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INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194 (ASX: IAW) Financial Report For the year

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194 (ASX: IAW)

Financial Report For the year ended 30 June 2009

LEGAL HOLDINGS LIMITED ACN 120 394 194 (ASX: IAW) Financial Report For the year ended 30

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Contents to Financial Report

Corporate Information

1

Directors’ Report

2

Auditor’s Independence Declaration

21

Corporate Governance Statement

22

Balance Sheet

30

Income Statement

31

Cash Flow Statement

32

Statement of Changes in Equity

33

Notes to the Financial Statements

35

Directors’ Declaration

93

Independent Audit Report

94

ASX Additional Information

96

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Corporate Information

ABN 20 120 394 194

Directors The Hon John Dawkins, Chairman Anne Tregonning, Nonexecutive Director Graeme Fowler, Managing Director/CEO

Company Secretary JeanMarie Rudd

Registered office

Ground Floor

201 Adelaide Terrace

Perth WA 6000

Principal place of business Head Office Level 22 1 Market Street Sydney NSW 2000 Tel: (02) 8263 6600

Share Register

Computershare Investor Services Pty Limited Level 2

45 St Georges Terrace

Perth WA 6000 Tel: (08) 9323 2000

Integrated Legal Holdings Limited shares are listed on the Australian Stock Exchange.

Solicitors

Talbot Olivier

Level 8, Wesfarmers House

40 The Esplanade

Perth WA 6000

Bankers

National Australia Bank Limited

100 St Georges Terrace

Perth WA 6000

Auditor

Ernst & Young

11 Mounts Bay Road

Perth WA 6000

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report

Your directors submit their report for the year ended 30 June 2009.

DIRECTORS The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities

The Hon John Dawkins, AO, B.Ec (Nonexecutive Chairman) Mr Dawkins was Chairman of Law Central from its early beginnings in March 2000 until March 2006. His other board appointments include Chair of the Retail Energy Market Company Ltd, Chair of Fortuna Funds Management Ltd, and Director of M&C Saatchi Direct Pty Ltd. For over 10 years, until 2005, he served on the board of Sealcorp Holdings, now Asgard Wealth Solutions, and he is a former chairman of Elders Rural Bank.

Mr Dawkins has consulted to several large Australian and overseas companies, the World Bank and the OECD. Until his retirement from politics in 1994 he served as a Minister in the Federal Government for 10 years and in the House of Representatives for 18 years.

He is a graduate in Economics from the University of Western Australia, and he has been awarded honorary doctorates from The University of South Australia and the Queensland University of Technology.

During the past three years, Mr Dawkins served as a director of the following listed companies:

MGM Wireless Ltd appointed 17 August 2008* Genetic Technologies Ltd appointed 24 November 2004; resigned 19 November 2008

*denotes current directorship

Anne Tregonning, B.Com, FCA, GAICD (Nonexecutive Director) Ms Tregonning has extensive experience in finance and risk management in both public practice and commerce. Senior positions previously held include General Manager Finance and Risk, Wealth Management Division, St George Bank, Director Group Finance, Sealcorp Holdings (now ASGARD Wealth Solutions), and Senior Manager Corporate Banking, BankWest.

Ms Tregonning is a non executive director of Retail Energy Market Company Ltd and the Breast Cancer Research Centre Western Australia. She is a past executive director of ASGARD Capital Management Limited, a past State Chairman of the Institute of Chartered Accountants and member of its National Council, and a past director of other public company and notfor profit/professional organisations.

Ms Tregonning is a graduate of The University of Western Australia, a Fellow of The Institute of Chartered Accountants and graduate of the Australian Institute of Company Directors.

Ms Tregonning did not have any directorships in other listed companies during the past three years.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

Graeme Fowler, B.Bus, CPA, GAICD (Managing Director/CEO) Mr Fowler was previously Chief Executive Officer of listed accounting and financial services consolidator WHK Group Limited. He brings specific experience in the successful consolidation of professional services firms. He spent over 15 years in senior management roles with the BT Financial Group including Group Chief Financial Officer, Chief Executive Officer of BT Funds Management NZ, and Chief Executive Officer of BT Portfolio Services (including BT Wrap).

