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SOVEREIGN FOOD INVESTMENTS LIMITED - Proposed BEE transaction, share repurchase, changes to exec remuneration,new non-exec fee policy, board restructure

Release Date: 12/10/2015 08:19
Code(s): SOV     PDF:  
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Proposed BEE transaction, share repurchase, changes to exec remuneration,new non-exec fee policy, board restructure

SOVEREIGN FOOD INVESTMENTS LIMITED
Incorporated in the Republic of South Africa
Registration Number 1995/003990/06
JSE Code: SOV
ISIN Number: ZAE000009221
(“Sovereign” or the “Company”)




PROPOSED BLACK ECONOMIC EMPOWERMENT TRANSACTION, SHARE REPURCHASE, CHANGES TO EXECUTIVE REMUNERATION POLICY AND
NEW NON-EXECUTIVE DIRECTOR FEE POLICY; BOARD RESTRUCTURING AND WITHDRAWAL OF CAUTIONARY



 1.   Introduction

      Sovereign shareholders (“Shareholders”) are referred to the cautionary announcement
      published on 1 October 2015 (“Cautionary Announcement”) as read together with the
      clarification announcement published on 5 October 2015.

      Sovereign is pleased to inform Shareholders of the terms and conditions pertaining to the
      proposed implementation of:

      -    an acquisition of approximately 10% (ten percent) of the issued ordinary shares in Sovereign
           (“Shares”) from Shareholders by way of a repurchase by Sovereign (“Repurchase”) coupled
           with a purchase by Sovereign Food Investments Limited Share Trust (“ESOP Trust”)
           (“ESOP Acquisition”), at a cash consideration of R8.50 (eight Rand fifty cents) per Share
           (collectively, the “Share Acquisition”);
      -    a sustainable, long-term Black Economic Empowerment (“BEE”) transaction (“BEE
           Transaction”); and
      -    changes to the Company’s short and long-term incentive scheme policies applicable to
           Sovereign’s executive committee (“Exco”) (“New Executive Remuneration Policy”),

      collectively, the “Proposed Transactions”.

      Implementation of the Share Acquisition, the BEE Transaction and the New Executive
      Remuneration Policy will be inter-conditional.

      In addition to the Proposed Transactions and following a restructuring of the board of directors of
      Sovereign (“Board”) (“Board Restructuring”) which has been implemented (as set out in
      paragraph 10 below), Sovereign proposes to implement a new non-executive director fee policy
      (“NED Fee Policy”), as more fully set out in this announcement.

 2.   Status of the Proposed Transactions

      Binding legal agreements pertaining to the BEE Transaction and the New Executive
      Remuneration Policy have been entered into between Sovereign and the respective parties.

      As further detailed in paragraph 6 below, the Repurchase will be implemented by way of a
      scheme of arrangement in terms of section 114 of the Companies Act, No. 71 of 2008, as
      amended (“Companies Act”) (“Scheme”). Subject to the Company first securing a cash
    confirmation (“Cash Confirmation”) to the satisfaction of the Takeover Regulation Panel
    (“Panel”) pursuant to the requirements of the Companies Regulations, 2011 (“Regulations”), the
    Company will proceed to propose the Scheme to its Shareholders.

    The Proposed Transactions will be subject to conditions precedent as further set out in
    paragraph 9 below.

3. Objectives and rationale for the Proposed Transactions

    3.1. Objectives and rationale for the Share Acquisition

          - Returning capital to Shareholders, after due consideration of the Company’s current
            and medium term capital and funding requirements, including in respect of the
            acquisition of the Tydstroom Abattoir from Quantum Foods Proprietary Limited
            (“Tydstroom Acquisition”) (further details of which were published by Sovereign in
            announcements dated 11 May and 7 October 2015).
          - Ensuring equitable treatment of all Shareholders, by providing all Shareholders with an
            opportunity to participate in the Share Acquisition with the flexibility of tendering more
            or less Shares, subject to a total of 7 336 168 Shares (“Acquisition Shares”) being
            acquired.
          - Enhancement of Sovereign’s future earnings per Share.
          - Improvement of Sovereign’s balance sheet efficiency by utilising surplus cash reserves
            to implement the Share Acquisition whilst ensuring Sovereign has a risk adjusted,
            appropriate level of gearing following the implementation of the Tydstroom Acquisition.
          - Reducing the effective cost of, and potential future dilution pertaining to, the
            implementation of the BEE Transaction, by implementing the Share Acquisition
            simultaneously.

    3.2. Objectives and rationale for the BEE Transaction

          - Establishment of a sustainable BEE shareholding in the Company for a minimum
            period of seven years from the date of implementation of the BEE Transaction (“Lock-
            in Period”), pursuant to Sovereign’s commitment to transformation and empowerment
            and to enhance Sovereign’s competitiveness in the market.
          - Assisting Sovereign in meeting and exceeding the minimum ownership requirements
            set by the Codes of Good Practice on BBBEE published in terms of the Broad-Based
            Black Economic Empowerment Act, No. 53 of 2003.
          - Funding the BEE Transaction through a notional loan structure in order to avoid
            potential third party financing risk (such as potential default risk) and aligning BEE
            value creation with Shareholder value creation over the duration of the Lock-in Period.
          - Introducing strategic BEE partners who will actively assist Sovereign in pursuing and
            realising the Company’s growth objectives.

    3.3. Objectives and rationale for the New Executive Remuneration Policy

          - Aligning Exco’s remuneration policy with long-term Shareholder returns and
            expectations.
          - Providing Shareholders with upfront and long-term certainty in respect of the
            remuneration structure and policy applicable to Exco.
          - Strengthening Shareholder alignment by procuring a meaningful, long-term equity
            investment by Exco through a seven year capital and Share injection as an investment
            in support of the BEE Transaction.

                                                                                                
4. Objectives and rationale for the NED Fee Policy

   The NED Fee Policy will serve to reduce the Company’s corporate expenditure and also to better
   align these costs with the size and current market capitalisation of Sovereign.

