1086 AnnRep-Investment S04-3 - Pumpkin Patch investor relations

PUMPKIN PATCH LIMITED & SUBSIDIARIESNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTSFOR THE 12 MONTHS ENDED 31 JULY 2004 (CONTINUED)The Company, prior to listing, gave the Trustee an interest free loan of $1,875,000 to enable it topurchase the shares issued to it for this Scheme. The Company has agreed that the Trustee is, in turn,entitled to novate a portion of that loan to individual employees to assist them to purchase sharesunder the Scheme.As at 31 July 2004 no shares were issued under the Scheme.The Company intends to implement similar schemes for its employees in the United Kingdom and inAustralia within the next 12 to 24 months. The Company believes the 2,000,000 shares issued to theTrustee and the $1,875,000 loan advanced will be sufficient to provide for the estimated number ofNew Zealand, United Kingdom and Australian employees likely to elect to join the schemes.Employee Share Option PlanPrior to listing the Company established a Share Option Plan. Under the plan the Company has offered2,274,000 options to selected senior employees, including Executive Directors, under the following terms:• One option entitles the employee to purchase one ordinary share in the Company• The exercise price of the options is the price per share paid by investors upon initial listing on 9 June2004, being $1.25.• Options can only be exercised:- in the exercise period commencing 9 June 2007 and ending 9 June 2009 or in otherextraordinary circumstances, for example if a person or group of associated persons acquire aninterest in at least 50% of the total voting rights in the Company, and- if, on the day of exercise, the market price of the ordinary shares is equal to or greater than thebenchmark price.• The benchmark price is calculated by taking the exercise price of $1.25, adjusted for the requiredweighted average cost of capital, as determined by independent advisors, and expected annualdividends over the period from 9 June 2004 to the commencement of the exercise period.• Options will lapse if not exercised within the exercise period.Under the Scheme Executive Directors were issued with the following options: Chrissy Conyngham290,000, Greg Muir 290,000, and Maurice Prendergast 290,000.The value of these options was independently assessed using a binominal option pricing modelat the time of granting as $65,540 for each Executive Director and $317,372 for all other employees.No compensation expense is recognised in the Statement of Financial Performance.41