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| Notes to the group
financial statements |
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| for the year ended
31 March 2006 |
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| 37. |
Employee share
option information |
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37.1 |
Salient features
of the 2004 Alexander Forbes Group Employee
Share Trust
(“2004 Share Trust”) |
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The purpose of the 2004
Share Trust is to incentivise key management
and staff to promote growth in profits
and shareholder value of the group by providing
them with an opportunity to acquire shares
in the company, thereby aligning their interests
with shareholders and simultaneously encouraging
employee retention. Management nominates
employees for share option awards which
are decided upon by the Remuneration Committee
and the trustees of the 2004 Share Trust.
Employees are eligible for nomination from
the date of employment with the group until
termination of their services.
Options are granted at an exercise price
equal to 85% of the closing market price
of the underlying share on the JSE Limited
on the most recent trading day immediately
preceding the option date, or such higher
price as the directors may determine for
specific employees, from time to time, on
the date the options are granted. Options
are irrevocably granted for a period of
10 years after the grant date, or such lesser
period as the directors may determine for
specific employees, from time to time, at
the date the options are granted.
Options may only be exercised as detailed
below: |
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| Percentage
to be exercised |
|
Period
after date of grant of option (vesting
date) |
| 1st |
25% |
|
2 years |
| 2nd |
25% |
|
3 years |
| 3rd |
25% |
|
4 years |
| 4th |
25% |
|
5 years |
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The
group does not have any legal obligation
to repurchase or settle the outstanding
share options in cash.
The aggregate number of options which may
be made available for purposes of the 2004
Share Trust may not exceed 20% of the number
of the group’s shares in issue from
time to time, less any shares in issue to
the various employee share purchase trusts.
This limitation does not apply to shares
and options held in terms of the Investment
Solutions Share Trust. Shares and options
over shares held in terms of the Investment
Solutions Share Trust were acquired by the
relevant employees at the time of the acquisition
by the group of the entire issued share
capital of Investment Solutions Holdings
Limited, in consideration for shares and
options over shares held at the time in
terms of that scheme, as a means to continuing
to incentivise those participants. |
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37.2 |
Employee share
allocations as a % of issued share capital |
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Share
options and allocated shares in the share
purchase schemes total 7,8% of the group’s
issued share capital at year end (2005:
12,2%). There have been no material allocations
under the share incentive schemes since
29 November 2002. |
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37.3 |
Summary of movement
in share options |
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A summary of the movement
in employee share options granted in terms
of the 2004 Share Trust to directors and
other employees is presented below: |
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2006 |
2005 |
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Number
of options
’000 |
Weighted
average
exercise price |
Number
of options
’000 |
Weighted
average
exercise price |
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|
Opening balance at 1 April |
47
571 |
R11,50 |
54 231 |
R11,21 |
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Movement during year:
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Granted |
103 |
R11,29 |
246 |
R8,68 |
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Exercised |
(12
849) |
R10,77 |
(1 646) |
R9,57 |
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Forfeited and lapsed |
(3
532) |
R11,98 |
(5 260) |
R12,17 |
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Closing balance at 31
March |
31
293 |
R11,76 |
47 571 |
R11,50 |
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Share
options granted during the year were issued
at exercise prices of between R10,97 and
R11,73
(2005: R7,74 and R9,99)
Share options exercised during the year
yielded aggregate share issue proceeds of
R1 million
(2005: R20 million). The majority of share
options exercised during the year were transacted
on a net settlement basis. |
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37.4 |
Analysis of outstanding
share options |
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Share options outstanding
at year end are as follows: |
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Share options exercisable
at end of year |
22
727 |
R11,83 |
31 282 |
R11,36 |
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Share options vesting
within one year |
5
755 |
R12,01 |
6 735 |
R10,78 |
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Share options vesting
thereafter |
2
811 |
R10,66 |
9 554 |
R11,54 |
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31
293 |
R11,76 |
47 571 |
R11,50 |
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2006 |
2005 |
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37.5 |
Fair value of
share options |
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The fair value of each
option grant is estimated on the date of
grant using an actuarial binomial option-pricing
model. The significant inputs used in the
model to determine the fair value of the
options granted in each financial year are
as follows: |
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Weighted average share
price |
R13,28 |
R10,04 |
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Exercise price at grant
date |
R10,97 –
R11,73 |
R7,74 –
R9,99 |
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Expected volatility |
33,7% |
37,2% |
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Expected dividend yield |
4,8 –
5,6% |
5,0% |
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Risk free interest rate |
7,8 –
8,0% |
10,8%
– 10,9% |
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The
expected volatility is determined based
on the rolling historical volatility over
the last seven to 10 years (i.e. the
expected option lifetime) that prevailed
at the grant date. When volatility data
on the Alexander Forbes share price is not
available, the average volatility of comparable
financial institutions is used.
The risk-free rate is the yield on zero-coupon
South African government bonds of a term
consistent with the assumed option life. |
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37.6 |
Share
option expense |
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The fair
value share option expense in the income
statement amounts to R8 million in the current
year (2005: R29 million). |
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