5. Objectives and rationale for the Board Restructuring

     - Enabling the new BEE Trust (defined below) to independently nominate its proposed (future)
       Board representatives (as further elaborated upon in paragraph 10.3. below).
     - Reducing the number of executive directors serving on the Board and thereby decreasing
       the number of non-executive directors required to maintain a balanced Board and the costs
       associated with this, in order to align the costs of the Board more appropriately, whilst
       maintaining sufficient independence of the Board.

6. Salient terms of the Share Acquisition

    6.1. Overview

        The Share Acquisition will be implemented on the basis that (i) the ESOP Trust will offer to
        purchase up to 750 000 Shares in terms of the ESOP Acquisition and (ii) Sovereign will offer
        to repurchase the balance of the Acquisition Shares in terms of the Repurchase, from all
        Shareholders other than Exco members, the ESOP Trust and Crown Chickens Proprietary
        Limited (“Crown Chickens”) (“Participating Shareholders”). The Share Acquisition will
        result in approximately R62 million of capital being returned to Shareholders.

    6.2. Share Acquisition Consideration

        Participating Shareholders will receive R8.50 in cash per Share (“Share Acquisition
        Consideration”) acquired by Sovereign or the ESOP Trust in terms of the Share
        Acquisition. The Share Acquisition Consideration represents a 7.3% premium to the 30 day
        volume weighted average trading price (“VWAP”) of a Share up to and including the date of
        the Cautionary Announcement.

    6.3. ESOP Acquisition

        In terms of the ESOP Acquisition, the ESOP Trust will offer to acquire up to 750 000 Shares
        from Participating Shareholders, constituting 0.98% of the current total Shares in issue. In
        the circumstances, the ESOP Acquisition will not constitute an “affected transaction” as
        defined in the Regulations.

        The total maximum consideration payable by the ESOP Trust in terms of the ESOP
        Acquisition amounts to R6.4 million. Sovereign will advance an interest free loan to the
        ESOP Trust in order to fund the ESOP Acquisition.

        The constituent elements of the Proposed Transactions are inter-conditional and accordingly
        the ESOP Acquisition is conditional upon the implementation of the Repurchase and the
        BEE Transaction. If the Proposed Transactions are not implemented, the ESOP Trust will
        purchase Shares in the market in the ordinary course in accordance with the ESOP Trust
        deed.
                                                                                           
     6.4. Repurchase

         In terms of the Repurchase, Sovereign will acquire the Acquisition Shares less the Shares
         purchased by the ESOP Trust pursuant to the ESOP Acquisition, representing no less than
         6 586 168 Shares (representing 8.6% of total current Shares in issue) and no more than
         7 336 168 Shares (representing 9.6% of total current Shares in issue).

         The total consideration payable by Sovereign in terms of the Repurchase amounts to no
         less than R55 million (in the event that the ESOP purchases all 750 000 Shares in terms of
         the ESOP Acquisition) and no more than R63 million (in the event that the ESOP does not
         purchase any Shares in terms of the ESOP Acquisition).

         The Repurchase will be implemented by way of the Scheme and in accordance with the
         requirements of section 48(8)(b) as read with section 114 of the Companies Act. The Board
         will proceed to propose the Scheme once the Cash Confirmation is secured to the
         satisfaction of the Panel.

         The constituent elements of the Proposed Transactions are inter-conditional and accordingly
         the Repurchase is conditional upon the implementation of the BEE Transaction.

     6.5. Tender process

         The Repurchase and the ESOP Acquisition will be implemented on the basis that
         Participating Shareholders will be entitled to elect whether or not to sell all or any of their
         Shares. If a Participating Shareholder wishes to sell Shares, then such Participating
         Shareholder will be required to tender such Shares (“Tender Shares”) to Sovereign and the
         ESOP Trust jointly and severally (“Tender”).

         In the event that the total Tender Shares are equal to the Acquisition Shares, then the
         ESOP Trust and Sovereign will each acquire 750 000 Shares and 6 586 168 Shares
         respectively.

         In the event that the total Tender Shares exceed the Acquisition Shares, then such excess
         Tender Shares will be excluded from the Share Acquisition in a manner which will ensure
         the equitable treatment of all Participating Shareholders.

         In the event that the total Tender Shares are less than the Acquisition Shares, Sovereign will
         invoke the provisions of the Scheme in order to acquire the remaining Shares from all
         Participating Shareholders, irrespective of whether they Tendered Shares or not,
         proportionate to the number of Shares held.

         Further details of the manner in which excess Tender Shares will be treated and how
         Shares will be acquired in terms of the Scheme, including the calculation formulas, will be
         set out in the transaction circular to be distributed to Shareholders pertaining to the
         Proposed Transactions (“Transaction Circular”) in due course.

7.   Salient terms of the BEE Transaction

     7.1. Overview

         A new special purpose trust (“BEE Trust”) will be established to house the collective
         interests of the following beneficiaries:                                                                                   
     -    Sovereign’s strategic BEE partners as further detailed in paragraph 7.3 below
         (“Strategic Partners”);
     -    all employees of Sovereign and its group companies, other than Exco members,
         facilitated through the establishment of an employee trust (“Employee Trust”);
     -   communities resident in the broader Uitenhage region, facilitated through the
         establishment of a community trust (“Community Trust”); and
     -   Exco members,
    collectively, the “BEE Trust Beneficiaries”.

    The BEE Trust will subscribe for 23 877 355 new Shares which will be notionally funded by
    Sovereign (“Notionally Funded Shares”). Furthermore, Exco members will collectively
    contribute 1 300 795 Shares currently held by them (“Contributed Shares”) to the BEE
    Trust together with an amount of approximately R6.4 million in cash (“Contributed Cash”),
    in order to enable the BEE Trust to subscribe for an additional 758 031 Shares at R8.50 per
    Share (“Exco Funded Shares”).

    After implementation of the Share Acquisition and the BEE Transaction, the BEE Trust will
    hold approximately 28.2% of Sovereign’s total Shares in issue, excluding treasury shares
    held by Crown Chickens and the ESOP Trust (collectively, “Treasury Shares”).

