Certain employees were entitled to join the general employee share option plan, based on merit. The offer price was determined in accordance with the rules of the scheme.

• a third after three years;
• a third after four years; and
• a third after five years.

From January 2006, the option plan rules were changed from being an equity-settled scheme to a cash-settled scheme. Options under the cash-settled scheme have been issued at least annually at cost by the Adcock Ingram Board of directors up to June 2014 when the equity-settled scheme was re-introduced, and certain senior employees were granted options.

The following tables illustrates the number and weighted average offer prices (WAOP) of and movements in Adcock Ingram share options during the year:

Share price volatility is based on the historical volatility of the Adcock Ingram share price matching the remaining life of each option. The valuation is measured at fair value (excluding any non-market vesting conditions) and is the sum of the intrinsic value plus optionality. The fair value of each option is estimated using an actuarial binomial option pricing model. All options are valued with a single exercise date at maturity.

In terms of the Tiger Brands Limited BEE transaction implemented on 17 October 2005, 4 381 831 Tiger Brands shares were acquired by the Tiger Brands Black Managers Share Trust. Allocation of vested rights to these shares was made to black managers. The allocation of vested rights entitles beneficiaries to receive Tiger Brands and Adcock Ingram shares (after making capital contributions to the Black Managers Share Trust) at any time after the defined lock-in period, i.e. from 1 January 2015. These vested rights are non-transferable.

• the projected Tiger Brands/Adcock Ingram share price;
• outstanding debt projections; and
• optimal early exercise conditions.

Adcock Ingram entered into a BEE transaction on 9 April 2010 as part of its efforts to achieve the objectives set out in the broad-based Black Economic Empowerment Codes of Good Practice with the intention to embrace broad-based equity participation as a key transformation initiative.

• the strategic partners, who collectively participated through a single investment vehicle, namely Blue Falcon Trading 69 (Pty) Limited (Blue Falcon); and
• qualifying employees, who participated through the Mpho ea Bophelo Trust (Bophelo Trust).

Both of these entities held Adcock ordinary shares that were acquired via dividend distributions on their A and B ordinary shares.

• Kagiso Strategic Investments III (Pty) Limited (Kagiso) (62,9%)
• Kurisani Youth Development Trust (26,6%)
• Mookodi Pharma Trust (10,5%)
  
  

The total value of the transaction was R1,321 billion, based on the 10-day VWAP of R50,91 per ordinary share on the JSE as at the close of trade on Thursday, 19 November 2009, being the date when the Memorandum of Understanding was signed.

• the Black-Scholes model for valuing options;
• the actual or likely conversion dates attached to the A and B ordinary shares; and
• using available open-market data, estimated expected future ordinary share prices as determined using option pricing models and an estimation of the future dividends at given dates.

These calculations derive an expected future cost associated with the transaction that is then discounted to the present.

The following table illustrates the movement in units issued to employees during the year:

KEY TERMS AND CONTRACTUAL OBLIGATIONS

The key terms of the A and B ordinary shares and the key contractual obligations of the holders of A and B ordinary shares were as follows:

• Adcock Ingram had the right to repurchase all or some of these shares at the end of the respective transaction terms in accordance with a call option formula;
• these shares would not be listed but will be considered in determining a quorum and would be entitled to vote on any or all resolutions proposed at general/Annual General Meetings;
• the shares would automatically convert into ordinary shares at the end of the respective transaction terms;
• the shares would be entitled to ordinary dividends and dividends in specie, pari passu, with the ordinary shares;
• during the lock-in period, Blue Falcon would be entitled to retain 15% of the ordinary dividends received by it in respect of the A ordinary shares. The Bophelo Trust would not be entitled to retain any of the ordinary dividends received in respect of the B ordinary shares;
• the balance of the ordinary dividends received by Blue Falcon and all ordinary dividends received by the Bophelo Trust, would on a compulsory basis be used, within a period of 30 business days after receipt, to purchase ordinary shares;
• 100% of the dividends received on the ordinary shares compulsorily acquired by Blue Falcon and the Bophelo Trust must likewise be utilised to purchase ordinary shares;
• all such ordinary shares compulsorily acquired would also be subject to the call option, to the extent required;
• Blue Falcon could deal with any dividends in specie received as it deems fit while the Bophelo Trust would hold any in specie dividends received for the benefit of the beneficiaries;
• A and B ordinary shares and compulsorily acquired ordinary shares would not be entitled to receive special dividends until such time as the notional loan outstanding has reduced to zero; and
• an equivalent amount of the special dividends which would otherwise have been received by the BEE participants should be offset against the notional outstanding loan with effect from the date on which such special dividends were paid to ordinary shareholders.
  