Mr Fowler is a business studies graduate of The University of Technology, Sydney, a Certified Practicing Accountant and a graduate of the Australian Institute of Company Directors.

Mr Fowler did not have any directorships in other listed companies during the past three years.

Beneficial interests in the shares of the company and related bodies corporate As at the date of this report, the beneficial interests of the directors in the shares of Integrated Legal Holdings Limited were:

Number

of

 

Ordinary

Shares

J Dawkins

1,626,398

A

Tregonning

300,000

G

Fowler

2,710,200

COMPANY SECRETARY JeanMarie Rudd, B.Com, CA Appointed: 28 August 2008

Mrs Rudd is also the Chief Financial Officer (CFO) of the Integrated Legal Holdings Limited group of companies.

Mrs Rudd was previously the Finance Director in Western Australia of national law firm, Minter Ellison, bringing industry specific experience to her roles with Integrated Legal Holdings Limited. Mrs Rudd has over 18 years experience in CFO/Company Secretary roles including senior management roles with the Heytesbury Group and ThinkSmart Limited.

Mrs Rudd is a graduate of Curtin University, Perth, and a Chartered Accountant.

DIVIDENDS

No dividends have been declared or paid from profits of the Company for the year ended 30 June

2009.

PRINCIPAL ACTIVITIES The principal activity of the entities of the consolidated Group was the provision of legal services and online legal document services in Australia.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

OPERATING AND FINANCIAL REVIEW

Group Overview

A detailed review of the operations of the Group during the financial year, its financial position and business strategies and prospects for future financial years is set out below.

Performance Indicators Management and the Board monitor the Group’s overall performance, from the execution of its strategic plan through to the performance of the Group against operating plans and financial budgets.

The Board, together with management have identified key performance indicators (KPIs) that are used to monitor performance. Directors receive the KPIs for review prior to each monthly Board meeting allowing all directors to actively monitor the Group’s performance.

Operating Results for the Year For the year ended 30 June 2009, the consolidated entity generated a net profit after tax of $593,875 (2008: $1,544,303).

Against the same period last year, earnings before interest, tax, impairment, depreciation and amortisation decreased from a profit of $2,421,039 to a profit of $1,638,744.

Consolidated operating revenues of $16,946,221 were 59% higher than the previous year which reported $10,688,441 operating revenues. Revenue from operating activities increased due to a combination of organic growth and acquisitions of new member firms.

As previously announced on 20 August 2009, a non cash impairment charge of $450,000 (2008:

$215,826) was recognised against the carrying value of the Law Central business.

A full commentary on the results for the reporting period is contained in the ASX release dated 31

August 2009.

Shareholder Returns The Company’s return to shareholders is as follows:

 

2009

2008

Basic and diluted profit per share (cents)

0.89

2.66

Review of Financial Condition

Liquidity and Capital Resources The consolidated Cash Flow Statement illustrates that there was a decrease in cash flow from operating activities. Operating activities resulted in a net cash outflow of $1,652,745 (2008:

$1,119,431 inflow).

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

This decrease in comparison to 2008 is largely due to the funding of working capital for new businesses during the initial period postacquisition and the payment of maiden tax liabilities during the year.

Business acquisitions adversely impact cash resources as debtors and work in progress of the acquired legal practices are not purchased on acquisition. Cash resources are reinvested back into these businesses until working capital levels are built up to their preacquisition levels and the acquired businesses return to a positive cash flow. In many cases this may take a period of up to 4 6 months.

The materiality of the acquisitions of Argyle Lawyers in November 2008 and mda lawyers in March 2009 to the Integrated Legal Holdings Limited group is significant and there has been a negative impact on operating cash flows for the year.