7.2. Participation in the BEE Trust

    The BEE Trust will house the interests of the BEE Trust Beneficiaries and their participation
    in the BEE Trust will be facilitated through the allocation of 25 936 181 notional units in the
    BEE Trust (“Trust Units”). Each Trust Unit will represent one underlying Notionally Funded
    Share, Contributed Share or Exco Funded Share, as further detailed below.

    The Trust Units will be allocated as follows:

      - 14 264 894 Trust Units will be allocated to the Strategic Partners, Employee Trust and
        Community Trust (collectively, “BEE Parties”) for no consideration, as follows:
         - 10 374 472 Trust Units to the Strategic Partners (“A Units”); and
         - 3 890 422 Trust Units to the Employee Trust and Community Trust (“C Units”).
      - Exco members will collectively be allocated:
         - 5 187 235 Trust Units (“B1 Units”);
         - 1 300 795 Trust Units in settlement of the purchase consideration for the
          Contributed Shares and 758 031 Trust Units in exchange for the Contributed Cash
          (collectively, “B2 Units”); and
         - approximately 2.15 additional Trust Units for each B2 Unit allocated, amounting to
           4 425 226 Trust Units (“B3 Units”).

    Capital gains tax or income tax payable by Exco members as a result of the disposal of the
    Contributed Shares to the BEE Trust will be reimbursed by Sovereign, subject to a
    maximum of R500 000 in aggregate and prior to deducting any income tax payable pursuant
    to such reimbursement.

    The Exco Funded Shares and Contributed Shares will be represented by the B2 Units and
    the Notionally Funded Shares will be represented by the A Units, B1 Units, B3 Units and C
    Units. Accordingly, following the implementation of the BEE Transaction, the BEE Trust
    Beneficiaries will hold the following interests in the BEE Trust and see-through interests in
    Sovereign:

                                                                                            
    BEE                       Percentage      Effective see-through     Effective see-through
    Trust                        held in                   interest             percentage of
    Beneficiary             the BEE Trust        (number of Shares)         Sovereign Shares*
    Strategic Partners             40%                  10 374 472                     11.3%

    Employee Trust                  12%                   3 112 336                     3.4%

    Community Trust                   3%                    778 086                     0.8%

    Exco members                    45%                  11 671 287                    12.7%

    Total                          100%                  25 936 181                    28.2%


    *   Reflected as a percentage of the total number of Shares in issue less Treasury Shares,
        following the implementation of the Proposed Transactions.

7.3. Strategic Partners

    The Strategic Partners are Mr Litha Mveliso Nyhonyha, Professor Mziwakhe Phinda Madi,
    Mr Tshililo Ronald Ramabulana and Mr Wanda Sowazi. Mr Nyhonyha and Professor Madi
    are previous non-executive directors of Sovereign. Further information regarding the
    Strategic Partners will be set out in the Transaction Circular.

7.4. Exco members

    Exco comprises Messrs Christopher Coombes (CEO), Grant Lawrence Coley (CFO), Gerald
    Godfrey Walter (Executive: Group Marketing), Blaine Justin van Rensburg (Executive:
    Products), Ettienne du Preez (Executive: Agriculture) and Thuto Maepa (Executive: Human
    Resources).

7.5. Specific issue of Shares

    The BEE Trust will subscribe for the Exco Funded Shares and the Notionally Funded
    Shares, collectively amounting to 24 635 386 Shares (“Subscription Shares”), at a price of
    R8.50 per Subscription Share (“Subscription Price”) and constituting a total subscription
    consideration of approximately R209 million. The Subscription Price represents a 7.3%
    premium to the 30 day VWAP of a Share up to and including the date of the Cautionary
    Announcement.

    The issue of the Subscription Shares constitutes –
       -    a specific issue of shares for cash by Sovereign, in terms of paragraph 5.51 of the
            Listings Requirements;
       -    an issue of Shares in excess of 30% of the issued share capital of Sovereign, as
            contemplated in section 41(3) of the Companies Act; and
       -    an issue of Shares to a person related or inter-related to the Company, as
            contemplated in section 41(1) of the Companies Act.

    All Shares held by the BEE Trust, comprising the Contributed Shares, Exco Funded Shares
    and Notionally Funded Shares, shall rank pari passu in all respects with all other Shares in
    issue.

                                                                                           
7.6. Settlement of the Subscription Price and notional funding

       The BEE Trust will settle the subscription proceeds for the Exco Funded Shares by utilising
       the Contributed Cash.

       Sovereign will notionally fund the subscription proceeds for the Notionally Funded Shares
       through an issue of notional preferent units in the BEE Trust to Sovereign (“Notional
       Loan”). The Notional Loan will amount to approximately R203 million (“Notional Loan
       Amount”) and will accrue interest at the prime rate less 150 basis points.

       The Notional Loan constitutes the provision of financial assistance in terms of sections 44
       and 45 of the Companies Act.

       The Notional Loan and interest will be repaid out of dividends received by the BEE Trust
       during the Lock-in Period as further detailed in par 7.7 below. The Notional Loan will be
       repayable on the earlier of (i) expiry of the Lock-in Period and (ii) the occurrence of a
       change of control in respect of Sovereign (“Notional Funding Settlement Date”).
       Settlement of the Notional Loan will be implemented by way of a repurchase by Sovereign
       of Notionally Funded Shares from the BEE Trust at the end of the Lock-in Period
       (“Redemption Repurchase”). In terms of the Redemption Repurchase Sovereign will
       repurchase, at a nominal amount, such number of Notionally Funded Shares from the BEE
       Trust as is necessary to settle the Notional Loan together with any unpaid interest.

       In accordance with the provisions of section 48(8)(b) as read with section 114 of the
       Companies Act, the Redemption Repurchase will be implemented as a scheme of
       arrangement.

