Share-based payments

12 Months Ended

Jun. 30, 2018

Disclosure Of Sharebased Payment Arrangements [Abstract]

Share-based payments

17. Share-based payments

The Company has adopted an Employee Share Option Plan (“ESOP”) and a Loan Funded Share Plan (“LFSP”) (together, “the Plans”) to foster an ownership culture within the Company and to motivate senior management and consultants to achieve performance targets. Selected directors, employees and consultants may be eligible to participate in the Plans at the absolute discretion of the board of directors, and in the case of directors, upon approval by shareholders. Due to changes in the Australian taxation regime, the Company no longer issues new LFSP since July 1, 2015.

Grant policy

In accordance with the Company’s policy, options and loan funded shares are typically issued in three equal tranches.  For issues granted prior to July 1, 2015 the length of time from grant date to expiry date was typically 5 years. Grants since July 1, 2015, are issued with a seven year term.

Options issued to employees generally vest based on service or time conditions. In the year ended June 30, 2018, senior executives were issued options that vest based on performance conditions. For time based vesting options, the first tranche typically vests 12 months after grant date, the second tranche 24 months after grant date, and the third tranche 36 months after grant date.

The exercise price is determined by reference to the Company policy which is generally the volume weighted market price of a share sold on the ASX on the 5 trading days immediately before the Board approval date. In the case of options that have time based vesting conditions, the board of directors adds a 10% premium. Options with performance based vesting conditions are issued with no premium. No new options were issued to the directors during the year. The board of directors’ policy is not to issue options at a discount to the market price. The same approach is used to determine the purchase price to acquire a loan-funded share for the purposes of the LFSP.

The aggregate number of options which may be issued pursuant to the ESOP must not exceed 10,000,000 with respect to US incentive stock options, and with respect to Australian residents, the limit imposed under the Australian Securities and Investments Commission Class Order 14/1000.

In addition, the LFSP which has not been issued since July 1, 2015, has the following characteristics:

On grant date, the Company issues new equity (rather than purchasing shares on market), and the loan funded shares are placed in a trust which holds the shares on behalf of the employee. The trustee issues a limited recourse, interest free, loan to the employee which is equal to the number of shares multiplied by the price. A limited-recourse loan means that the repayment amount will be the lesser of the outstanding loan value (the loan value less any amounts that may have already been repaid) and the market value of the shares that are subject to the loan. The price is the amount the employee must pay for each loan funded share if exercised.

The trustee continues to hold the shares on behalf of the employee until the employee chooses to settle the loan pertaining to the shares and all vesting conditions have been satisfied, at which point ownership of the shares is fully transferred to the employee.

Any dividends paid by the Company, while the shares are held by the trustee, are applied as a repayment of the loan at the after-tax value of the dividend.