During the year the Group also paid $1.3m for its maiden income tax liability for the 2008 financial year together with the first instalment (prepayment) of income tax with respect to the 2009 financial year. Thus, in the first year of meeting taxation obligations, there are additional tax payments. This has significantly impacted the Group’s reported operating cash flows.

This situation is unique to the first year in which tax is paid and will not be repeated. In future periods, taxation payments will be paid on a quarterly basis in advance.

Cash flows used for investing activities amounted to $3,909,689 (2008: $6,736,530) of which $3,731,403 (2008: $6,652,695) relates to the acquisition of businesses during the year.

These outflows were partially offset by the receipt of $1,723,000 (2008: nil) in debt funding by way of floating bills and from $476,372 (2008: $232,057) received to finance equipment acquisitions and annual professional indemnity insurance premiums.

Finally, there was a cash outflow of $1,411,065 for the payment of the 2008 final dividend.

The net tangible asset backing of the Group was 4.89 cents per share (2008: 11.71 cents).

Asset and capital structure

CONSOLIDATED

 

2009

2008

$

$

Debts:

Trade and other payables Interest bearing loans and borrowings Less: Cash and cash equivalents Net debt/(cash) Total equity Total capital employed

1,738,222

1,081,009

2,308,435

188,472

(600,694)

(5,626,766)

3,445,963

(4,357,285)

13,862,406

13,904,646

17,308,369

9,547,361

The level of gearing in the Company is within acceptable limits set by the directors given the implications of the business acquisitions and payment of tax liabilities during the year.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

Share issues during the year The Company has issued 5,807,858 shares during the year:

4,142,857 shares to the vendors of Argyle Lawyers Pty Ltd in part payment for acquisition of the Company on 1 November 2008;

1,333,334 shares to the vendor of mda lawyers in part payment for acquisition of the business on 13 March 2009; and

331,667 shares to employees under the Deferred Employee Share Plan.

Risk Management The Group takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the Board.

The Group believes that it is crucial for all Board members to be part of this process, and as such the Board has not established a separate risk management committee. Instead sub committees are convened as appropriate in response to issues and risks identified by the Board as a whole and the sub committee further examines the issue and reports back to the Board.

The Board has a number of mechanisms in place to ensure that management’s objectives and activities are aligned with the risks identified by the Board. These include the following:

Implementation of Board approved budget and Board monitoring of progress against budget, including the establishment and monitoring of financial KPIs; and

The establishment of committees to report on specific business risks.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Significant changes in the state of affairs during the year ended 30 June 2009 are as follows:

On 1 November 2008, the Company acquired, through its wholly owned subsidiary, Argyle Lawyers Pty Ltd, the legal practice of The Argyle Partnership (now trading as Argyle Lawyers) refer note 30.

On 13 March 2009, the Company, through its wholly owned subsidiary, Argyle Lawyers Pty Ltd, acquired the legal practice of mda lawyers refer note 30.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE There were no significant events after the balance date.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS Integrated Legal Holdings Limited will continue to seek growth in revenue and earnings through the acquisition of additional law firms throughout Australia.

ENVIRONMENTAL REGULATION The Group’s operations are not subject to any significant environmental, Commonwealth or State, regulations or laws.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS Each of the directors and secretary of the Company has entered into a deed with the Company whereby the Company has provided certain contractual rights of access to books and records of the Company to those directors and secretary and to effect and maintain insurance in respect of the directors and officers liability and provide certain indemnities to each of the directors, to the extent permitted by section 199B of the Corporations Act 2001 .

The Company has put in place Prospectus Insurance and Directors and Officers Liability Insurance. The contract prohibits the disclosure of the nature of the liability and/or the amount of the premium.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

DIRECTORS’ MEETINGS The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director was as follows:

 

Directors’ Meetings

Audit

Acquisition*

Eligible to

 

Eligible to

 

Eligible to

 

attend

Attended

attend

Attended

attend

Attended

J Dawkins

10

10

9

7

5

5

A Tregonning

10

10

9

9

5

5

G Fowler

10

10

9

9

5

5

*The members of the acquisition committee meet, as required, with formal matters being raised during Board meetings. At a meeting of the directors on 18 December 2008 a resolution was made to disband the Acquisition Committee as its functions are now being undertaken by the Board.