7.7. Participation in dividends by the BEE Trust Beneficiaries

       In the event that Sovereign pays a dividend to its Shareholders, the dividend received by the
       BEE Trust will be allocated as follows:

        - the dividend in respect of the Exco Funded Shares and the Contributed Shares will
          accrue and be distributed to the Exco members; and
        - the dividend in respect of the Notionally Funded Shares will be utilised:
            - firstly, to pay or provide for any tax liabilities (if any) which have accrued as a
               result of the dividend in respect of the Notionally Funded Shares;
            - thereafter, 10% of the remaining available cash will be distributed to the BEE Trust
               Beneficiaries;
            - thereafter, to pay the interest on the Notional Loan; and
            - thereafter, to settle the Notional Loan Amount.

7.8.       Voting rights and restrictions in respect of Shares held by the BEE Trust and
           Trust Units

       The BEE Trust will not be entitled to dispose of the Shares held until expiry of the Lock-in
       Period, save to the extent that an Exco member elects to dispose of B2 Units as more fully
       set out below. On expiry of the Lock-in Period, the Trust Units will be redeemed in exchange
       for Shares held by the BEE Trust as further detailed below.

       Subject to the restrictions below, the BEE Trust Beneficiaries will be entitled to vote the
       Shares held by the BEE Trust in proportion to the number of Trust Units held.
                                                                                              
7.8.1. Exco

      - Until the Notional Funding Settlement Date, each Exco member will:
         -   not be entitled to dispose of or encumber their B1 Units and B3 Units
             represented by Notionally Funded Shares;
         -   not be entitled to encumber their B2 Units;
         -   be entitled to dispose of their B2 Units in exchange for the underlying
             Contributed Shares and Exco Funded Shares, subject to a pre-emptive right
             in favour of the BEE Trust, in which event the Exco member will forfeit all B1
             Units and B3 Units held; and
         -   not be entitled to vote any of the Shares represented by their Trust Units
             other than in respect of an offer which will result in a change of control of
             Sovereign.

      - After the Notional Funding Settlement Date, each Exco member will be entitled to:
         - redeem their B2 Units represented by Contributed Shares and Exco Funded
             Shares in exchange for such Shares; and
         - redeem their B1 Units and B3 Units represented by Notionally Funded Shares
             in exchange for a proportional amount of the remaining Notionally Funded
             Shares following settlement of the Notional Loan by way of the Redemption
             Repurchase.

      - In the event that an Exco member leaves the employ of the Sovereign group prior
        to the expiry of the Lock-in Period:
          - at the election of the Exco member, B2 Units represented by Contributed
             Shares and Exco Funded Shares will be redeemed for such Shares; and
          - “good” and “bad” leaver provisions will apply with respect to B1 Units and B3
             Units represented by Notionally Funded Shares, further details of which will
             be set out in the Proposed Transactions Circular.

      In the event that a member of Exco breaches the provisions of the Proposed
      Transactions set out in the relevant agreements, the independent directors of
      Sovereign shall be entitled to require that B2 Units are redeemed in exchange for the
      Contributed Shares and Exco Funded Shares and that the B1 Units and B3 Units be
      forfeited.

7.8.2. BEE Parties

      Until expiry of the Lock-in Period, the BEE Parties will be entitled to vote Notionally
      Funded Shares represented by their A Units and C Units but will be prohibited from
      disposing of or encumbering such Trust Units.

      On expiry of the Lock-in Period, the BEE Parties will be entitled to have all their Trust
      Units redeemed in exchange for a proportional amount of the remaining Notionally
      Funded Shares following settlement of the Notional Loan by way of the Redemption
      Repurchase.

      If, prior to the Notional Funding Settlement Date, a BEE Party breaches the provisions
      of any agreement pertaining to the BEE Transaction, the independent directors of
      Sovereign may require that all Trust Units held by such BEE Party be forfeited.
                                                                                         
8.   Details of the New Executive Remuneration Policy

     8.1. New Executive Remuneration Policy

         The New Executive Remuneration Policy comprises:

           - the termination of the Company’s existing long-term incentive scheme (“LTIS”) and
             Exco’s participation therein, including in respect of all historical, current and future
             unvested allocations and all participation rights;
           - the termination of the Company’s current short-term incentive scheme; and
           - the creation of a new short-term incentive scheme (“New STIS”) in order to significantly
             reduce the potential costs to be incurred by Sovereign in respect of short-term
             incentives and to better align future costs with Shareholder value creation and more
             relevant performance criteria.

         The New Executive Remuneration Policy will be effected upon implementation of the
         Proposed Transactions. In order to implement the New Executive Remuneration Policy it is
         necessary to make various amendments to each Exco member’s employment contract
         (“Employment Contract Amendments”). All the Exco members have entered into their
         respective Employment Contract Amendments, which will become unconditional upon the
         implementation of the Proposed Transactions.

     8.2. Salient terms of the New STIS

         The Salient terms of the New STIS are as follows:

           - The maximum amount payable to each member of Exco will be capped at 30% of the
             relevant Exco member’s annual total cost to company (Sovereign’s current short-term
             incentive scheme allows a maximum payment of 100% of the relevant Exco member’s
             annual total cost to company).
           - Sovereign’s Human Resource and Remuneration Committee (“HR&R Committee”),
             comprising only independent non-executive directors, will, in its sole discretion, set the
             performance and any other conditions applicable to the New STIS, from time to time.
           - Regardless of whether the performance conditions are fulfilled, payments under the
             New STIS will be made at the HR&R Committee’s sole discretion.
           - Payments in relation to the STIS will be made in cash and no restrictions will apply on
             the application of such cash.
           - The terms listed above may not be changed without prior approval by Shareholders.

