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PFG - Pioneer Foods Group Limited - Pioneer Foods Phase II Broad-Based

Release Date: 09/12/2011 12:40
Code(s): PFG
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PFG - Pioneer Foods Group Limited - Pioneer Foods Phase II Broad-Based Black Economic Empowerment Transaction Pioneer Foods Group Limited (Incorporated in the Republic of South Africa) Registration number: 1996/017676/06 Share code: PFG ISIN code: ZAE 000118279 ("Pioneer Foods" or "the Company") PIONEER FOODS PHASE II BROAD-BASED BLACK ECONOMIC EMPOWERMENT TRANSACTION 1. INTRODUCTION 1.1 Pioneer Foods is pleased to propose the second phase of its Broad- based Black Economic Empowerment ("B-BBEE") strategy to increase and broaden direct black ownership of the Company ("Phase II B-BBEE Transaction"). The Phase II B-BBEE Transaction will result in an additional 13.53% black shareholding in the Company post the implementation of the transaction and will result in an approximate R565 million cash injection into Pioneer Foods with a further R468.6 million plus preference share dividends accruing to the Company at the maturity of the Phase II B-BBEE Transaction. The cash injection is earmarked to accelerate Pioneer Foods` growth strategy. The Phase II B- BBEE Transaction is structured to be a representative range of black entities working in a diverse range of communities that benefit the growth and development of the Company and its corporate social commitments, including an Education and Community Trust (which value will equate to R637 million), black members of the board of the Company and strategic B-BBEE partners which will include broad-based women`s groupings. The transaction total value is therefore approximately R1.67 billion. 1.2 In furthering Pioneer Foods` commitment to B-BBEE, the Company is proposing, subject to the fulfilment, inter alia, of the conditions precedent set out in paragraph 7 below, to facilitate a subscription for shares in the issued share capital of Pioneer Foods by black participants ("the Proposed Phase II B-BBEE Specific Issue"). The Proposed Phase II B-BBEE Specific Issue will involve the issue of shares equivalent to 13.53% of Pioneer Foods` ordinary issued share capital post-implementation of the Proposed Phase II B-BBEE Specific Issue ("enlarged issued share capital"). The enlarged issued share capital of Pioneer Foods has been based on the number of shares in issue prior to the Proposed Phase II B-BBEE Transaction less shares held by subsidiary companies of Pioneer Foods plus the Proposed Phase II B-BBEE Specific Issue. 1.3 The Phase II B-BBEE Transaction follows the successful implementation of the first phase of Pioneer Foods` B-BBEE strategy in 2006 in terms of which Pioneer Foods issued 10% of its then issued share capital to a BEE trust for the benefit of employees of wholly-owned South African subsidiaries of Pioneer Foods ("Phase I B-BBEE Transaction"). The effective black economic empowerment ("BEE") shareholding in Pioneer Foods pertaining to the Phase I B-BBEE Transaction currently amounts to 4.73%. The Phase I B-BBEE Transaction has been highly successful in creating value for participants. To date, Pioneer Foods has paid more than R17 million in dividends to the beneficiaries of the Phase I B- BBEE Transaction, and a further R49.8 million, as a result of the growth in the share price, to beneficiaries of the Phase I B-BBEE Transaction who have left the employment of Pioneer Foods. 2. THE PROPOSED PHASE II B-BBEE SPECIFIC ISSUE 2.1 The total value of the Proposed Phase II B-BBEE Specific Issue is approximately R1.67 billion based on a 30 day volume weighted average share price ("VWAP") of R60.10 per Pioneer Foods ordinary share ("Ordinary Share") as at the close of trading on Friday, 02 December 2011 ("indicative market price"). The effective market price for the transaction will be determined based on the 30 day VWAP price of Pioneer Foods Ordinary Shares as on a future date ("effective market price"). 2.2 It is intended that the Pioneer Foods Ordinary Shares to be issued as a consequence of the Proposed Phase II B-BBEE Specific Issue, will comprise approximately 28,670,982 Pioneer Foods Ordinary Shares, being 13.53% of Pioneer Foods` enlarged issued share capital post the implementation of the Phase II B-BBEE Specific Issue. 