a. Reconciliation of outstanding share based payments

Series	Grant Date	Expiry Date	Exercise Price		Opening Balance		Granted No. (during the year)		Exercised No. (during the year)			Lapsed/Cancelled No. (during the year)			Closing Balance		Vested and exercisable No (end of year)
INC	7/12/2010	26/10/2018		USD 0.305		154,064		—		(127,956	)		—			26,108		26,108
INC	7/12/2010	26/10/2019		USD 0.340		447,848		—		(127,956	)		—			319,892		319,892
17/LF3	9/07/2012	8/07/2018		AUD 6.67		150,000		—		—			—			150,000		150,000
19/LF5	25/01/2013-29/01/2013	24/01/2018-28/01/2018		AUD 6.27		50,000		—		—			(50,000	)		—		—
20/LF6	24/05/2013	23/05/2018		AUD 6.34		425,000		—		—			(425,000	)		—		—
21/LF7	3/09/2013	30/06/2018		AUD 5.90		1,865,000		—		—			(1,865,000	)		—		—
22/LF8	4/09/2013	27/08/2018		AUD 6.26		225,000		—		—			—			225,000		225,000
25a (i&ii)	1/01/2014	31/12/2018		AUD 6.36		650,000		—		—			—			650,000		650,000
25b	12/12/2014	31/10/2019		AUD 4.49		50,000		—		—			—			50,000		50,000
27/LF12	5/09/2014	30/06/2019		AUD 4.69		2,070,000		—		—			(25,000	)		2,045,000		2,045,000
27(iv)	25/08/2014	24/08/2019		AUD 4.65		75,000		—		—			(75,000	)		—		—
28/LF13	9/10/2014	8/10/2019		AUD 4.52		85,000		—		—			(10,000	)		75,000		75,000
29	25/11/2014	24/11/2019		AUD 4.00		240,000		—		—			—			240,000		240,000
30a(1)	25/03/2015	30/06/2018		AUD 4.98		650,000		—		—			(650,000	)		—		—
30b(1)	25/03/2015	25/01/2018		AUD 4.98		235,000		—		—			(235,000	)		—		—
30c(1)	25/03/2015	20/01/2019		AUD 4.98		135,000		—		—			—			135,000		135,000
30d(1)	25/03/2015	25/01/2019		AUD 4.98		300,000		—		—			—			300,000		300,000
30e(1)	25/03/2015	25/01/2018		AUD 4.98		165,000		—		—			(165,000	)		—		—
30f(1)	25/03/2015	25/01/2019		AUD 4.98		200,000		—		—			—			200,000		200,000
30g(1)	25/03/2015	23/07/2019		AUD 4.69		300,000		—		—			(300,000	)		—		—
30h(1)	25/03/2015	30/06/2019		AUD 4.69		400,000		—		—			—			400,000		400,000
30i(1)	25/03/2015	30/06/2019		AUD 4.44		600,000		—		—			—			600,000		600,000
30j	25/03/2015	23/07/2019		AUD 4.69		150,000		—		—			(150,000	)		—		—
LF14	6/01/2015	16/12/2019		AUD 4.66		150,000		—		—			—			150,000		150,000
31b	12/05/2015	16/02/2020		AUD 4.28		200,000		—		—			—			200,000		200,000
32	10/07/2015	30/06/2022		AUD 4.20		2,620,000		—		—			(161,666	)		2,458,334		1,683,336
33	26/08/2015	16/08/2022		AUD 4.05		91,667		—		—			(16,667	)		75,000		50,000
34	27/04/2016	6/03/2023		AUD 2.80		3,621,667		—		—			(241,667	)		3,380,000		2,299,982
34a	27/04/2016	17/04/2023		AUD 2.74		200,000		—		—			—			200,000		133,334
34b	31/10/2016	6/03/2023		AUD 2.80		200,000		—		—			—			200,000		200,000
35	30/06/2016	18/01/2021		AUD 2.20		1,500,000		—		—			—			1,500,000		1,500,000
36	6/12/2016	5/12/2023		AUD 1.31		2,045,000		—		(33,333	)		(126,667	)		1,885,000		611,666
36a	6/12/2016	5/12/2023		AUD 1.19		4,400,000		—		—			—			4,400,000		1,495,002
36b	13/01/2017	12/01/2024		AUD 1.65		450,000		—		—			(150,000	)		300,000		300,000
37	28/06/2017	27/06/2024		AUD 2.23		—		300,000		—			—			300,000		100,000
38	16/09/2017	15/09/2024		AUD 1.54		—		100,000		—			—			100,000		—
38a	16/09/2017	15/09/2024		AUD 1.40		—		150,000		—			—			150,000		—
39	13/10/2017	12/10/2024		AUD 1.94		—		2,310,000		—			(95,000	)		2,215,000		—
39a	13/10/2017	12/10/2024		AUD 1.76		—		2,000,000		—			(100,000	)		1,900,000		200,000
40	24/11/2017	23/11/2024		AUD 1.41		—		750,000		—			—			750,000		—
40a	24/11/2017	23/11/2024		AUD 1.28		—		750,000		—			—			750,000		—
June 30, 2018						25,100,246		6,360,000		(289,245	)		(4,841,667	)		26,329,334		14,339,320
Weighted average share purchase price						AUD 3.35		AUD 1.74		AUD 0.52			AUD 4.97			AUD 2.68		AUD 3.39

(1) 30a to 30i were granted as a remuneration for the repurchase and cancellation of 2,985,000 LFSP during the year ended 30 June 2015 (see Note 17(b)).