9. Details of the NED Fee Policy

     The introduction of the NED Fee Policy is independent of the Proposed Transactions. In terms of
     the NED Fee Policy, fees payable to non-executive directors will be reduced to the following:

      Role / position       Annual base fee              Meeting fee (per            Aggregate
                                                         meeting)                    annual cap
      
      Chairman              New:                         New:                         New:
                            R300 000                     R15 000                      R375 000

                            Previously:                  Previously:                  Previously:
                            R525 000                     R36 500                      No cap
                                                                                                   
     Non-executive           New:                       New:                          New:
     director (serving as    R225 000                   - R10 000 (sub-               R275 000
     a    sub-committee                                   committee meeting
     chairman)                                            acting as chairman);        Previously:
                                                          or
                                                                                      No cap
                                                        - R8 000 (any other
                                                          Board / committee
                                                          meeting)

                                                        Previously:
                                                        - R17 000 (A&R
                                                          Committee chair);
                                                        - R13 000 (HR&R
                                                          Committee chair);
                                                        - R9 000 (S&E
                                                          Committee chair)
    
     Non-executive           New:                       New:                          New:
     director (not serving   R200 000                   R8 000                        R240 000
     as a sub-committee
     chairman)               Previously:                Previously:                   Previously:
                               - R158 000 (board        R19 500                       No cap
                                 member)
                               - R 85 000 (A&R
                                 Committee member)
                               - R74 000 (HR&R
                                 Committee member)
                               - R33 000 (S&E
                                 Committee member)

    In respect of any particular non-executive Director who holds more than one position, the
    aggregate annual cap referred to above shall be inclusive of all fees payable to such non-
    executive director, regardless of the number of positions held and shall, in respect of the first
    financial year, be pro-rated from 1 October 2015 to the end of the current financial year.

    The NED Fee Policy will be applicable for a period of three years, from the date on which
    Shareholders approve the NED Fee Policy, and shall not be amended without prior approval
    from Shareholders. The NED Fee Policy shall be subject to Shareholder approval every two
    years in accordance with the Companies Act. Amounts payable in terms of the NED Fee Policy
    will escalate annually at CPI.

10. Details of the Board Restructuring

    The Board Restructuring has been implemented and is independent of the Proposed
    Transactions.

    Pursuant to the provisions of paragraph 3.59 of the JSE Limited Listings Requirements
    (“Listings Requirements”), Shareholders are informed of the changes to the Board set out
    below.

    10.1.      Retirement of the chairman of the Board

    Mr Charles Peter Davies has informed the Board of his intended retirement as a Board
    member, in order to pursue family and personal interests, which retirement will take effect
    on 29 February 2016.
                                                                                 
    Having notified the Board of his intention to retire, Mr Davies opted to retire as chairman of
    the Board (“Chairman”) with effect from 10 October 2015 in order to facilitate the election of
    Mr Thomas (Tom) Pritchard as new Chairman (as set out below), thereby ensuring a
    smooth transition following the Board Restructuring.

    Mr Davies will continue to serve as an independent non-executive director until his
    retirement in order to assist Sovereign with a smooth transition, also in consideration of the
    impact of the other elements of the Board Restructuring on the composition of the Board
    and the relevant committees, as set out below in more detail.

    Mr Davies has made an invaluable contribution to Sovereign during his tenure as Chairman
    and member of the Board. The Board wishes him continued success and would like to
    extend its sincere appreciation for his leadership and unwavering support to the Company
    over the past approximately 10 years.

10.2.     Election of a new Chairman

    Mr Tom Pritchard has been appointed as Chairman with effect from 10 October 2015.

    Mr Pritchard, a chartered accountant (SA), has served as a director of Sovereign since
    1 November 2010 and has extensive experience in the poultry industry, in addition to having
    several years of experience in private equity and consumer goods.

    Mr Pritchard has in-depth knowledge of Sovereign and, combined with his sector knowledge
    and experience, is well placed to lead the Board post the Board Restructuring.

10.3.     Resignation of non-executive directors

    Two of the Strategic Partners selected to participate in the BEE Transaction, namely Mr
    Litha Mveliso Nyhonyha and Professor Mziwakhe Phinda Madi, have been Board members
    since 2007.

    In order to enable the BEE Trust to consider and nominate its own representatives to serve
    on the Board upon implementation of the BEE Transaction, Mr Nyhonyha and Professor
    Madi have voluntarily elected to step down from the Board, with effect from 9 October 2015.
    Until their respective resignations, Mr Nyhonyha served as chairman of the Audit and Risk
    Committee and Professor Madi served as the chairman of the HR&R Committee.

    Mr Nyhonyha and Professor Madi recused themselves from all decisions pertaining to the
    BEE Transaction and other elements of the Proposed Transactions, as a result of the
    interconditional structure of the Proposed Transactions. Their resignations became effective
    prior to the Board approving the Proposed Transactions.

    The Board wishes to extend its sincere appreciation to Mr Nyhonyha and Professor Madi for
    their approximately eight years of dedicated service to the Company and Sovereign is
    looking forward to welcoming them back as strategic partners participating in the BEE
    Transaction.

10.4.     Resignation of executive directors

    Following the resignation of Mr Nyhonyha and Professor Madi and in order to maintain the
    balance between non-executive directors and executive directors, including ensuring an                                                                                  
    outright majority of non-executive directors serving on the Board, Messrs Gerald Walter and
    Blaine van Rensburg have volunteered to step down from the Board, with effect from
    9 October 2015.

    Messrs Walter and van Rensburg remain employees of the Company and members of
    Exco.

10.5.     Appointment of further independent Board members

    Pursuant to the impending retirement of Mr Davies, the Board will proceed to search for a
    suitable replacement. Furthermore, it is the Board’s intention to invite representatives of the
    BEE Trust to serve on the Board upon implementation of the BEE Transaction.
    Shareholders will be notified of such changes to the Board pursuant to the provisions of the
    Listings Requirements.

10.6.     Sub-committee membership

    As a result of the Board Restructuring, various changes to the constitution of Sovereign’s
    sub-committees have been implemented. The following changes have been made with
    effect from 9 and 10 October 2015, respectively:

    10.6.1.        Audit and Risk Committee (“A&R Committee”)

          - Mr Litha Nyhonyha resigned as chairman on 9 October 2015;
          - Mr John Bester, a current member of the A&R Committee, has been appointed as
            the chairman with effect from 10 October 2015; and
          - Mr Charles Davies has been appointed as a member of the A&R Committee, with
            effect from 10 October 2015, until the earlier of 29 February 2016 or the
            appointment of another independent non-executive director to his position by the
            Company.

