Directors’ Report 2012 As with TSR, there is the same cap and floor mechanism for EBIT/ Funds Employed that assists in controlling excessive reward or  penalty to management, in any given year, where the significant  increase or significant decrease in EBIT/Funds Employed was only  temporary. The cap and floor have been set at different rates to  reflect the working capital issue highlighted above. Note: SPRs banked under the LTIP can be both positive and  negative. SPRs can only vest if there is a pre-determined  improvement on the previous year. Importantly however, if  performance falls below a pre-determined level in any year,  previously banked SPRs will be clawed back to the extent  calculated under the performance hurdles. This feature provides the opportunity to assess performance  over multiple years and therefore supports the intent of the  LTIP to align shareholder and Executive interests over the  long term. The below example shows how the LTIP worked in July 2012 for  the CEO (using actual figures). 4. After testing any notionally granted SPRs against the relevant  performance hurdle the SPRs are deposited into (or deducted  from) the relevant share bank account for each participant. At  the end of every financial year 40% of any positive bank account  balance is distributed to participants as AGL shares. The balance  (if any) of each bank account is carried forward and may vest or  be clawed back in future years. Any negative balance is also  carried forward. 54 Calculation of SPR award to CEO Michael Fraser Total Fixed Remuneration $2,080,000 Notional LTI allocation (100% of TFR) $2,080,000 VWAP of share price to 30 June 2010 to  calculate notional grant of SPRs $14.23 Number of SPRs notionally granted 146,171 Adjustment to SPRs notionally granted for the  effect of rights issue 5,357 Adjusted total number of SPRs notionally  granted after rights issue 151,528 Hurdle 2: Annual growth in EBIT/Funds Employed 2012 A Michael Fraser SPRs notionally  granted for this hurdle (50% of  151,528 adjusted notional grant) 75,764 EBIT/Funds Employed outcome 11.1% B Award multiplier 1.65 C Opening SPR bank balance (carried  forward from the 2010/2011  financial year) minus 22,988 D Adjustment to SPRs opening bank  balance for the effect of rights issue minus 843 E Total SPR bank balance after rights  issue (C + D) minus 23,831 F Incentive (A x B) 125,011 G Available (E + F) 101,180 H Annual distribution at 40% (G x 40%) 40,472 I Closing bank balance of SPRs (G – H) 60,708 2012 TSR metric outcome calculation Opening VWAP share price – 30/6/2011 $14.23 Closing VWAP share price – 30/06/2012 $15.03 Dividends paid in 2012  $0.60 Value of exercising rights  $0.57 TSR for 2012 ((15.03+0.60+0.57)/14.23)– 1x100  13.9% Award multiplier – based on TSR outcome  above 4% 1.98 2012 EBIT/Funds Employed metric outcome calculation EBIT/Funds employed – 30/6/2011 10.45% EBIT/Funds employed – 30/6/2012 11.61% Annual change in EBIT/Funds employed for  2012 ((11.61–10.45)/10.45)x100  11.1% Award multiplier – based on EBIT/Funds  Employed outcome above 2% 1.65 Hurdle 1: Annual TSR 2012 A Michael Fraser SPRs notionally  granted for this hurdle (50% of  151,528 adjusted notional grant) 75,764 TSR outcome 13.9% B Award multiplier 1.98 C Opening SPR bank balance (carried  forward from the 2010/2011  financial year) 30,031 D Adjustment to SPRs opening bank  balance for the effect of rights issue 1,101 E Total SPR bank balance after rights  issue (C + D) 31,132 F Incentive (A x B) 150,013 G Available (E + F) 181,145 H Annual distribution at 40% (G x 40%) 72,458 I Closing bank balance of SPRs (G – H) 108,687