circular to shareholders in relation to trust ltd - circular to...ciel investment limited,...

THIS CIRCULAR IS DATED JANUARY 21, 2013

CITY TRUST LIMITED (Incorporated in the Republic of Kenya under the Companies Act (Chapter 486 of the Laws of Kenya), Registration Number C 7/50)

CIRCULAR TO SHAREHOLDERS

IN RELATION TO:

PROPOSAL FOR ISSUE OF UP TO 363,722,034 NEW ORDINARY SHARES IN CONNECTION WITH THE ACQUISITION OF THOSE SHARES OF I&M BANK LIMITED (“I&M”) NOT ALREADY OWNED BY CITY

TRUST LIMITED (“CTL”) A PUBLIC LIMITED COMPANY LISTED ON THE NAIROBI SECURITIES EXCHANGE, BY MEANS OF A SHARE EXCHANGE OFFER

ADVISED BY:

INDEPENDENT ADVISER

LEGAL ADVISER AUDITORS

City Trust Limited Shareholders’ Circular __________________________________________________________________________________________________________________________________________________________________

Page | 2

IMPORTANT NOTICE

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about this offer, you should consult the independent adviser appointed by your Board of Directors, or your investment banker,

stockbroker or other professional investment adviser.

If you have sold or transferred all of your ordinary shares in City Trust Limited (“CTL”), please forward this document (and the enclosed Notice and Proxy Form) immediately to the investment adviser, stockbroker, banker or agent through whom the sale was effected for transmission to the purchaser or transferee of the shares.

If you are currently a shareholder and are unable to attend the extraordinary general meeting (“EGM”) on February 20, 2013, please complete and return the attached Proxy Form in accordance with the instructions thereon and send it to the registered office of CTL, Deloitte Place, Waiyaki Way, Muthangari, Nairobi.

This Circular is issued pursuant to the requirements of The Capital Markets Act (Chapter 485A), The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002 and The Capital Markets (Take-overs and Mergers Regulations), 2002 and relates to the proposed offer by CTL to acquire those Shares of I&M Bank of Kshs. 100/= each which are not already owned by CTL.

Approval has been obtained from the Capital Markets Authority (“CMA”) in respect of the compliance of this Circular with the Capital Markets Act and applicable regulations. As a matter of policy, the CMA assumes no responsibility for the correctness of any statements or opinions made or reports contained in this Circular. Approval of the Circular by the CMA is not to be taken as an indication of the merits of the Offer or as a recommendation by the Authority to the shareholders of CTL.

The Nairobi Securities Exchange (“NSE”) has given its approval for the listing of all the New Shares (hereinafter defined) on the Main Investment Market Segment (MIMS) of the NSE. The NSE assumes no responsibility for the correctness of any of the statements made or opinions or reports contained in this Circular. Approval of the Circular by the NSE is not to be taken as an indication of the merits of the transaction or as a recommendation by the NSE to the shareholders of CTL.

A Notice of an Extraordinary General Meeting of City Trust Limited which is to be held at 10:00a.m. on Wednesday February 20, 2013 at Deloitte Place, Waiyaki Way is set out at the end of this document. A form of proxy for use by shareholders is also enclosed.

Dated: January 21, 2013


Page | 3

Table of Contents Important Notice ................................................................................................................................................. 2

Part I – General ................................................................................................................................................... 4

1. Timetable Of Key Events .................................................................................................................... 4

2. Transaction Advisers ........................................................................................................................... 5

3. Definitions ............................................................................................................................................ 6

Part II – Chairman’s Letter ................................................................................................................................ 9

1. Introduction ......................................................................................................................................... 9

2. Acquisition Of Shares In I&M Bank Limited..................................................................................... 9

3. Rationale For Undertaking This Acquisition ................................................................................... 10

4. Effect Of The Transaction On The Existing Shareholders And The Company’s Financial

Position ............................................................................................................................................... 11

5. Principal Terms Of The Acquisition ................................................................................................. 12

6. Proposed Share Split ......................................................................................................................... 14

7. Statutory Approvals & Related Information .................................................................................. 14

8. Extraordinary General Meeting (Egm) ............................................................................................ 15

9. Recommendations And Voting Intentions ..................................................................................... 15

Part III – I&M Bank Limited ............................................................................................................................. 16

Part IV – Impact Of The Transaction ............................................................................................................. 30

Part V – Proposed Changes In Board Structure And Profiles Of Proposed Board Of Directors ............ 34

Part VI – Proposed Amendments To Memorandum & Articles Of Association ......................................... 36

Part VII – Risk Factors ...................................................................................................................................... 38

Part VIII – Statutory And General Information ............................................................................................. 43

Part IX – EGM Notice ........................................................................................................................................ 48

Part X – Appendices .......................................................................................................................................... 51

1. Independent Opinion on the Share Exchange Offer .................................................................... 51

2. Directors’ Declaration ....................................................................................................................... 60

3. Statement from Auditors .................................................................................................................. 61

4. The OTC Market Prices for I&M Bank Shares ............................................................................... 62

5. Notes ................................................................................................................................................... 63

6. Proxy Form ......................................................................................................................................... 64


Page | 4

PART I – GENERAL

1. TIMETABLE OF KEY EVENTS

Latest time to return proxy forms for the EGM 10:00 a.m. on Monday, February 18, 2013

EGM 10:00 a.m. on Wednesday, February 20, 2013

Press Announcement of outcome of EGM Thursday, February 21, 2013

Procedure below is dependent on the approval of the transaction by CTL shareholders:

Proposed Date of suspension on trading of CTL shares Tuesday, March 5, 2013

Proposed Opening Date for the Offer for I&M Bank Shareholders

Tuesday, March 5, 2013

Proposed Closing Date for the Offer Friday, April 19, 2013

Proposed Date to lift suspension on trading of CTL shares

Friday, April 19, 2013

Press Announcement of the outcome of the Offer Friday April 26, 2013

Proposed Register Closing Date for the share split Tuesday, May 28, 2013

Conclusion of mandatory acquisition of any shares held by dissenting I&M shareholders

Monday, June 3, 2013

Proposed date for the change of name to I&M Holdings Limited

Friday, June 7, 2013

Date for Admission of New Shares to Listing & Trading Date for the share split

Tuesday, June 11, 2013

* Dates above could change subject to the approvals of shareholders and the CMA, as well as the date of publication in the Kenya Gazette of the exemption granted to CTL under Section 53 of the Banking Act. Any changes will be announced.


Page | 5

2. TRANSACTION ADVISERS

Independent Adviser Dyer and Blair Investment Bank Name/Title Office Contact 10th Floor, Pension Towers, Paul Orem

020 324 0108 Loita Street Chief Executive Officer P.O Box 45396, 00100 [email protected]

Nairobi Leah Nyambura

020 324 0122 Corporate Finance Analyst [email protected]

Legal Adviser Kaplan & Stratton Name/Title Office Contact 9th Floor, Williamson House 4th Ngong Avenue P.O Box 40111, 00100

Oliver Fowler Partner [email protected]

020 2841000

Nairobi Amar Grewal-Thethy

020 2841000

Partner [email protected]

Auditors Deloitte & Touche, Name/Title Office Contact Certified Public Accountants Anne Muraya

020 4230000 Deloitte Place, Partner Waiyaki Way, Muthangari, [email protected] P.O Box 40092, 00100,

020 4230000 Nairobi

Fred Aloo Partner [email protected]

mailto:[email protected]�

mailto:[email protected]�


Page | 6

3. DEFINITIONS

In this Circular, its annexure and enclosures, unless otherwise stated, the words in the first column have the meaning stated opposite them in the second column, words in the singular include the plural and vice versa, words signifying one gender include the other gender and references to a person include references to juristic persons and associations of persons:

"Acquisition" The proposed acquisition of shares in I&M Bank not presently held by CTL pursuant to the Offer.

“AIMS” The Alternative Investment Market Segment of the Nairobi Securities Exchange.

“Bank One” Bank One Limited, a company incorporated in the Republic of Mauritius, company number 40612, and licensed by the BOM as a commercial bank.

“Banking Act” Banking Act (Chapter 488 of the Laws of Kenya).

“Bank’s Shareholders” The holders of the issued share capital of I&M Bank other than CTL.

“BCR” Banque Commerciale du Rwanda Limited, a company incorporated in the Republic of Rwanda, company number R.C. A010/Klg, and licensed by the BNR as a commercial bank.

“BNR” The National Bank of Rwanda, the Central Bank of Rwanda.

“Board” or “Directors” The board of directors of either CTL or I&M Bank as indicated.

“BOM” The Bank of Mauritius, the Central Bank of Mauritius.

“BOT” The Bank of Tanzania, the Central Bank of Tanzania.

“CIL” Ciel Investment Limited, Mauritius.

“Circular” This Circular dated January 21, 2013, together with its Appendices and the enclosed Notice of EGM and Proxy Form.

“CMA” The Capital Markets Authority of Kenya, a statutory regulatory authority established under the Capital Markets Act.

“Capital Markets Act” The Capital Markets Act (Chapter 485A of the Laws of Kenya).

“Central Bank of Kenya” or “CBK”

The Central Bank of Kenya, a statutory corporation established under the Central Bank of Kenya Act (Chapter 491 of the Laws of Kenya).

“CEO” Chief Executive Officer.


Page | 7

“Companies Act” The Companies Act (Chapter 486 of the Laws of Kenya).

“CTL” or “City Trust” or “Company”

City Trust Limited, a company incorporated under the Companies Act (No. 7/50) and listed on the Nairobi Securities Exchange.

“DEG” DEG - Deutsche Investitions Und Entwicklungsgesellschaft mbH, registered in the Republic of Germany.

“ED” Executive Director.

“EGM” Extraordinary General Meeting.

“FMO” Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V., registered in the Netherlands.

“I&M” or “I&M Bank” or “Bank”

I&M Bank Limited, a company incorporated under the Companies Act (No. C.8/90) and licensed by the CBK as a commercial bank.

“I&M Bank Group” I&M Bank and its Subsidiaries and Associates.

“I&M Bank Shares” The ordinary shares of KES 100/- each in the issued and paid up share capital of I&M.

“I&M-Tz” I&M Bank (T) Limited, a company incorporated in the Republic of Tanzania, registration number 41958 and licensed by the BOT as a commercial bank.

“IFC” International Finance Corporation, a member of the World Bank Group.

“KES” or “KShs” Kenya Shillings, being the lawful currency of the Republic of Kenya.

“Key Shareholders” The four largest shareholders of CTL post-acquisition

“MIMS” The Main Investment Market Segment of the Nairobi Securities Exchange.

“New Shares” The 363,722,034 new ordinary shares of City Trust Limited to be issued pursuant to the Offer.

“NSE” The Nairobi Securities Exchange.

“Offer” The proposed offer by City Trust Limited to acquire all the remaining 26,704,995 shares in I&M Bank Limited not already held by City Trust Limited.


Page | 8

“Proparco” Société de Promotion et de Participation pour la Coopération Economique, registered in the Republic of France.

“Subsidiaries” or “Associates”

I&M Bank (T) Limited, Tanzania; Banque Commerciale du Rwanda Limited, Rwanda and Bank One Limited, Mauritius.

"Take-Over Regulations"

The Capital Markets (Take-Overs and Mergers) Regulations, 2002.

“TKF” The Kibo Fund, a private equity fund, registered in the Republic of Mauritius.

“TShs” Tanzania Shillings being the lawful currency of the Republic of Tanzania.

“Rwf” Rwandan Francs being the lawful currency of the Republic of Rwanda.


Page | 9

PART II – CHAIRMAN’S LETTER

To: All Shareholders of City Trust Limited (“CTL”)

Dear Shareholder,

PROPOSED ACQUISTION OF SHARES IN I&M BANK LIMITED NOT ALREADY HELD BY CITY TRUST LIMITED BY WAY OF SHARE EXCHANGE

1. INTRODUCTION

On 3rd October 2011, your Board issued a cautionary announcement regarding on-going negotiations with a regional Bank for the acquisition of its shares in exchange for shares in your Company.

It now gives me great pleasure to inform you that your Board has since concluded these negotiations and, in principle, pending shareholder approvals, agreed on the terms with the regional bank being I&M Bank Limited. You are aware that your Company already holds 7.28% of the shares in I&M. It is proposed that your Company will acquire all of the remaining 92.72% shares in I&M. The payment consideration for the acquisition of these remaining shares in I&M will be through the issuance of 363,722,034 New Shares credited fully paid up to the shareholders of I&M. The effect of this acquisition will be that I&M will become a wholly owned subsidiary of CTL.

This document provides pertinent information on the effect and impact on your Company’s financial position and the various approvals required to consummate this transaction. The purpose of this document is to provide you with (i) information on the background and rationale for undertaking this transaction, (ii) outline the key terms of the proposed transaction, and most importantly (iii) to seek your approval to proceed with the proposed offer.

2. ACQUISITION OF SHARES IN I&M BANK LIMITED

Under the offer, CTL will seek to acquire the remaining 26,704,995 shares comprising 92.72% of the issued and paid up shares in I&M.

By way of background information, I&M possesses a rich heritage in banking. Founded in 1974, the Bank has evolved from a community financial institution to a full-fledged commercial bank offering a wide range of corporate and retail banking services, making it a significant player in the Kenyan market. Known for its innovative and wide range of products and services, it is backed by state-of-the-art technologies, staff strength of close to 500 and a branch network of 20 in Kenya. I&M has in the recent past established its presence in the region with 15 branches spread across Mauritius through its associate – Bank One Limited; 6 branches in Tanzania through its subsidiary – I&M Bank (T) Limited and 15 branches in Rwanda through its subsidiary – Banque Commerciale du Rwanda Limited (“BCR”).


Page | 10

Two leading European Development Financial Institutions (DFIs) Proparco (French) and DEG (German) own approximately 10.68% of the Bank while the rest is owned by a consortium of Kenyan investment companies and individuals. Total assets of the I&M Bank Group exceed KES 144 billion as at 30th September 2012. More details about I&M are set out under Part III of this circular.

3. RATIONALE FOR UNDERTAKING THIS ACQUISITION

This transaction represents a win-win situation for both CTL and I&M shareholders as explained below:

As at the date of this Circular, CTL’s investment in I&M Bank represented 7.28% of the Bank’s shareholding. Based on the Bank’s current valuation and CTL’s current market price, CTL’s shares are trading at a discount; this being attributed to the indirect holding of the Bank’s shares.

From CTL’s Perspective

In deciding to proceed with the acquisition, the Board took into consideration several factors, the most important of which include the following:

However on conclusion of the transaction, I&M Bank will become a wholly owned subsidiary of CTL, enabling the current shareholders of CTL and potential investors to directly hold shares in I&M. This will not only enable shareholders of CTL to directly benefit from the Bank’s financial performance, but also provide an opportunity to participate in I&M’s substantial asset base and businesses in the region. We believe that, this would over a period of time, steer the price of CTL shares to better reflect the direct shareholding in I&M Bank.

