SAPPI LIMITED

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<strong>SAPPI</strong> NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) for the year ended September 2010 28. SHARE-BASED PAYMENTS (Continued) African subsidiary level and to implement the BEE Transaction, a new sustainable transaction of equivalent value at a holding company level using its listed securities. Sappi views BBBEE as a key requirement for sustainable growth and social development in South Africa. The BEE Transaction enabled Sappi to meet its BEE targets in respect of BEE equity ownership. The BEE Transaction comprised two distinct parts. The first part entailed the issue of ordinary shares to the Strategic Partners and the Sappi employees who were to be participants in the Plantation BEE Transaction, as part of the unwinding of the rights from that transaction. The second part consisted of the creation and issuance of a new class of unlisted equity shares referred to as ‘‘A’’ ordinary shares. The ‘‘A’’ ordinary shares were issued at their par value of ZAR1 to a trust for the benefit of certain Sappi employees including HDSAs (the ‘‘ESOP Trust’’), a trust for the benefit of certain Sappi managers that are HDSAs (the ‘‘MSOP Trust’’) and a trust for the benefit of communities surrounding the major mills and/or plantations operated by Sappi in South Africa (the ‘‘Sappi Foundation Trust’’, and together with the ESOP Trust and the MSOP Trust, the ‘‘BEE Trusts’’). The issuance of the ‘‘A’’ ordinary shares was financed through notional non-interest bearing loans extended by Sappi to the BEE Trusts. The BEE Transaction resulted in the BEE Trusts and the Strategic Partners holding, collectively, ordinary and ‘‘A’’ ordinary shares equivalent to 4.5% of the share capital of Sappi Limited, which corresponds to an effective 30% interest in Sappi’s South African business under the Forestry Charter and BBBEE legislation in general. The transaction has resulted in potentially 4.5% of the issued share capital of Sappi being held as follows: – Sappi’s South African Employees (62.5%); – South African Black Managers (15%); – Strategic Partners (12.5%); and – Communities surrounding the South African mill operations and plantations (10%). The total value of the transaction, based on the 30 day volume weighted average share price (VWAP) of Sappi as at Friday, 5 February 2010 of ZAR33.50, amounted to ZAR814 million and required the issue of 24.3 million shares, made up of 4.3 million ordinary shares and 20.0 million of a new class of equity shares, ‘‘A’’ ordinary shares. Ordinary shares The strategic partners agreed to transfer the value created through their shareholding in LPC in the Plantation BEE Transaction into fully paid up ordinary shares. The value created through the entitlement of 30% of LPC which was set aside for the benefit of certain categories of Sappi’s South African Employees was converted into fully paid up ordinary shares and are held in the ESOP Trust. After the completion of the above transactions, Sappi became the sole shareholder of LPC and regained 100% ownership of Sappi’s South African plantation land. The fair value attributable to the strategic partners and certain categories of South African employees on the unwinding of the Plantation BEE Transaction was determined by reference to the fair value of LPC’s 25% undivided share in Sappi South Africa’s plantation land. The value attributable to the F-83
<strong>SAPPI</strong> NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued) for the year ended September 2010 28. SHARE-BASED PAYMENTS (Continued) strategic partners for their shareholding in LPC was ZAR102 million (US$14 million) and the portion attributable to certain categories of South African employees, which is held through the ESOP Trust, for their 30% entitlement of LPC was ZAR43 million (US$5 million). These values resulted in the issue of the following number of ordinary shares to the Strategic Partners and the ESOP Trust based on Sappi’s 30 day VWAP as at Friday, 5 February 2010 (being ZAR33.50): Ordinary Value of Value of share shares shares allocation issued issued* (ZAR million) (US$ million) Entity Strategic Partners: Lereko Investments ................. 1,971,693 66 9 Malibongwe ....................... 432,842 15 2 AMB............................ 643,221 21 3 3,047,756 102 14 Employees (through the ESOP Trust) .... 1,280,597 43 5 Total ............................ 4,328,353 145 19 * The group has recognised the issue of ordinary shares as payment to the Strategic Partners and certain categories of South African employees on the unwinding for the Plantation BEE Transaction as a share-based payment expense. ‘‘A’’ Ordinary shares The transaction resulted in the formation of the ESOP Trust, the Management Share Option Plan Trust (MSOP Trust or MSOP), whose beneficiaries are the black managers, and the Sappi Foundation Trust, whose beneficiaries include the growers and communities in the geographic areas where Sappi’s Southern African business has operations. The ‘‘A’’ ordinary shares were allocated as follows: Number of ‘‘A’’ Value of Value of Ordinary shares shares Shares issued issued* (ZAR million) (US$ million) Entity ESOP ........................ 13,889,195 465 66 MSOP ........................ 3,642,969 122 17 Sappi Foundation ............... 2,429,312 82 12 Total ......................... 19,961,476 669 95 * The group recognised a share-based payment expense of US$4 million in fiscal 2010 that related to the ‘‘A’’ Ordinary shares that were awarded to the Sappi Foundation, MSOP and ESOP trusts. F-84
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As filed with the Securities and Ex
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Item 7. Major Shareholders and Rela
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References to ‘‘NBSK’’ are
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PART I ITEM 1. IDENTITY OF DIRECTOR
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Risk Factors In addition to other i
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For further information, see ‘‘
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terms of the debt being refinanced.
