Notes to the annual financial statements

FOR THE YEAR ENDED 31 MARCH 2010

26. share-based payments

The share-based payments that are accounted for in the financial statements are in respect of the Remgro Share Scheme and the Remgro Equity Settled Share Appreciation Right Scheme, as well as the Rainbow Share Scheme and the Rainbow Share Appreciation Right Scheme.

Background to the Remgro Share Scheme and the Remgro Equity Settled Share Appreciation Right Scheme
The valuation of both share schemes were performed using an actuarial model. This model was developed by an independent third party from the standard binomial option pricing model in order to address the unique nature of the schemes, especially with regard to early exercise of offers.

The expected contract lifetimes are estimated by considering separately each of the tranches within that grant. The risk-free rate was estimated by using the implied yield on an SA zero-coupon government bond and the yield curve over the expected contract lifetimes of five, six and seven years from the offer date.

Share price volatility of ordinary shares in Remgro Limited was determined with reference to movements in the share price since 1 October 2000, that being the date from which Remgro commenced trading on the JSE.

Dividend yield was calculated using the two-year moving average dividend yield at each offer date.

	26.1	Remgro Share Scheme (the “Scheme”)
		Share-based payments in terms of the Scheme consist of ordinary shares in Remgro Limited that were offered to participants. The offers are valid for one year from the offer date. The Scheme is a deferred purchase scheme and payment takes place in three equal yearly instalments, the first of which is payable three years after the offer date. Participants have no rights to delivery, voting or ordinary dividends on shares before payment has been made. Participants may choose to pay on a later date, with the resultant deferment of rights. Payment relating to offers before 26 November 2004 must be settled within ten years, while offers thereafter must be settled before seven years have passed. The Scheme was superseded by the Remgro Equity Share Appreciation Right Scheme following the unbundling of BAT.

			2010 R million	2009 R million
		Share-based payment cost included in the income statement (in accordance with IFRS 2)	2	16

Although the Group elected, in accordance with the transitional provisions of IFRS, to only apply IFRS 2 on transactions entered into after 7 November 2002 that had not vested at 1 January 2005, the following information relates to all offers to the participants of the Scheme.

Number and weighted average exercise prices of all share offers to participants of the Scheme:

		2010		2009
	Number of shares	Rand	Number of shares	Rand
Carried forward from previous financial years	415 525	123.68	3 411 923	78.01
Resignations and other	–	–	(547 698)	124.58
Shares paid for and delivered	–	–	(2 448 700)	59.84
Total at 31 March	415 525	123.68	415 525	123.68
Exercisable at the end of the period	232 175	99.55	60 452	87.86

Exercise price range of all offers:
	Number of shares outstanding at year-end	2010 Weighted average remaining contract lifetime in years	Weighted average exercise price per share (Rand)*	Number of shares outstanding at year-end	2009 Weighted average remaining contract lifetime in years	Weighted average exercise price per share (Rand)
R80 – R100	174 614	1.67	87.86	174 614	2.67	87.86
R120 – R140	172 681	3.24	135.00	172 681	4.24	135.00
R180 – R200	68 230	4.22	186.70	68 230	5.22	186.70

The following assumptions were used in the binomial model to value offers:

		Average expected exercise period (years)	5 – 7
		Price volatility (%)	19.2 – 20.2
		Risk-free rate	7.7 – 8.4
		Expected dividend yield (%)	2.5 – 2.6

No offers were made during the current financial year in terms of this share scheme.

* Additionally, in terms of the scheme rules, participants also receive all special dividends and proceeds from group restructurings following the offer date.

	26.2	Remgro Equity Settled Share Appreciation Right Scheme (the “SAR Scheme”)
		Participants of the SAR Scheme are remunerated with shares to the value of the appreciation of a specified number of Remgro ordinary shares that must be exercised within a period of seven years after the grant date. The earliest intervals at which the share appreciation rights (SARs) are exercisable are as follows: One-third after the third anniversary of the grant date Two-thirds after the fourth anniversary of the grant date The remainder after the fifth anniversary of the grant date

	2010 R million	2009 R million
Share-based payment cost included in the income statement (in accordance with IFRS 2)	33	13
Fair value of offers made during the year	13	63

Number and weighted average exercise prices of all SARs offered to participants of the SAR Scheme:

		2010		2009
	Number of SARs	Rand	Number of SARs	Rand
Carried forward from previous financial years	3 634 754	73.24	–	–
Offered during current financial year	145 785	75.72	3 641 533	73.24
SARs issued due to the VenFin transaction*	2 010 335	43.93	–	–
Forfeited during the year	(8 713)	75.77	(6 779)	73.21
Exercised during the period	(215 655)	56.40	–	–
Outstanding at the end of the period	5 566 506	65.35	3 634 754	73.24

Exercisable at the end of the period	2 053 903	63.93	295 159	72.00

* After the acquisition of VenFin Limited by the Group became unconditional during November 2009, participants to the VenFin Share Appreciation Rights Scheme (VenFin SAR Scheme) were given the opportunity to join the SAR scheme on the basis of equivalent value, terms, conditions and vesting dates that were applicable in terms of the VenFin
SAR Scheme. Each VenFin SAR Scheme participant accordingly received 1 Remgro SAR for every 6.25 unexercised and/or unvested VenFin SARs held.

		2010		2009
	Number of SARs outstanding at year-end	Weighted average remaining contract lifetime in years	Number of SARs outstanding at year-end	Weighted average remaining contract lifetime in years
R30.00 – R39.99	949 709	2.22	–	–
R40.00 – R49.99	368 247	2.23	–	–
R50.00 – R59.99	3 640	2.29	–	–
R60.00 – R69.99	26 131	5.92	–	–
R70.00 – R79.99	3 609 240	4.64	3 634 754	5.52
R80.00 – R89.99	530 592	5.41	–	–
R90.00 – R99.99	78 947	3.90	–	–

The following assumptions were used in the binomial model to value offers:
			2010	2009
Weighted average Remgro share price for the year following the BAT unbundling (R)			84.11	70.37
Exercise price (R)			39.19 – 97.19	72.00 – 74.00
Average expected exercise period (years)			4 – 5	3 – 6
Price volatility (%)			22.21 – 22.36	20.78 – 22.36
Risk-free rate (%)			7.32 – 8.46	8.13 – 8.76
Expected dividend yield (%)			2.37 – 2.41	2.37

	26.3	Current status – offers to directors
		Remgro Share Scheme
		– ordinary shares

Participant	Balance of shares accepted as at 31 March 2009	Shares accepted during the year	Date of acceptance of shares	Offer price (Rand)	Number of shares paid and delivered	Date of payment and delivery of shares	Share price on date of payment and delivery of shares (Rand)	Increase in value⁽¹⁾ (R’000)	Balance of shares accepted as at 31 March 2010
Executive
M H Visser	174 614			87.86					174 614
	172 681			135.00					172 681
	68 230			186.70					68 230
Total	415 525	–			–			–	415 525

⁽¹⁾ It refers to the increase in value of the Scheme shares of the indicated participants from the offer date to the date of payment and delivery.

Participant	Balance of shares accepted as at 31 March 2008	Shares accepted during the year	Date of acceptance of shares	Offer price (Rand)	Number of shares paid and delivered	Date of payment and delivery of shares	Share price on date of payment and delivery of shares (Rand)	Increase in value⁽¹⁾ (R’000)	Shares forfeited on 27/10/08⁽²⁾	Balance of shares accepted as at 31 March 2009
Executive
W E Bührmann	97 872			87.86	32 624	13/10/08	167.00	2 582	65 248	–
	7 303			135.00					7 303	–
	38 645			186.70					38 645	–
D M Falck(3)	458 716			43.60	458 716	08/08/08	194.22	69 092		–
	104 917			63.00	104 917	08/08/08	194.22	13 767		–
	30 050			87.86	30 050	13/10/08	167.00	2 378		–
	92 988			135.00	92 988	13/10/08	167.00	2 976		–
	18 146			186.70	18 146	13/10/08	167.00	(357)		–
J A Preller	24 466			43.60	24 466	13/10/08	167.00	3 019		–
	34 572			87.86	11 524	13/10/08	167.00	912	23 048	–
	30 167			135.00					30 167	–
	2 319			186.70					2 319	–
M H Visser	278 979			63.00	278 979	13/10/08	167.00	29 014		–
	342 488			87.86	114 164	13/10/08	167.00	9 035	53 710	174 614
	172 681			135.00						172 681
	68 230			186.70						68 230
T van Wyk	42 161			87.86	14 055	13/10/08	167.00	1 112	28 106	–
	41 598			135.00					41 598	–
	3 029			186.70					3 029	–
Subtotal	1 889 327	–			1 180 629			133 530	293 173	415 525