Further, the share swap mechanism has been structured in a manner that is most beneficial to shareholders of CTL. The structure is such that on completion of the transaction, CTL’s shareholding will, in all material respects, resemble the current shareholding structure of I&M Bank. Taking into consideration the value of CTL’s other investments, the current shareholders of CTL will collectively hold 7.30% on conclusion of this transaction, reflecting a marginal increase from their current shareholding of 7.28%. The Board appreciated that, in contrast, had the share swap mechanism been structured on market values of the two entities – namely I&M Bank and CTL, the shareholders of CTL would have been significantly diluted in the process.

Facilitate the increase of the shareholder base of CTL and thereby enhance liquidity of the Company’s shares on the NSE.

Enable CTL to upgrade its listing status on the NSE from the AIMS to the MIMS following the enhanced shareholder base.


Page | 11

Enable I&M achieve its long term objective of listing its shares on the Nairobi Securities Exchange whilst simultaneously providing liquidity for its institutional, corporate and individual shareholders.

From I&M’s Perspective Similarly for I&M and its shareholders, this transaction provides several advantages which are listed below:

Provide I&M with a platform to raise additional capital in the future to facilitate the achievement of its long term growth and expansion strategy, and thereby, improve upon its capabilities to successfully manage the growth achieved in the last few years.

4. EFFECT OF THE TRANSACTION ON THE EXISTING SHAREHOLDERS AND THE COMPANY’S FINANCIAL POSITION

The Board acknowledges that this transaction will result in a dilution of your shareholding in CTL. However, the Board has ensured that transaction be structured in such a way to ensure that there shall be no dilution of your current indirect shareholding in I&M Bank. Further, all due care has been exercised to safeguard that the ultimate beneficial shareholding of the Bank remains materially unchanged. This is illustrated in Part IV, under shareholding on page 31.

This acquisition will have a significant positive impact on the financial position of your Company and this has been outlined in further detail under Part IV on pages 32 and 33. For instance, following the proposed share split and the issuance of the new Ordinary Shares to I&M Bank Shareholders, CTL’s issued share capital will increase from KES 28,640,005 to KES 392,362,039.

All figures in KES

City Trust Unaudited

5mths I&M Bank I&M Holdings

31-12-2011 31-12-2011 Consolidated

Consolidated Consolidated Post-acquisition*

Shareholders' Equity

Paid up/ Assigned share capital 28,640,005 2,880,245,300 391,827,937 Share premium 155,000 3,773,237,119 13,135,209,676 Retained earnings (post acquisition) 250,328,270 7,185,254,003 319,575,922

All other reserves 0 778,067,127 778,067,127 Total Shareholders' Equity 279,123,275 14,616,803,549 14,624,680,662

* The difference in these figures arises from the consolidation effect as per IFRS. Detailed accounts show ing the full consolidation of accounts are included under Part IV on page 33


Page | 12

5. PRINCIPAL TERMS OF THE ACQUISITION

i. Offer: Once approved at the EGM, CTL will make an offer to the shareholders of I&M under section 210 of the Companies Act to acquire all the shares not presently held by CTL in exchange for shares in CTL. No cash payment will be made and a cash alternative will not be provided.

ii. Share Exchange Ratio: The share exchange ratio as agreed and approved by your Board is 13.62 shares in CTL with the proposed par value of Kshs. 1.00 (post share split) for every 1 share in I&M with a par value of Kshs. 100/-. The share-exchange ratio has been determined keeping in mind that the most equitable basis of valuation would be based on I&M. In this regard, as CTL’s most significant asset is its shareholding in I&M, CTL’s valuation has been based on the fair value of I&M. This derived value is the basis of the share exchange ratio. The following factors have also been taken into consideration in determining the share exchange ratio:

• CTL’s and I&M’s most recent audited financial statements available at that time;

• A valuation of I&M Bank carried out by Deloitte for the private placement in November 2010.

• An updated valuation of I&M Bank carried out by Dyer and Blair Investment Bank in October 2012.

• CTL’s value per share based on a proportionate share of I&M’s computed value as above.

• Ensuring that in carrying out the transaction and as a result thereof, the ultimate shareholding of I&M Bank remains materially unchanged.

The transaction is such that I&M Bank shareholders will receive 13.62 new ordinary shares in CTL for every one share they hold in I&M. Consequently, the consideration to I&M shareholders will be in the form of an allotment of 363,722,034 New Shares of CTL which will be credited as issued and fully paid up.

The New Shares, when issued, will have the same rights as the existing ordinary shares of the Company.

iii. Change in Name & Board of Directors

It is intended that, upon completion of the Acquisition, the name of the Company will be changed to I&M Holdings Limited. The current membership of CTL’s Board is as shown below.

Name Position on Board Occupation Nationality Mr. Anil Raja Chairman Chartered

Accountant British

Mr. Parag Anil Raja Non-Executive Member Businessman British

Mr. Madabhushi Soundararajan

Independent Non-Executive Member

Banker Indian

Mr. Daniel Ndonye Independent Non-Executive Member

Certified Public Accountant

Kenyan


Page | 13

It is proposed that the Board of CTL will be reconstituted and will comprise the following persons:

Name Position on Board Occupation Nationality

Mr. Daniel Ndonye Chairman (Independent Director)

Certified Public Accountant Kenyan

Mr. SBR Shah, MBS Non-Executive Director Banker Kenyan

Mr. Michael J. Karanja Independent Non-Executive Director Business man Kenyan

Mr. Sarit S. Raja Shah Non-Executive Director Banker Kenyan

Mr. Madabhushi Soundararajan

Independent Non-Executive Director Banker Indian

Ms. Christina Gabener Non-Executive Director Senior Investment

Manager German

Mr. Guédi Aïnanché Non-Executive Director Investment Analyst French

A brief profile for each of these Directors has been provided under Part V on pages 34 and 35 of this Circular.

iv. Amendment to the Memorandum and Articles of Association Your Board is of the view that the transaction represents an opportune moment to review the Memorandum and Articles of Association for the Company. This document was drawn up in 1950 and has not been substantially reviewed since then. From 1950 there have been significant changes in the operating and regulatory environment including the adoption of best practices in areas such as Corporate Governance which need to be factored into the amended Articles of Association. It is also important to note that your Company will now become the holding company for the Bank. With these factors in mind, the Notice of EGM contains resolutions amending the Memorandum of Association of the Company and adopting new Articles of Association. Details on the amendments proposed have been provided under Part VI on page 36 of this Circular.

v. Transfer of CTL shares from AIMS to MIMS CTL had applied to the CMA to transfer its shares from the AIMS to MIMS listing, the Main Board of the Nairobi Securities Exchange. Following the successful completion of this transaction, CTL will be fully eligible in all aspects to list on the MIMS, save for the requirement to have 1,000 shareholders. To this end, CTL had requested CMA for a 6-month period exemption within which the Company will have to increase its shareholder base from approx. 700 to the required minimum of 1,000 shareholders. CMA vide its letter dated 6th November 2012 conveyed its approval of the exemption. It is intended to achieve this as below:


Page | 14

• Following the conclusion of this transaction, Biashara Securities Limited (BSL), an existing shareholder of I&M, will hold approx. 13.92% of CTL. BSL is a holding company that has approx. 1,000 individual shareholders.

• It is intended that BSL shall, subject to receipt of court approval and all other necessary regulatory approvals, be wound up allowing its approx. 1,000 shareholders to hold shares directly in CTL.

• Consequently CTL’s shareholder base will increase to approx. 1,700 shareholders thereby being in full compliance with the MIMS requirement. It is anticipated that this requirement will be met within the 6-months period as required by the CMA.

vi. Transaction Costs: The transaction costs in relation to the acquisition of shares in

I&M, details of which have been provided in Part VIII on page 46 will be funded from a special dividend to be declared by I&M at completion of the transaction.

6. PROPOSED SHARE SPLIT

Your Board is simultaneously proposing to undertake a share split. The main objective of this action would be to increase the number of shares in circulation, which would enhance the liquidity of the shares on the NSE. It is proposed that the ordinary shares of the Company be split so that the shareholders will receive 5 new shares for every share they currently hold in CTL. This will reduce the par value per ordinary share from the current KES 5.00 to KES 1.00. The current share price of CTL shares is KES 400.00, and thus restricts trading activity in view of the fact that minimum transaction size is 100 shares. Following the share split, the price of each share would also decrease by the same factor of 5 thereby increase the affordability of the Company’s shares. Over time, this action would in all likelihood increase the shareholder base. Likewise, the increased affordability of the shares would improve the Company’s ability to raise funds through the capital markets. In addition, the split will result in an increase of the current authorised shares for CTL from 10,000,000 ordinary shares with a par value of KES 5.00 to 50,000,000 ordinary shares with a par value of KES 1.00. Similarly, the issued and fully paid shares will increase from 5,728,001 ordinary shares to 28,640,005 ordinary shares. The proposed register closing date for the share split is May 28, 2013 following which the increased shares will be uploaded for trading on June 11, 2013. The same will serve as the date of commencement of trading in the shares.

7. STATUTORY APPROVALS & RELATED INFORMATION

In compliance with the terms of CMA approval, the key shareholders have agreed to lock in their shareholding for a period of 24 months effective from the completion of the proposed transaction. More details on the terms and conditions of the Offer are set out under the Statutory and General Section on page 43 of this Circular.

Included in Parts III-IX of this Circular are additional information and disclosures on CTL and I&M Bank, and the future of the Company including pro forma financial information.


Page | 15

8. EXTRAORDINARY GENERAL MEETING (EGM)

The various resolutions required for the purpose of effecting the proposals set out above have been outlined in the EGM Notice on Page 48 of this Circular and seek your approval for:

1. The proposed share split;

2. The increase in authorised share capital;

3. Issuance of the New Shares;

4. The making of the Offer;

5. Amendments to the Company’s Memorandum of Association;

6. The adoption of new Articles of Association; and

7. The change of the name of the Company

Each of these resolutions will be submitted for consideration at the EGM of the Company to be held on Wednesday, February 20, 2013. Subject to approvals by the Shareholders, regulators and other authorities as applicable, it is expected that the transaction will be concluded before June 30, 2013.

For purposes of the EGM, you will find enclosed a form of proxy for your use in relation to the EGM. A proxy need not be a shareholder of CTL. The completion of a form of proxy will not prevent you from attending and voting in person if you wish to do so.

The form of proxy should be returned to the Company’s registered address so as to reach the registrar no later than 10.00 am Monday, February 18, 2013

9. RECOMMENDATIONS AND VOTING INTENTIONS

For the reasons given in this Circular, your Board is of the opinion that the transaction is in the best interests of the Company and its shareholders.

The Directors unanimously recommend that all CTL shareholders vote in favour of the resolutions to be proposed at the EGM, as they intend to do in respect of their own beneficial holdings of shares, if any.

If you are in any doubt as to what action to take, it is recommended that you seek independent advice from your stockbroker, bank manager, lawyer, accountant or other professional adviser.

Yours sincerely,

CHAIRMAN

[DATE]

ON BEHALF OF THE BOARD OF DIRECTORS


Page | 16

PART III – I&M BANK LIMITED

I&M Bank Limited (“Bank”) possesses a rich heritage in banking. The Bank was established in 1974 as a financial institution that grew to be a full-fledged commercial bank in 1996. Today, the Bank has a network of 20 branches and 21 ATMs covering the major financial centers in Kenya and with an access to over 3,000 ATMs across the country as part of other networks. I&M Bank has grown to be a significant player in the Kenyan market. The Bank was recently ranked overall 4th best bank in the industry out of 43 banks, by the 2012 Banking Survey.

The Bank offers a wide range of commercial banking and financial products and services, and prides itself on introducing innovative products and services based on the needs of its customers. In 2010, I&M became the first bank in East and Central Africa to be licensed by VISA for E-Commerce acquisition. This important step has been well perceived in the East Africa market as plugging the missing link for promoting E-commerce in the country.

I&M Bank is privileged to count, amongst its shareholders, two leading European development financial institutions (DFIs), Proparco and DEG, who together own approximately 10.68% of I&M Bank. A major portion of the remaining approx. 90% shareholding in the bank is held by a consortium of Kenyan investment companies. In November 2010, the Bank successfully raised KShs. 2.4 billion (approx. USD 30 Million) through a private placement which resulted in an expansion of the Bank’s shareholding base. The Bank also successfully set up and issued shares under an Employee Share Ownership Plan (“ESOP”) in July 2011.

As at September 30, 2012, I&M Bank’s issued and paid up share capital was KShs. 2.88 billion, with a share premium of KShs. 3.77 billion. The total Shareholders’ Equity as at this date, stood at KShs. 16.567 billion.

I&M Bank has over the last few years successfully pursued a regional expansion strategy and established operations in (i) Mauritius through its associate Bank One Limited; (ii) Tanzania through its subsidiary I&M Bank (T) Limited, and (iii) Rwanda through its subsidiary Banque Commericale du Rwanda Limited. A summary of each is outlined below.

Bank One Limited, Mauritius

Bank One Limited, formerly known as First City Bank Limited (“FCB”), is a commercial bank in Mauritius, licensed to do both on-shore and off-shore banking business, and regulated by the Bank of Mauritius. FCB was formerly owned by Government of Mauritius’ institutions, which divested from the bank by selling their equity in 2008 to I&M Bank and CIEL Investment Limited, who own 50% each in Bank One.

Bank One represents I&M’s maiden expansion in terms of overseas investments, and marked the beginning of its strategic expansion outside Kenya. Through Bank One, I&M offers international off-shore banking, wealth management and trade finance services to a widespread clientele.

The Mauritian bank has a network of 15 branches, with total assets of Mauritian Rupees (“MUR”) 18.072 billion (approx. KShs. 47.71 billion) as at 30th September 2012.


Page | 17

I&M Bank (T) Limited, Tanzania

I&M Bank (T) Limited (“I&M-Tz”), formerly known as CF Union Bank Limited (“CFUB”), is a commercial bank in Tanzania, licensed and regulated by the Bank of Tanzania. CFUB was a privately-owned bank, incorporated on 15th April 2002 arising from the merger between Furaha Finance Limited and Crown Finance & Leasing Limited. CFUB was acquired by I&M Bank, Proparco, The Kibo Fund and Mr. Michael N. Shirima on 14th January 2010.

I&M-Tz represents I&M Bank’s first major expansion into the regional East African market, and was I&M’s first step towards establishing an integrated presence to form a truly regional Bank serving as the financial gateway to East and Central Africa.

I&M-Tz has a network of 6 branches, with total assets of Tanzanian Shillings (“Tzs”) 246 billion (approx. KShs. 13.7 billion) as at 30th September 2012.