Series	Grant Date	Expiry Date	Exercise Price		Opening Balance		Granted No. (during the year)		Exercised No. (during the year)			Lapsed/Cancelled No. (during the year)			Closing Balance		Vested and exercisable No (end of year)
INC	7/12/2010	26/10/2018		USD 0.305		154,064		—		—			—			154,064		154,064
INC	7/12/2010	26/10/2019		USD 0.340		447,848		—		—			—			447,848		447,848
INC	7/12/2010	25/04/2017		USD 0.444		127,956		—		(127,956	)		—			—		—
INC	7/12/2010	2/05/2017		USD 0.444		127,956		—		(127,956	)		—			—		—
16/LF2	24/02/2012	23/02/2017		AUD 8.48		340,000		—		—			(340,000	)		—		—
17/LF3	9/07/2012	8/07/2018		AUD 6.69		250,000		—		—			(100,000	)		150,000		150,000
18/LF4	21/09/2012-29/10/2012	30/06/2017		AUD 6.70		1,948,333		—		—			(1,948,333	)		—		—
19/LF5	25/01/2013-29/01/2013	24/01/2018-28/01/2018		AUD 6.29		100,000		—		—			(50,000	)		50,000		50,000
20/LF6	24/05/2013	23/05/2018		AUD 6.36		595,000		—		—			(170,000	)		425,000		425,000
21/LF7	3/09/2013	30/06/2018		AUD 5.92		2,430,000		—		—			(565,000	)		1,865,000		1,865,000
22/LF8	4/09/2013	27/08/2018		AUD 6.28		225,000		—		—			—			225,000		225,000
23a	26/11/2013	10/10/2018		AUD 6.20		33,333		—		—			(33,333	)		—		—
24	17/12/2013	16/12/2018		AUD 6.25		25,000		—		—			(25,000	)		—		—
25a (i&ii)	1/01/2014	31/12/2018		AUD 6.38		650,000		—		—			—			650,000		650,000
25b	12/12/2014	31/10/2019		AUD 4.51		50,000		—		—			—			50,000		33,334
25	1/07/2014	6/04/2019		AUD 5.80		10,000		—		—			(10,000	)		—		—
26/LF11	24/07/2014	23/07/2019		AUD 4.71		125,000		—		—			(125,000	)		—		—
27/LF12	5/09/2014	30/06/2019		AUD 4.71		2,865,000		—		—			(795,000	)		2,070,000		1,380,004
27(ii)	4/08/2014	3/08/2019		AUD 4.60		50,000		—		—			(50,000	)		—		—
27(iv)	25/08/2014	24/08/2019		AUD 4.67		75,000		—		—			—			75,000		50,000
28/LF13	9/10/2014	8/10/2019		AUD 4.54		235,000		—		—			(150,000	)		85,000		56,666
29	25/11/2014	24/11/2019		AUD 4.02		240,000		—		—			—			240,000		160,002
30a(1)	25/03/2015	30/06/2018		AUD 5.00		650,000		—		—			—			650,000		650,000
30b(1)	25/03/2015	25/01/2018		AUD 5.00		235,000		—		—			—			235,000		235,000
30c(1)	25/03/2015	20/01/2019		AUD 5.00		135,000		—		—			—			135,000		135,000
30d(1)	25/03/2015	25/01/2019		AUD 5.00		300,000		—		—			—			300,000		300,000
30e(1)	25/03/2015	25/01/2018		AUD 5.00		165,000		—		—			—			165,000		165,000
30f(1)	25/03/2015	25/01/2019		AUD 5.00		200,000		—		—			—			200,000		200,000
30g(1)	25/03/2015	23/07/2019		AUD 4.71		300,000		—		—			—			300,000		200,000
30h(1)	25/03/2015	30/06/2019		AUD 4.71		400,000		—		—			—			400,000		266,668
30i(1)	25/03/2015	30/06/2019		AUD 4.46		600,000		—		—			—			600,000		600,000
30j	25/03/2015	23/07/2019		AUD 4.71		150,000		—		—			—			150,000		100,000
LF14	6/01/2015	16/12/2019		AUD 4.66		150,000		—		—			—			150,000		100,000
31a	27/04/2015	16/02/2020		AUD 4.73		20,000		—		—			(20,000	)		—		—
31b	12/05/2015	16/02/2020		AUD 4.30		200,000		—		—			—			200,000		200,000
32	10/07/2015	30/06/2022		AUD 4.22		3,840,000		—		—			(1,220,000	)		2,620,000		873,334
33	26/08/2015	16/08/2022		AUD 4.07		125,000		—		—			(33,333	)		91,667		41,667
34	27/04/2016	6/03/2023		AUD 2.82		5,140,000		—		(16,667	)		(1,501,666	)		3,621,667		1,218,324
34a	27/04/2016	17/04/2023		AUD 2.76		200,000		—		—			—			200,000		66,667
34b	31/10/2016	6/03/2023		AUD 2.82		—		200,000		—			—			200,000		200,000
35	30/06/2016	18/01/2021		AUD 2.22		1,500,000		—		—			—			1,500,000		—
36	6/12/2016	5/12/2023		AUD 1.33		—		2,095,000		—			(50,000	)		2,045,000		—
36a	6/12/2016	5/12/2023		AUD 1.21		—		4,400,000		—			—			4,400,000		816,667
36b	13/01/2017	12/01/2024		AUD 1.67		—		450,000		—			—			450,000		150,000
June 30, 2017						25,414,490		7,145,000		(272,579	)		(7,186,665	)		25,100,246		12,165,245
Weighted average share purchase price						AUD 4.39		AUD 1.32		AUD 0.72			AUD 5.10			AUD 3.35		AUD 4.36