2.3 The Proposed Phase II B-BBEE Specific Issue will be made to the following black participants (collectively, "the BEE Participants"): 2.3.1 The Pioneer Foods Education and Community Trust, a broad-based ownership scheme in terms of the BEE Codes, which will hold, 10,599,988 Ordinary Shares, being 5.00% of Pioneer Foods enlarged issued share capital ("the Pioneer Foods Education and Community Trust" or "PFEC Trust"); 2.3.2 The following strategic B-BBEE partners ("the B-BBEE Partners"): - Thembeka Capital Limited ("Thembeka"), which will hold, through a ring-fenced special purpose vehicle ("SPV"), 9,326,640 Ordinary Shares , being 4.40% of Pioneer Foods` enlarged issued share capital; - Identity Capital Partners (Pty) Limited ("Identity Partners"), which will hold, through a ring-fenced SPV 2,755,997 Ordinary Shares, being 1.30% of Pioneer Foods` enlarged issued share capital; - Kwa-Zulu Natal Agribusiness Women`s Trust ("KZN Trust"), which will hold, through a ring-fenced SPV 2,755,997 Ordinary Shares , being 1.30% of Pioneer Foods` enlarged issued share capital; - Sekunjalo Investments Limited ("Sekunjalo"), which will hold, through a ring-fenced SPV 1,589,998 Ordinary Shares, being 0.75% of Pioneer Foods` enlarged issued share capital; and - Riparian Investments Consortium 1 (Pty) Limited ("Riparian") which will hold, through a ring-fenced SPV 1,059,999 Ordinary Shares, being 0.50% of Pioneer Foods` enlarged issued share capital. 2.3.3 The following current and former black members of Pioneer Foods` board (collectively referred to as "the Black Directors"), with all shares to be issued to them in their personal capacity and beheld through an SPV structure. A collective allocation of approximately 582,363 Ordinary Shares, being 0.28% of Pioneer Foods` enlarged share capital has been made to the Black Directors: - Mr Zitulele Luke (KK) Combi, the independent non-executive chairman of Pioneer Foods; - Mr Andile Hesperus Sangqu, an independent non-executive director of Pioneer Foods; - Prof. Abdus Salam Mohammad Karaan, an independent non-executive director of Pioneer Foods; - Mrs Nonhlanhla Sylvia Mjoli-Mncube, an independent non-executive director of Pioneer Foods; - Dr Mohammed Iqbal Surve, the independent non-executive vice- chairman of Pioneer Foods; and - Dr Franklin Abraham Sonn, a former independent non-executive director of Pioneer Foods. 3. RATIONALE AND PIONEER FOODS BEE STRATEGY Pioneer Foods is resolute in its commitment to BEE in order to ensure the transfer of ownership as, inter alia envisaged in the relevant BEE codes. This has been demonstrated through the successful implementation of the Phase I B-BBEE Transaction. Building on this momentum, and should the Phase II B-BBEE Transaction be implemented, Pioneer Foods would have ensured empowerment of at least 23.50%. Implementing the Proposed Phase II B-BBEE Specific Issue will strengthen and broaden the direct black ownership of Pioneer Foods with a representative range of black entities working in a diverse range of communities that benefit the growth and development of the Company and its corporate social commitments. The Proposed Phase II B- BBEE Specific Issue confirms the Company`s commitment to sustainable BEE ownership and transformation. Its successful implementation will improve and sustain the level of black ownership of the Company and the Company`s BEE status. Pioneer Foods has been active in strengthening all areas of BEE activity and is currently ranked as a Level Five BEE Contributor in terms of the dti Codes. 4. DETAILS OF THE B-BBEE PARTNERS AND THE PIONEER FOODS EDUCATION AND COMMUNITY TRUST 4.1 Thembeka is a broad-based black-owned and controlled investment company that focuses on private equity and BEE transactions. It has a proven track record of adding strategic value to its portfolio of investment companies. Thembeka`s shareholders include over 500 individual black shareholders and several 100% black broad-based trusts representing thousands of beneficiaries. The executive chairman of Thembeka is Mr ZL Combi. Thembeka has a strong balance sheet with long term investment objectives. It has investments in numerous sectors of the economy, including financial services and agricultural related businesses. 4.2 Identity Partners is a black women owned and controlled investment firm which invests in established and growing businesses primarily in the following sectors: mining and engineering services, resources and energy, transport, and agriculture. Identity Partners` objective is to bring black women into the mainstream of the economy through equity participation in businesses directly and through consortia and seeks to be a facilitator for other women and BEE businesses to access opportunities as professionals and as entrepreneurs. Its financing activities are carried out through the Identity Development Fund, which manages two funds focusing on financing youth and women entrepreneurs. The leading executives and majority shareholders of Identity Partners are Mmes Sonja Sebotsa and Polo Radebe. 