    10.6.2.        Human Resource and Remuneration Committee (HR&R Committee)

          - Professor Phinda Madi resigned as chairman on 9 October 2015;
          - Mr John Bester, a current member of the HR&R Committee, has been appointed
            as the interim chairman of this committee with effect from 10 October 2015, until
            the earlier of 29 February 2016 or the appointment of another non-executive
            director to his position, whereas it is the intention of the Board to secure a new
            chairman for this position in due course, in order to further promote the
            independence of the HR&R Committee;
          - Mr Tom Pritchard has been appointed as a member of the HR&R Committee with
            effect from 10 October 2015; and
          - Mr Charles Davies, a current member of the HR&R Committee, will remain as a
            member of this committee until the earlier of 29 February 2016 or the appointment
            of another independent non-executive director to his position.

    10.6.3.        Social and Ethics Committee (“S&E Committee”)

          - Professor Phinda Madi resigned as chairman on 9 October 2015;
          - Mr Tom Pritchard has been appointed as a member of the S&E Committee with
            effect from 10 October 2015;                                                                       
          - Mr John Bester, a current member of the S&E Committee, has been appointed as
            the interim chairman until the earlier of 29 February 2016 and the appointment of
            another independent non-executive director to his position; and
          - Mr Charles Davies, a current member of the S&E Committee, will remain as a
            member until the earlier of 29 February 2016 or the appointment of another
            independent non-executive director to his position.

11. Conditions Precedent

    11.1. The Repurchase

         Upon the Board proceeding to propose the Scheme, the Repurchase will be subject to the
         fulfilment of inter alia the following conditions precedent:

          - the issue of the Transaction Circular to Shareholders;
          - Shareholders passing a special resolution in terms of section 48(8) as read with
            sections 114 and 115 of the Companies Act authorising the Scheme at a general
            meeting of Shareholders convened for purposes of considering and, if deemed fit,
            approving the resolutions required to approve the Proposed Transactions (“General
            Meeting”);
          - the receipt of unconditional approvals, consents or waivers from all regulatory bodies,
            or to the extent that any such approvals, consents or waivers are subject to
            conditions, such conditions being satisfactory to Sovereign;
          - the Panel issuing a compliance certificate in respect of the Repurchase; and
          - fulfilment of the BEE Transaction conditions set out in paragraph 11.2 below, other
            than the condition relating to the implementation of the Repurchase.

    11.2. The BEE Transaction and the New Executive Remuneration Policy

         The BEE Transaction and the New Executive Remuneration Policy are subject to the
         fulfilment or waiver (where applicable) of inter alia the following conditions precedent:

          - implementation of the Repurchase;
          - Shareholders approving, at the General Meeting:
              - the allotment and issue of the Subscription Shares to the BEE Trust pursuant to
                paragraph 5.51(g) of the Listings Requirements and in terms of sections 41(3)
                and 41(1) of the Companies Act;
              - the granting of financial assistance by Sovereign to the BEE Trust in terms of
                sections 44 and 45 of the Companies Act;
              - the Redemption Repurchase by way of a scheme of arrangement in terms of
                section 48(8) as read with sections 114 and 115 of the Companies Act; and
          - the execution of certain of the agreements pertaining to the Proposed Transactions by
            the BEE Trust, the Employee Trust and the Community Trust and such agreements
            becoming unconditional in accordance with their terms.

    11.3. The NED Fee Policy

          The NED Fee Policy is subject to Shareholders approving, at the General Meeting, a
          special resolution in accordance with section 66(9) of the Companies Act.
                                                                                            
12. Pro forma financial information

    The table below sets out the summary pro forma financial effects of the Proposed Transactions
    and the introduction of the NED Fee Policy on Sovereign’s basic earnings, headline earnings,
    diluted earnings, diluted headline earnings, net asset value and net tangible asset value per
    Share, both inclusive and exclusive of once-off costs. Once-off costs include a BEE share based
    payment charge in terms of IFRS 2: Share-based payment and transaction costs.

    The summary pro forma financial effects have been prepared to illustrate the impact of the
    Proposed Transactions and the introduction of the NED Fee Policy on the audited, published
    financial information of Sovereign for the year ended 28 February 2015, had the Proposed
    Transactions and the introduction of the NED Fee Policy occurred on 1 March 2014 for purposes
    of the statement of comprehensive income and on 28 February 2015 for purposes of the
    statement of financial position.

    The summary pro forma financial effects have been prepared using the accounting policies that
    comply with International Financial Reporting Standards and are consistent with those applied in
    the audited, published financial statements of Sovereign for the year ended
    28 February 2015.

    The summary pro forma financial effects set out below are the responsibility of the Board and
    have been prepared for illustrative purposes only and because of their nature may not fairly
    present the financial position, changes in equity and results of operations or cash flows of
    Sovereign after the Proposed Transactions and the introduction of the NED Fee Policy.

    The pro forma financial effects contain a preliminary estimate of the recognition of transaction
    costs and the measurement and recognition of the IFRS 2 charges associated with the Proposed
    Transactions based on the Board’s best estimate. The measurement and recognition of the IFRS
    2 charge and costs pertaining to the Proposed Transactions are subject to review by the
    reporting accountants and Sovereign’s auditors.