Banque Commerciale du Rwanda Limited, Rwanda

Banque Commerciale du Rwanda Limited (“BCR”) was founded in May 1963 and is the oldest commercial bank in Rwanda. The Bank enjoys a strong reputation of reliability, innovation and solidity. In July 2012, I&M Bank, along with DEG and Proparco, concluded the acquisition of 80% of BCR’s shareholding. Of the remaining 20%, 19.8% is held by the Government of Rwanda and the balance by Rwandan nationals.

BCR has a network of 15 branches, with total assets of Rwandan Francs (“Rwf”) 108 billion (approx. KShs. 15.4 billion) as at 30th September 2012.

Share Capital

I&M Bank’s authorized share capital as at 30th September 2012 stood at KShs. 3,000,000,000/- divided into 30,000,000 ordinary shares of a par value of KShs. 100/- each while the Bank’s issued and fully paid-up share capital on the same date stood at KShs. 2,880,245,300/- divided into 28,802,453 ordinary shares of a par value of KShs. 100/- each.

The Bank’s detailed shareholding structure has been outlined in Part IV of this Circular.

Financial Highlights

i) Balance Sheet Summary In KES ’000

Unaudited Audited

Sep-12 Dec-11 Dec-10 Dec-09 Dec-08 Dec-07

Cash and bank balances 23,541,476 16,907,146 11,574,636 7,988,560 4,171,292 2,505,917

Loans & advances to customers 85,547,474 66,365,870 50,257,349 30,480,353 29,775,366 19,214,788

Investment securities 28,469,926 19,685,792 20,787,432 12,478,398 5,940,879 5,295,305

Property & equipment 2,546,215 1,915,490 1,734,368 1,530,411 1,373,322 1,091,662

Other assets 4,122,542 3,189,414 2,528,369 1,956,745 1,597,079 1,318,467

Total assets 144,227,633 108,063,712 86,882,153 54,434,467 42,857,938 29,426,139


Page | 18

Unaudited Audited


Deposits from banks 7,387,035 2,546,060 1,393,755 221,805 948,644 879,140

Deposits from customers 111,182,146 85,212,904 68,208,428 44,759,148 34,420,747 23,625,870

Long term borrowings 5,047,446 3,435,773 2,143,250 1,301,547 1,318,325 238,713

Other liabilities 2,541,446 1,702,305 1,286,283

689,047 991,719 815,462

Total liabilities 126,158,073 92,897,042 73,031,716 46,971,547 37,679,435 25,559,185

Shareholders’ equity 16,566,838 14,616,803 13,360,254 7,462,920 5,178,503 3,866,954

Minority Interest 1,502,722 549,867 490,183 - - -

144,227,633 108,063,712 86,882,153 54,434,467 42,857,938 29,426,139

ii) Income Statement Summary

In KES ’000 Unaudited Audited


Interest income 10,339,893 9,031,131 6,552,914 5,081,667 3,927,414 2,765,869 Interest expenses (5,735,385) (3,468,275) (2,779,117) (2,608,456) (1,830,206) (1,057,178) Net Interest Income 4,604,508 5,562,856 3,773,797 2,473,211 2,097,208 1,708,691 Net fees & commission income 1,147,414 1,286,040 946,522 644,805 559,645 425,948

Other income 1,094,855 1,110,554 1,200,097 365,264 354,632 202,225 Operating income 6,846,777 7,959,450 5,920,416 3,483,280 3,011,485 2,336,864 Operating expenses (2,910,227) (3,005,557) (2,393,934) (1,688,446) (1,419,936) (1,042,700) PBT 3,936,550 4,953,893 3,526,482 1,794,834 1,591,549 1,294,164 Tax (1,170,236) (1,481,169) (1,001,914) (547,419) (477,873) (411,312) PAT 2,766,314 3,472,724 2,524,568 1,247,415 1,113,676 882,852

Board of Directors

The Board of Directors of I&M Bank as at the date of this Circular are:

Director Profile

Suresh Bhagwanji Raja Shah, MBS,

Chairman and Non-Executive Director

Mr Suresh Bhagwanji Raja Shah, a Kenyan national aged 68 years, is a founder of I&M Bank. He has vast experience in the banking industry and in business and in December 2002, he was bestowed the honour of a Moran of the Order of the Burning Spear. He sits on the boards of several companies.

Sarit S. Raja Shah, Executive Director

Mr Sarit S. Raja Shah, a Kenyan national aged 44 years, joined I&M Bank in 1993 as the Executive Director after completing his Masters degree from City University, London. He underwent his training at Biashara Bank of Kenya Limited. He sits on the boards of several companies.


Page | 19

Director Profile

Michael J. Karanja,

Independent, Non-Executive Director

Mr Michael J. Karanja a Kenyan national aged 73 years was the Deputy Group Chairman and Managing Director of East African Breweries Ltd from 1993 to 2000. He holds a BSc. in Biochemistry from Makerere University, Kampala and a Post Graduate Diploma in Brewing from Herriot-Watt University, Edinburgh, Scotland. He is a fellow of the Institute of Brewing (U.K) and is the Chairman of Cooper Kenya Ltd. He sits on the boards of several companies.

Eric M. Kimani

Independent, Non-Executive Director

Mr Eric M. Kimani, a Kenyan national aged 54 years, was formerly the Managing Director of Sameer Africa Ltd and is a former CEO of Kenya Tea Development Agency. He is a Certified Public Accountant and an advocate of the High Court of Kenya. He has also previously worked as a financial controller of Williamson Tea, Kenya. He sits on the boards of several companies, charitable and professional associations.

Sachit S. Raja Shah

Non-Executive Director

Mr Sachit S. Raja Shah, a Kenyan national aged 40 years joined the board in 2001 from Citibank London. Prior to this, he dealt with asset management at AMP Asset Management in London and was an Equities Analyst at HSBC Bank Plc, London.

P.C. Mugo Kibati

Independent Non-Executive Director

Mr Mugo Kibati, a Kenyan national aged 43 years, joined the board in 2008. He is a seasoned business professional recognized for talented and bold business development and strategy in both East African and International jurisdictions. Mr. Kibati is the Director General of the Vision Delivery Secretariat (VDS), created by the Government of Kenya to ensure timely implementation of the flagship projects of Vision 2030. Mr. Kibati, the former Chief Executive Officer of East African Cables Limited, holds a Master of Science degree from the Massachusetts Institute of Technology, USA and an MBA from George Washington University, USA. Mr Kibati has also been recognized as a Young Global leader by the World Economic Forum.

Madabhushi Soundararajan

Independent Non-Executive Director

Mr Madabhushi Soundararajan is an Indian national aged 62 years and joined the board in 2009. A veteran banker with 38 years in the banking industry, Mr. Soundararajan was previously the Managing Director of CFC Bank Limited, Kenya and has held senior positions in several banking institutions in both Kenya and India.

Christina Gabener Non-Executive Director

Ms Christina Gabener, is a German national aged 47 years. She represents DEG on the Board. She is currently the Senior Investment Manager in DEG’s New Business Africa Department that is charged with origination of financial sector projects across Africa. She has previously worked with DEG for the last 11 years in various capacities, mainly within their Financial Institutions department.


Page | 20

Director Profile

Guédi Aïnaché

Non-Executive Director

Mr Guédi Aïnaché, is a French national aged 36 years. He is the Regional Representative of the French Development Financial Institution Proparco headed in Nairobi, and represents Proparco on the Board. He has previously worked with Proparco as a Senior Investment Officer within the Corporate Division, and as an Associate Director with Calyon Bank in France.

Eric Kaleja

Alternate Director to Ms. Christina Gabener

Mr Eric Kaleja, a German national aged 40 years, was appointed to the Board as an alternate director in 2010. Mr. Kaleja is the holder of a Masters’ degree in Business Administration & Economics and a Bachelor’s degree in Environmental Economics and Foreign Direct Investment. Mr. Kaleja is the Regional Director – East Africa for DEG.

The Board has created the following Committees to which certain responsibilities are delegated, and which meet regularly under well-defined terms of reference. These Committees report to the Board on a regular basis:

i) Board Audit Committee ii) Board Risk Management Committee iii) Board Credit Committee iv) Board Procurement Committee v) Board Capital Structure Strategy Committee vi) Board Share Transfers Committee vii) Board Nomination & Remuneration Committee

Corporate Governance

The Board of Directors of I&M Bank are committed to enforcing high standards of corporate governance at the Bank as well as its controlled entities (the Group). Underpinning this commitment is a Corporate Governance Framework that has been established by the Bank’s Board, which includes policies and practices designed to ensure that the Board is focused on its responsibilities to its stakeholders and on creating long term shareholder value while also focussing on its wider role and responsibility to the society at large.

In its approach to Governance, the Board has attempted to embrace international best practices and principles so as to ensure optimal stewardship of the Group’s assets and resources. The Bank has an established Code of Conduct and Code of Ethics that bind the directors and employees to ensure that the Bank’s business is carried out in an ethical, fair and transparent manner. Simultaneously the Board has placed strong emphasis on ensuring local regulatory compliance within the jurisdictions in which the Group operates, as part of its internal risk management parameters.

In an increasingly uncertain financial environment, the Bank has over the last few years, put in place the following key policies and procedures to manage risk:

• Anti-Money Laundering Policies and Procedures that are rigorously adhered to.


Page | 21

• A Policy for Social and Environment Management, with efforts being devoted to improving its Environment and Social Risk Management Systems.

• An Enterprise Risk Management Framework.

The Bank has established a mechanism for carrying out periodic reviews of the above policies and procedures in a bid to improve and strengthen them.

Conscious of the fact that effective corporate governance practices are essential to achieve and maintain our stakeholders’ trust and confidence in the Bank, and in light of the constantly evolving corporate governance environment, I&M has consistently strived to enhance and improve upon the Corporate Governance Framework within the Bank.

Tabulated below are Board Committees, their composition and functions:

COMPOSITION FUNCTIONS

Board Audit Committee

• 3 Non-executive Independent Directors;

• 1 Non-executive Director • Head of Internal Audit

(Secretary)

Invitees: • Executive Director • CEO • Head of Business Support • Head of Business

Development

• Review structure and adequacy of internal controls • Review activities and scope of Internal Audit & Compliance

Departments and assess their effectiveness • Review & co-ordinate between External Auditors & Internal

Audit Department • Review and receive CBK Inspection Report, and put in place

measures to implement recommendations thereof.

Board Risk Committee • 3 Independent Non-Executive

Directors, • 1 Non-executive Director, • 1 Executive Director, • Head of Risk & Compliance

(Secretary)

Invitees: • CEO

• Ensure that the Risk Management Framework & the processes as approved are implemented

• Review , monitor & deliberate on the appropriate risk mitigation approach

• Ensure BCP is formulated, tested and reviewed periodically • Review of policies, procedures and exposure limits • Review of proposed strategic initiatives • Creating awareness about Risk Management Process in the

Bank.

Board Credit Committee • 3 Independent Non-executive

Directors, • 1 Non–executive Director, • 1 Executive Director, • Chief Executive Officer (CEO) • Head of Credit (Secretary)

• Review lending policy • Consider loan applications beyond discretionary limits

granted to CRMC • Review lending by CRMC • Direct, monitor, review all aspects that will impact upon

present and future Credit risk management at the Bank • Ensure compliance with Banking Act and Prudential

Guidelines • Conduct independent loan reviews as and when appropriate.


Page | 22

COMPOSITION FUNCTIONS

Board Procurement Committee • 3 Independent Non-executive

Directors, • 1 Executive Director, • CEO, • Head of Business Support • Head of Finance (Secretary)

• Review & approve the Procurement Policy • Review & consider significant procurement proposals /

consultancy assignments above Management’s Delegated Authority limits

• Review and approval of procurement of goods and services from related parties.

• Review & ratify unbudgeted capital expenditure above Management’s Delegated Authority limits

Board Capital Structure Strategy Committee • 2 Independent Non-Executive

Directors • 1 Executive Director • CEO • 1 External Advisor • Head – Corporate & Strategic

Planning (CSP) • Chief Manager-CSP

(Secretary)

• Review and approve Strategy & Objectives on additional capital needs.

• Ensure optimal capital structure with appropriate mix of debt and equity to support Bank’s Strategy

• Risk assessment & approval of capital raising avenues proposed by management.

• Regularly review structure and terms of debt capital.

Board Share Transfers Committee • 2 Non-Executive Directors • 1 Executive Director • Company Secretary

(Secretary)

• Ensure that any new shareholders meet the Board’s criteria of good standing.

• Approve / reject applications for the transfer of shares and approve registration of such transfers.

• Give guidance and approve any share allotment arising out of a bonus / rights issue.

• Sign the Share Certificates, under Company Seal, to be issued to any shareholder.

Board Nomination & Remuneration Committee • 2 Independent Non-Executive

Directors • 1 Executive Director

Invitees: • CEO • Head of Business Support • Head of HR (Secretary)

• Assessment of Board requirements for non-executive directors, including requisite competencies.

• Development programs to build individual skills and improve Board effectiveness.

• Board and Senior Management succession planning. • Performance evaluation of the Board, Individual Directors

and of the ED & CEO. • Set remuneration policies & strategic objectives of Board, ED

& CEO. • Set Employee Share Ownership Plan Policy and provide

requisite guidance to Scheme Trustee.


Page | 23

Organizational Structure

I&M’s Organization Structure is guided by the following principles: • To have a lean & flexible structure to ensure fast turnaround time and efficient

customer service delivery standards; • Simultaneously to have a structure that ensures adequate internal controls, checks

and balances in place to minimize operational risks.

Given below is the top level organization structure for the Bank.

BOARD OF DIRECTORS

Executive Director

Board Committees

Internal Audit Chief Executive Officer

Corporate Banking

Commercial Banking

Institutional & Premier

Marketing & Product Development

Card Products

Information & Communication Technology

Operations

Finance

Human Resources

Corporate & Strategic Planning Business Development Treasury

Risk Management

Projects Business Support

Credit

Legal

Operational, Market Risk &

C li

Trade Services


Page | 24

Senior Management

The members of the senior management of I&M Bank consist of banking professionals who have a wealth of experience with local as well as multinational banks. As at the date of this Circular the senior management of the Bank are:

Name Profile

Arun S. Mathur,

Chief Executive Officer

Mr Arun Mathur, a Kenyan national aged 59 years, joined I&M Bank in 2000 and was promoted as CEO in 2002. Mr Mathur holds a B.Tech (Hons) degree and started his banking career in 1976 with the State Bank of India. He joined the Grindlays Bank, India in 1982, and worked in their office in Nairobi, Kenya from 1990 to 1994, and has subsequently worked in several other banks in East Africa.

Amritlal V. Chavda,

Senior General Manager

Mr Chavda is a Kenyan national aged 69 with 49 years’ experience in banking. He joined I&M in 1985 and holds a Professional Banking Part I certificate from the Kenya Institute of Bankers.

RamalingamV.Narasimhan,

Senior Executive Manager

Mr Narasimhan is a Kenyan national aged 74. He has over 31 years banking experience. He holds a B. Com degree and is a member of the Chartered Institute of Bankers.