(1) 30a to 30i were granted as a remuneration for the repurchase and cancellation of 2,985,000 LFSP during the year ended 30 June 2015 (see Note 17(b)).

Series	Grant Date	Expiry Date	Exercise Price		Opening Balance		Granted No. (during the year)		Exercised No. (during the year)			Lapsed/Cancelled No. (during the year)			Closing Balance		Vested and exercisable No (end of year)
INC	7/12/2010	7/07/2015		USD 0.046		287,903		—		(287,903	)		—			—		—
INC	7/12/2010	26/10/2018		USD 0.305		154,064		—		—			—			154,064		154,064
INC	7/12/2010	26/10/2019		USD 0.340		447,848		—		—			—			447,848		447,848
INC	7/12/2010	25/04/2017		USD 0.444		127,956		—		—			—			127,956		127,956
INC	7/12/2010	2/05/2017		USD 0.444		127,956		—		—			—			127,956		127,956
13	22/09/2010	21/09/2015		AUD 2.64		135,000		—		(135,000	)		—			—		—
14	29/11/2010	29/11/2015		AUD 3.48		1,453,350		—		—			(1,453,350	)		—		—
15/LF1	22/12/2011	30/06/2016		AUD 7.99		3,413,334		—		—			(3,413,334	)		—		—
16/LF2	24/02/2012	23/02/2017		AUD 8.48		340,000		—		—			—			340,000		340,000
17/LF3	9/07/2012	8/07/2018		AUD 6.69		250,000		—		—			—			250,000		250,000
18/LF4	21/09/2012-29/10/2012	30/06/2017		AUD 6.70		2,276,667		—		—			(328,334	)		1,948,333		1,948,333
19/LF5	25/01/2013-29/01/2013	24/01/2018-28/01/2018		AUD 6.29		100,000		—		—			—			100,000		100,000
20/LF6	24/05/2013	23/05/2018		AUD 6.36		865,000		—		—			(270,000	)		595,000		595,000
21/LF7	3/09/2013	30/06/2018		AUD 5.92		2,741,667		—		—			(311,667	)		2,430,000		1,878,336
22/LF8	4/09/2013	27/08/2018		AUD 6.28		275,000		—		—			(50,000	)		225,000		150,002
23a	26/11/2013	10/10/2018		AUD 6.20		50,000		—		—			(16,667	)		33,333		33,333
24	17/12/2013	16/12/2018		AUD 6.25		148,333		—		—			(123,333	)		25,000		16,666
25a (i&ii)	1/01/2014	31/12/2018		AUD 6.38		650,000		—		—			—			650,000		650,000
25b	12/12/2014	31/10/2019		AUD 4.51		50,000		—		—			—			50,000		16,667
25	1/07/2014	6/04/2019		AUD 5.80		15,000		—		—			(5,000	)		10,000		10,000
26/LF11	24/07/2014	23/07/2019		AUD 4.71		215,000		—		—			(90,000	)		125,000		41,667
27/LF12	5/09/2014	30/06/2019		AUD 4.71		3,380,000		—		—			(515,000	)		2,865,000		961,670
27(ii)	4/08/2014	3/08/2019		AUD 4.60		50,000		—		—			—			50,000		16,667
