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For the year ended 30 June 2014 

## 25 SHARE BASED PAYMENT PLANS (continued) 

## (b) Share based Long Term Incentive grants (continued) 

## (i) Executive Share Plan and Loan Facility (“ESP”) (continued) 

Under AASB 2: Share-based Payment , any allotments under the ESP are required to be accounted for and valued as equity settled options, and have been referred to as ‘in substance options’, even though the equity instrument itself is not an option. 

On 29 November 2010, 350,000 ordinary shares were allotted under the ESP. The fair value of each ‘in substance option’ was estimated on the date of grant using the binomial option-pricing model with the following assumptions: 

– Value per loan per share: $2.35; 

– Expected volatility: 35% based on historical volatility; 

– Risk-free interest rate: 5.36% – the risk-free rate was converted to a continuously compounded rate; and 

– Expected life of options: 8 years. 

The resulting fair value per option for those ‘in substance options’ was $0.62. 

The grant has been amortised over the vesting and exercisable periods resulting in an increase in employee benefits expense of $25,554 for the 2014 financial year (2013: $43,033). 

On 29 June 2012, 1,700,000 ordinary shares were allotted under the ESP. The fair value of each ‘in substance option’ was estimated on the date of the grant using the binomial option pricing model with the following assumptions: 

– Value per loan per share: $3.14; 

– Expected volatility: 35% – based on historical volatility; 

– Risk-free interest rate: 2.73% – the risk-free rate was converted to a continuously compounded rate; and 

– Expected life of options: 8 years. 

The resulting fair values per option for those ‘in substance options’ was $0.79. 

These grants have been amortised over the vesting and exercisable periods resulting in an increase in employee benefits expense of $350,672 for the 2014 financial year (2013: $350,672). 

On 22 October 2012, 630,000 ordinary shares were allotted under the ESP. The fair value of each ‘in substance option’ was estimated on the date of the grant using the binomial option pricing model with the following assumptions: 

– Value per loan per share: $3.52; 

– Expected volatility: 35% – based on historical volatility; 

– Risk-free interest rate: 2.78% – based on the 8 year Australian Government bond yield; and 

– Expected life of options: 8 years. 

The resulting fair values per option for those ‘in substance options’ was $0.96. 

These grants have been amortised over the vesting and exercisable periods resulting in an increase in employee benefits expense of $157,920 for the 2014 financial year (2013: $109,030). 

On 29 November 2012, 300,000 ordinary shares were allotted under the ESP to Ms. J.E. Raffe. The fair value of each ‘in substance option’ was estimated on the date of the grant using the binomial option pricing model with the following assumptions: 

– Value per loan per share: $3.78; 

– Expected volatility: 35% – based on historical volatility; 

– Risk-free interest rate: 3.07% – based on the 8 year Australian Government bond yield; and 

– Expected life of options: 8 years. 

The resulting fair values per option for those ‘in substance options’ was $1.05. 

These grants have been amortised over the vesting and exercisable periods resulting in an increase in employee benefits expense of $82,250 for the 2014 financial year (2013: $48,223). 

For the June 2012 allotment, the ESP shares were granted at $3.14 to all executives other than Ms. Raffe, whose allocation was delayed to 29 November 2012 at an issue price of $3.78 to allow for shareholder approval at the Company’s 2012 annual general meeting. The Company agreed to compensate Ms. Raffe with an additional bonus at the time of her future sale of ESP shares for the additional value, if any, foregone by the deferred grant date. This potential bonus payment to Ms. Raffe represents a cash-settled share-based payment estimated to be a maximum of $275,439, to be re-assessed at each financial year for changes in the expected probability of payment. The fair value of this cash-settled share-based payment was estimated on the basis of the estimated after-tax impact of $0.64 per share, being the difference between $3.78 and $3.14 and will be accrued over 5 years from date of grant, being $71,920 for the 2014 financial year (2013: $42,167). 

On 20 December 2012, 400,000 ordinary shares were allotted under the ESP. The fair value of each ‘in substance option’ was estimated on the date of the grant using the binomial option pricing model with the following assumptions: 

– Value per loan per share: $3.92; 

– Expected volatility: 35% – based on historical volatility; 

– Risk-free interest rate: 3.21% – based on the 8 year Australian Government bond yield; and 

– Expected life of options: 8 years. 

The resulting fair values per option for those ‘in substance options’ was $1.12. 

These grants have been amortised over the vesting and exercisable periods resulting in an increase in employee benefits expense of $116,978 for the 2014 financial year (2013: $61,854). 

The expected volatility of all ESP allotments reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. Under AASB 2: Share-based Payment, any allotments under the ESP are also referred to as ‘in substance options’ even though the equity instrument itself is not an option. 

## (ii) 2008 Option Plan over ordinary shares to the entity’s CEO (“2008 OP”) 

The 2008 OP for the Company’s CEO, Mr. Graham Burke, was approved by the Company’s shareholders on 17 July 2008 with a grant on 18 July 2008 of six million options over ordinary shares exercisable at $3.00 per share, with vesting subject to performance hurdles relating to growth in earnings per share and growth in dividends. Following the $1.00 per share capital return, which was approved by shareholders in general meeting, the options exercise price was reduced to $2.00 per share, effective from 19 July 2011. All options under the 2008 OP have either lapsed or have been exercised and none of these 2008 options remained at 30 June 2013. 

The options were not transferable and did not confer any right to participate in bonus issues or cash issues of ordinary shares. The option exercise price would have been adjusted for discounted cash issues, and the number of shares issued on exercise of an option would have been adjusted for bonus issues of shares. The options did not carry voting or dividend rights and were not listed for quotation on ASX. 

Subject to certain performance conditions, two million options were exercisable not earlier than 1 March 2011; two million options were exercisable not earlier than 1 March 2012; and two million options were exercisable not earlier than 1 March 2013. 

The earnings per share (“EPS”) performance hurdle had a starting point of 27 cents per ordinary share on 31 December 2007 and the dividend per share (“DPS”) performance hurdle had a starting point of 9 cents per ordinary share on 31 December 2007, with growth measured on calendar year performance. 

For all options to vest, the Company’s performance must have met a minimum 10% cumulative average growth rate (“CAGR”) in EPS over the 3 year vesting period for half of each tranche to vest, and must have met a minimum 10% CAGR in dividends paid over 2 out of the 4 year vesting period for the other half of each tranche to vest. For half of the options to vest, the Company’s performance must have met a minimum 5% CAGR in EPS over the 3 year vesting period for one quarter of each tranche to vest, and must have met a minimum 5% CAGR in dividends paid over 2 out of the 4 year vesting period for another quarter of each tranche to vest. Below 5% CAGR in either dividends or in EPS no options vest, with a pro-rata straight line vesting scale between 5% and 10% CAGR for each performance condition. The effect of the performance hurdles on the potential vesting of the options can be illustrated as follows: 

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