L.A. Sivaramakrishna,

Head of Business Development

Mr Sivaramakrishna is an Indian national aged 55 with 31 years banking experience. He joined I&M in 2003 as the Head of Corporate Banking. He holds a Msc. Horticulture and a professional banking qualification CAIIB.

Lucy Thegeya,

Head of Business Support

Ms Thegeya is a Kenyan national aged 50, with 17 years banking experience. She joined I&M in April 2010, having previously worked at CFC – Stanbic Bank Limited. She holds an MBA in Finance and is a member of the Institute of Certified Public Accountants.

Ruma Shah

Group Head of Internal Audit

Ms Shah is a Kenyan national aged 41, who joined the I&M Group in 1998 as Head of Finance. She is a Fellow of the Association of Chartered Certified Accountants and a member of the Institute of Certified Public Accountants of Kenya.

Gauri Gupta

Head of Corporate & Strategic Planning

Ms Gupta is a Kenyan national aged 38, who has 15 years’ experience in banking covering Credit, Risk Management, Finance and Strategic Planning. She holds a B.Com degree and is a Fellow member of the Association of Chartered Accountants of India.

Henry Kirimania

Head of Treasury

Mr Kirimania is a Kenyan national aged 41, with 17 years banking experience. He joined I&M in 2011 as the Head of Treasury, having previously worked in similar functions at CfC Stanbic Bank and Co-operative Bank of Kenya. He holds a Bachelor of Education of Arts degree from Moi University.

Chhanda C Mishra Mr Mishra is an Indian national aged 53, with over 29 years’ banking experience. He joined I&M in 2012 as the Group Head of


Page | 25

Name Profile

Group Head of Projects Projects. He previously worked at IBM India, where he was the Managing Consultant, in business analytics and optimization practice. Prior to his engagement with IBM, he worked as a Deputy General Manager (Operations) with State Bank of India. He holds a post graduate degree in Commerce and an MBA in Information Systems, as well as a bachelor of Law degree and a diploma in International Banking and Finance.

Ravi Ramamoorthy

Head of Corporate Banking

Mr Ramamoorthy is an Indian national aged 54 with 33 years banking experience. He joined I&M in June 2010, and holds BSc in Mathematics and is a Certified Associate of the Indian Institute of Bankers (CAIIB).

Srinivasan Parthasarthy

Head of Commercial Banking

Mr Parthsarathy is an Indian national aged 47 with 21 years banking experience. He joined I&M in December 2005 as General Manager, Commercial Banking. He holds a M.Comm and is a Certified Associate of the Indian Institute of Bankers (CAIIB).

Suprio Sengupta

Head of Marketing &Product Development

Mr Sengupta is a Kenyan national aged 49 with 23 years banking experience. He joined I&M in 2000 to develop and market new products. He holds an MBA (Finance & Marketing) and a CAIIB professional banking qualification.

George Kariuki

Head of Institutional Banking

Mr Kariuki is a Kenyan national aged 54 years with 25 years’ banking experience. He joined I&M May 2010 and holds a BSc degree in Marketing and a Masters of Business and Public Administration.

John Njoroge

Ag. Head of Card Products

Mr Njoroge is a Kenyan national aged 43 years, with over 18 years’ banking experience. He joined I&M Bank in 2011. Previously, he has worked with CBA, Imperial Bank, CfC Bank and Eco Bank. He holds a Bachelor’s degree in Economics and is currently pursuing a Master’s degree.

Vincent Chisaka

Head of Trade Services

Mr. Chisaka is a Kenyan national aged 46 years with 24 years banking experience. He joined I&M in 2001, and holds a Bachelor of Commerce Degree, Management option, and is an Associate of the Kenya Institute of Bankers.

Rohit Gupta

Head of Information & Communication Technology

Mr Gupta is an Indian national aged 41 with 17 years banking experience. He joined I&M in 2006 as General Manager – ICT. He holds a degree in Technology and has professional ICT qualifications in Oasis IST, ATM, Finacle eChannels.

Joseph Njomo

Head of Operations

Mr Njomo is a Kenyan national aged 46 with 26 years banking experience. He joined I&M in 2000. He holds a B.Comm in Accounting.


Page | 26

Name Profile

Jyoti Patel

Head of Finance

Ms. Patel is a Kenyan national aged 42 who has several years of experience in Audit and Finance. She joined I&M in 2007 as the Head of Finance. She is a member of the Association of Chartered Certified Accountants and a member of the Institute of Certified Public Accountants of Kenya.

John Waka

Group Head of Human Resources

Mr. Waka is a Kenyan national aged 54 with 18 years banking experience. He joined I&M in 2004 as head of Human Resources. He holds a B.A in Economics and a Post graduate Diploma in Economics.

George Jaba

Head of Credit

Mr Jaba is a Kenyan national aged 43 who has several years of banking experience. He joined I&M in 1992 in the Credit department. He holds a B.Com degree, CPA – Level II and a diploma from the Kenya Institute of Bankers.

Nina Madanguda

Head of Legal

Ms Madanguda is a Kenyan national aged 31, with over 8 years banking experience. Prior to her appointment at I&M Bank in 2010, she worked with the Consolidated Bank of Kenya. She holds a Bachelor of Law degree from the University of Nairobi and a diploma in Law, from the Kenya School of Law.

Kenas Otieno

Head of Risk and Compliance

Mr Otieno is a Kenyan national aged 37, with over 12 years’ banking experience. He joined I&M in February 2011. Prior to his appointment, he worked for Standard Chartered Bank and KCB. He holds a B. Com in Management Science from the University of Nairobi

Key Strengths of the Bank

• Loyal and growing Customer base I&M Bank has a strong, well-diversified and loyal customer base that is continually growing, on the strength of the Bank’s innovative and convenient products.

• Customer Focused The needs of the Bank’s customers are of utmost importance to I&M and one of the main factors influencing critical decisions such as location of branches, improvements made to service delivery standards and the products which are introduced. At every stage, efforts are made to ensure that our customers experience superior quality and convenient banking services, making I&M the ‘Bank of Choice’

• Turnaround Times A key strength of the Bank is its rapid turnaround times for products and services offered to customers across the board. This has always been a highly-valued aspect of the services the Bank offers to its customers.

• Regional Presence In line with the needs of our customers, as well as the growing interconnectedness of the East African and Sub-Saharan economies, I&M has embarked on a regional expansion programme, and currently has subsidiaries in Tanzania and Rwanda and an


Page | 27

associate in Mauritius. The Bank’s growing regional presence ensures that the Group’s combined customer base is able to enjoy a wider range of products and services with their bank of choice across these countries. I&M is the only Kenyan bank that has a presence in Mauritius, thereby offering its customers a unique set of products and services.

The Bank aims to continue growing its regional footprint, particularly in the East African region, and is actively pursuing the fulfilment of this strategy with a view to having a presence in Uganda.

• Growth Track record The Bank has an impressive track record for growth on several parameters, including, customer base, loans and deposits’ portfolios, range of products and services, technological innovations, number of branches, profits and returns to shareholders, and in recent years, its regional growth trajectory.

• Trade Finance Capabilities The Bank is able to offer attractive terms as it enjoys a Trade Finance Line for an

amount of USD 22 million under IFC’s Global Trade Finance Programme (GTFP), which enables the Bank to confirm Letters of Credit for a period of up to 720 days. The Bank also has a wide spectrum of facilities from its international correspondent banks, which gives it a competitive edge.

• Unique combination of well-respected and well-regarded shareholders & strategic alliances I&M Bank is privileged to count amongst its shareholders highly respected Development Financial Institutions – DEG and Proparco, who together own almost 10.7% of the Bank. In addition, the Bank enjoys the support of its long-standing local individual and institutional shareholders, who are extremely well-respected and enhance the confidence and trust placed in the Bank by its customers.

Proparco also has a 20% equity stake in I&M-Tz, an effective equity stake of 12.5% in BCR and has provided Tier II capital of USD 6million to Bank One and a Senior Debt facility of USD 5million to I&M-Tz.

DEG also has an effective equity stake of 12.5% in BCR.

The Bank’s strategic alliances with Proparco, DEG, FMO and IFC have allowed the Bank to benefit from technical assistance programmes that have ensured the Bank has state-of the-art systems, policies and procedures in the areas of Anti-Money Laundering, Environmental and Social Protection and “Positive Living”.

• Reputation and Image Guided by a strong sense of ethics, the Bank has established and maintains a reputation of a solid, clean, up-market Bank that provides quality banking services.

• Governance and Management The Bank has put in place management and governance structures that are in line with

international best practices and ensures that the Bank is a well-run enterprise and complies at all times with the Central Bank of Kenya’s Regulations and Prudential Guidelines. A significant number of Directors on I&M’s Board comprises Independent


Page | 28

Directors who are able to bring their considerable expertise to the table, while the Bank’s Management is composed of seasoned bankers who continue to ably steer the Bank in achieving its strategic objectives.

Products & Services

I&M offers a wide range of commercial banking and financial products and services, and prides itself on introducing customer-centric innovative products and services.

Given below is the list of the Bank’s product offering under various business lines:

(i) Corporate Banking: Business Bank Account Plans – Sapphire, Biashara, Alpha, Savannah, Noble Term and Working Capital Loans Project Financing Property Development Financing Insurance Premium Financing Asset Financing Collateral Management Financing Guarantees Trade Finance Products E – Commerce

(ii) Personal Banking Personal Bank Account Plans – Select, Sapphire, Bahati, Tayari, Malaika, Young

Savers Term Deposits Recurring Deposits Home Mortgage Loans Personal Loans VISA Credit and Debit Cards VISA Prepaid Cards International American Express Travellers Cheques Gift Cheques Safe Deposit Lockers

(ii i) Alternate Banking Channels Payment Cards: Customers have easier and safer access to funds through various payment cards such as:

International VISA Debit Cards International VISA Credit Cards Local and International I&M VISA Prepaid Cards Co-branded Cards – Nakumatt, Safaricom, Tamarind, AAR, USIU

Further, customers have access to their accounts through:

24 hour call centre – Access to live customer service


Page | 29

Next Gen facilities – Mobile alerts, email statements IClick – Internet banking Mobile banking – Allows mobile cash transfers from your account

(iv) Custodial Services I&M is registered by the Capital Markets Authority (“CMA”) as an Authorised

Depository and the Bank has a fully functional Custodial Services Unit.

(v) Investment Management Services This is a facilitation service offered by the Bank to its customers, to enable them to

manage their investments in the money markets, shares and government securities from a single point of contact in a personalised and professional environment.

(vi) E-Commerce Services I&M Bank is the first and only Bank in East and Central Africa to be awarded a

license for E-Commerce acquisition. This important step has been broadly perceived in the Kenyan market as plugging the missing link for promoting E-Commerce in the country.

Corporate Recognition

I&M has in recent years received several corporate awards in recognition of quality management practices and technological progressiveness. These include

2012 Banking Survey Award – Best Bank in Product Innovation: Step-up Home Loan.

2012 Banking Survey Award – Runner Up for Best Bank in Kenya (Tier II).

2012 Banking Survey Award – 2nd Runner Up for the Most Efficient Bank.

2011 Banking Survey Award – Best Bank in Product Innovation: M-Pesa Prepay Safari Card.

2011 Banking Survey Award – 2nd Runner Up for Best Bank in Kenya (Tier II).

2011 Banking Survey Award – 2nd Runner Up for the Most Efficient Bank.

2010 Banking Survey Award – 2nd Runner Up for Best Bank in Technology Use for E-Commerce.

2009 Banking Survey Award – 1st Runner Up for Best Bank in Product Innovation: I&M’s Recurring Deposit Account.

2008 Banking Survey Award for Most Efficient Bank and Best Bank in Product Marketing.

2007 Market Intelligence Banking Survey Awards – Gold Award for Most Efficient Bank.


Page | 30

PART IV–IMPACT OF THE TRANSACTION

The transaction has been analysed on the impact it will have on the shareholding structure and financial presentation of the Company as below.

1. Shareholding structure (Pre- and post-transaction)

Current City Trust shareholding structure (Before split) The shareholding structure of City Trust as at December 31, 2012 is as follows:

Shareholder Shareholding as at 31-12-2012

No. of Shares % Holding 1 Prime Securities Investment 2,862,702 49.98% 2 Rakesh Prakash Gadani 331,670 5.79% 3 Minard Holdings Limited 272,155 4.75% 4 Beechwood Overseas Limited 240,000 4.19% 5 Mahendra Dahyabhai Patel 140,062 2.45% 6 Fatima Sadrudin Karim Jiwa 138,317 2.41% 7 Mr. Rajnikant Nathoobhai Shah 70,009 1.22% 8 Cannon Assurance (Kenya) Limited 67,451 1.18% 9 Subodh K. Gadani 57,662 1.01% 10 Vijay Vashdev & Ashwin Vashdev 50,300 0.88% 11 Others (Approximately 591 Others) 1,497,673 26.15%

TOTAL 5,728,001 100%

Current City Trust shareholding structure (After Split) The shareholding structure of City Trust as at December 31, 2012 after the proposed share split would be as follows:

Shareholder

Shareholding as at 31-12-2012 No. of Shares

before split

No. of Shares after

split % Holding

1 Prime Securities Investment 2,862,702 14,313,510 49.98% 2 Rakesh Prakash Gadani 331,670 1,658,350 5.79% 3 Minard Holdings Limited 272,155 1,360,775 4.75% 4 Beechwood Overseas Limited 240,000 1,200,000 4.19% 5 Mahendra Dahyabhai Patel 140,062 700,310 2.45% 6 Fatima Sadrudin Karim Jiwa 138,317 691,585 2.41% 7 Mr. Rajnikant Nathoobhai Shah 70,009 350,045 1.22% 8 Cannon Assurance (Kenya) Limited 67,451 337,255 1.18% 9 Subodh K. Gadani 57,662 288,310 1.01%

10 Vijay Vashdev & Ashwin Vashdev 50,300 251,500 0.88% 11 Others (Approximately 591 Others) 1,497,673 7,488,365 26.15% TOTAL 5,728,001 28,640,005 100%


Page | 31

Current I&M Bank shareholding structure

Details of the significant shareholders of I&M Bank as at December 31, 2012 are as follows:

Particulars of Shareholders

Shareholding as at 31-12-2012*

No. of Shares % Holding 1 Minard Holdings Limited 4,875,759 16.93% 2 Biashara Securities Limited 4,008,740 13.92% 3 Tecoma Limited 4,800,000 16.67% 4 Ziyungi Limited 5,400,000 18.75% 5 DEG 1,800,000 6.25% 6 Proparco 1,275,000 4.43% 7 City Trust Limited 2,097,458 7.28% 8 The Registered Trustees – Bhagwanji Raja

Charitable Foundation 694,848 2.41%

9 Quadrant Services Ltd A/C I&M ESOP Trust 100,000 0.35% 10 Others (approximately 103 others) 3,750,648 13.02% Total 28,802,453 100.00%

* Shareholding amended to reflect transfers in progress, further explained below

Share Transfers in progress

As at the date of this Circular, the following share transfers are in progress, and shall be concluded prior to the opening of the Offer Period:

• Proparco has reduced its shareholding in I&M Bank, by selling 1,300,000 of its shares in I&M Bank to Minard Holdings Limited and Ziyungi Limited.