4.3 KZN Trust is a 100% black women owned economic empowerment initiative formed to pursue opportunities that would benefit previously disadvantaged women engaged in agriculture and rural development efforts in KwaZulu-Natal. It consists of two companies and 200 individual women, forming part of some twenty four agricultural co- operatives, mainly from rural areas of KwaZulu-Natal. The KZN Trust aims to empower women and to have an impact in the fight against poverty, through agriculture and other rural development initiatives. These women are engaged in various agricultural activities including, inter alia vegetable production and processing, poultry farming, egg production and meat processing. Apart from agriculture, the KZN Trust`s women are also engaged in other activities such as handwork, brick-making and tourism in order to augment their income. While the KZN Trust represents just over 200 women, the impact of its work will be far reaching within the families and communities of its members. 4.4 Sekunjalo is a listed majority black-owned and black-controlled investment holding company. Its major investments are in fishing, aquaculture, pharmaceuticals, biotechnology, information technology and telecommunications, financial services, property and enterprise development supporting broad-based BEE and small, medium and micro enterprises. Sekunjalo currently employs over 740 employees directly and over 8 000 people benefit from its investments and associated companies. The executive chairman and majority shareholder of Sekunjalo is Dr. Mohammed Iqbal Surve. 4.5 Riparian is a majority black-owned and controlled investment holding company established by Prof. ASM Karaan. 24% of the economic benefits of Riparian`s issued share capital is held by two broad-based ownership schemes as contemplated in the BEE Codes, namely the Fruit Workers Development Trust and the Green Olive Trust. The beneficiaries of these trusts include permanent workers on fruit farms. By providing its beneficiaries with an exposure to shares in Riparian, these beneficiaries will gain an indirect economic exposure to the Pioneer Foods shares that are proposed to be issued to Riparian as part of the Proposed Phase II B-BBEE Specific Issue. 4.6 The Pioneer Foods Education and Community Trust will be created as a perpetual BEE trust, for the purpose of benefitting black people in the areas and communities in which Pioneer Foods operates in South Africa. The objectives of the PFEC Trust is to assist in the provision of school facilities or equipment for public schools and/or other educational institutions engaged in public benefit activities and the provision of scholarships, bursaries, awards and loans for study, research and teaching. It is envisaged that the PFEC Trust share issue will ensure black equity ownership in the Company into perpetuity. 5. DETAILS OF THE PROPOSED PHASE II B-BBEE SPECIFIC ISSUE 5.1 The Proposed Phase II B-BBEE Specific Issue will be implemented through a specific issue of Ordinary Shares for cash by Pioneer Foods (equal to 13.53% of Pioneer Foods` enlarged issued share capital). 5.2 The subscription price at which each of the BEE Participants will subscribe for their respective Ordinary Shares will depend on the commercial terms and funding structure relevant to that BEE participant, as set out below. 5.3 THE B-BBEE PARTNERS 5.3.1 The specific issue to the B-BBEE Partners will be made at a 5% discount to the effective market price (The BP Specific Issue"). The BP Specific Issue will be issued in terms of Pioneer Foods` articles of association (now referred to as the memorandum of incorporation in terms of the Companies Act 71 of 2008, as amended ("MOI")) and on the terms and conditions and with the rights and restrictions contained in the relevant subscription agreements ("the BP Subscription Agreements"). 5.3.2 The BP Subscription Agreements provide for a lock-in period of 7 years, during which time the B-BBEE Partners will not be entitled to dispose of the Ordinary Shares subscribed to in terms of the Proposed Phase II B-BBEE Specific Issue. 5.3.3 The approximate total combined subscription price payable by the B-BBEE Partners in terms of the BP Specific Issue will amount to R1 billion based on the indicative market price. Each B-BBEE Partner will be required to capitalise its SPV with 55% of the subscription price payable by that B-BBEE Partner. The SPVs will accordingly be capitalised by a total amount of R550 million consisting of 10% B-BBEE Partner own funding and 45% third party funding from Rand Merchant Bank ("RMB") in the form of an A Preference Share subscription ("A Preference Share Subscription"). The A Preference Shares will be subscribed for terms and conditions standard for transactions of this nature including the following terms: 5.3.3.1 A Preference Share dividends will accrue at an annual rate amounting to 75% of the prevailing prime interest rate on
the outstanding principal A Preference Share Subscription amount and outstanding preference share dividends. 5.3.3.2 The A Preference Share Subscription will be structured as a capital bullet facility with the dividends on the A
Preference Shares being serviced from dividends received by the B-BBEE Partner SPV in respect of the Pioneer Foods Ordinary Shares issued under the Proposed Phase II B-BBEE

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