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Annual Report & Accounts 2007
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The fair value of services received in return for share options granted in 2007 were measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured on a Binomial valuation model. The contractual life of the option (10 years) is used as an input into this model. Expectations of early exercise are incorporated into the Binomial model. The option exercise price for individuals who were employed at 21 December 2004 was the market price on admission to AIM of GBP 4.20 and for all other individuals the average market price on grant date. Fair value of share options and assumptions 1 March 2007 GBP 15 May 2007 GBP 13 July 2007 GBP 13 July 2007 GBP 21 August 2007 GBP 21 Sept 2007 GBP 24 Nov 2007 GBP Fair value at measurement date 0.46 0.40 0.39 0.53 0.48 0.48 0.44 Share price 1.08 1.22 1.42 1.42 1.25 1.32 1.33 Exercise price 1.00 1.29 2.98 1.60 1.29 1.35 1.38 Expected volatility 65% 50% 60% 60% 60% 55% 50% Exercise Multiple 2 2 2 2 2 2 2 Expected dividends 8% 8% 8% 8% 8% 8% 8% Risk-free interest rate (based on national government bonds) 5.02% 5.33% 5.63% 5.63% 5.07% 5.08% 4.8% The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information. There are no market conditions associated with the share option grants The fair value of services received in return for share options granted prior to 2007 were measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured on a Black-Scholes valuation model. The contractual life of the option (10 years) is used as an input into this model. Expectations of early exercise are incorporated into the Black-Scholes model. The option exercise price for individuals who were employed at 21 December 2004 was the market price on admission to AIM of GBP 4.20 and for all other individuals the average market price on grant date. Fair value of share options and assumptions 16 May 2006 23 January 2006 28 September 2005 2004 GBP GBP GBP GBP GBP GBP Fair value at measurement date 1.23 1.10 0.94 1.95 1.58 1.33 Share price 3.83 3.89 3.89 5.50 5.50 4.20 Exercise price 4.20 2.98 3.59 4.20 5.50 4.20 Expected volatility (expressed as weighted average volatility used in the modelling under Black-Scholes model) 65% 65% 65% 45% 45% 45% Option life (expressed as weighted average life used in the modelling under Black-Scholes model) 4.8 4.8 4.8 4.8 4.8 4.8 Expected dividends 8% 8% 8% 5% 5% 4% Risk-free interest rate (based on national government bonds) 4.70% 4.16% 4.16% 4.22% 4.22% 4.51% The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information. There are no market conditions associated with the share option grants. 25