• Further, DEG has reached an agreement to sell 1,300,000 of the shares which it holds in I&M Bank to Tecoma Limited and Ziyungi Limited.

Pro-forma impact of the acquisition on CTL’s shareholding structure Following the split, on the assumption that 100% of I&M Bank Shareholders accept the Offer, the resulting shareholding in City Trust will be as set out in the table below.

Particulars of Shareholders

CTL Shareholding Post Acquisition

No. of shares % Holding

Ziyungi Limited 73,548,000 18.75% Minard Holdings Limited 67,768,613 17.27% Tecoma Limited 65,376,000 16.66% Biashara Securities Limited 54,599,039 13.91% DEG 24,516,000 6.25% Proparco 17,365,500 4.43% Prime Securities 14,313,510 3.65% The Registered Trustees – Bhagwanji Raja Charitable Foundation 9,463,830 2.41%

I&M ESOP Trust 1,362,000 0.35%

Held by Public 64,049,547 16.32%

Total 392,362,039 100%


Page | 32

2. Pro-forma Financial Statements

Summary pro-forma consolidated profit and loss statement

To allow you to appreciate the potential financial implications of the newly acquired subsidiaries on the consolidated results of City Trust, the table below comprises a pro-forma consolidated summary profit and loss statement for the year ended 31st December 2011. This pro-forma profit and loss statement has been prepared on the assumption that the acquisition transactions and related refinancing of the newly acquired subsidiaries had been completed on 31st December 2011.

All figures in KES

City Trust I&M Bank I&M Holdings Unaudited 5mths 31-12-2011 Consolidated

31-12-2011 Consolidated Post-acquisition

Interest Income 1,559,493 9,031,130,752 9,032,690,245 Interest Expense - (3,468,274,810) (3,468,274,810) Net Interest Income 1,559,493 5,562,855,942 5,564,415,435 Non-operating Income

Net Fees & Commission Income - 1,286,040,072 1,286,040,072 Investment / Dividend income - - - Other income - 1,110,553,805 1,110,553,805 Total Non-Interest Income - 2,396,593,877 2,396,593,877 Total Operating Income 1,559,493 7,959,449,819 7,961,009,312 Other Operating Expenses

Loan loss provisions - 249,952,677 249,952,677 Staff costs - 1,484,091,145 1,484,091,145 Premises & Equipment costs - 201,043,272 201,043,272 Depreciation + Amortisation - 204,692,395 204,692,395 Other operating & admin expenses 1,025,027 865,777,640 866,802,667 Total other Operating Expenses 1,025,027 3,005,557,129 3,006,582,156 Profit Before Tax 534,466 4,953,892,690 4,954,427,156 Tax (467,847) (1,481,168,719) (1,481,636,566) Profit After Tax 66,619 3,472,723,971 3,472,790,590 Minority Interest - (88,686,039) (88,686,039) Profit after tax, minority interest and exceptional items 66,619 3,384,037,932 3,384,104,551


Page | 33

Summary pro-forma consolidated balance sheet

The table below sets out the potential impact on City Trust's balance sheet of the successful completion of the Offer.

All figures in KES

City Trust Unaudited

5mths I&M Bank I&M Holdings 31-12-2011 31-12-2011 Consolidated Consolidated Consolidated Post-acquisition

ASSETS Cash (both local and foreign) - 762,300,573 762,300,573 Balances due from Central Banks - 6,235,786,606 6,235,786,606 Investment Securities - 19,685,791,796 19,685,791,796 Deposits and Balances due from Local banking Institutions 32,858,889 658,864,000 691,722,889 Deposits and Balances due from banking institutions abroad - 9,250,194,869 9,250,194,869 Loans and advances to customers (net) - 66,365,869,990 66,365,869,990 Investment in subsidiary companies 273,701,470 - - Property and equipment - 1,915,489,873 1,915,489,873 Prepaid lease rentals - 250,883,040 250,883,040 Intangible assets - 1,225,023,116 1,227,478,425 Deferred tax asset - 324,148,418 324,148,418 Other assets - 1,389,360,098 1,389,360,098

Total Assets 306,560,359 108,063,712,379 108,099,026,577

EQUITY AND LIABILITIES Liabilities -

Customer deposits - 85,212,903,828 85,212,903,828 Deposits and balances due to local banking institutions - 1,458,569,000 1,458,569,000 Deposits and balances due to foreign banking institutions - 1,087,491,409 1,087,491,409 Long term borrowings - 3,435,773,450 3,435,773,450 Tax payable 106,188 326,369,628 326,475,816 Dividends Payable 27,233,511 - 27,233,511 Other Liabilities 97,385 1,375,934,460 1,376,031,845

27,437,084 92,897,041,775 92,924,478,859 Shareholders' Equity

Paid up/ Assigned share capital 28,640,005 2,880,245,300 391,827,937 Share premium 155,000 3,773,237,119 13,135,209,676 Revaluation reserves - 142,330,963 142,330,963 Retained earnings (post acquisition) 250,328,270 7,185,254,003 319,575,922 Proposed dividends - 747,424,874 747,424,874 Statutory loan loss reserves - 91,470,947 91,470,947 Available-for-sale reserve - (327,832,140) (327,832,140) Translation reserve - 124,672,483 124,672,483

Total Shareholders' Equity 279,123,275 14,616,803,549 14,624,680,663 Minority Interest - 549,867,055 549,867,055 Total Liabilities and Shareholders' Equity 306,560,359 108,063,712,379 108,099,026,577


Page | 34

PART V – PROPOSED CHANGES IN BOARD STRUCTURE AND PROFILES OF THE PROPOSED BOARD OF DIRECTORS

Proposed changes in the Board Structure

Upon the successful conclusion of the transaction, it is proposed that CTL will set up the following committees that will assist the board in its discharge of duties. This will also ensure compliance with the Capital Markets Act (Cap. 485A) Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya.

(i) Board Audit & Risk Committee

(ii) Board Remuneration and Nomination Committee

Profiles of the Proposed New Board of Directors

It is also proposed to reconstitute the Board of CTL as under:

Director Name Profile

Daniel Ndonye,

Independent Chairman

Mr Daniel Ndonye, a Kenyan national aged 63, has been a director on the Board of CTL since October 2010. He is a chartered accountant by profession, having worked with Deloitte & Touche for over 30 years, 20 of which he was a Managing/Senior Partner. He holds a Bachelor of Commerce degree from the University of Nairobi. He is a fellow of the Institute of Chartered Accountants in England and Wales, the Institute of Certified Public Accountants of Kenya and the Institute of Certified Public Secretaries of Kenya. He sits on the boards of several companies, among which 4 are listed on the NSE, including CTL.

Suresh Bhagwanji Raja Shah, MBS,

Non-Executive

Mr Suresh Bhagwanji Raja Shah, a Kenyan national aged 68 years, is a founder of I&M Bank. He has vast experience in the banking industry and in business. In December 2002, he was bestowed the honour of a Moran of the Order of the Burning Spear. He sits on the boards of several companies.

Christina Gabener Non-Executive

Ms Christina Gabener, is a German national aged 47 years. She represents DEG on the Board. She is currently the Senior Investment Manager in DEG’s Africa Department that is charged with origination of financial sector projects across Africa. She has previously worked with DEG for the last 11 years in various capacities, mainly within their Financial Institutions department.

Guédi Aïnaché

Non-Executive

Mr Guédï Ainaché, is a French national aged 36 years. He is the Regional Representative of the French Development Financial Institution Proparco headed in Nairobi, and represents Proparco


Page | 35

on the Board. He has previously worked with Proparco as a Senior Investment Officer within the Corporate Division, and as an Associate Director with Calyon Bank in France.

Sarit S. Raja Shah,

Non-Executive

Mr. Sarit S. Raja Shah, a Kenyan national aged 44 years, joined I&M Bank in 1993 as the Executive Director after completing his Master’s degree from City University, London. He underwent his training at Biashara Bank of Kenya Limited. He sits on the boards of several companies.

Michael J. Karanja

Independent Non-Executive

Mr. Michael Karanja, a Kenyan national aged 73 years was the Deputy Group Chairman and Managing Director of East African Breweries Ltd from 1993 to 2000. He holds a BSc. in Biochemistry from Makerere University, Kampala and a Post Graduate Diploma in Brewing from Herriot-Watt University, Edinburgh, Scotland. He is a fellow of the Institute of Brewing (U.K) and is the Chairman of Cooper Kenya Ltd. He sits on the boards of several companies.

Madabhushi Soundararajan

Independent Non-Executive

Mr Madabhushi Soundararajan is an Indian national aged 62 years and joined the board in 2009. A veteran banker with 38 years in the banking industry, Mr. Soundararajan was previously the Managing Director of CFC Bank Limited, Kenya and has held senior positions in several banking institutions in both Kenya and India.


Page | 36

PART VI – PROPOSED AMENDMENTS TO MEMORANDUM & ARTICLES OF ASSOCIATION

Upon successful conclusion of the transaction , it is intended to amend the Memorandum of Association of CTL and adopt new Articles of Association as set out in the Notice of EGM in Part IX of this Circular.

The following is a summary of the principal proposed changes. This summary is not exhaustive and should not be regarded as a substitute for reading the new Articles of Association which will be circulated with the Notice of EGM.

Memorandum of Association

It is proposed that the objects listed in paragraphs (a) to (f) of Clause 3 of the Memorandum of Association should be abandoned. These relate to the former brewery business carried on by the Company which are no longer applicable or appropriate for an investment holding company.

The objects will be expanded by two new objects providing that the business of the Company will be that of an investment holding company.

Articles of Association

The existing Articles of Association of the Company were drafted many years ago under the Companies Ordinance, 1933. They are now out of date and have not taken into account developments in the law, corporate governance and modern communications. It is proposed that the existing Articles be replaced in their entirety by a new set of Articles.

In addition, substantial holders in I&M Bank wish to preserve some specific shareholder rights similar to the rights which they enjoy under the Articles of Association of I&M Bank.

Significant changes in the new Articles include:

• The removal of the provisions which applied to the original acquisition of the brewery business (old Articles 3 and 4).

• A provision that new shares to be issued by way of rights unless otherwise resolved by the shareholders by ordinary resolution (new Article 14). The old Article 56 only requires a rights issue if so resolved on an increase of capital.

• The addition of provisions designed to deal with the application of the Depositories Act (new Articles 20 to 27 inclusive)

• The introduction of customary requirements as to the transfer of shares (new Article 42).

• The inclusion of provisions allowing the issue of share warrants (new Articles 60 to 62 inclusive)


Page | 37

• The removal of the existing restrictions on borrowing contained in old Article 59.

• The extension of the required notice period for General Meetings from 14 days to 21 days (new Article 68).

• Power for the Board to postpone meetings due to unforeseen events beyond the control of the Board (new Article 71).

• Change of the quorum requirement from 5 members to 3 members present in person or by proxy and holding not less than 50% of the issued ordinary share capital (new Article 73).

• More detailed provisions governing the conduct of General Meetings (new Articles 74 to 79 inclusive).

• Provisions designed to facilitate the submission of proxies by electronic means (new Article 95).

• An alternative form of proxy where the shareholder wishes the proxy to vote in a specified manner (new Article 97).

• The notice and other communication provisions have been updated to take account of modern day communications (new Articles 168 to 173 inclusive).

• Provisions have been added prescribing the circumstances in which the company may dispose of records (new Articles 174 and 175).

• Special rights of the Development Finance Institutions (DEG and PROPARCO) to appoint directors or observers, to veto certain matters and to call meetings (new Articles 178 to 189 inclusive).

• Special rights for the principal shareholders to appoint Directors (new Articles 190 and 191).


Page | 38

PART VII – RISK FACTORS On conclusion of the acquisition, I&M Bank will be a wholly owned subsidiary of CTL. In addition to the general risk factors that CTL shareholders have previously been exposed to, this transaction increases their exposure to the banking sector.

I&M Bank, over the years, has had a keen focus on risk management both in its business processes and products, which have aided the Bank’s steady growth. Post-acquisition, CTL will ensure that this keen focus is carried on both at the holding and bank level.

Risk management principles:

The following risk management framework already established at all levels of the Bank, will be replicated at the holding company to ensure that risks identified are adequately considered and mitigated:

The Board of Directors at both the CTL and bank level assume the ultimate responsibility for the level of risks taken and are responsible to oversee the effective implementation of the risk strategies;

The organizational risk structure and the functions, tasks and powers of the committees, employees and departments involved in the risk processes are continuously reviewed to ensure their effectiveness and the clarity of their roles and responsibilities;

Risk issues are taken into consideration in all business decisions. Measures are in place to develop risk-based performance measures and this is being supplemented by setting risk limits at the company level;

Risk management has been integrated into various management processes such as strategic planning, annual budgeting and performance measurement;

Identified risks are reported in a transparent and timely manner and in full;

Appropriate and effective controls exist for all processes.

Outlined below are some uncertainties and risks that CTL faces currently as well as a result of the increased exposure to the banking sector. In addition to these, there may be other risks and uncertainties not presently known to CTL or that it currently believes not to be material that may also have an adverse effect on CTL’s future performance, which may cause the price of shares to decline.

1 General Risks

(i) Political Risk Kenya, like many developing countries, is subject to political risks that may arise from political unrest which could adversely impact the general economy and specifically, the banking sector. Following the last general elections, Kenya went through a period of civil unrest that resulted in a slowdown of the economy. Banks in particular saw a decline in demand for credit and financial services, which led to a decrease in performance. It is hoped that with the implementation of the new constitution and measures in place, that the Country shall not experience the same unrest.


Page | 39

(ii) Economic Risk

Inflation has been on an increasing trend since 2008 directly impacting various sectors of the Country’s economy. Likewise, other economic factors that have adversely affected the performance of the Kenyan economy include the exchange rate fluctuations of the Kenya Shilling, erratic interest rates and reduction in bilateral and multi-lateral aid. Efforts are being made on infrastructural improvements and investments in most sectors of the economy, throughout the country aimed at lowering the cost of doing business in the Kenya. Additionally, as I&M Bank operates within the wider region, the stability of other East African economies could impact CTL’s overall performance.

