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Annual Report & Accounts 2012 - NOTES TO THE COMPANY FINANCIAL STATEMENTS
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H ANNUAL REPORT 2012 o l d i n g G~VC s 8. SHARE OPTION SCHEME (continued) 8.1 Weighted Average Exercise Price of Options The number and weighted average exercise prices of share options is as follows: Weighted Weighted average average exercise Number of exercise Number of price options price options 2012 2012 2011 2011 Outstanding at the beginning of the year 161p 3,271,257 156p 3,604,590 Granted during the year 155p 1,600,000 - - Exercised during the year 129p (123,077) 108p (333,333) Lapsed during the year 120p (1,050,000) Outstanding at the end of the year 171p 3,698,180 161p 3,271,257 Exercisable at the end of the year 1,785,679 1,427,499 The options outstanding at 31 December 2012 have a weighted average contractual life of 5.7 years (2011: 7.2 years). 8.2 Valuation of Options The fair value of services received in return for share options granted in 2012, 2010, 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 to the market price on the date of the announcement of his appointment. Fair value of share options and assumptions: Share price at Exercise Expected Fair value at date of grant* price Expected Exercise dividend Risk free measurement Date of grant (in £) (in £) volatility multiple yield rate** date 1 Mar 07 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 21 May 10 1.85 2.13 60% 2 17% 2.75% 0.39 21 May 10 1.85 0.01 60% 2 17% 2.75% 0.05 21 May 10 1.85 1.50 60% 2 17% 2.75% 0.59 28 Jan 12 1.67 1.5479 58% 2 20% 2.19% 0.33 * 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. 70 NOTES TO THE COMPANY FINANCIAL STATEMENTS continued for the year ended 31 December 2012