27(iv)	25/08/2014	24/08/2019		AUD 4.67		75,000		—		—			—			75,000		25,000
28/LF13	9/10/2014	8/10/2019		AUD 4.54		235,000		—		—			—			235,000		78,333
29	25/11/2014	24/11/2019		AUD 4.02		240,000		—		—			—			240,000		80,001
30a(1)	25/03/2015	30/06/2018		AUD 5.00		650,000		—		—			—			650,000		650,000
30b(1)	25/03/2015	25/01/2018		AUD 5.00		235,000		—		—			—			235,000		235,000
30c(1)	25/03/2015	20/01/2019		AUD 5.00		135,000		—		—			—			135,000		135,000
30d(1)	25/03/2015	25/01/2019		AUD 5.00		300,000		—		—			—			300,000		200,000
30e(1)	25/03/2015	25/01/2018		AUD 5.00		165,000		—		—			—			165,000		165,000
30f(1)	25/03/2015	25/01/2019		AUD 5.00		200,000		—		—			—			200,000		200,000
30g(1)	25/03/2015	23/07/2019		AUD 4.71		300,000		—		—			—			300,000		100,000
30h(1)	25/03/2015	30/06/2019		AUD 4.71		400,000		—		—			—			400,000		133,334
30i(1)	25/03/2015	30/06/2019		AUD 4.46		600,000		—		—			—			600,000		400,000
30j	25/03/2015	23/07/2019		AUD 4.71		150,000		—		—			—			150,000		50,000
LF14	6/01/2015	16/12/2019		AUD 4.66		150,000		—		—			—			150,000		50,000
31	16/03/2015	16/02/2020		AUD 4.73		60,000		—		—			(60,000	)		—		—
31a	27/04/2015	16/02/2020		AUD 4.73		20,000		—		—			—			20,000		6,667
31b	12/05/2015	16/02/2020		AUD 4.30		400,000		—		—			(200,000	)		200,000		200,000
32	10/07/2015	30/06/2022		AUD 4.22		—		4,800,000		—			(960,000	)		3,840,000		—
33	26/08/2015	16/08/2022		AUD 4.07		—		125,000		—			—			125,000		—
34	27/04/2016	6/03/2023		AUD 2.82		—		5,255,000		—			(115,000	)		5,140,000		—
34a	27/04/2016	17/04/2023		AUD 2.76		—		200,000		—			—			200,000		—
35	30/06/2016	18/01/2021		AUD 2.22		—		1,500,000		—			—			1,500,000		—
June 30, 2016						21,869,078		11,880,000		(422,903	)		(7,911,685	)		25,414,490		10,574,500
Weighted average share purchase price						AUD 5.49		AUD 3.32		AUD 0.88			AUD 5.93			AUD 4.39		AUD 5.38

(1) 30a to 30i were granted as a remuneration for the repurchase and cancellation of 2,985,000 LFSP during the year ended 30 June 2015 (see Note 17(b)).

The weighted average share price at the date of exercise of options exercised during the years ended June 30, 2018, 2017 and 2016 were AUD 1.46, AUD 3.28 and AUD 3.68 respectively.

