctional Services, and Border Management Agency; c. Raise capital inside and outside the country, including private and public sector investors (eg Public Investment Corporation; Industrial Development Corporation; National Empowerment Fund, etc); d. Identify, appoint and administer fund manager(s) of choice; e. Determine credit lending criteria; f. Determine and administer grant funding, where applicable; f. Determine the pricing structure and repayment schedules; f. Determine lending minimum and maximum amounts, per transaction or company; g. Participate in defence industry activities as may be invited by AMD and/or Armscor. 3.3 Business Focus While the company will be allowed to consider other business options, as indicated in paragraph 3.2(b) above, its primary focus shall be in servicing and dealing with the defence industry. 3.4 Products The following products will be required but they do not have to be offered on the first day of operation. They may be phased in over a reasonable period of time, preferably not longer than 24-months from the day of the launch. a. Bridging Finance b. Term Loans c. Structured Finance d. Equity Finance, including BBBEE Finance e. Project Finance f. Contract Finance g. Mergers and Acquisitions h. SMME Finance i. Export Guarantee j. Alternative funding mechanisms eg commodity-based finance 3.5 Business Support Services

4/8 Part of the DIF s mandate is to support developmental initiatives for the defence industry companies. It is envisaged that the operating company will also provide business support services, which may include, but not limited to the following: a. Enterprise and supplier development programmes b. Business Plan support c. Technical advice 3.6 Licences The operating company shall be registered with the Financial Services Board (FSB) and the National Credit Regulator. 3.7 Experience The company and its senior executives must possess sufficient practical experience in the financial services. These would be demonstrated through, inter alia, amounts of capital raised over time, number of years working for a significant (preferably listed) financial company (eg banking, lending and/or insurance company), while occupying a senior management level and possessing relevant academic qualifications. A company that has operated in or worked with another company in the defence industry will have an added advantage. 3.8 Compliance a. In addition to possessing the required licences and qualifications, as per FSB and NCR policies and regulations, certified copies of the following documents are required: i. A valid tax clearance and/or the SARS TCC pin, that is not due to expire before 31 March 2018. ii. A valid BEE certificate by an accredited SANAS agency (for medium and large companies) or recently certified BEE Affidavit (for small and micro companies). iii. Proof of VAT registration of medium and large companies. This is not required for small and micro companies. iv. FSB licences v. NCR licence b. Directors who are disqualified in terms of the Companies Act No 71 of 2008, should not serve in the company s board. 3.9 Nature of the Defence Industry Fund The concept of the fund, as applied in relation to the DIF, is interpreted broadly to mean a pool of funds that are sourced and managed by a designated company to provide financial products and services to the defence and/or security-related companies. It will comprise commercial and developmental components. a. Commercial component: Funds raised and disbursed through this mechanism are competitive and market-related. This will be guided, possibly, by the investor requirements, expectations and preferences. b. Developmental component: The focus of this component will be on developing SMMEs through soft-skills and business support, including, for instance, training, incubation

5/8 programmes, support for enterprise and supplier development (ESD) programmes, and advisory services. It is envisaged that there will be closer interaction with Armscor s Defence Industrial Participation (DIP) and the dti s National Industrial Participation Programme (NIPP). 4. GOVERNANCE 4.1 Primary legislation The operating company shall be guided primarily by the following pieces of legislation for its operation: a. Constitution of the Republic of South Africa Act 108 of 1996 (as amended) b. Companies Act No. 71 of 2008 (as amended) c. Financial Services Board Act 97 of 1990, together with all other Acts under its jurisdiction (www.fsb.co.za/legislation/html%20pages/legislation.html) d. National Credit Act 34 of 2005 e. Relevant tax legislation 4.2 Relationship between the operating company, AMD and Armscor There shall be an arms-length relationship between the operating company, AMD and Armscor. This will be guided a Memorandum of Agreement (MOA) which will be drafted, discussed, negotiated, agreed and signed by all the three parties. The tripartite MOA will articulate the relationship amongst the parties, responsibilities and obligations of each party towards the defence industry in relation to the DIF. Both Armscor and AMD will not have any operational role in the fund but will provide advisory support for the benefit of the operating company and the defence industry. It is this relationship which will help differentiate the DIF from any other comparable fund in the open market. Given that the DIF will also have a developmental component, the operating company will be expected to develop an appropriate mechanism to financial benefit the AMD, without the latter being a shareholder. 5. EVALUATION 5.1 Process a. Prospective service providers will submit their bids in hard copy format. Two (2) identical hard copies to be submitted. Tender box will be located at AMD offices (see Delivery Address) b. Ensure that you sign the register (Acknowledgement of Receipt) for the submitted documents. b. The panel will evaluate each submission in line with the set criteria. c. A short-list of up to five (5) companies will be compiled. The attached Evaluation Sheet will be used to compile the short-list (see Annexure A) d. Short-listed companies will be invited to make a formal presentation to the panel, with an opportunity to provide clarity on some of the aspects of the submission.

