The Financial Regulatory Authority

FINANCIAL REGULATORY AUTHORITY

Chairman of the Authority

Circular Letter No. (7) of 2018

Dated 25/6/2018

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Regarding Cumulative Voting and Proportional Representation of Capital in the Board of Directors of Companies

To Companies Issuing Securities on the Egyptian Exchange and Companies Operating in Non-Banking Financial Activities

In the context of the Authority's commitment to protecting minority investors in companies issuing securities on the Egyptian Exchange and companies operating in non-banking financial activities, the Authority has directed these companies to stipulate in their articles of association the cumulative voting mechanism for electing board members, as well as a minimum threshold for proportional representation of capital in the board. This is intended to provide minority investors with the opportunity to be represented on the boards of these companies and thereby participate effectively in their management.

In this regard, the Authority's Board of Directors issued Decision No. (92) of 2018 regarding the amendment of the rules for listing and delisting securities on the Egyptian Exchange, by adding two new conditions to the general conditions for listing securities on the Egyptian Exchange set forth in Article (6) of the Listing Rules. This obligates companies issuing securities on the securities exchange to include in their articles of association the mandatory use of the cumulative voting system for electing board members, and to stipulate a minimum threshold for proportional representation of capital in the company's board of directors.

The Authority's Board of Directors also issued Decision No. (93) of 2018 regarding the amendment of the Authority's Board Decision No. (53) of 2018 concerning the controls for granting and renewing licenses and the rules for share ownership in companies operating in non-banking financial activities. This decision adds two new obligations to companies seeking preliminary approval for establishment or a license to conduct one of the non-banking financial activities, requiring that the company's articles of association stipulate the use of the cumulative voting system for electing board members, and that they also stipulate a minimum threshold for proportional representation of capital in the company's board of directors.

In the context of the Authority's commitment to fulfilling its role in promoting awareness and education regarding non-banking financial activities under its supervision and oversight, the Authority wishes to emphasize and clarify the following matters:

1. Cumulative voting in the election of board members of companies issuing securities on the Egyptian Exchange or companies operating in non-banking financial activities refers to a procedural voting system within the companies' general assemblies specifically regarding the election of board members. It allows shareholders to allocate the voting block corresponding to their share capital to a single candidate or distribute it among multiple candidates to concentrate their votes and ensure representation on the board. The voting block for each shareholder is calculated by multiplying the number of shares they own by the number of board seats to be filled.

2. Proportional representation of capital in the board of directors of companies issuing securities on the Egyptian Exchange or companies operating in non-banking financial activities refers to guaranteeing a minimum representation of capital percentage in the board membership, at a ratio of no more than one seat for every 10% of the company's shares. This ensures at least the right of shareholders to stand for election to the board of directors.

In the event that more than one-third of the board of directors' seats become vacant, the remaining board members must immediately convene the general assembly to elect replacements. The ordinary general assembly must be convened within a maximum period of thirty days.

In the event of a vacancy in the chairman of the board position, the senior-most remaining member shall convene the general assembly and preside over it unless the assembly elects a chairman. Otherwise, the procedures and controls regarding the ordinary general assembly stipulated in the Executive Bylaws of Company Law No. 159 of 1981 shall apply.

3. Existing companies at the time of this decision's implementation must align their status and amend their articles of association to incorporate the cumulative voting and proportional representation systems prior to holding any board elections or within one calendar year, whichever is sooner.

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Chairman of the Board of Directors
The Financial Regulatory Authority

Dr. Mohamed Omran

46076

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Smart Village, Building No. B-136, Giza
Postal Code: 12577
Tel.: (00202) 35345350 - Fax.: (00202) 35370036 www.FRA.gov.eg

Smart Village, Building No. 136, B. Giza, Egypt Postal Code: 12577 Tel.: +202 35345350 - Fax.: +202 35370036 info@fra.gov.eg