The weighted average remaining contractual life of share options and loan funded shares outstanding as of June 30, 2018, 2017 and 2016 were 4.24 years, 4.09 years and 3.85 years, respectively.

b. Existing share-based payment arrangements

General terms and conditions attached to share based payments

Share options pursuant to the employee share option plan and shares pursuant to loan funded share plan are generally granted in three equal tranches. For issues granted prior to July 1, 2015 the length of time from grant date to expiry date was typically 5 years.  Grants since July 1, 2015, are issued with a seven year term. Vesting occurs either based on achievement of performance conditions or progressively over the life of the option/share with the first tranche vesting one year from grant date, the second tranche two years from grant date, and the third tranche three years from grant date. On cessation of employment the Company’s board of directors determines if a leaver is a bad leaver or not. If a participant is deemed a bad leaver, all rights, entitlements and interests in any unexercised options or shares (pursuant to the loan funded share plan) held by the participant will be forfeited and will lapse immediately. If a leaver is not a bad leaver they may retain vested options and shares (pursuant to the loan funded share plan), however, they must be exercised within 60 days of cessation of employment (or within a longer period if so determined by the Company’s board of directors), after which time they will lapse. Unvested options will normally be forfeited and lapse.

This policy applies to all issues shown in the above table with the exception of the following:

Series 10	Options granted to the Chairman were approved by shareholders at the Annual General Meeting held on November 30, 2010. The options were granted in four equal tranches vesting on the achievement of certain milestones, being the date on which:
	•    Mesoblast signs a commercial partnering contract, e.g. a commercial license to one of its products (vested December 7, 2010); •    Mesoblast receives IND clearance from the FDA for its first clinical trial for Intervertebral Disc Repair (vested March 17, 2011); •    Mesoblast completes patient enrollment for its first clinical trial under IND for Intervertebral Disc Repair (vested October 12, 2012); •    Mesoblast obtains a license from the Therapeutics Goods Administration (TGA) for the manufacture (vested July 20, 2010). All the remaining options under series 10 were exercised during the years ended June 30, 2015 and 2014.
25a(i&ii)	Options were granted in two equal tranches and vested on the date that the option holder had direct involvement (to the reasonable satisfaction of the Company’s board of directors) in the Company achieving certain confidential commercial objectives.
INC.	As part of the acquisition of Mesoblast, Inc., Mesoblast, Inc. options were converted to options of the Company at a conversion ratio of 63.978. The Mesoblast, Inc. option exercise price per option was adjusted using the same conversion ratio. All options vested on acquisition date (December 7, 2010), and will expire according to their original expiry dates (with the exception of options held by directors which were limited to an expiry date not exceeding four years from acquisition).
31b 35	Options were granted in two equal tranches and will vest on the date that the option holder has direct involvement (to the reasonable satisfaction of the Company’s board of directors) in the Company achieving certain confidential commercial objectives. Incentive rights granted pursuant to the Equity Facility Agreement with Kentgrove Capital, dated June 30, 2016, had fully vested on the agreement date and will expire thirty six months after the date of the issue of the incentive right.
36 (a&b)	Options were granted in two or three equal tranches and will vest on the date that the option holder has direct involvement (to the reasonable satisfaction of the Company’s board of directors) in the Company achieving certain confidential commercial objectives.
38a & 40a	Options were granted in one tranche and will vest on the date that the option holder has direct involvement (to the reasonable satisfaction of the Company’s board of directors) in the Company achieving certain confidential commercial objectives.

  39a   Options were granted in one or two equal tranches and will vest on the date that the option holder has direct involvement (to the reasonable satisfaction of the Company’s board of directors) in the Company achieving certain confidential commercial objectives.

Modifications to share-based payment arrangements

During the year ended June 30, 2015, the Company repurchased an aggregate amount of $13.9 million (AUD 17.7 million) of loans under LFSP and correspondingly cancelled 2,985,000 of the Company’s ordinary shares held in trust for certain employees of the Company. As remuneration for the repurchase of loans and cancellation of these ordinary shares under LFSP, the Company granted options to purchase 2,985,000 of the Company’s ordinary shares at exercise prices ranging from AUD 4.44 to AUD 4.98 under ESOP 30a to 30i. As of March 25, 2015 (the “modification date”), the total incremental fair value granted as a result of these modifications was $0.6 million. During the year ended June 30, 2018, as a result of a fully underwritten institutional and retail entitlement offer to existing eligible shareholders (on a 1 for 12 basis) in September 2017, the exercise price of all outstanding options at the time was reduced by A$0.02 per option subject to the ESOP plan under clause 7.3. There were no modifications made to share-based payment arrangements during the year ended June 30, 2017.

c. Fair values of share based payments

The weighted average fair value of share options granted during the years ended June 30, 2018, 2017 and 2016 were AUD 0.61, AUD 1.46 and AUD 1.07, respectively.

