INDEPENDENCE GROUP NL ANNUAL REPORT 2017

Notes to the consolidated financial statements 30 June 2017 (continued) 27 Share-based payments (continued) (a) Employee Incentive Plan (continued) The EIP comprised the following schemes during the current financial year: • Long-term incentive (LTI) - performance rights; and • Employee share ownership award. LTI - Performance Rights Under the LTI scheme, participants are granted share rights which will only vest if certain performance conditions are met and the employees are still employed by the Group at the end of the vesting period. Participation in the LTI scheme is at the Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. Equity settled awards outstanding Set out below are summaries of share rights granted under the LTI scheme: 2017 2016 Number of share rights Weighted average fair value Number of share rights Weighted average fair value Outstanding at the beginning of the year 1,352,123 1.91 2,313,757 2.85 Rights issued during the year 589,967 2.26 643,911 1.32 Rights vested during the year (220,353) 2.14 (1,323,613) 3.19 Rights lapsed during the year (73,452) 2.14 (258,903) 2.23 Rights cancelled during the year - - (23,029) 2.41 Outstanding at the end of the year 1,648,285 2.00 1,352,123 1.91 Fair value of share rights granted The fair value of the share rights granted during the year ended 30 June 2017 are determined using a trinomial tree which has been adopted by the Boyle and Law (1994) node alignment algorithm to improve accuracy, with the following inputs: Fair value inputs CEO Senior management Other employees Grant date 18 November 2016 24 November 2016 22 May 2017 Vesting date 1 July 2019 1 July 2019 1 July 2019 Share price at grant date 3.08 3.14 3.28 Fair value estimate at grant date 2.21 2.26 2.30 Expected share price volatility (%) 54 54 58 Expected dividend yield (%) 0.65 0.64 0.61 Expected risk-free rate (%) 1.86 1.92 1.75 The share-based payments expense included in profit or loss for the year totalled $1,147,168 (2016: $818,968). Vesting of share rights Vesting of the performance rights granted to executive directors and executives after 1 July 2014 is based on a total shareholder return (TSR) scorecard. The TSR scorecard for the three year measurement period will be determined based on a percentile ranking of the Company's TSR results relative to the TSR of each of the companies in the peer group over the same three year measurement period. The peer group is to comprise the constituents of the S&P ASX 300 Metals and Mining Index. The vesting schedule of the performance rights subject to relative TSR testing is as follows: Relative TSR performance Level of vesting Less than 50th percentile Zero Between 50th and 75th percentile Pro-rata straight line percentage between 50% and 100% 75th percentile or better 100% Independence Group NL 81 IGO ANNUAL REPORT 2017— 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017