6/8 i. Presentation (60 minutes), evaluation panel questions and discussion (30 minutes) ii. Submissions and presentations shall be conducted in English. 5.2 Criteria Companies will be evaluated on the basis of the following aspects: a. Products: Ability to provide these products, which can be introduced in phases over time: i. Bridging Finance ii. Term Loans iii. Structured Finance iv. Equity Finance, including BBBEE Finance v. Project Finance vi. Contract Finance vii. Mergers and acquisitions viii. SMME Finance ix. Export Guarantee x. Alternative funding mechanisms eg commodity-based finance b. Business Support Services: Potential programmes for supporting SMMEs such as business plan, enterprise and supplier development (ESD), market access support or advisory service, and so forth. c. Assets under management: Does the company currently have assets, including investor funds, under its management or its sister company or holding company? Show the liquidity of the company and provide a summary of the company s balance sheet. d. Experience i. Company: Is the company already working in the financial services sector? How many years? ii. Some of the Senior Managers (currently in the employ of the company): Are the senior managers experienced in the financial service space? Cumulative (or average) number of years. Include a brief resume of each key staff member. iii. Ability to raise capital. Give examples, supported by proof, where you or your company has raised capital? Indicate cumulative (or average) amounts, over the last three (3) years. Was the source of such capital local or international or both? iv. Lending experience: Has your company been operationally involved in the lending space over the last five (5) years? If so, indicate Secured/Unsecured, or both, state number of years in each case. A documentary proof to this effect is required. v. Product development: Has your company been involved in financial product development? Provide proof.

7/8 vi. Business (SMME) support experience: Please provide a minimum of three (3) references where you participated in business support service initiatives for the benefit of SMMEs. vii. Operational management (process; documentation): Does your company have defined processes and documentation for financial products and services? If so, provide typical examples (use a properly referenced Annexure) e. Licences: i. FSB Licence(s): State valid FSB licences already in your possession (use a properly referenced Annexure for certified copies); ii. NCR Licence: Certified copy. f. Compliance Documents: i. A certified copy of a valid tax clearance and/or SARS TCC pin ii. Certified copies of a Valid BEE certificate (for medium and large companies) or BEE Affidavit (for small and micro companies). A minimum of 35% BBBEE equity is required. g. Required Plans: Companies will be evaluated on the basis of how realistic, credible, practical and desirable their plans are. Short-listed companies will be required to focus their presentations mainly on these plans. i. Risk Management Plan: indicate how you will identify and mitigate risks for the successful implementation of the DIF ii. Operational Plan: indicate how you would realistically roll out the DIF, including proposed personnel, working capital, initial capital for lending, timelines, organisational structure, etc. iii. Plan for raising capital: indicate how you intend raising capital, including existing and potential partnerships, local and/or international role-players, etc. iv. AMD Benefit Support Plan: propose a mechanism through which you will enable AMD to benefit financially without being a shareholder. This will ensure that AMD continues to provide services to the defence industry. h. Timelines: Indicate the overall timelines for the operationalisation of the DIF. This should make provision for the following aspects after being selected as a preferred bidder: i. Negotiations regarding the Master Contract and the Memorandum of Agreement (MOA); ii. Role of key stakeholders such as the AMD; iii. Capacity, including recruitment of initial key staff v. Setting up of offices, including related infrastructure such as ICT. It is strongly recommended that the operational office of the DIF should be within reasonable proximity to Armscor and AMD for operational efficiency and accessibility. vi. Communication and marketing i. Declaration Form: Complete and sign the Declaration Form which is attached as Annexure B

8/8 5.3 Evaluation Sheet The Evaluation Sheet (attached as Annexure B) will be used to select the shortlist. 6. TIMELINES i. Technical evaluation, including BEE: 70% ii. Presentation evaluation: 30% 6.1 Compulsory Briefing Session a. Date: 29 November 2017 b. Venue: Armscor Building, 370 Nossob Street, cnr Delmas Avenue & Nossob Street, Erasmuskloof Ext 4, Pretoria c. Time: 13h00 16h00 d. Parking: Visitors Parking e. Enquiries on the Briefing Session: Ms Caroline Kola Tel: 012-428 2127 E-mail: carolinek@armscor.co.za) f. Boardroom: To be confirmed at Armscor Reception 6.2 Closing Date for questions for clarity on some aspects of the RFP: 12 January 2018 6.3 All questions must be in writing and all responses will be shared with all the companies that will have attended the Briefing Session. 7. SUBMISSIONS 7.1 Closing Date for submissions on the RFP: 31 January 2017 at 11h00. 7.2 All submissions on this RFP should be delivered by hand to: AMD Offices Cnr Nossob & Swakop Castlewalk Shopping Centre (Located just above Nedbank) 7.3 Submissions made via email or fax or by post shall not be considered. Late submissions will also not be considered. 7.4 Kindly cite the following Reference Number in your submission: DIF1117 8. ENQUIRIES: All enquiries on this RFP can be directed via email to: Dr Moses Khanyile E-mail: moses@masharps.co.za ~END~~