2 Risk factors relating to the Business

This section provides details of the Bank’s exposure to risk and describes the methods used by management to control risk. The most important types of risk to which the Bank is exposed are liquidity risk, credit risk, market risk and operational risk. Market risk includes currency risk and interest rate risk. (i) Regulatory Risk

Regulatory risk relates to the risk of non-compliance with laws, rules, regulations, prescribed practice or ethical standards issued from time to time. Regulatory risk may arise in instances where the laws and rules governing the conduct of business may be ambiguous or change drastically. CTL’s regulatory risks arise from its compliance to the Companies Act as well as the Capital Markets Act and other guidelines as may be stipulated by the relevant authorities. Likewise, on conclusion of this transaction, CTL will to some extent be regulated by the Central Bank of Kenya. Banking services in Kenya are regulated by the Banking Act (and its amendments), the Finance Act and the CBK, under which I&M Bank is regulated. New policy guidelines and regulations issued by the CBK could impact on the operations of the Bank and hence CTL’s performance.

(ii) Credit Risk

Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank’s loans and advances to customers and other banks and investment securities. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure.

The Board of Directors has delegated responsibility of the management of credit risk to its Board Credit Committee. A separate Bank Credit Risk Management Committee reporting to the Board Credit Committee is responsible for oversight of the Bank credit risk.

The risk that the counter-parties to trading instruments might default on their obligation is monitored on an on-going basis. In monitoring credit risk exposure, consideration is given to trading instruments with a positive fair value and to the volatility of the fair value of trading instruments over their remaining life.


Page | 40

To manage the level of credit risk, the Bank deals with counter parties of good credit standing, enters into master netting agreements wherever possible and when appropriate, obtains collateral.

The Bank also monitors concentrations of credit risk that arise by industry and type of customer in relation to Bank loans and advances to customers by carrying a balanced portfolio. The Bank has no significant exposure to any individual customer or counter-party.

To determine impairment of loans and advances, the Bank assesses whether it is probable that it will be unable to collect all principal and interest according to the contractual terms of the loans and advances.

(iii) Liquidity Risk

Liquidity risk includes the risk of being unable to meet the Bank’s financial obligations as they fall due because of inability to liquidate assets at a reasonable price and in an appropriate timeframe.

The Bank continually assesses liquidity risk by identifying and monitoring changes in funding required to meet business goals and targets set in terms of the overall Bank strategy. In addition, the Bank holds a portfolio of liquid assets as part of its liquidity risk management strategy

(iv) Market Risk

Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign exchange rates and credit spread (not relating to changes in the obligator’s/issuer’s credit standing) will affect the Bank’s income or the value of its holdings of financial instruments.

All trading instruments are subject to market risk, the risk that future changes in market conditions may make an instrument less valuable or more onerous. The Bank manages its use of trading instruments in response to changing market conditions.

The Board of Directors has delegated responsibility for management of Market Risk to the Board Risk Committee. Exposure to market risk is formally managed within Risk Limits and Policy Guidelines issued by the Board, on recommendation of the Board Risk Committee. ALCO, a Management Committee is charged with the responsibility of ensuring implementation and monitoring of the Risk Management framework in line with Policy Guidelines. The Bank is primarily exposed to Interest Rate and Foreign Exchange Risk. The policy guidelines and procedures in place are adequate to effectively manage these risks.

(v) Operational Risk

The overall responsibility of managing Operational Risks - the risk arising from failed or inadequate internal processes, people, systems and external events - is vested with the Board of Directors. The Board through the Board Risk Committee issues policies that guide management on appropriate practices of operational risk mitigation. An independent Risk Manager assures the Board Risk Committee of the implementation of the said policies.

The following are key measures that the Bank undertakes in managing operational risk:


Page | 41

• Documentation of procedures and controls, including regular review and updates to reflect changes in the dynamic business environment.

• Appropriate segregation of duties, including the independent authorisation of transactions.

• Reconciliation and monitoring of transactions. • Compliance with regulatory and other legal requirements. • Reporting of operational losses and ensuring appropriate remedial action to avoid

recurrence. • Development and implementation of Business Continuity and Disaster Recovery

Plans. • Training and professional development of employees to ensure they are well

equipped to identify and mitigate operational risks in a timely manner. • Establishment of ethical practices at business and individual employee’s level. • Implementation of Risk mitigation parameters, including insurance where this is

considered effective.

The entire operational risk management framework is subjected to periodic independent audits (internal) in order for the bank to obtain an independent opinion on the effectiveness and efficiency of the framework. Further, the findings of the Internal Audit department are reviewed by the Board Audit Committee and recommendations made implemented in line with the agreed timeframe.

(vi) Strategic Risk

Strategic risk is the current and prospective impact on earnings or capital arising from adverse business decisions, improper implementation of decisions or lack of responsiveness to industry changes. I&M is managing strategic risk as below:

• I&M has a Board approved Corporate and Strategic Planning policy that is reviewed periodically, and whose implementation is monitored by the Executive Office.

• A business strategy that covers a 5 year planning cycle which is well defined and documented and covers each area of product development, growth, marketing, sales, human resource development and information and communication technology.

• Implementation of well-defined annual budgets and corporate objectives. • I&M has in place internal systems to ensure regular monitoring and analysis of its

external and internal environment so as to gather relevant management information and ensure that I&M is not unduly exposed to strategic risk.

• Additionally the Bank is exposed to risks arising out of the operating environment characterized by increased competition in the Banking industry, retention of key staff, continued development of financial and management controls and information technology systems and their implementation, and maintaining if not growing the profit margins.

(vii) Reputational Risk

Reputational risk is the potential that negative publicity regarding an institution’s business practices, whether true or false, will cause a decline in the customer base, costly litigations, or revenue reductions.


Page | 42

This risk may result from a financial institutions’ failure to effectively manage any or all of the other risk types. The ultimate accountability for reputational risk management rests with the Board. The Board of Directors explicitly addresses reputational risk as a distinct and controllable risk through a versatile and robust risk management framework for reputational risk. Responsibility for corporate reputation resides with the Executive Director’s and Chief Executive Officer’s offices.

3 Risks relating to this transaction

(i) Share Liquidity

CTL’s shares are listed on the NSE. This transaction is envisioned to increase the number of CTL shares available for trading, by increasing the number of shares, through the share split, as well as the shareholder base, through the share swap. However, it is not possible to accurately predict whether investor interest in the Company after the transaction will lead to the development of a more active trading of CTL shares on the NSE or otherwise or how liquid and vibrant any market activity that does develop might be.

(ii) Dilution

By approving the acquisition of I&M Bank, the shareholders of CTL will dilute their holding in the Company. However, their ultimate holding in I&M Bank will remain undiluted, as they will collectively hold the same percentage of shareholding that they currently do in the Bank.

(iii) Failure to conclude this Transaction

The conclusion of this transaction is dependent on:

• An approval by CTL shareholders to make the Offer to I&M Bank; and

• At least 90% of I&M shareholders accepting the Offer.

Besides an enhanced reputational risk for both parties, a failure to conclude this transaction may result in I&M Bank applying for a direct listing on the NSE and in which case, CTL shareholders could potentially be faced with a decline in share price and value of their investment in CTL shares over a period of time.


Page | 43

PART VIII – STATUTORY AND GENERAL INFORMATION

1 Regulatory matters

The approval of the shareholders of CTL must be obtained for the acquisition of I&M Bank before the Offer is made to I&M Bank's Shareholders. This approval will be sought at the EGM to be held on Wednesday, February 20, 2013.

The following exemptions and approvals are required for the implementation of the Acquisition and the issue of the New Shares:

• An exemption from the Minister of Finance under Section 53 of the Banking Act exempting CTL from the provisions of section 13(1) of the Banking Act in connection with its acquisition and holding of shares in I&M Bank. While the approval has been granted, it is expected that this exemption will be published in the Kenya Gazette following the approval of the Offer by the shareholders of I&M at its EGM.

• Approval of the CMA, pursuant to the Fourth Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002, for the issue and listing of the New Shares. Approval has been granted.

• Approval of the NSE for the listing of the New Shares. Approval has been granted.

• The Registrar of Companies has approved the proposed change of name from City Trust Limited to I&M Holdings Limited. It is intended that this change of name will take effect upon, and subject to, completion of the Acquisition.

• Approval from the Competition Authority under the Competition Act, Chapter 504 of the Laws of Kenya. Approval has been granted.

It is expected that listing of the New Shares will become effective on June 11, 2013.

2 Responsibility Statement

The Directors of CTL whose names appear on page 12 of this Circular accept responsibility for the information contained in this Circular. To the best of the knowledge and understanding of the Directors the information contained in this Circular is in accordance with the facts and does not omit anything likely to affect the import of such information. The Directors confirm they have taken all reasonable care to ensure that such is the case.

3 The Company’s Share Capital

CTL’s authorized share capital as at December 31, 2012 stood at KES 50,000,000/- divided into 10,000,000 ordinary shares of a par value of KES 5/- each.

The intended split will increase the authorized shares from 10,000,000 ordinary shares of a par value of KES 5/- each to 50,000,000 ordinary shares of a par value of KES 1/- each.

CTL’s issued and fully paid-up share capital as at December 31, 2012 stood at KES 28,640,005/- divided into 5,728,001 ordinary shares of a par value of KES 5/- each.


Page | 44

The intended split will increase the issued and fully paid up shares from 5,728,001 ordinary shares of a par value of KES 5/- each to 28,640,005 ordinary shares of a par value of KES 1/- each.

Assuming completion of the transaction, the authorized share capital of the Company will be increased from KES 50,000,000/- divided into 50,000,000 ordinary shares of KES 1/- each to KES 500,000,000/- divided into 500,000,000 ordinary shares of KES 1/- each by creation of an additional 450,000,000 ordinary shares of KES 1/- each. This is to pave way for the issue of 363,722,034 new ordinary shares to I&M shareholders for the acquisition.

Following the issue of the new Ordinary Shares to I&M Bank Shareholders and after the share split, the issued and fully paid-up share capital will increase from KES 28,640,005/- to KES 392,362,039/-.

4 Disclosures and Directors’ Interests

• Subject to receipt of acceptances from the holders of not less than 90% in value of the I&M Bank Shares which are the subject of the Offer, City Trust intends to acquire the shares from any remaining I&M Bank Shareholders who have not accepted the Offer (for whatever reason) on the same share exchange terms as are contained in the Offer under the provisions of section 210 of the Companies Act.

• However, if CTL receives acceptances from the holders of less than 90% in value of the I&M Bank Shares which are the subject of the Offer, the transaction will be called off, and the acquisition of I&M Bank will not proceed.

• In order to eliminate fractional shares arising from the allocation of the New Shares to I&M Bank shareholders, 2 (two) additional New Shares have been included in the number of new shares to be issued.

• None of the directors of CTL or I&M Bank hold more than 3% of any shares in either CTL or I&M Bank. The numbers and percentages of shares directly held by directors in I&M Bank are as follows:

Director’s Name Shares Held in I&M Bank %

Sachit Suresh Raja Shah 614,674 2.13%*

Sarit Suresh Raja Shah 614,674 2.13%* * In addition to this, Mr. Sachit S. Raja Shah and Mr. Sarit S. Raja Shah have an indirect shareholding of 1.30% and 1.32% respectively in I&M Bank.

• Upon completion of the transaction, the direct and indirect shareholding in CTL of Mr. Sarit S. Raja Shah and Mr. Sachit S. Raja Shah, will remain unchanged at 3.45% and 3.43% respectively. As disclosed in Part V of the Circular, Mr. Sarit S. Raja Shah is a proposed director of CTL.

• None of the directors in I&M Bank directly hold shares in CTL.

• No payment or other benefit is proposed to be made or to be given to any director of CTL, I&M Bank or of any other company related to it as consideration, or in connection with, their retirement from office.

• No agreement or arrangement has been made between any director of CTL or I&M Bank and any other person in connection with, or conditional upon, the outcome of the Offer.


Page | 45

• No director of I&M Bank has a direct or indirect interest in any contract entered into by CTL.

• No director of CTL has a direct or indirect interest in any contract entered into by I&M Bank.

• The key shareholders of CTL post-completion of the transaction being Minard Holdings Limited, Tecoma Limited, Ziyungi Limited, and Mnana Limited, have agreed to lock in 50% of their holdings for a period of 24 months effective from the completion date. The combined shareholding of these key shareholders aggregates approximately 60.52% of CTL and 50% lock in upon the successful completion of this transaction, will result in 30.26% of CTL shares being locked-in, with a resultant free float of 69.74%.

• The names of the proposed directors of CTL post transaction can be found in Part V on page 34.

• Apart from the acquisition of a 55% beneficial shareholding in BCR as described in Part III of this Circular, there has been no material change in the financial position of I&M Bank since 31st December 2011, the date of the last balance sheet.

• There has been no material change in the financial position of CTL since 31st July 2012, the date of the last balance sheet.

• CTL intends to acquire all the I&M Bank Shares and has no present intention of disposing of them. There is no agreement or arrangement by which any of I&M Bank's Shares acquired by CTL in pursuance of the Offer will or may be transferred to any other person.

• There is no agreement, arrangement or understanding in existence between CTL or any person acting in concert with it and any of the directors, past directors, holders of voting shares or past holders of voting shares having any connection with or dependence upon the Offer.

• CTL has created a sufficient number of Offer Shares for allotment to those I&M Bank Shareholders who accept the Offer on the basis that 100% of the I&M Bank Shares are acquired by CTL.

• Minard Holdings Limited is a common shareholder of both City Trust and I&M Bank Limited. However notwithstanding the same, Minard Holdings Limited is not acting in concert with CTL and it has not given an irrevocable commitment to accept the Offer in respect of its holding of shares. Further, Minard Holdings has not dealt in the ordinary shares of CTL during the period of six months prior to the date of this Offer Document.

• Proparco sold 1,300,000 shares which it held in I&M Bank to Ziyungi Limited and Minard Holdings Limited. The transaction was completed on 2nd January 2013.

• DEG has agreed to sell 1,300,000 of the shares which it holds in I&M Bank to Tecoma Limited and Ziyungi Limited. The transaction shall be concluded before the Offer Period opens.

• CTL intends to continue carrying on the business of I&M Bank, which will be operated as a trading subsidiary.


Page | 46

• CTL has no plans to introduce major changes in the business of I&M Bank arising directly from the Offer and it has no plans to liquidate I&M Bank, sell its assets, re-deploy its assets or otherwise effect major changes to I&M Bank's operations. The future development of the business of I&M Bank will be determined by the executive management in consultation with the board of directors of CTL, acting in the best interests of the group as a whole.

• The board of directors of I&M Bank will be streamlined in a manner consistent with the operation of I&M Bank as a wholly-owned subsidiary of CTL. No changes to management and employees of I&M Bank are expected to be made as a direct result of the Offer.

• No service agreements have been entered into by CTL.

• The issue of the Offer Shares as consideration for the exchange of the I&M Bank Shares will be implemented in full in accordance with the terms of the Offer without regard to lien, right of set-off, counterclaim or other analogous rights to which CTL may otherwise be or claim to be entitled as against the holder.