Non-executive
P E Beyers	191 130			43.60	191 130	13/10/08	167.00	23 585		–
J W Dreyer	191 130			43.60	191 130	13/10/08	167.00	23 585		–
J P Rupert	414 938			48.20	414 938	23/09/08	183.00	55 934		–
Subtotal	797 198	–			797 198			103 104	–	–
Total	2 686 525	–			1 977 827			236 634	293 173	415 525

⁽¹⁾ It refers to the increase in value of the Scheme shares of the indicated participants from the offer date to the date of payment and delivery.
⁽²⁾ In lieu of shares forfeited, directors were paid a cash bonus. Refer to note 25.
⁽³⁾ Mr D M Falck retired as a director on 18 June 2008.

Remgro Equity Settled Share Appreciation Right Scheme
– Share appreciation rights (SARs)

Participant	Balance of SARs accepted as at 31 March 2009	SARs accepted during the year	Offer date	Offer price (Rand)	Number of SARs exercised	Date exercising SARs	Share price on exercise date	Increase in value⁽¹⁾ (R’000)	Balance of SARs accepted as at 31 March 2010

Executive
W E Bührmann	283 148			72.00					283 148
	124 771			74.00					124 771
L Crouse	418 108			74.00					418 108
J J Durand		427 047	23/11/09	39.19					427 047
		162 354	23/11/09	87.50					162 354
		22 717	23/11/09	83.94					22 717
		12 662	23/11/09	90.81					12 662
J A Preller	141 411			72.00					141 411
	48 788			74.00					48 788
T van Wyk	185 207			72.00					185 207
	87 829			74.00					87 829
M H Visser	136 767			72.00					136 767
	542 424			74.00					542 424
J W Dreyer	270 270			74.00					270 270
Subtotal	2 238 723	624 780			–			–	2 863 503

Non-executive
J Malherbe(2)		195 730	23/11/09	39.19					195 730
		75 761	23/11/09	87.50					75 761
		20 847	23/11/09	83.94					20 847
		5 807	23/11/09	90.81					5 807
Subtotal	–	298 145			–			–	298 145
Total	2 238 723	922 925			–			–	3 161 648

Participant	Balance of SARs accepted as at 31 March 2008	SARs accepted during the year	Offer date	Offer price (Rand)	Number of SARs exercised	Date exercising SARs	Share price on exercise date	Increase in value⁽¹⁾ (R’000)	Balance of SARs accepted as at 31 March 2009

Executive
W E Bührmann		283 148	04/11/08	72.00					283 148
		124 771	27/11/08	74.00					124 771
L Crouse		418 108	27/11/08	74.00					418 108
J A Preller		141 411	04/11/08	72.00					141 411
		48 788	27/11/08	74.00					48 788
T van Wyk		185 207	04/11/08	72.00					185 207
		87 829	27/11/08	74.00					87 829
M H Visser		136 767	04/11/08	72.00					136 767
		542 424	27/11/08	74.00					542 424
J W Dreyer		270 270	27/11/08	74.00					270 270
Total	–	2 238 723			–			–	2 238 723

⁽¹⁾ It refers to the increase in value of the SAR Scheme shares of the indicated participants from the offer date to the date of payment and delivery.
⁽²⁾ Subsequent to the acquisition of VenFin, Mr J Malherbe was awarded SARs to compensate him for the cancellation of the VenFin Share Appreciation Rights Scheme.

	26.4	Rainbow Share Schemes
		Rainbow has an equity settled share scheme, as well as a share appreciation right scheme, for certain of its employees in terms of which share options offered are exercisable in three equal tranches from two, three and four years (for the share scheme) and three, four and five years (for the share appreciation right scheme) after the grant date. Subject to the discretion of the Rainbow Share Incentive Trust’s trustees, options are forfeited if not exercised before termination of employment. An expense of R19 million (2009: R20 million) relating to these schemes were recognised in the income statement.

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