                                                                                             
                                                    Before the                                                                     After the
                                                     Proposed                                                                     Proposed
                                                 Transactions                                                                 Transactions
                                                           and      After post                                                          and
                                                  introduction        balance                       After the                  introduction
                                                    of the NED          sheet                      Proposed                      of the NED                    Overall %
                                                    Fee Policy         events      % change    Transactions       % change       Fee Policy      % change        change
                                                       (Actual)   (Pro forma)    (Pro forma)     (Pro forma)    (Pro forma)     (Pro forma)    (Pro forma)   (Pro forma)
Notes                                                        1               2             3                4             5                6             7             8

Excluding once-off costs
Earnings per Share excluding once-off costs
(cents)                                                  101.9          103.3          1.3%            132.4         28.3%            134.4          1.5%         31.9%
Diluted earnings per Share excluding once-off
costs (cents)                                            101.9          103.3          1.3%            132.4         28.3%            134.4          1.5%         31.9%
Headline earnings per Share excluding once-off
costs (cents)                                            103.3          104.7          1.3%            134.0         28.0%            136.0          1.5%         31.6%
Diluted headline earnings per Share excluding
once-off costs (cents)                                   103.3          104.7          1.3%            134.0         28.0%            136.0          1.5%         31.6%
Net asset value per Share excluding once-off
costs (cents)                                            941.5          943.4          0.2%          1 004.1          6.4%          1 006.0          0.2%          6.8%
Net tangible asset value per Share excluding
once-off costs (cents)                                   941.5          943.4          0.2%          1 004.1          6.4%          1 006.0          0.2%          6.8%

Including once-off costs
Earnings per Share (cents)                               101.9          103.3          1.3%            100.2        (3.0%)            101.8          1.6%        (0.1%)
Diluted earnings per Share (cents)                       101.9          103.3          1.3%            100.2        (3.0%)            101.8          1.6%        (0.1%)
Headline earnings per Share (cents)                      103.3          104.7          1.3%            101.8        (2.7%)            103.5          1.6%          0.1%
Diluted headline earnings per Share (cents)              103.3          104.7          1.3%            101.8        (2.7%)            103.5          1.6%          0.1%
Net asset value per Share (cents)                        941.5          943.4          0.2%            980.2          3.9%            981.7          0.2%          4.3%
Net tangible asset value per Share (cents)               941.5          943.4          0.2%            980.2          3.9%            981.7          0.2%          4.3%

Number of Shares in issue                          76 222 266     76 222 266                     94 271 484                     94 271 484
Number of Shares in issue less Treasury                                               
Shares                                             75 647 266     74 662 466                     66 025 503                     66 025 503
Weighted average number of Shares in issue         76 128 079     75 143 279                     66 506 316                     66 506 316


                                                                                                                                                               pg. 15
Notes:

1   The “Before the Proposed Transactions and introduction of the NED Fee Policy” basic earnings,
    headline earnings, diluted earnings, diluted headline earnings per Sovereign Share have been
    extracted without adjustment from the audited, published financial statements of Sovereign for the
    year ended 28 February 2015. The “Before the Proposed Transactions and introduction of the
    NED Fee Policy” net asset value and net tangible asset value per Sovereign Share have been
    calculated from the financial information presented in the audited, published financial statements
    of Sovereign as at 28 February 2015.

2   The financial information included in the “After post balance sheet events” column has been
    prepared based on Sovereign’s audited, published financial statements for the year ended
    28 February 2015 and taking into account the following:
    a. The acquisition by ESOP Trust of 350 000 Shares as detailed in the SENS announcement
        published on 18 May 2015.
    b. The acquisition by Crown Chickens of 634 800 Shares.
    c. Recognition of taxation at a rate of 28%.

3   The percentage change is measured as the difference between the “After post balance sheet
    events” column and the “Before the Proposed Transactions and introduction of the NED Fee
    Policy” column as a percentage of the “Before the Proposed Transactions and introduction of the
    NED Fee Policy” column.

4   The financial information included in the “After the Proposed Transactions” column has been
    prepared based on Sovereign’s audited, published financial statements for the year ended
    28 February 2015, adjusted for those adjustments set out in point 2 above and taking into account
    the following:
    a.   The repurchase of 6 586 168 Shares by Sovereign and a cash payment of R55 982 428, from
         Sovereign’s cash reserves, to Participating Shareholders in terms of the Share Acquisition.
    b.   The acquisition of 750 000 Shares by the ESOP Trust and a cash payment of R6 375 000,
         funded by Sovereign from Sovereign’s cash reserves, to Participating Shareholders in terms
         of the ESOP Acquisition.
    c.   The acquisition by the BEE Trust of 1 300 795 Contributed Shares, which Shares will be
         recognised as Treasury Shares.
    d.   The subscription by the BEE Trust of 758 031 Exco Funded Shares, which Shares will be
         recognised as Treasury Shares, and cash receipt of an amount of R6 443 264 by the BEE
         Trust in terms of the Contributed Cash.
    e.   The subscription by the BEE Trust of 23 877 355 Notionally Funded Shares, which Shares
         will be recognised as Treasury Shares, funded through the subscription by Sovereign for
         23 877 355 preferent units in the BEE Trust, in terms of the Notional Loan and the
         consolidation of the BEE Trust in terms of IFRS 10: Consolidated Financial Statements.
    f.   Termination of the LTIS and the consequent reversal of costs and an accrual relating thereto
         in an amount of R12 227 000, arising in terms of the LTIS awards which vested on
         28 February 2015, which adjustment is expected to have a continuing effect on the financial
         information of Sovereign.
    g.   Amendment to the STIS as it relates to Exco by reversing costs and an accrual relating
         thereto in an amount of R11 976 000 and recognising costs and an accrual of R4 042 500
         (based on the New STIS cap, applied in aggregate, i.e. a maximum of 30% of the total cost to
         company of each Exco member), which adjustments are expected to have a continuing effect
         on the financial information of Sovereign.
    h.   Recognition of a once-off BEE share based payment charge of R14 011 349 and a recurring
         share based payment charge of R1 854 600 in terms of IFRS 2: Share-Based Payments. The                                                                         
         recurring share based payment charge will have a continuing effect on the financial
         information of Sovereign. A valuation of the share based payment charge is currently being
         performed and will be finalised in due course.
     i.  Payment of once-off transaction costs attributable to the Proposed Transactions amounting to
         R16 745 390, of which R8 372 695 is expensed and R8 372 695 is deducted from equity in
         terms of IAS 32: Financial Instruments - Presentation.
     j.  Payment in cash of a maximum of R500 000 in respect of capital gains tax or income tax
         payable by Exco members as a result of the disposal of the Contributed Shares.
     k.  Deduction of interest received of an amount of R3 020 856 in respect of the net cash amount
         paid out pursuant to the Proposed Transactions.
     l.  Recognition of taxation at a rate of 28%.
     m.  Recognition of securities transfer tax at a rate of 0.25%.