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The inability to recover increasing
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A large percentage of our employees
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merge or consolidate with other com
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we operate. The transaction was app
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currencies as we can benefit from i
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Major Product Categories Pulp: Desc
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for coated mechanical paper decline
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The chart below represents our oper
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The following table sets out the ap
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The following table sets forth sale
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Kangas. As a direct result of the g
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Customers Sappi Fine Paper sells it
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The following chart sets forth cert
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Construction on the expansion proje
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lease extendable to 2089. The locat
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North America Wood In connection wi
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Pulp Sappi Fine Paper Europe produc
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ENVIRONMENTAL AND SAFETY MATTERS En
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and management of forests are all r
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ORGANIZATIONAL STRUCTURE Sappi Limi
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Approximate Secured / Location Use
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than we use. By region, the South A
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‘‘—Markets’’ for a furthe
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'000 metric tonnes 8,000 7,000 6,00
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The price of NBSK and Bleached Hard
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ZAR/US$ 16.00 14.00 12.00 10.00 8.0
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The fiscal period average three-mon
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employees from the beginning of 200
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The Sappi Southern Africa reportabl
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Movements in operating profit and o
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Operating profit in fiscal 2009 was
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Sappi Southern Africa Key figures:
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Comparing fiscal 2010 with fiscal 2
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This comparison includes the closur
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African operations into the US doll
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Sappi Fine Paper North America Comp
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Taxation 2010 2009 (US$ million) 20
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elation to inventory levels and rec
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Capital expenditure by region is as
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Over the past three years the relat
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Group’s securitization programs,
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Credit Facility terminate on May 31
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quarters ending from January 2012 t
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As no default event has occurred, n
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In addition, Sappi Fine Paper North
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areas where our South African busin
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Recoveries in equity markets couple
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Impairment of assets other than goo
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The gains or losses, which are reco
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The Group’s policy is to recogniz
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ITEM 6. DIRECTORS, SENIOR MANAGEMEN
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Deenadayalen (Len) Konar Sappi boar
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Mohammed Valli (Valli) Moosa Other
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Rudolf Thummer Sappi board committe
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Executive Officers The Executive Di
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companies have to comply with domes
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average more than 45% of the employ
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For a detailed description of the S
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Pursuant to the Companies Amendment
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Post transaction shareholding struc
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Dividends We consider dividends on
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ITEM 9. THE OFFER AND LISTING Offer
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ITEM 10. ADDITIONAL INFORMATION Mem
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holder of the beneficial interest i
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Voting Rights Subject to any rights
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provision of the New Act by any oth
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South African Companies Act, 2008 A
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state securities laws. The securiti
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documents are the agent for the new
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Dividends There are no restrictions
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STC STC is imposed on South African
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with any connected persons) held mo
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of our ordinary shares or ADSs, as
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of gain recognized on a sale or oth
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integrated operations could be adve
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PART II ITEM 13. DEFAULTS, DIVIDEND
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(d) Changes in Internal Control ove
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PART III ITEM 17. FINANCIAL STATEME
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4.13 Credit Agreement, dated August
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SIGNATURES The registrant hereby ce
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REPORT OF THE INDEPENDENT REGISTERE
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SAPPI GROUP STATEMENT OF COMPREHENS
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SAPPI GROUP CASH FLOW STATEMENT for
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SAPPI NOTES TO THE GROUP ANNUAL FIN
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SAPPI LIMITED

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