Committee membership As at the date of this report, the Company had an Audit Committee of the Board of Directors.

The Audit Committee comprises all members of the Board of Directors and is chaired by Ms Tregonning.

AUDITOR INDEPENDENCE AND NON AUDIT SERVICES A copy of the auditor’s independence declaration received by the Directors in relation to the audit for the year is provided with this report on page 21.

NON AUDIT SERVICES Nonaudit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 . The nature and scope of each type of non audit service provided means that auditor independence was not compromised.

Ernst & Young received or are due to receive the following amounts for the provision of non audit services:

CONSOLIDATED

2009

2008

PARENT

2009

2008

 

$

$

$

$

Tax compliance

18,813

9,470

18,813

9,470

Taxation services

7,737

32,853

7,737

32,853

26,550

42,323

26,550

42,323

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

REMUNERATION REPORT (audited)

This remuneration report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in the Parent and the Group receiving the highest remuneration.

For the purposes of this report, the term “executive” encompasses the Chief Executive, senior executives and the secretary of the Parent and the Group.

Details of key management personnel (including the five highest paid executives of the Company and the Group):

i)

Directors

 

J

Dawkins

Chairman (non executive)

A

Tregonning

Non executive director

G

Fowler

Managing director/CEO

ii)

Executives

 

B

Taylor

Managing principal, Talbot Olivier

P

Bobbin

Managing principal, Argyle Lawyers – appointed 1 November 2008

B

Davies

Managing principal, Brett Davies Lawyers

JM Rudd

Chief financial officer Company secretary – appointed 28 August 2008

There were no changes to KMP after reporting date and before the date the financial report was authorised for issue.

The Board of Directors of the Company is responsible for determining and reviewing remuneration arrangements for the Board and executives.

The Board will assess the appropriateness of the nature and amount of remuneration of executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality, high performing Board and executive team.

Remuneration philosophy The performance of the Company depends upon the quality of its directors and executives. To prosper, the Company must attract, motivate and retain highly skilled directors and executives (refer Group Performance on page 15).

To this end, the Company embodies the following principals in its remuneration framework:

Provide competitive rewards to attract high calibre executives;

Link executive reward to shareholder value;

Have a portion of executive remuneration ”at risk”; and

Establish appropriate, demanding performance hurdles for variable executive remuneration.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

REMUNERATION REPORT (audited) (continued)

Remuneration structure In accordance with best practice corporate governance, the structure of non executive director and executive remuneration is separate and distinct.

Nonexecutive director remuneration

Objective The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders.

Structure The Group’s Constitution and the ASX Listing Rules specify that the aggregate remuneration of non executive directors shall be determined from time to time by a general meeting. The current aggregate remuneration level for non executive directors, as approved by shareholders, is $250,000 (2008: $250,000) per annum. The next determination will be at the AGM to be held on 26 November 2009 when shareholders will be asked to approve the aggregate remuneration for non executive directors for the year.

The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually. The Board considers advice from external consultants as well as the fees paid to non executive directors of comparable companies when undertaking the annual review process.

Each non executive director receives an agreed/contracted fee for being a director.

Nonexecutive directors do not receive retirement benefits, nor do they participate in any incentive programs.

The remuneration of non executive directors for the financial year is detailed in table 1 on page 18 of this report.

Executive remuneration

Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group so as to:

Reward executives for Group, subsidiary and individual performance against targets set by reference to appropriate benchmarks;

Align the interests of executives with those of shareholders; and

Ensure total remuneration is competitive by market standards.

Structure In determining the level and makeup of executive remuneration, the Board engages external consultants as needed to provide independent advice.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

REMUNERATION REPORT (audited) (continued)

The Board has entered into a detailed contract of employment with the Managing Director/CEO and other executives. Details of these contracts are provided below.

