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Annual Report & Accounts 2009 - Notes
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54 20.4 Weighted average exercise price of options The number and weighted average exercise prices of share options is as follows: Weighted Weighted average average Number of exercise Number of price Options price Options 2009 2009 2008 2008 GBP GBP Outstanding at the beginning of the year 1.76 2,723,359 2.03 3,009,883 Granted during the year - - 1.29 550,000 Forfeited during the year 1.35 (768,769) 2.44 (836,524) Outstanding at the end of the year 1.76 1,954,590 1.76 2,723,359 Exercisable at the end of the year 1,254,006 1,075,227 The options outstanding at 31 December 2009 have a weighted average contractual life of 7 years (2008: 8 years). 20.5 Options granted after 1 January 2007 - Binomial valuation method The fair value of services received in return for share options granted in 2008 and 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 all individuals was the average market price on grant date, or a premium thereto apart from K Alexander whose options were priced at a premium on the date of the announcement of his appointment. Fair value of share options and assumptions: Share price at date Exercise Expected Fair value at of grant* price Expected Exercise dividend Risk free measure- Date of grant (in £) (in £) volatility multiple yield rate** ment date 1 Mar 2007 1.08 1.00 65% 2 8% 5.02% 0.46 15 May 07 1.22 1.29 50% 2 8% 5.33% 0.40 13 Jul 07 1.42 2.98 60% 2 8% 5.63% 0.53 13 Jul 07 1.42 1.60 60% 2 8% 5.63% 0.53 21 Aug 07 1.25 1.29 60% 2 8% 5.07% 0.48 21 Sep 07 1.32 1.345 55% 2 8% 5.08% 0.48 27 Nov 07 1.33 1.33 50% 2 8% 4.80% 0.44 26 Feb 08 1.35 1.3816 50% 2 12% 4.53% 0.35 12 Dec 08 1.05 1.26 50% 2 12% 3.02% 0.17 * This is the bid price, not the mid-market price, at market close, as sourced from Bloomberg. **The measurement of the risk-free rate was based on rate of UK sovereign debt prevalent at each grant date over the expected term of the option. 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.