 5   The percentage change is measured as the difference between the “After the Proposed
     Transactions” column and the “After post balance sheet events” column as a percentage of the
     “After post balance sheet events” column.

 6   The financial information included in the “After the Proposed Transactions and introduction of NED
     Fee Policy” column has been prepared based on Sovereign’s audited, published financial
     statements for the year ended 28 February 2015, adjusted for those adjustments set out in points
     2 and 4 above and taking into account the following:
     a.   Deduction of the fees paid to non-executive directors in an amount of R3 104 000 and the
          recognition of amounts paid to non-executive directors of R1 405 000 pursuant to the NED
          Fee Policy, which adjustments are expected to have a continuing effect on the financial
          information of Sovereign.
     b.   Payment of once-off transaction costs attributable to the introduction of the NED Fee Policy
          amounting to R300 000 of which the total amount is expensed.
     c.   Recognition of interest received of an amount of R123 920 pursuant to the introduction of the
          NED Fee Policy.
     d.   Recognition of taxation at a rate of 28%.
     e.   Recognition of securities transfer tax at a rate of 0.25%.

 7   The percentage change is measured as the difference between the “After the Proposed
     Transactions and introduction of NED Fee Policy” column and the “After the Proposed
     Transactions” column as a percentage of the “After the Proposed Transactions” column.

 8   The percentage change is measured as the difference between the “After the Proposed
     Transactions and introduction of NED Fee Policy” column and the “Before the Proposed
     Transactions and introduction of the NED Fee Policy” column as a percentage of the “Before the
     Proposed Transactions and introduction of the NED Fee Policy” column.

The financial effects of the Redemption Repurchase has not been included in the above
summary pro forma financial information, however if the Redemption Repurchase were to be
implemented in the future, the effect would be a total cash payment of R1 for all Notionally
Funded Shares repurchased by Sovereign and the reduction in the number of Shares in issue by
such number of Notionally Funded Shares repurchased in terms of the Redemption Repurchase.

The summary pro forma financial effects have not been reviewed or reported on by the reporting
accountants and auditors of Sovereign.
                                                                                   
Sovereign will be publishing interim results for the 6 month period ended 31 August 2015 on
SENS on or about 12 October 2015. Accordingly, revised pro forma financial information will be
provided to Sovereign Shareholders in due course.

13. Related parties

    Mr Christopher Coombes, Mr Grant Coley, Mr Gerald Walter, Mr Blaine van Rensburg, Mr Litha
    Nyhonyha and Professor Phinda Madi are directors or past directors of Sovereign and
    Mr Ettienne du Preez (Executive: Agriculture) and Ms Thuto Maepa (Executive: Human
    Resources) are principal executive officers of Sovereign (collectively, “Related Parties”) and will
    participate in the BEE Transaction through the Trust Units held by each of them in the BEE Trust.
    Accordingly, the Related Parties are considered related parties to Sovereign in terms of
    paragraph 10.1(b)(ii) of the Listings Requirements and as a result the BEE Trust is considered a
    related party to Sovereign in terms of paragraph 10.1(b)(vii) of the Listings Requirements.

14. Independent expert opinions

    The Repurchase will be classified as an “affected transaction” in terms of section 117 of the
    Companies Act. Accordingly, in anticipation of the Board proposing the Scheme, Sovereign has
    convened an independent board of directors (“Independent Board”) comprised of Mr Tom
    Pritchard, Mr John Bester and Mr Charles Davies to consider the terms of the Scheme.

    In accordance with section 114(2) of the Companies Act, regulation 110 of the Regulations and
    the Guidance Letter dated 11 November 2011 of the Listings Requirements, the Independent
    Board has appointed Mazars Corporate Finance Proprietary Limited as the independent expert
    (“Independent Expert”) to provide the Independent Board and the Board with external advice in
    relation to the Scheme, the specific issue of shares contemplated by the BEE Transaction and
    the Redemption Repurchase.

    The report of the Independent Expert as well as the recommendation to the Board and the
    Independent Board will be included in the Transaction Circular to be sent to Shareholders.

15. Irrevocable undertakings

    Each of the Shareholders set out in the table below, who collectively hold 53.2% of the Shares
    eligible for voting at the General Meeting, have irrevocably undertaken to attend the General
    Meeting and vote in favour of all resolutions required to implement the Proposed Transactions
    and the NED Fee Policy (“Irrevocables”):

    Shareholder                                   Number of Shares held at             Percentage of
                                                 the date of providing the           eligible Shares
                                                              Irrevocables
    Prudential Investment Managers                               15 446 776                   21.1%
    Sanlam Investment Management                                  9 350 000                   12.7%
    RECM/Calibre                                                  8 646 024                   11.8%
    Old Mutual Investment Group                                   5 572 741                    7.6%
    Total                                                        39 015 541                   53.2%

16. Salient dates and times and other important information

    Once the Company has secured the Cash Confirmation and the Company is ready to proceed
    with the Repurchase, a further announcement will be published to Shareholders.
                                                                                                
    Further details relating to the Proposed Transactions and the NED Fee Policy, posting of the
    Proposed Transactions Circular and the related salient dates and times will be published on
    SENS in due course.

17. Withdrawal of Cautionary Announcement

    Shareholders are advised that caution is no longer required to be exercised when dealing in the
    Company’s securities.


Port Elizabeth
12 October 2015


Corporate advisor and Sponsor
One Capital


Attorneys to Sovereign
Cliffe Dekker Hofmeyr Inc.




                                                                                            pg. 19

Date: 12/10/2015 08:19:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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