Remuneration consists of the following key elements:

Fixed remuneration (base salary and superannuation)

Variable remuneration:

o

Short term incentives (STI)

o

Long term incentives (LTI) in the form of share based payments (equity settled)

Fixed remuneration

Objective Fixed remuneration is reviewed annually by the Board. The process consists of a review of Company, subsidiary and individual performance, relevant comparative remuneration externally and internally and, where appropriate, external advice on policies and practices. As noted above, the Board has access to external advice independent of management.

Structure Executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Group.

The fixed remuneration component of executives is detailed in table 1 on page 18.

Variable remuneration short term incentives (STI)

Objective The objective of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the executive to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances.

Structure Managing Director/CEO The Managing Director/CEO is entitled to a maximum performance bonus of $160,000, subject to the achievement of specific performance targets for the period from 28 April 2008 to 30 June 2010 (26 months). If achievement of performance targets is not successful by that date, a lesser amount may be payable at the discretion of the Board, taking into account the individual circumstances contributing to non achievement of those targets.

Performance targets are achieved when:

Accumulated revenue for the Group is $40m or greater; and

Earnings per share growth of 15% or greater above the forecast earnings per share for the 2008 financial year.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

REMUNERATION REPORT (audited) (continued)

These targets are measured using financial reporting information and reviewed by the Board.

The terms and conditions pertaining to the bonus are as follows:

1. Both performance targets must be achieved at the same time for satisfaction of performance criteria, unless determined otherwise by the Board.

2. The bonus will vest upon achievement of targets on or before 30 June 2010 (providing targets achieved).

3. A new bonus structure (between the CEO and Board) will be negotiated from time of payment of this bonus.

4. Bonus to be paid in cash and/or shares, at the discretion of the Board.

5. Bonus payable within 30 days of satisfaction of performance criteria, as confirmed by the Board.

Managing Principals Actual STI payments are granted to subsidiary member firms depending on the extent to which specific performance hurdles are met. The STI payments are calculated as a percentage of an amount by which profitability of a subsidiary exceeds a pre determined profit hurdle for that subsidiary.

Profit hurdles are approved by the Board at the time of acquisition of a member firm.

The STI payment for a subsidiary is then allocated between Principals of that subsidiary, including the Managing Principal, based on pre determined key performance indicators, including fee income attributable to each Principal.

STI payments are delivered as a cash bonus within two months after the end of each financial year.

During the year, the STI payment structure for the Principals of Talbot Olivier, including the Managing Principal, was renegotiated, resulting in the performance period being altered from the 12 months ended 10 August 2009, to the 10.5 months ended 30 June 2009.

For the 2009 financial year, the STI performance period for the Principals of Argyle Lawyers, including the Managing Principal, was calculated from the acquisition date of 1 November 2008 to the end of the financial year on 30 June 2009.

Chief Financial Officer The Chief Financial Officer is entitled to a maximum performance bonus of $10,000 (assessed and payable in six monthly instalments), subject to the achievement of specific performance targets for the 12 months ending 31 August 2009. If achievement of performance targets is not successful a lesser amount may be payable at the discretion of the Managing Director, taking into account the individual circumstances contributing to non achievement of those targets.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

REMUNERATION REPORT (audited) (continued)

Performance targets are achieved upon satisfaction of key deliverables involving the effective implementation of internal processes and schemes.

Those key deliverables represent key drivers for the short term success of the business and provide a framework for delivering long term value. Targets are measured using financial reporting information and non financial assessment by the Managing Director of implemented schemes and processes.

STI bonus for 2009

Managing Director/CEO The Board will consider the quantum of the performance bonus payable at the end of the 26 month performance period or when management are satisfied that all targets are met.

The maximum performance bonus achievable at the end of the 26 months is $160,000 and the minimum is nil. At reporting date, no bonus has vested or is payable to the Managing Director/CEO under his performance bonus plan.