  

• the release of the dividend acquired ordinary shares held by Blue Falcon and the Bophelo Trust;
• the repurchase at a nominal value, and the cancellation, of each of the A ordinary and B ordinary shares in their entirety; and
• the modification of the existing BEE scheme.

Following the modification of the BEE scheme and subsequent release of the restrictions over the dividend acquired ordinary shares, The Bidvest Group Limited (Bidvest), a shareholder of Adcock Ingram, agreed to acquire 688 000 Adcock Ingram ordinary shares from the Bophelo Trust and 1 883 000 Adcock Ingram ordinary shares from Blue Falcon at the market value of R52,00 per share.

Adcock Ingram Holdings Limited entered into a share repurchase agreement with Blue Falcon and the Bophelo Trust, in terms of which the entirety of the A ordinary shares and B ordinary shares were repurchased from Blue Falcon and the Bophelo Trust respectively, at nominal value.

The scheme was revised, with the intention to form a more meaningful participation for BEE participants and to provide Adcock Ingram with increased BEE ownership credentials, as part of its continued efforts to embrace broad-based equity participation.

Adcock Ingram shareholders sold 25 842 960 or approximately 15% of their shares (scheme shares) in proportion to their shareholding, to Ad-Izinyosi (RF) Proprietary Limited (Ad-I) in exchange for 25 842 960 securities in AdBEE (RF) Limited (AdBEE) on 17 July 2015. Thus, for every one share contributed to the scheme, a shareholder received one security in AdBee, entitling the holder to a pro rata portion of the Ad-I indebtness (the obligation to pay the value of an Adcock Ingram share on the JSE calculated on a rolling 30-day traded VWAP immediately preceding the end of the transaction. Refer to significant accounting judgements and estimates disclosure in accounting policy.

The Bophelo Trust and Blue Falcon invested 15% (R5,4 million and R14,7 million respectively) of the proceeds received from Bidvest in Ad-I.

• CIH Projects (Pty) Limited (26,67%)
• Blue Falcon 64 Proprietary Limited (26,67%)
• BDH Group Proprietary Limited (26,67%)
• Bophelo Trust (20,00%)

The following table illustrates the movement in units issued to employees during the year:

• the scheme shares will not be entitled to participate in any dividend distributions during the transaction period;
• AdBee securities are listed on the Main Board of the JSE in the “Specialist Securities – Other Securities” sector as an Asset Based Security under the share code “ADE”;
• whatever Ad-I may be entitled to receive from Adcock Ingram (other than dividend distributions), as the holder of the scheme shares, is deemed to be renounced to AdBEE and onward renounced by AdBEE to the securities holders;
• Ad-I issued one A redeemable preference share and one B redeemable preference share with no par value respectively to Adcock Ingram Holdings Limited and AdBEE;
• preference shares are not entitled to vote unless a resolution is proposed for a distribution of any nature to Ad-I shareholders;
• if the Adcock Ingram share price is below R36,00 per share during the empowerment period of four years, the directors of AdBEE can convene a meeting of the AdBEE securities holders to decide whether they should waive the AdBEE resolutive condition or not;
• if the Adcock Ingram share price is below R72,00 per share at the 4th anniversary, the Ad-I indebtedness to the holders of the securities will be calculated using the 30-day VWAP of the Adcock Ingram share price before this date, but not less than a minimum price of R52,00 per share and not more than R72,00 per share;
• If the Adcock Ingram share price is above R72,00 per share at the 4th anniversary, the Ad-I indebtedness shall be settled and the remaining Adcock Ingram shares in Ad-I released from the pledge;
• If the Adcock Ingram share price is below R52,00 per share at the 4th anniversary, the scheme will be cancelled and the shares in Ad-I released from the pledge; and
• AdBEE will assume the obligation of Ad-I to the securities holders to settle the scheme consideration.

• 8 000 000 share call options in Adcock Ingram Holdings Limited were allocated to shareholders in proportion to the scheme shares tendered, entitling the holders thereof to subscribe for Adcock Ingram shares;
• call options may be exercised at the strike price of R72,00 per Adcock Ingram share, at any time within the 30-day period prior to the transaction end date; and
• R20,8 million was incurred as a once-off cost for the call options. The call options are fair valued using a Black-Scholes-Merton model taking into account the expected volatility, expected dividend yield, spot and strike price of the option, the exercise date and the risk-free interest rate of the call option.

For further details of the scheme arrangements, refer to “Circular To Adcock Shareholders” issued 28 May 2015 which could be found on the investors’ section on www.adcock.com.