The fair value of all shared-based payments made has been calculated using the Black-Scholes model. This model requires the following inputs:

Share price at acceptance date

The share price used in valuation is the share price at the date at which the entity and the employee agree to a share-based payment arrangement, being when the entity and the employee have a shared understanding of the terms and conditions of the arrangement. This price is generally the volume weighted average share price for the five trading days leading up to the date.

Exercise price

The exercise price is a known value that is contained in the agreements.

Share price volatility

The model requires the Company’s share price volatility to be measured. In estimating the expected volatility of the underlying shares our objective is to approximate the expectations that would be reflected in a current market or negotiated exchange price for the option or loan funded share. Historical volatility data is considered in determining expected future volatility.

Life of the option/share

The life is generally the time period from grant date through to expiry. Certain assumptions have been made regarding “early exercise” i.e. options exercised ahead of the expiry date, with respect to option series 14 and later. These assumptions have been based on historical trends for option exercises within the Company and take into consideration exercise trends that are also evident as a result of local taxation laws.

Dividend yield

The Company has yet to pay a dividend so it has been assumed the dividend yield on the shares underlying the options will be 0%.

Risk free interest rate

This has been sourced from the Reserve Bank of Australia historical interest rate tables for government bonds.

Model inputs

The model inputs for the valuations of options approved and granted during the year ended June 30, 2018 are as follows:

Series	Financial year of grant	Exercise/Loan price per share AUD		Share price at acceptance date AUD		Expected share price volatility	Life(1)	Dividend yield	Risk-free interest rate
37	2018		2.23		2.02	52.21%	5.8 yrs	0%	2.22%
38	2018		1.54		1.37	52.04%	5.8 yrs	0%	2.41%
38a	2018		1.40		1.37	52.56%	5.8 yrs	0%	2.27%
39	2018		1.94		1.34	52.49%	5.9 yrs	0%	2.16%
39a	2018		1.76		1.34	52.49%	5.9 yrs	0%	2.16%
40	2018		1.41		1.32	52.35%	5.8 yrs	0%	2.43%
40a	2018		1.28		1.32	52.35%	5.8 yrs	0%	2.43%

(1) Expected life after factoring likely early exercise.

The closing share market price of an ordinary share of Mesoblast Limited on the ASX as of June 30, 2018 was AUD 1.48.

The model inputs for the valuations of options approved and granted during the year ended June 30, 2017 are as follows:

Series	Financial year of grant	Exercise/Loan price per share AUD		Share price at acceptance date AUD		Expected share price volatility	Life(1)	Dividend yield	Risk-free interest rate
34b	2017		2.82		1.24	51.13%	4.6 yrs	0%	2.16%
36	2017		1.33		2.32	51.63%	5.5 yrs	0%	2.15%
36a	2017		1.21		2.32	51.63%	5.5 yrs	0%	2.15%
36b	2017		1.67		2.32	51.63%	5.6 yrs	0%	2.15%

(1) Expected life after factoring likely early exercise.

The closing share market price of an ordinary share of Mesoblast Limited on the ASX as of June 30, 2017 was AUD 2.08.

The model inputs for the valuations of options approved and granted during the year ended June 30, 2016 are as follows:

Series	Financial year of grant	Exercise/Loan price per share AUD		Share price at acceptance date AUD		Expected share price volatility	Life(1)	Dividend yield	Risk-free interest rate
32	2016		4.22		3.87	40.38%	5.2 yrs	0%	2.22%
33	2016		4.07		3.19	40.38%	5.1 yrs	0%	2.00%
34	2016		2.82		2.41	53.33%	5.0 yrs	0%	2.13%
34a	2016		2.76		2.41	53.33%	5.1 yrs	0%	2.13%
35	2016		2.22		1.05	53.33%	3.0 yrs	0%	1.65%

(1) Expected life after factoring likely early exercise.

The closing share market price of an ordinary share of Mesoblast Limited on the ASX as of June 30, 2016 was AUD 1.08.