There have been no alterations to the Managing Director’s STI bonus plan during the year.

Managing Principals The Managing Director assesses the STI bonus payments for a subsidiary for subsequent allocation between Principals of that subsidiary, including the Managing Principal, based on pre determined key performance indicators, including fee income attributable to each Principal.

The maximum STI cash bonus is calculated as a percentage of an amount by which profitability of a subsidiary exceeds a pre determined profit hurdle for that subsidiary. The minimum STI cash bonus payable is nil. The amount of the bonus achieved and vested during the 2009 financial year has been calculated as follows:

2009

$

2008

$

B

Taylor Managing Principal, Talbot Olivier

15,093

B

Davies – Managing Principal, Brett Davies Lawyers

P

Bobbin Managing Principal, Argyle Lawyers

17,006

Other than the alterations to the performance periods disclosed on page 12, there have been no alterations to the STI bonus plan during the year.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

REMUNERATION REPORT (audited) (continued)

Chief Financial Officer The Managing Director will approve the STI bonus payments for the 12 months ending 31 August 2009. The maximum STI cash bonus is $10,000 and the minimum is nil. The amount of the bonus that vested during the 2009 financial year was $7,833. Of this total, $4,000 was paid during the 2009 financial year with the remainder to be paid in September 2009.

Variable remuneration long term incentives (LTI)

Chief Financial Officer The LTI benefits are delivered on a discretionary basis by the Board in the form of ordinary shares in the Company under the Deferred Employees Share Plan. Such grants are only made to executives who are able to influence the generation of shareholder wealth and thus have an impact on the Group’s performance against the relevant long term performance hurdle.

75,000 shares were granted to the Chief Financial Officer on 1 July 2008 with a fair value of $0.11 per share on grant date and a total fair value of $8,250. The shares will vest in stages during the three year period from issue date, ending 30 June 2011, following the successful achievement of the performance criteria specified below, and provided that the Chief Financial Officer remains in the employment of the Company for each vesting period. Should the Chief Financial Officer cease employment prior to this date, unvested shares will be forfeited. Performance criteria attached to the shares are as follows:

100% of shares will vest if cumulative growth in the Company’s earnings per share over the three years ending 30 June 2011 is 45% or more; and

Shares will commence vesting after achieving 30% growth in the Company’s earnings per share. 50% of shares will vest at 30% growth in earnings per share, with an additional 5% of shares vesting for every 1.5% of earnings per share growth above 30%.

Performance criteria will be measured using financial reporting information.

At 30 June 2009, no shares under the LTI plan have vested (2008: nil) or were forfeited (2008: nil).

Executive share trading policy The Company has in place a share trading policy which imposes trading restrictions on officers and employees of the Company and its related entities that are considered to be in possession of inside information.

Executives and directors are prohibited from using derivatives or hedge instruments or otherwise entering into transactions (including margin loans) that operate or are intended to operate to limit the economic risk of security holdings over vested or unvested shares in the Company without the written permission of the Board.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

REMUNERATION REPORT (audited) (continued)

Group Performance Integrated Legal Holdings Limited’s remuneration policy aims to connect the remuneration received by executives with earnings and the creation of shareholder wealth.

Group performance is reflected in the movement of the Group’s earnings per share (EPS) over time. The graph below shows Integrated Legal Holdings Limited’s basic EPS history since incorporation in June 2006:

10.00 0.00 (10.00) (20.00) (30.00) (40.00) (50.00) (60.00) (70.00) Jun ‐2007 (1) Jun ‐2008 (2)
10.00
0.00
(10.00)
(20.00)
(30.00)
(40.00)
(50.00)
(60.00)
(70.00)
Jun ‐2007 (1)
Jun ‐2008 (2)
Jun ‐2009 (3)
EPS (cents)
(65.50)
2.66
0.89
(1)
(2)
(3)
For the period from incorporation on 26 June 2006 to 30 June 2007
For the year ended 30 June 2008
For the year ended 30 June 2009
EPS (cents)
EPS (cents)

The 2007 EPS result of 65.50 was affected by the valuation of shares issued to foundation partners and supporters at a deemed value of 50 cents per share prior to listing of the Company and acquisition of legal practices. The EPS improved in the 2008 financial year after listing in August 2007 and the subsequent acquisition of four legal practices and an information technology business.