• In accordance with the disclosure requirements for additional issues under paragraph 28(a) of the Fourth Schedule of the Capital Markets (Securities) (Public offers, Listing and Disclosures) Regulations 2002:

o the Company declares that the annual statements of the company for the year ended 31st July 2012 have been audited and received an unqualified opinion; and

o the Company’s auditors, Deloitte, have issued a statement which states that all circumstances regarding the issue of the New Shares known to them which could influence the evaluation by investors of the assets, liabilities, financial position, results and prospects of the Company are included in the Circular. A copy of their statement is attached in Appendix 3 on page 61.

5 Advisers' Consents

Dyer & Blair Investment Bank, Kaplan & Stratton Advocates and Deloitte have given and not withdrawn their consent to the issue of this Circular with the inclusion herein of their reports and names, and the reference thereto, in the form and context in which they appear respectively.

6 Transaction Costs

The fees payable by the Company in respect of the transaction are shown below:

PARTICULARS ROLE GROSS AMOUNT (KES)

CMA & NSE Fees Regulators 22,403,322 Dyer & Blair Investment Bank Independent Advisor 5,220,000 Kaplan & Stratton Advocates Legal Advisor 2,320,000 Deloitte Auditors 58,000 Miscellaneous 500,000

TOTAL 30,501,322


Page | 47

7 Governing Law

This Circular shall be governed by and construed in accordance with the laws of the Republic of Kenya.

8 Documents Available for Inspection

Copies of the following documents are available for inspection at CTL’s registered office on any weekday during normal working hours from 10.00 am January 22, 2013 until 4.00 pm on February 19, 2013:

• A copy of the proposed Offer to be made by CTL to the shareholders of I&M Bank • CTL’s audited financial statements for the five years prior to and including 31st July 2012 • I&M Bank’s audited financial statements for the five years prior to and including 31st

December 2011 • I&M Bank’s unaudited, published financial statements for the 9-months period ending

30th September 2012. • A copy of the approval by the CMA relating to the issue and listing of the New Shares. • A copy of the approval by the NSE relating to the listing of the New Shares • A copy of the proposed new Articles of Association of CTL • A copy of the Independent Adviser’s opinion on Fairness of the Acquisition Value and on

the Transaction, as already included in this Circular • A copy of the Auditors' Statement as already included in this Circular • A copy of Deloitte’s report on the examination of the prospective financial information of

CTL Limited and its Subsidiary I&M Bank Limited as at 31st December 2011 • A copy of Dyer and Blair’s independent valuation report on I&M Bank dated 23rd October

2012


Page | 48

PART IX – EGM NOTICE

CITY TRUST LIMITED

Incorporated in Kenya on 16th August 1950 under the Companies Act (chapter 486 of the Laws of Kenya)

(Registration Number C. 7/50)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an EXTRAORDINARY GENERAL MEETING of the Company will be held at 10:00 am on Wednesday February 20, 2013 at the Deloitte Place, Waiyaki Way for the purpose of considering and if thought fit, passing the Ordinary and Special Resolutions set out below.

Ordinary Resolutions

(1) Approval of the Offer

That the Directors be and are hereby authorised to make an offer to the shareholders of I&M, to acquire all the shares of I&M Bank Limited which are not presently held by the Company in exchange for the issue of fully paid shares in the Company (the "Offer").

(2) Conditions of Effectiveness and Effective Date

That the following resolutions shall come into effect upon, and subject to, the acquisition of not less than 90% of the shares of I&M Bank Limited which are not presently held by the Company in accordance with the Offer. The date of completion of such acquisition pursuant to the Offer is referred to in these resolutions as the Effective Date.

(3) The Share Split

That, with effect from the Effective Date, the Company’s existing 10,000,000 ordinary shares of KES 5 each shall be split into 50,000,000 ordinary shares of KES 1 each.

(4) Increase in Authorised Share Capital

That, with effect from the Effective Date, the authorised share capital of the Company be increased from KES 50,000,000 divided into 50,000,000 ordinary shares of KES 1 each to KES 500,000,000 divided into 500,000,000 ordinary shares of KES 1 each by creation of an additional 450,000,000 ordinary shares of KES 1 each, such additional Shares to rank pari passu in all respects with the existing issued and ordinary shares of KES 1 each in the share capital of the Company.


Page | 49

(5) Allotment and issue of New Shares

That the Directors be and are hereby authorised to allot and issue 363,722,034 ordinary shares of KES 1 each credited as fully paid to the shareholders of I&M Bank Limited in exchange for the transfer of their shares in I&M Bank Limited to the Company in accordance with the terms of the Offer.

Special Resolutions

(1) Change of Name

That, with the approval of the Registrar of Companies, the name of the Company be changed to I&M Holdings Limited with effect from the Effective Date.

(2) Proposed amendment to the Company’s Memorandum of Association

That the Memorandum of Association of the Company be amended:

(a) by abandoning the objects set out in paragraphs (a) to (f) and paragraph (j) of clause 3 of the Memorandum of Association;

(b) by adopting the following objects as paragraphs (a) and (c) of clause 3 of the Memorandum of Association:

(a) To act as an investment holding company and to co-ordinate the business of any companies in which the Company is for the time being interested, and to acquire (whether by original subscription, tender, purchase, exchange or otherwise) the whole of or any part of the stock, shares, debentures, debenture stocks, bonds and other securities issued or guaranteed by anybody corporate constituted or carrying on business in any part of the world or by any government, sovereign ruler, commissioners, public body or authority and to hold the same as investments, and to sell, exchange, carry and dispose of the same.

(c) To carry on any other trade, business or activity whatsoever and to do anything of any nature which can, in the opinion of the Directors of the Company, be advantageously or conveniently carried on by the Company in connection with, as ancillary to or independently of any of its businesses."

(c) by re-lettering the existing paragraph (g) of clause 3 of the Memorandum of Association as paragraph (b) and by re-lettering the subsequent existing paragraphs as paragraphs (d) to (w).

(3) Proposed adoption of new Articles of Association

That the new Articles of Association of the Company in the form of the final draft presented to the meeting and initialled for the purposes of identification by the Chairman be and are hereby adopted as the Articles of Association of the Company in substitution for and to the exclusion of the present Articles of Association.

By order of the Board


Page | 50

Signature: [***]

Name: [***]

Company Secretary

[**Date**]

A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote on his behalf.

A proxy need not be a member of the Company.


Page | 51

PART X – APPENDICES

1. Independent Opinion on Fairness of the Transaction Value by way of a Share Exchange Offer

October 23, 2012 The Board of Directors of City Trust Limited Deloitte Place, Waiyaki Way, Muthangari, Nairobi. Dear Sirs, INDEPENDENT OPINION ON FAIRNESS OF VALUE PAYABLE BY CITY TRUST LIMITED (‘‘CTL’’) FOR ACQUISITION OF 92.72% OF ALL THE OUSTANDING SHARES IN I&M BANK LIMITED (‘‘I&M BANK’’) NOT ALREADY HELD BY CITY TRUST BY WAY OF A SHARE EXCHANGE OFFER City Trust Limited wishes to acquire all the shares in I&M Bank that it does not already own, and has engaged Dyer & Blair Investment Bank Limited (‘‘’we’’ or ‘‘us’’) to: • Review and update the internal valuations of CTL and I&M Bank based on management’s

projections for I&M Bank (‘‘Management’’); • Provide a review opinion on whether the valuation is fair and reasonable in relation to

the consideration being offered to I&M Bank shareholders; • Review the calculation of the number of new CTL shares to be allotted and issued to

I&M Bank shareholders, and hence the share swap ratio. Limitations of Review The assignment was undertaken solely and expressly on the basis that we shall not be liable for any direct, indirect or consequential loss for damage suffered by any party arising from the fulfillment of these transactions. This report is intended solely for the use of the Board of Directors of CTL, the shareholders of CTL, the Capital Markets Authority of Kenya (‘‘CMA’’) and the Nairobi Securities Exchange (‘‘NSE’’) in connection with the acquisition of all the outstanding I&M Bank shares not already held by CTL, and hence may not be reproduced or used for any other purposes without our prior written consent. This report does not constitute a recommendation to any ordinary shareholder of CTL as to how to vote at any meeting relating to the proposed acquisition or on any matters relating


Page | 52

to it, nor as to the acceptance of the transaction. Therefore, it should not be relied upon for any other purpose. We assume no responsibility to anyone if this review opinion is used or relied upon for anything other than its intended purpose. Forecasts relate to future events and are based on assumptions that may not remain valid for the whole of the relevant period. Consequently, this information cannot be relied upon to the same extent as that derived from audited financial statements for completed accounting periods. We express no opinion as to how closely actual results will correspond to those forecasts. Our report holds true as at the date of issue of the report, and based on the current economic and regulatory conditions and the assumptions made thereon as well as the information made available to us by CTL’s management up to the date of this report. Accordingly, we are under no obligation to update this report because of events and transactions occurring subsequent to the date of this report. Independence We confirm that Dyer & Blair Investment Bank Limited does not hold any shares in CTL, directly or indirectly. We have no interest, direct or indirect, beneficial or non-beneficial, in CTL or the outcome of the transaction. Comments on the transaction Upon completion of the transaction, CTL intends to continue carrying on the business of I&M Bank, which will be operated as a trading subsidiary. This we believe is a much more efficient structure. For this purpose, CTL will also change its name to I&M Holdings limited. Additionally in relation to this transaction, CTL has no intention to discontinue employment of any of the existing employees of I&M Bank or its subsidiaries.

The commercial justification for this transaction is to get CTL shareholders to own the main asset, the Bank, and unlock their shareholding value. By CTL becoming a holding company, the shareholders get a more capitalized and regional bank. The process also makes it easier for I&M Bank to list in the NSE and unlocks liquidity for both CTL and I&M Bank shareholders.

While CTL owns up to 7.28% of I&M Bank, the Bank has no direct or indirect shareholding in CTL. Similarly none of the directors of I&M Bank own shares in CTL. Minard Holdings Limited is the only common shareholder of both CTL and I&M Bank Limited. However, following completion of the transaction, the direct and indirect shareholding in CTL of the proposed director, Mr. Sarit S. Raja Shah remain unchanged at 3.43%. Similarly, the direct and indirect shareholding in CTL for Mr. Sachit S. Raja Shah, a current director in I&M Bank but not proposed to be a director in CTL will also remain unchanged at 3.43%. All the CTL directors have expressed their intent to accept the offer in respect to their own beneficial direct and indirect holdings in CTL.

And as at the date of the offer, no service contracts exist with any director or proposed director of I&M Bank or any of its subsidiaries.


Page | 53

Industry Outlook

– The Banking Sector has continued to grow from strength to strength; Net Assets in the sector grew from KShs 1.68 trillion in December 2010 to KShs 2.02 trillion in December 2011, a 20.4% increase. Non-performing loans which are a key indicator of the health of the sector decreased by 8% from KShs 57.6billion in December 2010 to KShs 53.0 billion in December 2011.

– Although declining, inflation posed a huge challenge to the banking sector having risen to 18.93% in December 2011 from 3.97% in December 2010. Such an increase in inflation was attributed increases in food and oil prices. Kenya’s high current account deficit contributed to uncertainty with respect to the value of the Shilling. The Kenyan Shilling lost significant ground to world currencies last year partly due to Euro Zone crisis as importers demanded more US dollars as a consequence.

– The Central Bank of Kenya responded by raising the Central Bank Rate to 18% from 10% and intervening in the local currency markets in order to stabilise the Shilling. This had significant implications for the banking sector as it raised the cost of borrowing and requiring a change in its asset mix, recapitalization, mobilizing new and cheaper deposit channels, opening new branches and more aggressive marketing.

– The rise in interest rates would inevitably result in an increase in non-performing loans. To cope with potential increase, the Central Bank together with the Ministry of Finance and Kenya Bankers associations put together a package to help mitigate the effects which included extension of loan repayments periods and caps on the increase in installment repayments to a maximum of 20%.

Capital Ratios have deteriorated over the past year across the sector and a good number of the banks continue to push towards increased capitalization. Select banks have received a boost to their capital base from Development Finance Institutions in the form of Tier 1 and Tier 2 capital while others have received debt financing specifically for lending onto SMEs. Besides, a stream of rights issues is in the pipeline for this year. The sector continued to register growth in the first two quarters up to June 2012.

– Credit advances for the sector grew by KShs 83.8 billion to KShs 1.29 trillion, mainly in 10 sectors with personal and household sector leading followed by trade, manufacturing, real estate, transport and communication to name a few.

– Deposits on the other hand, accounting for 75.5% of the funding liability rose by 11% from KShs 1.49 trillion in December 2011 to KShs 1.66 trillion in June 2012. CBK attributes this growth to continued branch expansion, remittances and receipts from exports. The number of branches increased by 22 over the three months April to June 2012 to stand at 1,196.

– The sector also registered improved capital levels in the second quarter with total capital growing at 19% from KShs 248.3 billion in December 2011 to KShs 294.3 billion by June 2012. Total capital to total risk-weighted assets stood at 20.3% while core capital to total risk weighted assets declined from 18.1% in December 2011 to 17.7%.


Page | 54

– Constraints in loan uptake by the private sector due to the higher cost of funds has consequently led to an increase Gross non-performing loans (NPLs) which rose by 7% between April and June to KShs 57.3 billion. For the first six months of 2012, the ratio of gross NPLs to gross loans increased from 4.3% in March to 4.5% in June, where it closed in December 2011.

– The rates have since declined and the CBR rate cut to 13% in September 2012 from a high of 18% in December 2011. This is expected to have a gradual effect on the rate cuts by the Banks and hence the industry is still carrying a higher risk of Non-performing loans.

– The sector’s profits before tax for January to June 2012 were KShs 53.2 billion or close to 60% of KShs 89.5, last year’s total profit for the sector.

– Most banks reported commendable growth in profits for the half year and are expected to sustain this growth momentum over the next half.

Overall the sector will record continued profitability despite the challenges posed earlier by the high rates. Declining inflation, stability in the Kenya shilling and the downward revision of lending rates are amongst the major factors that will drive growth in the short-to medium term. The growth will further be supported by the sector’s increased rollout of the agency model and other cost effective delivery channels, recapitalization, and increased regional presence.

Definition of Fair and Reasonable An offer is generally fair and reasonable if the consideration is equal to or greater than the value of the CTL share being the subject of the transaction. In our review of the fairness of the valuation and the transaction, we have considered the quantitative as well as the qualitative issues surrounding the particular offer. An offer may be fair and reasonable if all significant factors have been considered in arriving at the consideration to be offered. It should be noted that this review opinion does not purport to cater for individual shareholders’ positions, but rather the general body of shareholders. A shareholder’s decision regarding the fairness and reasonableness of the offer may be influenced by his or her particular circumstances. Should a shareholder be in doubt, he or she should consult an independent adviser as to the merits of the offer, considering his or her personal circumstances. Sources of Information Used Our report is based on the information provided to us by the Management, who performed a due diligence exercise on I&M Bank. Management is therefore deemed solely responsible for the integrity of data and information submitted to us. We have relied on the following information in order to ascertain the value of the shares on both CTL and I&M Bank:

1. Share exchange ratio workings for CTL; 2. Valuation workings for I&M Bank- adopted from Dyer & Blair’s independent valuation

report dated 23rd October 2012;


Page | 55

3. Audited financial statements for the year ending December 31,2011 for I&M Bank, and July 31 2011 for CTL;

4. Shareholding structures for both I&M Bank and CTL as at 31st March 2012; and 5. Discussions with Management and their advisers.

