Annual Reports & Accounts 2011

9 Share-based payments

Group

	2011 USD’000	2010 USD’000
Proportionate amount of share-based charge:
– relating to free share plan	626	1,592
– relating to executive share option plan	62	92
– relating to performance share plan	751	376
	1,439	2,060

Company

	2011 USD’000	2010 USD’000
Proportionate amount of share-based charge:
– relating to free share plan	83	155
– relating to executive share option plan	62	73
– relating to performance share plan	398	215
	543	443

Free share plan

The Company awarded shares to selected Directors, key management personnel and employees under the free share plan that provides an entitlement to receive these shares at no cost. These free shares are conditional on the Directors/key management personnel/employee completing a specified period of service (the “vesting period”). The award does not have any performance conditions and does not entitle participants to dividend equivalents during the vesting period. The fair value of the share awards made under this plan is based on the share price at the date of the grant less the value of the dividends foregone during the vesting period. The details of the shares granted under this scheme are as follows:

Grant date	Number of shares	Vesting period	Fair value per share	Expected withdrawal rate
2008
10 January 2008	99,337	24 months	£ 4.00	5%
7 April 2008	25,301	24 months	£ 3.96	5%
27 April 2008	123,620	18 months	£ 4.28	5%
20 May 2008	70,000	36 months	£ 5.08	5%
	318,258
2009
22 January 2009	600,000	24 months	£ 0.89	5%
15 April 2009	763,052	18 months	£ 0.94	5%
	1,363,052
2010
21 March 2010	299,000	18 months	£ 2.49	5%

A charge of USD 626,000 (2010: USD 1,592,000) is recognised in the consolidated income statement for the year with a corresponding credit to the consolidated retained earnings. This includes a charge recognised in the income statement of the Company with a corresponding credit to retained earnings of USD 83,000 (2010: USD 155,000).

The Group has no legal or constructive obligation to settle the free share awards in cash.

An analysis of the number of shares gifted/granted, vested during the year and expected to vest in future periods is provided below:

	Number of shares
Shares expected to vest in future periods at 1 January 2010	1,517,148
Shares gifted under free share plan	299,000
Shares vested and issued out of treasury shares (Note 27)	(781,574	)
Shares lapsed during the year due to non-satisfaction of vesting conditions	(92,574	)
Shares expected to vest in future periods at 31 December 2010	942,000
Shares adjustment for rights issue	26,716
Shares vested and issued out of treasury shares	(963,716	)
Shares lapsed during the year due to non-satisfaction of vesting conditions	(5,000	)
Shares expected to vest in future periods at 31 December 2011	–

Executive share option plan

Share options are granted by the Company to certain employees under the executive share option plan. This option plan does not entitle the employees to dividends. These options are conditional on the employee completing three years of service (the vesting period) and hence the options are exercisable starting three years from the grant date and have a contracted option term of 10 years. The Group has no legal or constructive obligation to repurchase or settle the options in cash.

The movement in the number of share options outstanding and their related weighted average exercise price is as follows:

	Exercise price in £ per share	Options		Vesting date	Expiry date
At 1 January 2009	3.22	105,369		16 May 2010	16 May 2017
Granted in 2009	0.57	550,000		31 March 2012	31 March 2019
Forfeited in 2009	3.22	(19,585	)
At 31 December 2009 and 2010	0.93	635,784
Vested and exercised	3.22	(35,253	)
Vested but not exercised	3.22	(50,531	)
At 31 December 2011	0.57	550,000

The weighted average fair value of options granted during 2009 determined using a binomial valuation model was £0.28 per option. The significant inputs into the model were an average share price for a period of one year immediately preceding the grant date of £2.91, an exercise price of £0.57, volatility of 50%, dividend yield of 3.31%, an expected option term of 10 years, an annual risk-free interest rate of 3.28% and a withdrawal rate of 5% per annum. The risk-free rate is derived from the yield on United Kingdom (UK) Government Bonds as detailed by the Bank of England, using a 10 year maturity in line with the life of the option. The volatility assumption is based on an analysis of the historic daily share price volatility of the Company since its listing date, capped at 50%. A charge of USD 62,000 (2010: USD 92,000) is recognised in the consolidated income statement for the year with a corresponding credit to the consolidated retained earnings. This includes a charge recognised in the income statement of the Company with a corresponding credit to retained earnings of USD 62,000 (2010: USD 73,000).

Performance share plan

The Company granted share awards to Directors, key management personnel and selected employees that give them an entitlement to receive a certain number of shares subject to the satisfaction of a performance target and continued employment. The performance target related to the growth in the Group’s earnings per share. The fair value of the share awards made under this plan is based on the share price at the date of the grant less the value of the dividends foregone during the vesting period. The details of the shares granted under this scheme are as follows:

Grant date	Number of shares	Vesting period	Fair value per share	Dividend entitlement	Expected withdrawal rate
2010
15 April 2010	502,572	36 months	£2.57	No	5%
2011
2 September 2011	339,448	36 months	£2.97	Yes	–
8 December 2011	38,512	36 months	£2.81	Yes	–
	377,960

Accordingly, a charge of USD 751,000 (2010: USD 376,000) is recognised in the consolidated income statement for the year with a corresponding credit to the consolidated retained earnings. This includes a charge recognised in the income statement of the Company with a corresponding credit to retained earnings of USD 398,000 (2010: USD 215,000).

The Group has no legal or constructive obligation to settle the free share awards in cash.

As part of the acquisition of MIS (Note 35), the Company extended a cash cancellation offer of NOK 38 per share to the option holders of MIS. The offer was accepted by all the option holders and was settled by the Company for a total value of USD 5.4m. The fair value of the vested options as at the acquisition date amounting to USD 3.5m was considered as part of the purchase consideration (Note 35) and the fair value of the unvested options as at the acquisition date amounting to USD 1.9m was considered as an expense in the post-combination financial statements.