In the 2009 financial year a number of factors influenced the reduction of EPS:

Corporate expenses increased with the full year effect of the costs of a Managing Director and Chief Financial Officer/Company Secretary

The foundation member firms required investment during the period to ensure the firms were best placed to take advantage of the growth opportunities available to them.

The prevailing economic conditions negatively affected revenues during the June quarter against expectations and against the seasonally high revenues historically achieved during this period.

As part of the year end review of the Company’s financial position, the Directors resolved to writeoff a number of aged debtor balances which in their view had become unrecoverable as a result of the economic environment.

The directors believe that the business model remains strong and the company is on target to achieve its objectives.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

REMUNERATION REPORT (audited) (continued)

Employment contracts

Managing Director/CEO There is an employment contract in place between Mr Fowler and Integrated Legal Holdings Limited for Mr Fowler’s appointment as Managing Director/CEO of the Company. The contract commenced on 28 April 2008 and continues indefinitely unless terminated according to the provisions of the contract.

Mr Fowler receives fixed remuneration of $272,500 (2008: $272,500) per annum (inclusive of superannuation).

Under the terms of the contract, Mr Fowler’s duties include, but are not limited to:

Implementing the business plan as determined by the Company;

Carrying out such lawful directions as given by the Company; and

Expanding and developing the business.

The agreement may be terminated without notice by Integrated Legal Holdings Limited if:

Mr Fowler commits a serious breach of the agreement;

Mr Fowler commits any act that amounts to a repudiation of the agreement;

Mr Fowler engages in serious or wilful misconduct; or

It is permitted for any reason under relevant legislation.

The agreement may also be terminated by either party with 30 day’s notice in writing of termination.

Managing Principals member firms B Davies, Brett Davies Lawyers Mr Davies is employed under a two year fixed term contract, which expired on 12 August 2009. A new employment contract is currently being negotiated. Mr Davies is paid a salary of $100,000 per annum (inclusive of superannuation) and potentially a bonus paid as an additional salary (the bonus payment is calculated at 20% of the amount by which the net profit after tax of the Managing Principal’s law firm exceeds the unaudited net profit after tax of the law firm for the 2009 financial year).

The employment contract can be terminated without notice if the employee commits a serious breach of any provision of their contract, is unable to or is prohibited from holding a license to practice law, commits any act that amounts to repudiation of the contract or engages in serious and wilful misconduct. After the conclusion of the two year employment period, either party may also terminate the employment contract by giving 28 days notice.

Mr Davies is also subject to strict confidentiality obligations regarding clients of the legal practice, and is also subject to solicitation restraints for a period of up to two years after termination.

INTEGRATED LEGAL HOLDINGS LIMITED ACN 120 394 194

Directors’ Report (continued)

REMUNERATION REPORT (audited) (continued)

B Taylor, Talbot Olivier

During the 2009 financial year, Mr Taylor was employed under a two year fixed term contract which was due to expire on 12 August 2009. Mr Taylor was paid an annual salary of $100,000 (2008:

$100,000) per annum (inclusive of superannuation) and potentially an STI cash bonus as an additional salary.

The current employment contract ceased on 30 June 2009 following negotiation of new employment arrangements which will apply from 1 July 2009. Under the new contract, effective from 1 July 2009, Mr Taylor is employed under a four year fixed term contract and continuing thereafter until terminated by either party with six month’s notice in writing of termination (notice may not be given before 1 January 2013, being six months prior to the completion of the initial four year term). He is also subject to strict confidentiality obligations and solicitation and competition restraints for a period of 12 months following termination.

P Bobbin, Argyle Lawyers

Commencing from 4 November