Notes to the Financial Statements

Notes to the Financial Statements31 December 2006 continuedPotential issues of ordinary sharesOn 12 December 2005, Zirax plc entered into an option agreement with the directors and HansonWesthouse LLP (formerly Westhouse Securities LLP), the nominated adviser pursuant to whichZirax plc granted options to Hanson Westhouse LLP to subscribe for up to 1,723,214 ordinaryshares at the placing price of 15 pence. The option may be exercised at any time during the periodof 5 years from admission to AIM provided that they may not be exercised in more than 4 tranches.The cost of Hanson Westhouse’s options have been treated as issue costs and deducted from sharepremium, with a corresponding credit to other reserves.Details of options held by directors are disclosed in note 6.18. Share-based paymentsThe Group has granted five tranches of options with a fixed exercise price equal to the placing priceof the shares at the date of admission to AIM. The options were granted to certain directors andHanson Westhouse LLP, as explained in notes 6 and 17. Options were valued using the Black-Scholes option pricing model and the charge for the year was $45,000. No performance conditionswere included in the fair value calculations. The fair value per option granted and the assumptionsused in the calculation are as follows:Share price Fair valueNumber on grant (price) onof shares date grant date FairGrant date granted (pence) (pence) value £12 December 2005 861,607 15p 4.73p 40,75412 December 2005 1,723,214 15p 4.73p 81,5082 October 2006 861,607 14.25p 2.64p 22,7772 October 2006 1,723,214 14.25p 2.64p 45,55427 December 2006 1,723,214 14p 2.48p 42,653402006 2005Range of share price at grant date 14 – 14.25p 15pExercise price 15p 15pExpected volatility 24% 44%Option life (years) 5 5Expected life (years) 2.5 2.5Risk free rate 5.2% 4.8%Dividend yield nil nilZiRAX Annual Report & Accounts 2006