Conditions Precedent In order for the transaction to be effective, the following conditions need to have been fulfilled prior to completion:

• The share exchange offer is presented and accepted by 90% of I&M Bank shareholders

Acquisition of 92.72% of shares in I&M Bank by way of a Share Exchange Offer I&M Bank provides an extensive range of banking, financial and related services and is a banking institution licensed by the Central Bank of Kenya, under the Banking Act (Chapter 488). The Bank has 19 branches in Kenya, and has a presence in Tanzania, Rwanda and Mauritius through its Subsidiaries and Associate, respectively. In 2011, I&M Bank is ranked among the top 10 banks in Kenya according to RSM Ashvir’s report, Kenya’s Banking Sector Performance 2011. It ranks 9 in total assets, 7 in profitability, 5 in Return on Assets and 2 in efficiency. Overall and based on 10 key performance indicators, the bank is ranked 4th out of the 43 banks included in the report. As at September 30, 2012 being the date of our review, the registered shareholding in I&M Bank was as follows:

Shareholder’s Name No. of Shares % Share holding

Minard Holdings Limited 4,475,759 15.54% Biashara Securities Limited 4,008,740 13.92% Tecoma Limited 4,000,000 13.89% Ziyungi Limited 4,000,000 13.89% DEG 3,100,000 10.76% Proparco 2,575,000 8.94% City Trust Limited (Listed on the NSE) 2,097,458 7.28% I&M ESOP Trust 100,000 0.35% Other shareholders (approx. 104) 4,445,496 15.43% Total Issued Shares 28,802,453 100.00%

I&M Bank Prospects for the next twelve months are advised from its strong financial performance and commendable industry positioning. The consolidated balance sheet size of the Bank recorded a compounded annual growth rate (CAGR) of 26% in total assets since 2009, with a 30% CAGR for advances and a CAGR of 24% in customer deposits. In 2011 alone, the Group balance sheet size recorded a growth of 24% and crossed the KShs 100 billion mark to reach KShs 108 billion. Profit before tax has grown at a CAGR of 41% from 2009 to 2011. This puts the bank amongst the top performers in terms of sustained growth in profitability. The operating profit margin also improved from 15% to 28% while the net profit margin increased from 36% to 44%.


Page | 56

The Bank has expanded beyond Kenya to become a regional player, with the acquisition of 50% shareholding in Bank One, Mauritius, 55% shareholding in I&M Bank (T) Limited, Tanzania and 55% in BCR, Rwanda. Non-Kenyan operations in 2011 accounted for about 28% of the Group’s assets and 11% of its Profit Before Tax.

In 2011, Bank One recorded a 61% growth in PBT an equivalent of KShs 484 million and contributed 10% to the consolidated group profitability. The Tanzanian entity achieved a 7% growth in PBT to KShs 296 million and contributed 1% of the group’s profitability. BCR Rwanda, the recent acquisition will feature in the 2012 financials going forward.

The Bank has potential for continuously registering further growth owing to its high efficiency level, quality of assets, and expansion in branch network, product innovation and diversity. Procedures used for the Review of the Share Exchange ratio In arriving at our opinion in respect of the ordinary shares of CTL and I&M Bank, we have inter alia, considered the following:

1. The valuation workings for I&M Bank’s as prepared by Dyer & Blair - to arrive at an average price range of between KShs 1,363 and KShs 1,432 per share

i. The information available and assumptions made in arriving at the valuation; ii. Market information such as the price earnings ratio of comparable companies

and the appropriate discount rate applied for unlisted companies; iii. Financial assessment by the Management of CTL and I&M Bank to the Offer

and their market intelligence and knowledge of the business in preparation of the forecasts so used;

iv. Review of the assumptions used for the economic, regulatory and market conditions in arriving at the valuations;

v. Review of the reasonability of the representations made by Management.

2. The valuation of CTL based on the 7.28% shareholding in I&M Bank as at March 31 2012 and the additional assets in CTL as at that time in the computation of the share exchange ratio;

3. Review of the reasonableness of the share split workings used to determine the appropriate number of new shares to be issued by CTL to I&M Bank shareholders in relation to the offer.

The share exchange ratio and the resultant new shares to be issued to I&M Bank shareholders after CTL’s share split The share exchange ratio was determined as follows;

1. The valuation of I&M Bank was adopted as the valuation done by Dyer & Blair as at October 2012.


Page | 57

In spite of the price of I&M Bank used, and given that the valuation is reasonable and acceptable, the share exchange ratio would remain the same as long as CTL percentage stake of 7.28% in I&M Bank is held constant. Based on this assumption, the price range used for I&M Bank is between KShs 1,363 and KShs 1,432 per share. The price range was arrived at after undertaking a valuation of I&M Bank and its affiliate and subsidiaries in Mauritius, Tanzania and Rwanda. The valuation approach adopted considers the following valuation methodologies;

(i) Income Approach , under the Discounted Free Cash flow to Equity (DCF) and Capitalization of Earnings;

(ii) Price Multiples , under the Price Earnings Multiple (PE) and the Price to Book Value (PBV)

(iii) Volume Weighted Average Price on the OTC market for transaction completed in 2012

The fair value reasonably considers all avenues of growth for I&M bank and is a summation of the estimated values of each business segment of the group. Every bank in the group was valued separately under each of these approaches. The estimated value of each of the subsidiary banks were then consolidated using the Sum-of-The Parts approach, where applicable and then weighted under three options by varying the assigned weights between the income and the price multiples approaches while maintaining the OTC weight as 10%. The resultant range is as illustrated below.

Option 1 Option 2 Option 3

Income Approach Weight 45% 40% 50%

Price Multiples Weight 45% 50% 40%

OTC Price Weight 10% 10% 10%

Value of I&M in KShs per Share 1,362.70 1,390.60 1,431.80

2. Before the transaction takes place, CTL is proposing to split its shares such that each

shareholder gets five (5) ordinary 1/- shares for every one (1) ordinary 5/- share held (or a split of 5:1).

3. Given the price range of KShs 1,363 to KShs 1,432 per share for I&M Bank against 28.8 million issued and fully paid up shares, the enterprise value of I&M Bank is determined to range between KShs 39.3 billion and KShs 41.2 billion. Using this as the basis, and taking into consideration CTL’s stake of approximately 7.28% in I&M Bank, adding the other assets of CTL and a share split of 5:1, the enterprise value for CTL translates to a range between KShs 2.87 billion and KShs 3.01 billion i.e. a range of KShs 100.1 to 105.1 a share.


Page | 58

We then divided I&M’s enterprise value by that of CTL to arrive at a share swap ratio of 13.62 shares of CTL for every 1 share in I&M Bank as per the table below;

Option 1 Option 2 Option 3

Particulars Key Figures (post-split)

Figures (post-split)

Figures (post-split)

Total number of Issued and Paid up Shares in I&M

Number 28,802,453 28,802,453 28,802,453

Value per Share (A) Kshs 1,363 1,391 1,432

I&M - Enterprise Value KShs 39,250,404,278 40,053,829,540 41,239,361,800

CTL's shareholding in I&M Bank (number of Shares)

Number 2,097,458 2,097,458 2,097,458

CTL's existing shareholding in I&M Bank

% 7.28% 7.28% 7.28%

CTL's Enterprise Value Kshs 2,866,202,981 2,924,871,927 3,011,443,675

No of Issued and Paid Up Shares in CTL

Number 28,640,005 28,640,005 28,640,005

Value per Share (B) KShs 100.08 102.13 105.15

Share Swap Ratio (A/B)

13.62 13.62 13.62

4. Based on the swap ratio, the resultant number of new shares to be issued and the

total number of shares to be held under CTL as a holding company are as follows;


Total number of Issued and Paid up Shares in I&M Number 28,802,453

Less: Shares already held by CTL in I&M Bank Number 2,097,458

Balance I&M Bank shareholders qualifying for SWAP Number 26,704,995


New shares to be issued to I&M Shareholders Number 363,722,034

CTL Outstanding shares Number 28,640,005

Total Issued shares in HoldCo Number 392,362,039

For the acquisition by CTL of 26,704,995 being 92.72% of the issued ordinary shares in I&M Bank not already owned by CTL the share exchange ratio is computed at 13.62 shares in CTL for every 1 share in I&M Bank. Going by this ratio, CTL is to offer up to 363,722,034 new ordinary shares of KShs. 1/- each to I&M Bank shareholders. The total outstanding shares in CTL thus amount to 392,362,039 shares of KShs 1/- each post the transaction. CTL’s original shareholders’ holding increases marginally to 7.30%. Assuming that the shareholding structure of I&M as at September 30, 2012 remains unchanged until completion, the new shareholding structure of the holding company will be as follows;


Page | 59

Pre- Transaction Post- Transaction

Shareholder’s Name

No. of Shares in I&M Bank

% Share holding

No. of Shares in CTL (the

Holding company)

% Share holding

Minard Holdings Limited 4,475,759 15.54% 62,320,613 15.54%

Biashara Securities Limited 4,008,740 13.92% 54,599,039 13.92%

Tecoma Limited 4,000,000 13.89% 54,480,000 13.89%

Ziyungi Limited 4,000,000 13.89% 54,480,000 13.89%

DEG 3,100,000 10.76% 42,222,000 10.76%

Proparco 2,575,000 8.94% 35,071,500 8.94%

City Trust Limited 2,097,458 7.28% 28,640,005 7.30%

I&M ESOP Trust 100,000 0.35% 1,362,000 0.35%

Other shareholders (approx. 104) 4,445,496 15.43% 60,547,652 15.43%

Total Issued Shares 28,802,453 100.00% 392,362,039 100.00%

Review Opinion Based on the review performed, and after taking into consideration all the financial considerations, foregoing assumptions, current economic and regulatory environment and the valuations working using projections by the management, nothing has come to our attention that the proposed acquisition of 92.72% in I&M Bank by CTL by way of a share exchange offer is not fair and reasonable. In respect of this, our review opinion is that the valuation and consideration thereon is fair and reasonable provided the above pre-completion conditions have been satisfied, all regulatory approvals are sought and relevant conditions in the share exchange offer, have been satisfied. Consent We hereby give our consent to the inclusion of this opinion and the inclusion of the references of our report in the form and context in which it appears in the circular to the shareholders of CTL. Dyer & Blair Investment Bank October 23, 2012


Page | 60

2. Directors’ Declaration

The Capital Markets Act

(Chapter 485A of the Laws of Kenya)

Acquisition of I&M Bank Limited by City Trust Limited By Way of Share Exchange

Application by City Trust Limited for approval to issue and list additional 363,722,034 ordinary shares

Declaration under paragraph 17(2) of the Fourth Schedule to the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002

We the undersigned, being duly authorised by the directors of City Trust Limited, hereby declare that all information stated in the application submitted to the Capital Markets Authority in regard to the above matter on June 20, 2012 and the statements contained in this Circular to be issued in connection with this matter are correct, and neither the Board of Directors’ minutes, audit reports nor any other internal documents contain information which could distort the interpretation of this Circular.

Signed for the Board of Directors:

Mr. Anil Raja Mr. Daniel Ndonye

Chairman Director

[*Date*]


Page | 61

3. Statement from Auditors

[Auditors logo]

18 January 2013

The Directors,

City Trust Limited,

Deloitte Place, Waiyaki Way,

Muthangari,

Nairobi.

Auditor’s Statement on information circular to shareholders of City Trust Limited on the Proposed issue of 363,722,034 new ordinary shares

As the auditors of City Trust Limited (the Company), we confirm that, other than as disclosed in the circular to the shareholders dated 21 January 2013 there are no circumstances regarding the proposed issue of 363,722,034 new ordinary shares which would otherwise influence the evaluation by investors of the assets, liabilities, financial position and prospects of the Company that has come to our notice as auditors of the Company.

On the basis of the audit of the financial statements of the Company for the period 31July 2012, and not subsequently supplemented by any additional audit procedures, we confirm that to the best of our knowledge and belief, and pursuant to section 28 of the Fourth Schedule of the Capital Markets (Securities) (Public Offers, Listings and Disclosures) Regulation 2002, that all circumstances regarding the proposed issue of the new ordinary shares which could influence the evaluation by investors of the assets, liabilities, financial position and prospects of the Company known to us as the auditors, are included in the circular to shareholders.

Yours faithfully,

Certified Public Accountants (Kenya)

Nairobi


Page | 62

4. The OTC Market Prices for I&M Bank Shares

OTC transactions for I&M Bank shares and the volume weighted average price (VWAP) for the last 18 month period between July 2011 and December 2012:

Item no. Date Volume Price Turnover

1 01-Aug-11 1,000 1,050.00 1,050,000 2 25-May-11 500 1,000.00 500,000 3 25-May-11 1,000 1,050.00 1,050,000 4 25-May-11 1,000 1,000.00 1,000,000 5 16-May-11 5,300 953.00 5,050,900 6 04-Mar-11 2,000 935.00 1,870,000 7 18-Jan-12 2,000 1,050.00 2,100,000 8 01-Sep-12 5,000 1,100.00 5,500,000 Total 17,800 18,120,900 2012 Average price 1,075.00 2012 VWAP 1,085.71

Total Market Capitalization as at December 2012 31,271.2

The average prevailing trading prices for I&M Bank shares have been provided as the average weighted price for the transactions during 2012. The market is characterised by high demand for the shares and hardly any supply. Judging by the volumes in all the trades since inception, the OTC Market has not moved any significant block. The eight transactions have a total volume of 17,800 shares moved at a turnover of KShs 18.1 million.


Page | 63

5. Notes


Page | 64

6. Proxy Form

I/We

CDS A/C No

of (address)

being member(s) of City Trust Limited, hereby appoint

of (address)

or failing him the duly appointed Chairman of the meeting to be my/our Proxy, to vote on my/our behalf at the Extraordinary General Meeting of the Company to be held at 10.00am on Wednesday February 20, 2013 at Deloitte Place, Waiyaki Way or at any adjournment thereof.

As witness to my/our hands this ___________ day of _______________2013

Signature(s)

Notes:

1. This Proxy is to be delivered to the Company Secretary at City Trust Limited, Deloitte Place, Waiyaki Way, Muthangari, Nairobi.

2. A Proxy form must be in writing and in the case of an individual shall be signed by the shareholder or by his attorney, and in the case of a corporation the proxy must be either under its common seal or signed by its attorney or by an officer of the corporation.